1994 (11) TMI 79 - HC - Income Tax

High Court: Salary income of individual, not Hindu undivided family.

The High Court ruled in favor of the Revenue, determining that the salary income received by the individual from the company should be assessed as ... Attributable To, Finding Of Fact, Individual Income, Jurisdiction Of High Court Issues:Interpretation of income tax law regarding the assessment of salary income in the hands of an individual versus a Hindu undivided family.Analysis:The case involved a dispute over the assessment of salary income received by an individual from a company in the status of 'individual' versus as a member of a Hindu undivided family. The individual, who was a director of the company, claimed that the salary should be assessed in the hands of the Hindu undivided family. The Income-tax Officer initially assessed the salary income in the individual's hands. The Appellate Assistant Commissioner accepted the individual's contention, assessing the income in the hands of the Hindu undivided family. The Income-tax Appellate Tribunal upheld this decision, leading to an appeal by the Revenue to the High Court.The High Court analyzed the facts and applicable legal principles to determine the nature of the income. It considered the Supreme Court's test to ascertain whether the income was essentially a return on family investment or compensation for personal services. The Court found that the salary income was earned by the individual for services rendered as a director, unrelated to the family's shareholding. The Court emphasized that the change in ownership of shares and acquisition by the family did not alter the character of the salary income as individual income. The Court rejected the argument of diversion of income by overriding title, stating that the income was rightfully assessed in the individual's hands.The Court also addressed the Gujarat High Court's decision and clarified that if income is primarily for services rendered by a family member, it remains individual income even if family funds are involved. The Court dismissed the claim that the individual's directorship was solely due to the family's shareholding, emphasizing the factual and legal errors in such a conclusion. The Court concluded that the salary income was rightly assessed in the individual's hands, ruling in favor of the Revenue and against the assessee.In summary, the High Court's judgment clarified that the salary income received by the individual from the company was rightfully assessed as individual income, not belonging to the Hindu undivided family. The Court applied established legal principles to determine the nature of the income, emphasizing the individual's role as a director and the lack of connection between the salary and family shareholding. The judgment resolved the dispute in favor of the Revenue, highlighting the distinction between individual and family income for tax assessment purposes.