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TMI Blog1973 (3) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by his family from dividends on shares held in the company. This claim of the assessee was rejected by the Income-tax Officer holding that the entire income was to be assessed in the hands of the Hindu undivided family. His appeals to the Appellate Assistant Commissioner of Income-tax and to the Income-tax Appellate Tribunal failed. At his request the Income-tax Appellate Tribunal has referred the following question for our opinion: "Whether the sum of Rs. 26,048 received by the assessee as general manager's remuneration is assessable as the income of the Hindu undivided family of which Sri Bimal Kumar Jain is the karta? " The facts as appearing from the statement of the case and from the appellate order of the Tribunal are these. Formerly, there was a joint family of the name and style of M/s. Motilal Chhadami Lal, which owned a business styled Jain Glass Works. The assessee and his father were the two coparceners of the family. There was a partial partition in the family from the beginning of the assessment year 1955-56, when the business of the family was converted into a partnership firm in which the assessee and his father were the partners. On May 3, 1960, the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income derived by the assessee by way of remuneration from the company was the income of the Hindu undivided family. Admittedly, the shares which qualified the assessee to become a director of the company were purchased with the funds of the joint Hindu family and, as such, any income earned by him in his capacity as the director of the company would belong to the Hindu undivided family. But it is argued that the salary received by the assessee from the company was by virtue of his holding the post of the general manager and not on account of his being the director. The Tribunal has not accepted this contention and the only question that arises for consideration is as to whether the Tribunal was right in doing so. A question of this nature has received the attention of the Supreme Court in a number of cases. The first case is that of Commissioner of Income-tax v. Kalu Babu Lal Chand. In that case, R, a karta of a Hindu undivided family, was one of the promoters of a company which took over a business as a going concern. The articles of association of the company provided that R would be its first managing director. It was found by the Appellate Tribunal that the shares hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision is to be found at page 369 in the following words : " The general doctrine of Hindu law is that property acquired by a karta or a coparcener with the aid or assistance of joint family assets is impressed with the character of joint family property. To put it differently, it is an essential feature of self-acquired property that it should have been acquired without assistance or aid of the joint family property." The same principle has been more clearly stated by the Supreme Court in the case of P. N. Krishna Iyer v. Commissioner of Income-tax . In that case the karta of a Hindu undivided family received salary, commission and sitting fees as governing director of a private company. The shares which qualified him to become a member of the company were purchased with the aid of the joint family funds. The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued. The Supreme Court held that the entire income earned by way of salary, commission and sitting fees along with the dividends were assessable in the hands of the Hin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escape proper taxation. The view that we are taking on this aspect of the matter is supported by the following observation of the Supreme Court in the case of Commissioner of Income-tax v. Kalu Babu Lal Chand at page 130 : " It is also significant that right up to the accounting year relevant to the assessment year 1943-44, the income was treated as the income of the Hindu undivided family. It is true that there is no question of res judicata but the fact that the remuneration was credited to the family is certainly a fact to be taken into consideration. " The case of S. RM. CT. PL. Palaniappa Chettiar v. Commissioner of Income-tax strongly relied upon by the learned counsel for the assessee is clearly distinguishable. There the family held only 90 out of 300 shares. The karta of the family was not a director to begin with. He became a director after 8 years when one of the directors died and a year later, on the death of another director, who was managing the business, he became the managing director. First, the company granted him an honorarium of Rs. 3,000 per year and gradually increased the remuneration to Rs. 1,000 per month with 13 1/2 per cent. commission on the net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y received by the other managing directors. The Tribunal has found that he was not appointed as managing Director as a result of any outlay or expenditure of or detriment to the family property. It has been further found that the managing directorship was an employment of personal responsibility and ability. Clearly, the facts of the present case are materially different. Here the family owns almost half of the company. The company was floated with the funds of the family. He himself contributed nothing. The assessee was appointed a director under the articles of association of the company and not by the board of directors subsequent to the formation of the company. No contract, of service between the company and the. assessee has been produced to show the nature of the work entrusted to him. There is no evidence, much less a finding, of any personal services rendered by him to the company. The remuneration payable to him was fixed by the board of directors consisting of himself and his father. The assessee was automatically to become the managing director after his father in case the latter did not make any other nomination before his death or resignation and, lastly, the remune ..... X X X X Extracts X X X X X X X X Extracts X X X X
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