1968 (2) TMI 6 - HC - Income Tax

Salary and allowances - whether constitutes individual income - or taxable in the hands of the assessee HUF

Summary

Issues:
1. Taxability of salary and allowances received by B. N. Talwar under an agreement with Allied Motors Private Ltd. in the hands of the Hindu undivided family.

The High Court of Allahabad was asked to determine whether the salary and allowances received by B. N. Talwar for the assessment years 1958-59, 1959-60, and 1960-61, totaling Rs. 38,918, Rs. 35,184, and Rs. 38,300 respectively, under an agreement with Allied Motors Private Ltd. should be assessed in the hands of the Hindu undivided family consisting of B. N. Talwar and his sons. The case involved the establishment of whether the remuneration was earned by detriment to the Hindu undivided family estate or without any aid or assistance from the family property.

The court examined the history of the family's business, starting with the father's settlement of assets among his sons and their subsequent partnership in the automobile business. B. N. Talwar later acquired shares in Allied Motors Ltd. and entered into an agreement with the company in 1955, appointing him as deputy chairman with specific remuneration terms. The court considered the connection between the family's investment in the company and B. N. Talwar's appointment, emphasizing the absence of a requirement for shareholding for directorship when he was initially appointed. The subsequent amendment requiring shareholding for directors was found not to impact the initial appointment based on personal qualifications.

The court relied on established principles of Hindu law regarding the taxation of remuneration received by a karta or coparcener of a Hindu undivided family in connection with their position in a company. It distinguished cases where remuneration was linked to family funds invested in the company versus cases where the appointment was based on personal qualifications. In this case, the court found that the salary and allowances received by B. N. Talwar were not earned to the detriment of the family estate, as there was no real connection between the family's investment in the company and B. N. Talwar's appointment or remuneration.

Consequently, the court held that the salary and allowances received by B. N. Talwar under the agreement with Allied Motors Private Ltd. constituted his individual income and could not be taxed in the hands of the Hindu undivided family. The court answered the question referred by the Tribunal in the negative, ruling in favor of the assessee. The assessee was awarded costs and counsel fees as assessed by the court.