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TMI Blog1963 (10) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... re directors. On the death of one of the directors, Palaniappa became a director in the year 1941. Another director also died, and Palaniappa became the managing director on and from 1942. The company passed a resolution on April 16, 1944, granting an honorarium of ₹ 3,000 for the year 1943-44 to the managing director. From time to time, the remuneration of the managing director was increased. The managing director became entitled, by virtue of resolutions passed by the shareholders of the company, to a remuneration of ₹ 1,000 per month and a commission of I2 % on the net profits of the company. The managing director's duty was to have general control over the financial and administrative matters of the company. No special qualification has been prescribed in the articles of association of the company to become a director, except what is provided for under article 19 of the articles of association which reads: The qualification of a director including the first director shall be the holding in his own right alone and not jointly with any other person of not less than 25 shares and the qualification shall be acquired within two months of appointment. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in Kalu Babu Lal Chand s case (supra) . We may at once mention that we are unable to agree with the view taken by the learned judges in Sankaralinga Iyer's case (supra) If we had come to the conclusion that the decision of the Supreme Court left the correctness of Sankaralinga Iyer's case (supra) untouched, we would have referred the matter to a Full Bench. But as, in our opinion, the Supreme Court has indicated fairly clearly that Sankaralinga Iyer's case (supra) has not been correctly decided, we are disposing of this reference ourselves. It will now be convenient to refer to Sankaralinga Iyer's case (supra) . In that case, the assessee was a karta of a Hindu undivided family. He claimed hat a certain sum received by him as managing director's remuneration and director's sitting fees from a bank, called the Indo-Commercial Bank Ltd., by virtue of a contract entered into between him and the bank, was his separate income. The department treated it as the income of the Hindu undivided family, of which the assessee was the karta, on the ground that the necessary shares to acquire the qualification of a managing director were purchased out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 352)...This text of Hindu law does not throw any light on the 'degree of detriment' necessary to attribute to the acquisition of the character of joint family property. The court cannot undertake the impossible task of fixing the minimum standard of 'detriment'. It is of course clear that some detriment is necessary; this can only mean that it should not be vague or merely sentimental but should be something real. What would be the position if the 'detriment' were trifling and unsubstantial, we do not propose to consider, as the question does not arise in this case. It seems to us that the question whether or not an acquisition was made to the detriment of the family estate is very largely one of fact. The root cause of a person becoming a managing director is certainly the share position of such a person. If the shares belong to the family, then any income which the managing director might earn by way of remuneration or commission would certainly be stamped with the character of joint family income. In our opinion, it would be impossible to hold that the shares and the dividends accruing therefrom would belong to the family, but not the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing director, and it also specified his remuneration. The shares held in the name of R and his brother were acquired with the funds belonging to the joint family, and the family was in enjoyment of the dividends paid on these shares. The company was floated with funds provided by the family. R made no contribution in this respect. The company was all along financed by the family. Prior to the accounting year relevant to the assessment year 1943-44, the managing director's remuneration received by R was credited in the books of the family. In the assessment year 1943-44, for the first time, it was claimed that the whole of the managing director's remuneration constituted the personal earnings of R and should not be added to the income of the family. 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. S.R. Das, Chief Justice, delivering the judgment of the court, referred to the decision in Sankaralinga Iyer's case (supra). At page 129, the following observation occurs: Satyanarayana Rao J. took the view that, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , of which he was the karta. But, on an examination of the facts of that case, it seems to us that it is clearly distinguishable. The facts were that one S was employed as an overseer in a bank. The father of S was the treasurer of the bank until his death. After him, S was appointed treasurer of the bank at various branches on a monthly salary. Properties of the Hindu undivided family of which he was a member were furnished by him as security for the due discharge of his duties as treasurer. Under the agreement between him (S) and the bank, S was bound to engage and employ a staff to serve under him. He had the power to control, dismiss and change the staff at his pleasure. The members of the staff were to be paid salary directly by the bank. The treasurer was responsible for the acts and omissions of the members of the staff. Both the treasurer and his staff were, however, under the control of the bank. The question that arose for consideration before the Supreme Court was whether on a true construction of the agreement between the treasurer and the bank, the salary and other emoluments of the treasurer would represent the income of the family of which the treasurer was the karta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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