1966 (5) TMI 7 - HC - Income Tax

Managing director s remuneration - remuneration was assessable as part of income of HUF and not in his individual hands

Summary

Issues Involved:
1. Assessability of managing director's remuneration.
2. Determination of individual income versus Hindu undivided family (HUF) income.
3. Link between shareholding and managing directorship.
4. Previous tax assessments and their relevance.
5. Application of legal precedents and principles.

Issue-wise Detailed Analysis:

1. Assessability of Managing Director's Remuneration:
The central question was whether the remuneration received by Rajkumar Singh as a managing director was assessable in his individual hands or in the hands of the Hindu undivided family (HUF). The court considered the facts that the managing directors were appointed by a resolution of the board of directors and were subject to removal by the directors at any time. The remuneration received by Rajkumar Singh was for personal services rendered as a managing director, and there was no evidence to show that his appointment was on behalf of the family or that the income was earned by utilizing the joint family property.

2. Determination of Individual Income versus HUF Income:
The Tribunal initially held that the remuneration was the individual income of Rajkumar Singh, citing that the managing director holds office by virtue of the resolution of the board of directors and receives salary for personal services. The court, however, found that the remuneration should be treated as income of the HUF. The court reasoned that the floatation of the new company, the acquisition of managing agencies, businesses, factories, and properties from the bigger undivided family, and the appointment of managing directors were inseparably linked together. Rajkumar Singh's appointment was not solely due to his personal ability but also his overall position in the bigger family.

3. Link Between Shareholding and Managing Directorship:
The court noted that the holding of shares was a qualification for being a director, but Rajkumar Singh was appointed as a managing director due to his overall position in the family and not merely because he held the qualifying shares. The court emphasized that the managing directorship and the shares were part of one scheme linked to the disruption of the bigger family and the formation of the new company.

4. Previous Tax Assessments and Their Relevance:
The Tribunal had considered the fact that in previous years, the remuneration was treated as Rajkumar Singh's individual income. However, the court held that past assessments were not conclusive and emphasized that Rajkumar Singh himself had treated the remuneration as income of the HUF in the family's books.

5. Application of Legal Precedents and Principles:
The court discussed several precedents, including Commissioner of Income-tax v. L. Armstrong Smith, Commissioner of Income-tax v. Kalu Babu Lal Chand, and Piyare Lal Adishwar Lal v. Commissioner of Income-tax. The court found that the principles laid down in Commissioner of Income-tax v. Kalu Babu Lal Chand were applicable, as the managing directorship and the shares were part of one scheme linked to the disruption of the bigger family and the formation of the new company. The court distinguished the facts of the present case from those in the cited precedents, emphasizing that each case must turn upon its own facts.

Conclusion:
The court concluded that the remuneration received by Rajkumar Singh as managing director was assessable as income of the Hindu undivided family of which he was the karta. The court directed that the assessee shall pay the costs of the reference to the department, with a hearing fee of Rs. 150.