1985 (2) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Whether the salary of Rs. 1,512 received by Shri C.D. Chidambaram for services rendered to the firm of C. Duraisamy Nadar and A. Somasundara Nadar, where he was a partner representing his HUF, is includible in the assessment of his HUF.

Issue-wise Detailed Analysis:

1. Department's Appeal:
The department appealed against the order of the AAC, which held that the salary of Rs. 1,512 received by Shri C.D. Chidambaram, the karta of the HUF, for services rendered to the partnership firm, was not includible in the total income of the assessee-HUF. The department contended that this salary was another mode of division of profit belonging to the HUF and should be included in computing the HUF's income.

2. Tribunal's Consideration:
The Tribunal considered the facts and contentions of both parties. The Tribunal noted that the order relied upon by the departmental representative was distinguishable as it dealt with the HUF's claim for deduction of salary payment to its karta, not whether the salary received by the karta for personal services rendered to the firm was the income of the HUF or his personal income.

3. Judicial Member's Opinion:
The Judicial Member observed that the partnership deed indicated that the salary payments to Shri C.D. Chidambaram and another partner were for personal services rendered to the firm and did not represent a share of profit. The salary earned by Shri C.D. Chidambaram was for personal services and was his due, not earned by any detriment to the family property. Therefore, the salary was chargeable as his individual income, not the HUF's income.

4. Accountant Member's Dissent:
The Accountant Member disagreed, stating that the share of profit determined in the firm's hands was assessable in the HUF's hands per sections 40(b) and 67(1)(b) of the Income-tax Act, 1961. The salary paid to the karta could not be excluded unless there was an agreement allowing remuneration for services rendered to the HUF. The Accountant Member argued that the salary paid to a partner should be regarded as a special share of profits and taxed as such, citing the Supreme Court's decision in CIT v. R.M. Chidambaram Pillai.

5. Third Member's Decision:
The Third Member was referred to resolve the difference of opinion. The Third Member noted that the Supreme Court in Raj Kumar Singh Hukam Chandji's case held that remuneration received by a coparcener should be assessed based on whether it was a return on family investment or compensation for personal services. The Third Member found no direct nexus between the salary received by Shri C.D. Chidambaram and the investment of HUF funds. The salary was for personal services rendered, not to the detriment of family funds, and thus not includible in the HUF's income.

6. Conclusion:
The Third Member agreed with the Judicial Member that the salary of Rs. 1,512 received by Shri C.D. Chidambaram was not includible in the income of the assessee-HUF. The case was referred back to the regular Bench for disposal according to the majority opinion.