Deductibility of karta's remuneration turns on valid agreement, bona fide arrangement, and commercial expediency in family business

Remuneration paid to a karta for managing a Hindu undivided family business may be deductible as business expenditure if it is supported by a valid agreement made by or on behalf of competent family members, is bona fide, and is justified by commercial expediency. The karta's status alone does not bar deduction. Where the payment is genuine, not excessive, and is made for services rendered to the family business, it is treated as expenditure laid out wholly and exclusively for that business. On the facts stated, the agreement was accepted as valid and in the family's interest, and the services were connected to the family business; the remuneration was therefore deductible.

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Issues: Whether remuneration paid to a karta of a Hindu undivided family for managing the family business was deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The allowance of such remuneration depends on whether there is a valid agreement made by or on behalf of all competent members of the family, whether the arrangement is bona fide, and whether it is justified by commercial expediency and the interests of the family business. The fact that the recipient is the karta does not by itself bar deduction. If the payment is genuine, not excessive, and is made for services rendered to the family business, it is expenditure laid out wholly and exclusively for the purpose of that business. The agreement in the present case was treated as valid and in the interest of the family, and the services were found to relate to the family business rather than to the partnership concerns.

Conclusion: The remuneration was deductible under section 10(2)(xv) and the answer to the referred question was in the affirmative, in favour of the assessee.

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