1970 (11) TMI 19 - HC - Income Tax

Whether the managing agency remuneration was the income of B. N. Bhaskar earned in his individual capacity or the income of the Hindu undivided family of which he was the karta

Summary

Issues:
1. Determination of whether managing agency remuneration was the individual income of B. N. Bhaskar or the income of the Hindu undivided family.

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the nature of managing agency remuneration received by B. N. Bhaskar, the karta of a Hindu undivided family. The key question was whether the remuneration should be assessed as the individual income of B. N. Bhaskar or as the income of the Hindu undivided family. The case involved the history of a managing agency business run by M/s. Bhaskar Brothers, initially formed with multiple partners but later solely owned by B. N. Bhaskar. The Tribunal had to determine the character of the remuneration received by the managing agency concern during the relevant accounting year.

The first contention raised by the revenue was that the managing agency firm was an asset of the Hindu undivided family due to its formation when the concerns belonged to the family. However, the court noted that the partnership deed and past assessments were not available to establish this claim. The court found no evidence to support that the managing agency firm was an asset of the Hindu undivided family, especially considering one of the partners was a stranger.

The second contention was that the appointment of M/s. Bhaskar Brothers as managing agents was linked to the family's investment in the company. The court refuted this argument, highlighting the insignificant investment made by the family in the company and the lack of a direct connection between the investment and the appointment. The court emphasized that the appointment could have been due to the partners' experience in the business rather than the family's investment.

The final contention was regarding the nature of remuneration received by managing agency firms compared to directors or managing partners. The court clarified that the determination of individual income versus family income depends on the tests laid down by the Supreme Court. Applying these tests, the court held that the managing agency remuneration was the individual income of B. N. Bhaskar and not the income of the Hindu undivided family. The judgment aligned with the principle that income earned as compensation for services rendered by an individual should be assessed as the individual's income.

In conclusion, the court answered the reference in favor of the assessee, ruling that the managing agency remuneration was the individual income of B. N. Bhaskar. The judgment provided a detailed analysis based on legal principles and factual circumstances, ultimately clarifying the nature of the income in question and resolving the issue raised in the reference.