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TMI Blog1983 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Rs. 12,000 being the salary received by Shri Suresh B. Mehta in his individual capacity should be excluded in computing the income of the HUF. Similar claims were made for the assessment years 1969-70 to 1972-73. The ITO was of the opinion that the income of Rs. 12,000 was earned by the utilisation of the joint family funds and that the rendering of personal service by Shri Suresh B. Mehta to the firm would not in any way alter the character of the income. In this view, the amount of Rs. 12,000 was added back in each of the relevant assessment years. On appeal, the AAC took note of the recognition by the Government of India of Sri Suresh B. Mehta as one of the approved valuers and concluded that he had attained skill in valuing diamonds and precious stones for making which available to the firm by his services he was paid a salary and, therefore, the amounts received by him would be compensation for services rendered and cannot be treated as a return made to the HUF, because of the investment of its funds in the firm, M/s. Bapalal Co. In computing the total income of the assessee HUF, the salary paid to Sri Suresh B. Mehta was deleted. The Revenue appealed to the Tribunal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y same reasoning, directed the deletion of the salary received by Sri Surendra Manilal Mehta from the assessment of an HUF. On further appeal to the Tribunal, if followed its earlier order with reference to the assessee in T.Cs. Nos. 3 to 7 of 1980 regarding the assessment years 1968-69 and 1969-70 and dismissed the appeals. Inasmuch as a common question was thus decided by the Tribunal in all the appeals, the following question which is common to both the assessees in respect of all the assessment years has been referred under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as " the Act") : " Whether, even on the finding that the salary was paid to the karta of the assessee by reason of his special skill and ability, the same could be assessed in the hands of the assessee-Hindu undivided family ?" The learned counsel for the Revenue contended that as under the terms of the deed of partnership there was no provision for the payment of remuneration towards the special services rendered by the partners, all the partners were entitled to attend to the business of the firm under clause 8 thereof and hence payment of salary should be regarded as attributable only to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made without any assistance from the ancestral or joint family property. From the terms of the deed of partnership included as annexure D in the stated case in T.Cs. Nos. 3 to 7 of 1980, it is seen that the six partners have contributed a sum of Rs. 36,000 towards the capital in equal shares. Clauses (4) and (5) provide for the payment of a monthly remuneration of Rs. 1,000 to four only out of the six partners. Under cl. (8), it is provided that all partners shall be entitled to attend to the business of the firm. The provision in the deed of partnership for payment of salary to only four persons out of six shows that apart from devoting their attention to the business of the firm, in respect of which they will be entitled to a share of profits of the firm, a special provision has been made for payment of salary. Such a special provision regarding the payment of salary has been thought of only on account of certain special skill and experience of those partners, particularly in the work of valuing diamonds and precious stones. Indeed, Shri Suresh B. Mehta has been found by the Tribunal to possess certain special skill. Payment of remuneration for making available to the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F did not contribute anything and held that, under those circumstances, the remuneration received by the managing director, as between him and the HUF, was the income of the family and assessable in its hands. In Dhanwatey v. CIT [1968] 68 ITR 365 (SC), the karta of a HUF was a partner of a firm and the contribution to the capital of the firm belonged to the family. Interest was payable on the capital contributed by each partner. Under clause (7) of the partnership deed, the general management and supervision of the partnership business was to be in the hands of V. D. Dhanwatey. Provision was also made for payment of monthly remuneration to him. The question arose whether the salary received by V. D. Dhanwatey was assessable in the hands of the HUF. The High Court took the view that the salary paid to V. D. Dhanwatey was only an increased share of the profits of the firm paid to V. D. Dhanwatey and the amount was taxable in the hands of his undivided family. By majority decision, the Supreme Court held that the remuneration paid to V. D. Dhanwatey practically related to the investments of the assets of the undivided family in the partnership business and that there was sufficient c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm's business. There was no finding that the salary received by the karta directly related to the assets of the family utilised in the firm and, therefore, the Supreme Court held that the sum of Rs. 6,000 could not be treated as the income of the HUF. In the course of the judgment, the Supreme Court observed as under at page 193: " In the absence of a finding that the income which was received by G. V. Dhakappa was directly related to any assets of the family utilised in the partnership, the income cannot be treated as the income of the Hindu undivided family. " It may be recapitulated that in this case also there is no finding that the salary paid to the karta was in any manner related to the utilisation of the assets of the HUF in the partnership or was in the nature of return made to the family because of its investment. In CIT v. Shah [1969] 73 ITR 692 (SC), a HUF through its karta was a partner in two firms and he was paid remuneration as a managing partner as he had rich experience in the line of business carried on by the two firms. No other partner was paid any salary, though other provisions were there in the deed of partnership with reference to the management of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided family. " Applying the principles aforesaid in the light of the finding of the Tribunal that the appointment as managing director was not as a result of any outlay or expenditure or detriment to the family, the income in question was held to be the individual income of the karta of the HUF and could not, therefore, be assessed as the income of his HUF. In this case also, it had earlier been seen that there is no finding by the Tribunal that the salary paid to the karta was but a mode of return in respect of the investment made by the family in the firm. The salary had been received by the karta towards compensation for services rendered by exercising special personal skill, as persons experienced and skilled in valuation of diamonds and precious stones. In Laxmandas v. CIT [1982] 138 ITR 628 (All), the question arose whether the remuneration paid to the karta of a HUF, who was a partner in a firm, because of his special aptitude in the line of business of the firm and for services rendered by him would be assessable as the income of the HUF. In that case also, there was a clause in the partnership agreement for the payment of salary. The Allahabad High Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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