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TMI Blog1965 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... a director in a number of these companies and the sitting fees received by him as a director increased from Rs. 12 in the year 1932-33 to Rs. 8,708 in the assessment year 1960-61. On May 16, 1957, in relation to the assessment year for 1957-58, the assessee wrote to the Fifth Additional Income-tax Officer, Coimbatore, starting : " Until the year ended 31st March, 1956, I was describing my status as 'individual' assessee. I hereby declare that from 31st March, 1956, I have changed the status into a ' joint Hindu family ' consisting of myself and my sons. All the properties both movable and immovable belong to the said joint family consisting of myself, my sons, T. R. Natanasabapathy, aged about 34, T.R. Dorairaj, aged about 23, and T.R. Thiagaraj, aged about 17. I am the head and manager of this joint family. My wife, Srimathi Rajeswari, my married daughter Srimathi Saraswathi, and my daughter, Kumari Devikarani, aged about 15, are residing with the said joint family. " He also addressed the officer another letter dated August 10, 1957, in which, inter alia, he stated : " In connection with the above, I wish to give you the following additional particulars. The ancestral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual. In every one of the companies, in order to qualify for directorship, a certain qualification shares are a pre-requisite. As far as the Tribunal was able to see, there was no company in which he was a director which did not insist upon director's qualification shares as a condition for becoming a director. From May 16, 1957, he changed his status into a joint Hindu family consisting of himself and his sons, and all his properties, both movables and immovables, including all the shares, belonged from that date to the said joint family of which he was the karta. If the assessee was a director by virtue of holding shares, the Tribunal observed, it could only be as karta of the Hindu undivided family. As a matter of fact, he returned the income from the sitting fees, of Rs. 8,133-8-4 in the assessment year 1957-58 as belonging to the Hindu undivided family. He thus impressed all the assets with the character of Hindu undivided family and reserved nothing for himself as an individual. No proof was offered that the assessee was appointed as a director irrespective of holding of shares in the company. On these facts found by it, the Tribunal was of the opinion : " Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it. As regards the first contention, it is true the assessee's declarations stated nothing about the vesting of income or throwing the office of the director in the several companies into the hotchpot. Learned counsel for the assessee is right in his submission that the sitting fees pertain to the office of director. There is no doubt that the sitting fees may and can be blended with the assets of the joint Hindu family but, for such blending, the fee must exist : Murugappa Chetty Sons v. Commissioner of Income-tax ; Mallesappa v. Mallappa. It is therefore stated that as the sitting fees accrue to the assessee from time to time every year, what did not exist on the dates of his declarations cannot be regarded as blended with the joint family funds or assets. But the case for the revenue is not rested on the doctrine of blending. No one has said that as and when the sitting fees are received by the assessee, he has blended them with the joint family assets and so they are chargeable to tax as income of the family. Nor does the revenue say that the office of the director itself was thrown into the hotchpot by the assessee and, therefore, the income from the sitting fees belongs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is one of fact depending on whether the karta acquired the shares on behalf of and for the benefit of the family by utilising or not the funds belonging to such family. The assessee cannot, therefore, succeed by merely contending that the directorship in a company is office and sitting fees pertain to it, the liability in regard to the same being a contractual one. We find, therefore, no force or substance in the first contention of the assessee. In relation to the second contention of the assessee what is stated is that the acquisition by him of the qualification shares and his becoming a director by reason of such holding was not with joint family funds and, therefore, was not to the detriment of the family. Subsequent transfer of the shares, since their acquisition, to the Hindu undivided family, according to the assessee, does not entitle the family to lay claim to the sitting fees earned by him as a director. It is stated that the sitting fees were not earned by the assessee by utilising the joint family property or utilising it to its detriment. Learned counsel for the assessee stresses that "detriment" in the context should be in relation to acquisition and not with refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecame the managing director and the remuneration received by him was credited in the books of the family. The office of the managing director under the articles of association was assignable. The Supreme Court held that the remuneration so received by the managing director as between him and his Hindu undivided family was the income of the family and should be assessed in his hands. In reaching that conclusion the Supreme Court dissented from Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer, and did not accept the view that the mere fact that the assessee had a particular quantity of shares as manager of a joint family did not ipso facto enable him to function as the managing director, that his personal qualifications were mainly responsible, in addition to the holding of shares, for his selection and appointment as the managing director of the bank and that the remuneration was really quid pro quo for the work which he did under the contract of service with the bank. Das C.J. who spoke for the Supreme Court, after stating that a question relating to the character of the remuneration would only arise as between the karta and the members of his family and not between the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easurership which earned the salary unlike this case in which holding a stated number of shares is a pre-requisite and provides the very qualification for directorship so that the assessee can. only hold the directorship so long as he holds the qualifying shares which belong to the family. Commissioner of Income-tax v. S. RM. CT. PL. Palaniappa Chettiar , decided by a Division Bench of this court, related to sitting fees received by a managing director of a company. No special qualification was prescribed by the articles of association for a director except the holding of not less than 25 shares. The managing director, who was the karta of a joint Hindu family, included the sitting fees received by him in his individual return. This court held : "The true view is that the manager of a joint family cannot gain a pecuniary advantage by utilising the family assets or funds, and claim that advantage as his own separate property, merely on the ground that in the process of gaining that advantage an element of personal service or skill or labour is involved. The character of the income has to be determined, taking into account the basic foundation from which it emanates and in all case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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