9911796707
TMI Blog1984 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment year involved is 1967-68 and the facts found and/or admitted are shortly as under: The assessee, Shri Atma Ram Budhia was being assessed in the status of HUF as well as ' Individual '. The present case relates to the assessment of the HUF, Shri Budhia was also a partner in the firm, M/s. R. K. Budhia Co., in his capacity as karta of his HUF. The ITO while making the assessment of the assessee-HUF included the share income received from the firm, M/s. R. K. Budhia Co., as per share allocation as well as the salary paid to Shri Budhia to the extent of Rs. 30,602 which included salary of Rs. 18,000. Undisputedly the salary income had not been included in the assessment of the HUF in the earlier years and this was the position up to the assessment year 1965-66. The assessee filed an appeal to the AAC challenging the inclusion of the salary income, Rs. 18,000, of Shri Budhia as in income of the HUF on the ground that the firm was paying the salary to Shri Budhia in his individual capacity so much so that the ITO, Ranchi, had already included the salary income in the personal assessment of Shri Budhia. The appellate authority, taking the view that " no speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67(1)(b) of the Act the income of a partner is to be computed after taking into consideration the interest, salary, commission and other remuneration paid to the partner by the firm and the amount is to be included along with the share income of the business of the firm. Therefore, in computing the income of the partner who was representing the HUF the remuneration paid to Shri Budhia in his capacity as a partner in the firm was bound to be added to the share income and as a result it was to be treated as the partner's share in the income of the firm. Mr. Rajgarhia, appearing for the Department, placed reliance upon Lindley on Partnership (13th Edn.), where at p. 26 it has been stated that a partner cannot " be employed by his firm for a man cannot be his own employer " and, therefore, he contended that the payment of salary to Shri Budhia was nothing else than representing a mode of income from the profit of the firm in which he was a partner. Strong reliance was placed by him on a recent decision of the Supreme Court in the case of CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292, which is the decision of the two learned judges of the Supreme Court wherein it was observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Estate [1978] 112 ITR 234, applying the ratio of the case of R.M. Chidambaram Pillai [1977] 106 ITR 292 (SC), included the salary and interest paid to a partner received by him on the monetary contribution, a Division Bench of the Allahabad High Court in Laxman Das v. CIT [1982] 138 ITR 628, did not follow the said decision. In the case before the Allahabad High Court the nature of the case was very much similar to the case in hand. There also an HUF was a partner in firm through its karta who had received remuneration from the firm because of his special aptitude for the business of the firm and for services rendered by him to the firm. Following some earlier decisions of the Supreme Court of larger Benches and the proposition laid down in them, where a line of distinction has been laid down that if the remuneration is earned by the partner not on account of any detriment to the joint family assets, then such remuneration received by the karta is not assessable as the income of the HUF unless the remuneration has direct nexus with the investment of funds in the family of the firm. R. Al. Chidambaram Pillai's case [1977] 106 ITR 292 (SC), was distinguished by the learned judges o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the karta was directly related to the assets of the family utilised in the firm in which the HUF was a partner, the sum of Rs. 6,000 paid to the karta was held not to be treated as the income of the HUF. Perhaps, in view of these conflicting decisions of the highest court of the land, the Division Bench of this court referred the case to a larger Bench, but could not refrain from making an observation that " prima facie we feel inclined to accept the contention of the assessee". Some other cases of the Supreme Court were brought to our notice by Mr. Bajla, learned counsel appearing for the assessee, where similar principles have been laid down, those cases being (1) Rajkumar Singh Hukam Chandji v. CIT[1970] 78 ITR 33 (SC) and (2) Prem Nath v. CIT[1970] 78 ITR 319 (SC). The irresistible conclusion that follows from a resume of the above decisions of the Supreme Court and some other High Courts, is that unless it was established that remuneration received by the manager of an HUF was not the income of the family and the remuneration was for services rendered by him and that there was no real and sufficient connection between the investment of the joint family assets and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, Shri Atma Ram Budhia, was being assessed as the karta of the HUF, as well as in his individual capacity. It is not in dispute that Shri Budhia is a partner in the firm, M/s. R. K. Bhudhia Co., in his capacity as karta of his undivided Hindu family and has been receiving the share allocation as a partner on behalf of the family. Shri Budhia has also been receiving salary by way of remuneration for the service rendered by him in the firm. He received a sum of Rs. 30,602 including Rs. 18,060 as salary for the assessment year in question, that is to say, 1967-6.8. We do not have before us any facts showing that the amount of Rs. 18,000 paid to Shri Budhia was essentially a return made to the family because of the investment of the family funds in the business of the firm or that it was an income essentially earned as a result of the funds invested on behalf of the family. The assessee has maintained that the said amount of Rs. 18,000 was a compensation or remuneration made/paid for the services rendered by him. In view of the law since settled and concluded, the circumstances that his services were availed of because of the reason that he was a member of the family which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es decided by the Supreme Court laying down the law in regard to the remuneration paid to a member of the HUF for the services rendered by him to the firm of which the family is a partner were referred to or even casually adverted to by him (Hon'ble Krishna Iyer J.) as, obviously, the question for consideration in the case before him was completely different. The view taken by the Supreme Court in the cases of Raj Kumar Singh Hukam Chandji v. CIT [1970] 78 ITR 33, Prem v. CIT [1970] 78 ITR 319, CIT v. Gurunath V. Dhakappa [1969] 72 ITR 192, V. D. Dhanwatey, v. CIT [1968] 68 ITR 365 and CIT v. D.C. Shah [1969] 73 ITR 692, are all authorities being judgments of the Supreme Court of India for the principle that in the absence of any evidence that the remuneration agreed to be paid was not for services rendered to the firm but was a profit in lieu of the investment of the family funds in the business, the irresistible conclusion will be that the salary/remuneration paid to an individual member of the family was not the income of the family, but was in consideration of the contract of service and by way of compensation for services rendered by him. I am in complete agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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