Family income test for partner's remuneration: taxable in HUF hands only when directly linked to joint family assets.

Remuneration received by a karta who joined a partnership on behalf of a Hindu undivided family is taxable as family income only if it is directly referable to the use of joint family assets in the partnership business. Where a real and sufficient connection exists between the family funds and the remuneration, the amount is assessable in the hands of the family; absent such linkage, it cannot be treated as family income merely because the partner represented the family. On the stated facts, the remuneration was not shown to arise from the investment of joint family assets and was therefore not includible in the HUF's total income.

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Issues: Whether the remuneration received by a karta who was a partner representing a Hindu undivided family was assessable as the income of the family or as the individual income of the karta.

Analysis: The statutory question turned on whether the salary paid to the partner was directly related to, and arose from, the investment of joint family assets in the partnership business. Where such a real and sufficient connection exists between the family funds and the remuneration, the amount is taxable in the hands of the family. In the absence of a finding that the remuneration was so linked to family assets, the departmental view that all receipts of a partner representing the family must necessarily belong to the family cannot be sustained.

Conclusion: The remuneration was not assessable as the income of the Hindu undivided family and was not liable to be included in its total income.

Ratio Decidendi: Salary or remuneration received by a partner representing a Hindu undivided family is assessable as family income only when it is directly referable to the utilisation of joint family assets in the partnership business.

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