1973 (3) TMI 20 - HC - Income Tax

Assessee, was a director and the general manger of a company - funds of the family are invested in a company - whether the remuneration received as general manager by the karta would be his individual income or that of the family

Summary

Issues Involved:
1. Whether the remuneration received by the assessee as a general manager is assessable as the income of the Hindu undivided family (HUF).
2. The relationship between the assessee's role and the family-owned shares.
3. The applicability of precedents set by the Supreme Court in similar cases.

Detailed Analysis:

1. Assessability of Remuneration as HUF Income:
The primary issue is whether the sum of Rs. 26,048 received by the assessee as general manager's remuneration should be assessed as the income of the Hindu undivided family (HUF) of which he is the karta. The Income-tax Officer, Appellate Assistant Commissioner of Income-tax, and the Income-tax Appellate Tribunal all held that the remuneration was the income of the HUF. The court examined whether the remuneration was earned due to the assessee's personal services or due to the investment of the HUF's funds.

2. Relationship Between Role and Family-Owned Shares:
The facts reveal that the shares qualifying the assessee to become a director were purchased with HUF funds. The court noted that any income earned by him as a director would belong to the HUF. The assessee argued that the salary was for his role as general manager, not as a director, but the Tribunal rejected this contention. The court emphasized that the shares and the subsequent roles were all tied to the HUF's investments.

3. Applicability of Supreme Court Precedents:
The court referred to several Supreme Court cases to determine the nature of the income:

- Commissioner of Income-tax v. Kalu Babu Lal Chand: The Supreme Court held that the managing director's remuneration was the income of the HUF since the shares were acquired with HUF funds.

- V. D. Dhanwatey v. Commissioner of Income-tax: The court held that the remuneration received by a karta as a partner was HUF income because the capital contribution belonged to the HUF.

- P. N. Krishna Iyer v. Commissioner of Income-tax: The Supreme Court ruled that income earned by utilizing joint family assets, even if personal service was involved, retained its character as HUF income.

The court applied these principles to the present case, noting that the entire shareholding was in lieu of HUF assets. The assessee's appointment as a director and general manager was due to the HUF's investment, not personal qualifications. The court found no evidence of a contract of service or specific personal services rendered by the assessee.

Conclusion:
The court concluded that the remuneration received by the assessee was essentially an increased share of the company's income paid to him as representing the HUF. Even if some personal service was involved, it did not alter the character of the income. The court answered the question in the affirmative, ruling in favor of the department and against the assessee, and awarded costs of Rs. 200 to the department.

Question answered in the affirmative.