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TMI Blog1972 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... is a Hindu undivided family whose manager was Shri Hiralal Maganlal, who is now reported to be dead. The assessment years with which we are concerned are 1959-60 (ending on March 31, 1959), 1960-61 (ending on March 31, 1960) and 1961-62 (ending on March 31, 1961). The family held 50,000 ordinary shares out of 2,00,000 shares in a company called Rajputana Mining Agencies Pvt. Ltd. (which will hereinafter be referred to as " the agency company " ). During the year ending on March 31, 1961, 1,000 shares were transferred to Shri Hiralal M. Parikh. Similarly, the family held 9,053 shares in another company known as Associated Stone Industries (Kotah) Ltd. (to be hereinafter referred to as " the A.S.I. "). The total issued shares of this company were 1,85,000. During the year ending on March 31, 1961, the assessee-family came to hold 2,640 ordinary shares as a result of partial partition among some of its members. Shri Hiralal also held in his individual capacity 2,353 shares during that year. He was a director of the agency company and was also an ex-officio director of the A.S.I. It may be relevant to state here that, under article 95 of the articles of association of the agency compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the objects of the company. 125. Managing agents to do general work.- Notwithstanding anything contained in these articles, the managing agents are expressly allowed generally to work for and contract with the company and also to do any other work for the company upon such terms and conditions and for such remuneration as may from time to time be agreed upon between them and the directors of the company. " On October 28, 1948, a resolution was passed by the board of directors of the A.S.I. that Shri Hiralal M. Parikh, one of the directors of the company, who is called upon to perform extra duties is entitled to special remuneration for the services rendered by him as provided under article 115 (which now corresponds to article 112). It was further resolved that looking to the efforts made and hard work put in by Mr. Hiralal since the incorporation of the company, he may be paid a sum of Rs. 15,000 as a special remuneration out of the funds of the company up to Septem- ber 30, 1947, and from October 1, 1947, he may be paid a sum of Rs. 700 as special remuneration for rendering extra services. This remuneration was increased to Rs. 1,000 per month under a subsequent resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company should be within the remuneration payable to the managing agents. Thereafter, on July 25, 1960, the agency company passed a resolution voting a salary of Rs. 1,560 per month to Shri Hiralal M. Parikh as the managing director of the company under article 99 of the articles of association of the agency company. During the assessment years 1959-60 and 1960-61, Shri Hiralal received Rs. 24,000 as remuneration from the A.S.I. and during the year 1961-62 Rs. 4,484 were paid as remuneration from the A.S.I. and Rs. 11,326 were paid by the agency company. The remuneration received by Shri Parikh for all the years prior to the assessment year 1959-60 were assessed as his individual income. However, for the assessment years 1959-60, 1960-61 and 1961-62, the Income-tax Officer concerned assessed this income in the hands of M/s. Hiralal and Parikh, Ramganj Mandi (Hindu undivided family). He was of the opinion that the remuneration received by Shri Parikh was as a result of the major portion of shares held by the Hindu undivided family in the agency company as well as in the A.S.I. In coming to this conclusion the Income-tax Officer relied upon Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered in a number of later decisions of the Supreme Court in which it has been observed that the principle laid down in Kalu Babu Lal Chand's case is no more valid. In support of his contention the learned counsel has relied on Palaniappa Chettiar v. Income-tax Commissioner, Commissioner of Income-tax v. Gurunath V. Dhakappa, Commissioner of Income-tax v. D.C. Shah , Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax, Prem Nath v. Commissioner of Income-tax, V. C. Rajarathnam v. Commissioner of Income-tax, and Commissioner of Income-tax v. B.N. Bhaskar. On the other hand it has been urged on behalf of the revenue that the Tribunal has come to a clear finding that Shri H. M. Parikh was attending only to the ordinary day-to-day affairs of the A.S.I. which the managing agents,. namely, the agency company, were bound to do and that it has not been shown that Shri Parikh had rendered any specific service which is referable to his personal qualification. In these circumstances it is urged that Shri Parikh's appointment in the A.S.I. as a director has rightly been held by the Tribunal to be traceable only to the interest of the family in the managing agency and the answer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not justify the withdrawals. It was also held in that case that the right to draw the allowance was made possible by the use of the family funds. In Rajkumar Singh Hukam Chandji's case all the previous judgments of the Supreme Court bearing on the point including Mathura Prasad's case have been discussed, and their Lordships were pleased to observe : " At first sight there appears to be conflict between the two lines of decisions, namely, Kalu Babu's case , Mathura Prasad's case , the two Dhanwatey's cases (V. D. Dhanzvatey and M. D. Dhanwatey ) and Krishna Iyer's case and Palaniappa Chettiar's case, Dhakappa's case and D.C. Shah's case on the other. The line that demarcates these two lines of decisions is not very distinct, but on a closer examination that line can be located. In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babu's case makes reference to the observations of Lord Sumner in Gokul Chand's case that 'in considering whether gains are partible, there is no valid distinction bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. He was also holding his individual shares in the A.S.I. In these circumstances, it would not be correct to say that the remuneration received by Shri Hiralal was, in substance, one of the modes of return made to the family because of the investment of the family funds in the business. On the other hand the correct conclusion would be that it was a compensation made for the services rendered by Shri Hiralal. Learned counsel for the revenue has made much capital out of the observation made by the Government of India in their letter dated March 12, 1960 (annexure "G"), to the following effect : " The remuneration of Rs. 1,000 per month being paid or payable to the director-in-charge of your managing agency company for acting as the whole-time director of your company should be met out of the remuneration payable to the managing agents ; when the company has a managing agent, the Central Government see no justification for the appointment of a whole time director to be remunerated separately by the company. " This passage only means that the remuneration of the director-in- charge of the managing agency company shall not be paid by A.S.I. This, however, does not change the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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