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TMI Blog1963 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... profit allocated under section 23(6) as per the assessment made on the registered firm is ₹ 14,734 which includes ₹ 6,000 being salary payable as per clause 7 extracted above at the rate of ₹ 500 p. m. It was claimed before the Income-tax Officer that a sum of ₹ 6,000 paid to Shri G.V. Dhakappa was his individual income and as such it should not be included in the assessment of the Hindu undivided family under consideration. This claim was rejected by the Income-tax Officer observing as follows: Though there are other employees, nothing is discussed in the partnership deed. The appointment of Shri Gurunath V. Dhakappa by the firm in clause 7 of the deed dated August 26, 1957, is of Shri Gurunath V. Dhakappa, party of the first part, i.e., partner shown at Serial No. 1 in the partnership deed, and no other person. For the assessment year 1957-58 and 1958-59 salary income of ₹ 6,000 of Shri Gurunath V. Dhakappa was included in the total income of the assessee. On the ground that as permitted by clause 9 of the partnership deed the assessee had employed Sri Triambak G. Dhakappa, the Tribunal has only allowed salary paid to Sri Triambak G. Dhakappa by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner or in any different character, the provisions of section 16(1)(b) would justify the inclusion of the same in assessing the share income. On the aforesaid facts, the following question of law arises: Whether, on the facts of this case, and having regard to section 10(4)( b) and section 16(1)(b) of the Income-tax Act, 1922, the salary paid as per clause 7 of annexure 'A' is liable to be excluded from the assessment of the asssessee, Hindu undivided family, and assessed in the hands of the individual, Sri G.V. Dhakappa ? Both parties agree to the statement as drafted above. The learned counsel for the assessee wants the following question also to be referred to the High Court: Whether the inclusion of the salary paid by the firm to Shri Gurunath Dhakappa, for services rendered by him as manager, in the total income of the assessee family, is legal and proper ? We consider that the controversy between the parties is brought out in the question as formulated in paragraph six above. We, therefore, reject this suggestion. [After setting out the statement of the case as above, K.S. Hegde J. continued:] K.S. Hegde, J.-The concern with which we are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the present case is not one that falls within the scope of section 9 of the Indian Partnership Act, 1932, but it falls under section 13(a) of that Act, which provides that subject to contract between the partners, a partner is not entitled to receive remuneration for taking part in the conduct of the business. In the instant case there is a contract to the contrary. Hence it is not possible to agree with the learned counsel for the revenue that the remuneration received by Shri Gurunath V. Dhakappa is only a share of his profits. We do not think that the decision of the Court of Appeal in Ellis v. Joseph Ellis Co. [1905] 1 KB 324 is apposite for our present purpose. That decision turned on the provisions of the English Workmen's Compensation Act, 1897. The rights and duties of the partners in a partnership firm in this country are governed by the provisions of the Partnership Act and not by the abstract doctrines such as that a person cannot be an employee as well as his employer. Further, in this case, we are not on the question whether the remuneration received by Shri Gurunath V. Dhakappa should be deducted from the profits of the partnership firm. The only question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be his personal income. Otherwise there was no point in the Hindu undivided family paying remuneration in one hand and receiving it by the other. There is no reason to think that there was any change in the circumstances when the undivided family broke up and a partnership was formed. From the available material, it appears that all the partners did not take part in the business. Most of them merely supplied the capital and shared the profits and losses. Hence, there is nothing surprising if they agreed to remunerate the manager and the assistant managers. It may be and it is very likely that one of the reasons for selecting Shri Gurunath V. Dhakappa as manager was that he was one of the partners. But that cannot be said to be the sole reason or the exclusive reason. There were thirteen partners. The choice need not have fallen on him if he had no extra qualifications. It is likely that he was selected for the reason that the partners thought that his services would benefit the partnership and, therefore, they agreed to remunerate him for his skill and ability. In this case, it cannot be said that the management by Shri Dhakappa involved any risk to his family as such. Nor can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss whether under his name or any other style or firm and that the said R would continue to be the managing director until he would resign or be found guilty of any act of fraud or dishonesty or be removed in the manner thereinafter provided. The right of management given to R was a vested right, assignable as well as heritable. It is under these circumstances the Supreme Court held that the managing director's remuneration received by R was, as between him and the Hindu undivided family, the income of the family and should be assessed in its hands. Dealing with this case, this is what the Supreme Court observed in Piyare Lall Adishwar Lal v. Commissioner of Income-tax [1960] 40 ITR 17 : Counsel for the respondent also relied on Commissioner of Income-tax v. Kalu Babu Lal Chand [1959] 37 ITR 123 (SC), where the managing director's remuneration was held to be the income of a joint family to be assessed as such in its hands. That case is distinguishable. There the karta of a Hindu undivided family took over a business as a going concern and carried on the business till the company was incorporated. The shares in the name of the karta and his brother were acquired with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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