1985 (2) TMI 108 - AT - Income Tax

Summary

Issues:
- Whether the claim of deduction of salary and bonus to the Karta by HUF for managing its business is admissible.
- Whether the Karta of an HUF can be remunerated for carrying on family business.
- Whether there was a valid agreement for payment of remuneration to the Karta.

Analysis:
1. The dispute in this case revolves around the admissibility of a deduction claimed by the HUF for salary and bonus paid to the Karta for managing its business activities. The Revenue disallowed the claim on the grounds that the Karta, being the sole coparcener along with his wife in the HUF, could not employ himself and claim salary in his individual capacity. Consequently, the amount was added back to the income.

2. The AAC confirmed the disallowance, leading to an appeal to the Tribunal. The Tribunal, in a previous order, directed a fresh adjudication by the AAC. In the subsequent order, the AAC found that there was a valid agreement among the family members for payment of salary to the Karta for his services. Relying on precedents, the AAC upheld the deduction claim.

3. The Revenue challenged the AAC's decision before the Tribunal, arguing that the Karta, as the sole coparcener, should not be entitled to remuneration for managing the family business. They contended that there was no valid agreement for such payment. The Departmental Representative cited the Supreme Court's principles on such matters.

4. The Tribunal considered the Supreme Court's stance on remuneration to the Karta of an HUF for managing family business. It emphasized that if there is a valid agreement for payment, such remuneration can be deductible under the relevant tax provisions. The Tribunal noted that the Karta's wife, being a member of the family, could enter into an agreement for remuneration with the Karta on behalf of the family.

5. The Tribunal highlighted past judgments supporting the deduction of remuneration paid to the Karta for services rendered to the family business. It rejected the Revenue's arguments against the validity of the agreement and the quantum of remuneration. The Tribunal upheld the AAC's decision to allow the deduction claim, emphasizing the genuine nature of the payment and the services rendered by the Karta.

6. In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the validity of the deduction claimed by the HUF for the salary and bonus paid to the Karta for managing its business. The Tribunal's decision was based on the presence of a valid agreement among the family members and the consistent application of legal principles regarding remuneration to the Karta of an HUF for carrying on family business.