Tax attribution of managing director salary turns on nexus with joint family funds, not mere family shareholding.

A managing director's salary in a private company was examined for tax attribution to a Hindu undivided family, with the decisive question being whether there was a sufficient nexus between joint family funds and the appointment or remuneration. On the facts found, the family's shareholding was acquired after the appointment in one reference, and there was no proof that the appointment or qualifying share flowed from family assets. In the connected matters, the sole share was not traced to the joint family nucleus, and the appointment was attributed to the individual's personal business experience. The salary was therefore treated as the individual income of the managing director, not family income.

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Issues: Whether the salary of a managing director appointed in a private company, on the facts found, was assessable as the income of the Hindu undivided family or as the personal income of the individual recipient.

Analysis: The decisive question was whether there was a sufficient connection between the joint family funds and the appointment or remuneration of the managing director so as to treat the salary as family income. On the facts of the first reference, the Tribunal's inference that the investment of joint family funds and the salary were linked as cause and effect was not supported, because the assessee family's shareholding was acquired after the appointment and there was no proof that the individual's qualifying share or appointment flowed from family funds. In the connected matters, it was affirmatively found that the solitary share held by Trilok Singh was not acquired from the joint family nucleus and that his appointment as managing director was attributable to his personal business experience rather than to any family investment or detriment to family property.

Conclusion: The salary was not assessable as the income of the Hindu undivided family; it was the individual income of Trilok Singh. The question referred was answered against the Revenue and in favour of the assessee, and the connected applications under section 66(2) were dismissed.

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