9911796707
TMI Blog1981 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1969-70 and 1970-71, respectively. Rajeshwar Pershad received a salary of Rs. 1,500 p.m. from the above company with effect from 1st October, 1969. He continued to receive the above remuneration until there was a partial partition on 3rd October, 1970. That is how the amount in dispute in each of the references is only Rs. 9,000. Vijay Shri P. Ltd. was carrying on the business of exhibition of films and running the Liberty Cinema in Delhi. Till 1962 the assessee-family had nothing to do with the company. Subsequently the family acquired the shares of the company. In November, 1962, the family invested Rs. 27,000 in shares of the company. In November, 1965, there was a further investment of Rs. 1,00,000. In December, 1967, there was another investment of Rs. 2,00,000. Thus, the family held shares in the company to the extent of Rs. 3,27,000 out of a total capital of Rs. 5,00,000. The other shares in the company were held by Lala Sharan Bihari Lal and Smt. Yeshwant Kumari who, it is common ground, had acquired 1,330 and 400 shares, respectively, in the company out of their separate funds. Thus, on the one hand, the family invested a little more than advance which had been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ") was appointed as working director of the company in view of the death of Smt. Yeshwant Kumari who was looking after the day-to-day business. The resolution states that keeping in view his qualifications and experience and the fact that he will have to devote his full time in managing the business of the company, the karta had demanded a salary of Rs. 2,250 p.m. However, the company resolved to start him on a monthly remuneration of Rs. 1,500 with annual increments of Rs. 150 p.a. The salary received by the karta was not included by the assessee in its returns for the assessment years 1970-71 and 1971-72. On the other hand, it was shown as the individual income of the karta in the return which he filed separately. It was submitted on behalf of the assessee that the salary income was not liable to be assessed in the hands of the present assessee. It was claimed that the karta was paid the above amount by way of salaries not in view of the family's investment in the company but on account of his special qualifications and experience. It was pointed out that though Rajeshwar Pershad was a director of the company from the inception, he had not been paid any remuneration. In 1963-64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penny as dividend from the company from the inception till the end of the accounting year under consideration nor did it pay any interest to the company since 1962, and this the payment of remuneration to the karta in his individual capacity was by way of detriment to the joint family interest. For the above reasons the ITO rejected the assessee's contention and included the sum of Rs. 9,000 each in the assessments of the two years in question. This was confirmed by the AAC. He was of opinion that perhaps the treatment of the salary paid to Smt. Yeshwant Kumari as her individual income was itself wrong. He mentioned the fact that the business was being managed only by an assistant manager because the manager had left. But he pointed out that when the assistant manager was there looking after the work of the manager there was no need to employ Rajeshwar Pershad at Rs. 1,500 p.m. The assessee preferred an appeal to the Tribunal and the Tribunal disposing of the appeal for the assessment year 1970-71 concurred with the findings of the AAC. In para. 8 of its order the Tribunal pointed out that even though the family had got an interest-free loan of Rs. 2,00,000 from the company, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. " It is this test which has to be applied to the facts of the present case. It is to be found out on the facts and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company initially in order to acquire the business of the company it had substantially taken back the funds so invested. In this context, the failure of the company to declare any dividends is also not of much significance, even assuming that there were some profits to justify a dividend declaration and not losses, as stated by Sri Chopra. The fact that the company was heavily indebted to others as well does not also alter the position that the family had already derived substantial benefits from the company by reason of its capital investment and control. Thus, no link can be made out between the family's investment which was in 1967 (not 1969, as mistakenly stated by the ITO) and the resolution granting remuneration which was in September, 1969, when the position was entirely different. No question, therefore, arises of the company seeking to compensate the family for its investment by remunerating its karta as such. This is one aspect of the question. The other more important aspect is that the material on record clearly shows that Rajeshwar Pershad was paid for his services. The admitted facts show that he was not being paid earlier and it was only his wife who was receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
