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TMI Blog1975 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... a Hindu joint family. This joint family carried on business in the name and style of Kohinoor General Industries up to the assessment year 1959-60. Later, there was a partial partition in the family when the joint family business was converted into a partnership firm consisting of the two brothers and their father as partners. In July, 1961, a private limited company was formed in the name and style of M/s. Ghaziabad General Industries (P.) Ltd., which took over the business run by the partnership firm. The assessees and their father were appointed as lifetime directors of the company. Article 15 of the articles of association provides that if any director is willing he may be called upon to perform extra services for the business of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, by an order dated May 18, 1973, directed the Tribunal to record a finding on the material already on record as to whether the assessees rendered any service to the company and if so what was the nature and extent of service. The Bench took the view that the fact that the assessees acquired the shares which qualified them to become directors out of the joint family funds is not decisive nor is decisive the fact that there is a provision in the articles of association authorising such payments. The answer to the question would depend on the nature and extent of services rendered by the assessee's to the company, namely, as to whether the services rendered were of such a nature as depended on the personal qualification of the assessees or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lified the karta to become a member of the company were purchased with the aid of joint family funds. The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued. The Supreme Court observed : " The income was primarily earned by utilising the joint family assets or funds and the mere fact that in the process of gaining the advantage an element of personal service or skill or labour was involved did not alter the character of the income. " It was held that the entire income earned by way of salary, commission and sitting fees along with the dividends were assessable in the hands of the Hindu u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares in the firm. He was elected managing director by the board of directors and there was no material to hold that he was elected managing director on behalf of the family. The finding recorded by the Tribunal was that he was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property. On facts, that case is clearly distinguishable and is of no assistance to the assessees. A similar question arose for consideration before this court in Bimal Kumar Jain v. Commissioner of Income-tax [1974] 93 ITR 225 (All). In that case a Hindu undivided family owned almost half the shares of a company. The karta of the family was appointed a director under the articles of association of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices rendered by them were of a specialised nature and not of a normal or routine nature. The remuneration payable to them was determined by the board of directors consisting of themselves and their father. Keeping in view the principles enunciated in the cases referred to above it must be held that the remuneration paid to the assessees was because of the shares held by the family and not on account of their personal qualifications even though they rendered some service of a general nature. The real nature of the remuneration paid to them was an increased share of the income of the company paid to them as representing the family and not what it apparently purported to be. We accordingly answer the question in the affimative, in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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