1984 (11) TMI 141 - AT - Income Tax

Summary

Issues:
Disallowance of remuneration paid to Kartas by HUFs for services rendered in looking after family business interest in firms.

Analysis:
The appeals by separate HUFs were consolidated and disposed of together due to common issues and grounds of appeal arising from separate orders by the AAC. The AAC upheld the disallowance of Rs. 6000 each made by the ITO to the Kartas for services rendered in looking after the family business interest. The HUFs debited their accounts and credited the amount to the Kartas, claiming deduction from total income. The ITO disallowed the amount based on a Tribunal decision stating no liability existed for the HUF to pay the Kartas for looking after family interests in the firm.

On appeal, the AAC held that the Kartas were expected to perform normal functions as virtual custodians of family interests in the firm, with no proof of additional services rendered. Relying on the Tribunal's decision, the AAC upheld the disallowance, stating no justification for the salary paid to the Kartas.

The counsel for the assessee argued that the remuneration was for looking after family business interests and should be deductible under section 37(1) as a business expense. Citing legal precedents, including Supreme Court and High Court decisions, the counsel contended that the remuneration paid to Kartas for managing family business was allowable as a deduction.

After considering the arguments, the Tribunal noted that the Kartas managed both family money lending business and partnership businesses. Referring to legal precedents, the Tribunal held that the remuneration paid to Kartas was deductible as a matter of commercial expediency. The Tribunal observed that although there was no written agreement, ledger evidence indicated an implicit agreement for payment. Citing various High Court and Tribunal decisions, the Tribunal concluded that the remuneration paid to Kartas for managing family business interests was reasonable and allowable as a deduction.

Consequently, the Tribunal allowed the appeals, reversing the decisions of the authorities and directing the ITO to allow the remuneration paid to Kartas as a deduction from the total income of the respective HUFs for the assessment year 1979-80.