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TMI Blog1984 (11) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... of family funds. The ITO held that the salary paid was, therefore, directly related to investment of family funds. He further went on to hold that but for such investment, Shri Srinivasan would not have got the remuneration. The ITO also observed that the fact that Shri Srinivasan had rendered some service, would not change the character of the receipt unless he possessed special qualifications and the services rendered were of a special nature. Except for the fact that service was rendered to the firm, the ITO stated, there was no evidence that Shri Srinivasan possessed any special qualification or that the service rendered by him was of a specialised nature. He, therefore, negatived the claim of the assessee. 3. In appeal, the AAC, after referring to the decision of the Supreme Court in CIT v. Gurunath V. Dhakappa [1969] 72 ITR 192 and Raj Kumar Singh Hukam Chandji v. CIT [1970] 78 ITR 33 held that the salary amounts had to be excluded from the relevant assessments. In coming to this conclusion, the AAC observed that Shri Srinivasan was fully engaged in the day-to-day management of the business of the firm which was running a chit fund. He also categorically found that Shri Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the decision of the Supreme Court in V.D. Dhanwatey v. CIT [1968] 68 ITR 365 and the later case of M.D. Dhanwatey v. CIT [1968] 68 ITR 385. It is, therefore, not necessary for us to discuss the effect of these cases separately. The Court also considered the contention based on the decision of the Supreme Court in the case of R.M. Chidambaram Pillai. In this regard, the Court observed : " It only remains to consider the decision of the Supreme Court in R.M. Chidambaram Pillai's case relied on by the revenue. In that case, the controversy centred round the question whether the sums drawn as salaries by partners were wholly liable to income-tax or only to the extent of 40 per cent thereof, which fell within the non-agricultural income. In considering this question, the Supreme Court held that though paid as salary, such payment was treated as profits and enjoyed the same invulnerability to exigibility that rule 24 of the Indian Income-tax Rules, 1922, confers on the agrarian portion. In our view, this decision of the Supreme Court does not in any manner assist in advancing the case of the revenue. Besides, as the question relating to the applicability of section 67(1)(b) has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , commission or other remuneration paid to any partner in respect of the previous year, and, where the firm is a registered firm or an unregistered firm assessed as a registered firm under clause (b) of section 183, the income-tax, if any, payable by it in respect of the total income of the previous year, shall be deducted from the total income of the firm and the balance ascertained and apportioned among the partners ; (b) where the amount apportioned to the partner under clause (a) is a profit, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be added to that amount, and the result shall be treated as the partner's share in the income of the firm ;" Apparently, the stand of the revenue is that whatever is apportioned under section 67(1)(b), would be sacrosanct being the partner's share in the firm's income and would have to be assessed in toto in the hands of one assessee and, therefore, there is no scope for excluding the salary income and assessing the same in the hands of any different entity. The fact that whatever is apportioned under section 67(1)(b), is not straightaway appertionable in toto, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would be assessable as income in the hands of the Hindu undivided family. . . ." Again in the case of Ram Luxman Sugar Mills v. CIT [1967] 66 ITR 613, the Supreme Court observed as under : ". . . A Hindu undivided family is undoubtedly a 'person' within the meaning of the Indian Income-tax Act. It is, however, not a juristic person for all purposes, and cannot enter into an agreement of partnership with either another undivided family or individual. It is open to the manager of a joint Hindu family as representing the family to agree to become a partner with another person. The partnership agreement in that case is between the manager and the other person, and by the partnership agreement no member of the family except the manager acquires a right or interest in the partnership. The junior members of the family may make a claim against the manager for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be liable as partners. " It is in the light of ratio of these and other decisions that the Gujarat High Court in CIT v. Sajjanraj Divanchand [1980] 126 ITR 654 has summed up the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent, the share of profit, which falls to the individual, would have to be assessed in the hands of the HUF. But if the individual got a share of profit which is relatable to something other than the capital given by the HUF and is independent of it, then the members of the HUF can have no claim to such additional share of profit, because such additional share of profit will not be the income of the HUF. As to what share of profit would have to be assessed in the hands of a HUF and what share of profit will not fall to be assessed in the hands of a HUF is a question which will have to be decided on the facts of each case, with reference to the pronouncements of the Supreme Court and the Madras High Court. In the case of Raj Kumar Singh Hukam Chandji, the Supreme Court has set out the facts of various cases. One of the cases is CIT v. D.C. Shah [1969] 73 ITR 692 (SC), where the final conclusion of the Court was that the remuneration paid by the firm to a HUF, of which Shah was the karta, was the individual income of Shah and was not assessable as income of the HUF. Therefore, where one of the individual coparceners represents the HUF, it has to be decided what share of profit rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family . . . ." We have set out the facts in the present case and the categorical finding by the AAC, which remains uncontroverted, is that Shri Srinivasan was fully engaged in the day-to-day management of the business, that he attended office everyday, devoted his time to chit collection and canvassing and is experienced in the line of business. He was looking after the business, whereas the other partners of the firm were away in Madras. Shri Srinivasan, thus, devoted his whole time to the business and it is clear, therefore, that the amount paid as remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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