1959 (5) TMI 8 - SC - Income Tax

Supreme Court: Managing Director's Remuneration to be Assessed as Hindu Undivided Family Income

The Supreme Court overturned the High Court's decision and ruled that the managing director's remuneration of Rs. 61,282 should be assessed as the income ... Whether the assessment of the said sum of ₹ 61,282 should be on Mr. Rohatgi personally or on the assessee Hindu undivided family ? Held that:- The finding in this case is that the promotion of the company and the taking over of the concern and the financing of it were all done with the help of the joint family funds and the said B. K. Rohatgi did not contribute anything out of his personal funds if any. In the circumstances, we are clearly of opinion that the managing director's remuneration received by B. K. Rohatgi was, as between him and the Hindu undivided family, the income of the latter and should be assessed in its hands. We, therefore, set aside the answer given by the High Court to the second question and answer the same by saying that the assessment of the whole of the sum of ₹ 61,282 should be on the assessee Hindu undivided family. The result is that this appeal is allowed. Issues Involved:1. Whether the Income-tax Appellate Tribunal was justified in apportioning the managing director's remuneration into two parts.2. Whether the managing director's remuneration should be assessed as the personal income of Mr. B. K. Rohatgi or as the income of the Hindu undivided family (HUF).Issue-wise Detailed Analysis:1. Apportionment of Managing Director's Remuneration:The High Court of Calcutta answered the first question in the negative, rejecting the Tribunal's decision to divide the remuneration into two parts. The Tribunal had previously apportioned Rs. 61,282 received by Mr. B. K. Rohatgi into two parts: Rs. 30,000 for his personal services and the rest for the services rendered by the HUF in the floatation and financing of the company. The High Court found no justification for this division, stating that the income was either entirely the personal income of Mr. B. K. Rohatgi or entirely the income of the HUF. This decision was based on the fact that the managing director's remuneration had always been treated as the income of the HUF in previous years.2. Assessment of Managing Director's Remuneration:The High Court initially ruled that the entire remuneration should be assessed as the personal income of Mr. B. K. Rohatgi, relying on the precedent set in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer. However, the Supreme Court overturned this decision, emphasizing that the remuneration was earned with the help of joint family assets. The Court noted that the HUF, of which Mr. B. K. Rohatgi was the karta, had financed the acquisition and operation of India Electric Works and that the managing directorship was inseparably linked to these activities. The Court cited the principle that the income earned by the karta through the use of joint family assets should be treated as the income of the HUF. The Supreme Court concluded that the managing director's remuneration was the income of the HUF and should be assessed as such.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's decision regarding the second question. The Court ruled that the entire sum of Rs. 61,282 should be assessed as the income of the HUF, thereby overturning the High Court's earlier decision to treat it as the personal income of Mr. B. K. Rohatgi. The appeal was allowed with costs awarded to the appellant.