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Issues: Whether salary paid or credited to a karta of a Hindu undivided family for managing the family business was an allowable deduction in computing the family business income.
Analysis: A karta is bound by virtue of his status to manage the affairs of the joint family business. In the absence of a valid special arrangement binding all coparceners, such a managing member is not ordinarily entitled to special remuneration for performing that duty. Payment to a karta for doing what he is already bound to do as head of the family is not expenditure laid out wholly and exclusively for the purposes of the business, but is in substance an appropriation from profits. The alleged agreement here was only between two coparceners and did not bind the minor members of the family; the surrounding circumstances also indicated that the payment was not a genuine business outlay.
Conclusion: The salary paid to the karta was not a permissible deduction under section 10(2)(xv) of the Income-tax Act, 1922.
Ratio Decidendi: A karta of a Hindu undivided family is not entitled to remuneration for managing the family business unless there is a valid special agreement binding all coparceners, and such payment is not deductible as business expenditure.
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