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TMI Blog1977 (6) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st March, 1972. On that date a partial partition took place in the family of C.V. Hayagriv, his minor son Vinod separating from him. This was brought about by dividing equally the capital standing in the name of C.V. Hayagriv in the books of the firm as well as the credit balance standing in the current account in the firm's books in his name as on that date. The capital was of Rs. 50,001, inclusive of share of capital and share from the current account. C.V. Hayagriv got, as a result of this partial partition, Rs. 1,12,879 of which Rs. 25,000-50 was shown in his capital account and Rs. 87,878 as shown as credit balance in his current account. Like amounts were shown in the capital and current accounts of minor Vinod. The firm of C. Krishniah Chetty Sons was reconstituted w.e.f. 1st Jan., 1972 as a result of the above partition in the family of Hayagriv and a fresh partnership deed the partners were C.V. Hayagriv, representing the smaller HUF consisting of himself, his wife and daughter, C.V. Aswathamma, his mother and his brother C.V. Narayan representing his own HUF. Vinod, the minor son, (who was separated from his father) was admitted to the benefits of partnership. The cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.V. Hayagriv, in its returns, did not show the salary received by Hayagriv from the firm claiming that it was his individual income for the personal services rendered. The ITO, however, held that the salary income also should be assessed in the hands of HUF of Hayagriv. The grounds given by the ITO for this view are : (i) that Hayagriv is a partner by virtue of the investments of family funds; (ii) the salary is paid to him for his being a partner representing the HUF rather than for services rendered; (iii) he had all along been rendering services and he continued to render same kind of services and no services attributable to his special skill and ability was rendered by him. Relying on the decision of the Supreme Court in the case of V.D. Dhanwatey(1) the ITO included the sum of Rs. 36,000 representing the salary paid to Hayagriv in the income of his Joint Hindu Family. 5. It is to be noted that the ITO does not dispute that Hayagriv was, in fact, rendering services to the firm. As a matter of fact, cl. 6 of the partnership deed, which we have reproduced hereinabove, clearly enjoins on him and the other partner C.V. Narayan, to devote whole time, energy and attention for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the partnership law that every partner should render services to the firm and there are several cases where there are sleeping partners who render no services at all. He pointed out that in paragraph 3 of his order the ITO himself had noted "he had all along been rendering services and he continues to render the same kind of services." In other words, it was not the case of the ITO that Hayagriv was not rendering services to the firm. It was further claimed that the salary was not at the detriment to the funds of the family. As a matter of fact, there was ample return on the funds of the family of Hayagriv as well as of Narayan. The balance including the capital to the credit of the family of Hayagriv as on 1st Jan., 1972 was Rs. 1,12,879. The share of profit assessed in the case of this family for the asst. yr. 1973-74, excluding the salary paid to Hayagriv, is Rs. 67,918 and for the assessments year 1974-75 Rs. 93,355. It was, therefore, pointed out that there was enough return on the funds of the HUF and it could not be said that the salary paid to Hayagriv and Narayan, in whose case also the facts were the same, was by any detriment to the funds of their respective Joint Hin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettiar vs. CIT(8), CIT vs. Gurunath vs. Dhakappa(9), CIT vs. D.G. Shah(10). There are two further cases of the latter category. They are Rajkumar Singh Hukam Chandji vs. CIT(3) and Premnath and others vs. CIT(11). In 78 ITR 33 the Supreme Court observed that the line that demarcates these two lines of decisions is not very distinct but on a closer examination that line can be located. The Supreme Court has further observed that the observations of the Privy Council in Gokul Chand vs. Hukum Chand Nathmal(2) viz. "in considering whether gains are partible, there is no valid distinction between the direct use of the joint family funds and a use which qualifies the member to make the gain by his own efforts" is no more valid. Reference had been made by the Supreme Court itself in Kala Babu's(4) case to the observations in Gokul Chand(12) case. After considering the various decisions enumerated in the different cases in the Supreme Court observed: "In our opinion from 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 funds in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip is not the samething as saying that a partner cannot be remunerated for taking part in the conduct of the partnership business. S. 13(a) of the Partnership Act says that subject to the contract between the partners a partner is not entitled to receive remuneration by taking part in the conduct of the business. From this it follows that by agreement one of the partner in a partnership firm can be remunerated for attending to the partnership work. 14. On an analysis of the various authorities referred to above the conspectus of judicial authority clearly supports the view that merely because the Karta of a Joint Hindu Family becomes a partner in a firm with the aid of Joint Family Funds or incomes received by him for personal services rendered cannot be said to have been at the detriment of Joint Family Funds and, therefore, cannot be said to be the income of the family. In this case, we have already noted that there has been ample compensation for investment of the Joint Family Funds by virtue of the shares in the profits of the firm given to the families through their respective Kartas. It is also clearly established that both Hayagriv and Narayan are experts in their line an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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