1976 (2) TMI 11 - HC - Income Tax

Court Remands Remuneration Classification Issue to Tribunal for Review

The court remanded the issue of whether remuneration received by the assessee from a company should be treated as income of his Hindu undivided family ... Annual Letting Value, House Property, Municipal Taxes Issues Involved:1. Whether the remuneration received by the assessee from M/s. C. Doctor & Co. (P.) Ltd. was income of his Hindu undivided family (HUF).2. Whether the municipal tax is an admissible deduction in computing the annual letting value of self-occupied property.Detailed Analysis:Issue 1: Remuneration as Income of HUFThe assessee, acting as the karta of his HUF, held shares in several companies, including M/s. C. Doctor & Co. (P.) Ltd., where he was a director. By a resolution dated November 7, 1961, the assessee was appointed as the director-in-charge, with a fixed remuneration. On March 27, 1964, the assessee declared that he was throwing 61 shares of the company into the HUF hotchpot, but this declaration did not mention the remuneration. However, he instructed the company to credit his remuneration to the HUF's account.In the assessment proceedings for the years 1964-65, 1965-66, and 1966-67, the assessee argued that the remuneration should be treated as HUF income. The Income-tax Officer rejected this, stating the remuneration was earned in the assessee's individual capacity and not due to HUF investments.The Appellate Assistant Commissioner accepted the assessee's contention, noting the clear intention to treat the remuneration as HUF income, supported by the treatment in the books of account. The Tribunal upheld this decision, emphasizing the clear manifestation of intention to treat the remuneration as HUF income.Upon appeal, the revenue argued that merely throwing shares into the HUF hotchpot did not convert the remuneration into HUF income, especially since the appointment was not due to HUF investments and required personal services. The revenue contended that the income arose to the assessee individually and any subsequent transfer to the HUF was merely an application of income, not a diversion at source.The court agreed with the revenue, stating that the Tribunal misdirected itself by not determining whether the remuneration accrued to the assessee individually before being applied to the HUF. The court emphasized the need to apply proper tests to determine if the income was diverted at source or merely applied after accrual. The court declined to answer the first question and remanded it to the Tribunal for reconsideration in light of the proper legal tests.Issue 2: Municipal Tax DeductionThe second issue was whether the municipal tax paid by the assessee should be deducted while computing the annual letting value of self-occupied property. The Tribunal allowed the deduction, following its earlier decision in another matter.The court confirmed this decision, referencing the Division Bench ruling in Commissioner of Income-tax v. Arvind Narottam, which held that municipal taxes should be deducted when calculating the annual letting value of self-occupied property. Thus, the court answered the second question in the affirmative, in favor of the assessee and against the revenue.Conclusion:The court declined to answer the first question, remanding it to the Tribunal for a decision based on proper legal tests regarding the diversion of income at source. The second question was answered affirmatively, allowing the deduction of municipal tax in computing the annual letting value of self-occupied property.