HUF income characterization of managing-director remuneration where appointment formed part of a connected family asset arrangement.

Managing-director remuneration received by a karta of a Hindu undivided family was treated as assessable in the hands of the HUF where the appointment formed part of a connected family arrangement involving the transfer of family assets to a company and allotment of shares to family branches. The payment was not regarded as income earned solely from the karta's personal skill or independent employment, and prior assessment in the individual's hands was not conclusive. The governing principle is that, when remuneration is integrally linked to family interests in transferred assets, it retains the character of family income rather than the individual income of the karta.

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Issues: Whether the managing director's remuneration received by a karta of a Hindu undivided family was assessable as the individual income of the karta or as income of the Hindu undivided family.

Analysis: The remuneration arose in the setting of the disruption of the larger family, incorporation of the new company, allotment of shares to the family branches, and the simultaneous appointment of the male members of the family as managing directors. The appointment of the karta as managing director was treated as part of one integrated arrangement connected with the family's interests in the assets transferred to the company, and not as remuneration earned solely because of his personal skill or independent employment. The earlier treatment of the income in the individual assessment was not regarded as conclusive.

Conclusion: The remuneration was assessable as income of the Hindu undivided family and not as the individual income of the karta.

Final Conclusion: The reference was answered in favour of the Revenue, and the remuneration was held taxable in the hands of the Hindu undivided family.

Ratio Decidendi: Where a managing directorship and share allotment form part of one connected family arrangement in lieu of family interests in transferred assets, the resulting remuneration is assessable as family income and not as the personal income of the karta merely because some element of service is involved.

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