1973 (10) TMI 7 - HC - Income Tax

High Court rules remuneration to karta as individual income, not HUF; costs awarded

The High Court held that the sums of Rs. 1,000 and Rs. 10,348 for the assessment year 1966-67 and Rs. 2,375 and Rs. 12,375 for the assessment year 1965-66 ... Total income of the family - Hindu undivided family held shares in a company and the karta was a director - sitting fees and commission received by the director - 'Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the sums of Rs. 1,000 and Rs. 10,348 are liable to be included in the total income of the Hindu undivided family for the assessment year 1965-66 ? Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the sums of Rs. 14,750 and Rs. 11,348 are liable to be included in the total income of the Hindu undivided family for the assessment year 1966-67 ? ' Issues Involved:1. Whether the sums of Rs. 1,000 and Rs. 10,348 are liable to be included in the total income of the Hindu undivided family for the assessment year 1966-67.2. Whether the sums of Rs. 2,375 and Rs. 12,375 are liable to be included in the total income of the Hindu undivided family for the assessment year 1965-66.Issue-Wise Detailed Analysis:1. Inclusion of Rs. 1,000 and Rs. 10,348 in the Total Income of the Hindu Undivided Family for the Assessment Year 1966-67:The Tribunal had upheld the inclusion of the sums of Rs. 1,000 and Rs. 10,348 in the total income of the Hindu undivided family (HUF) for the assessment year 1966-67. The assessee, D. V. Dasappa, was the karta of the HUF and had received these amounts as director's sitting fees and commission from Consolidated Coffee Estates Ltd. The Tribunal reasoned that the income was earned by virtue of the shares held by the family, and thus, it should be included in the HUF's income.However, the High Court found that the Tribunal had not correctly applied the legal principles. The Court emphasized that the mere fact that the shares were acquired from family funds is not conclusive. It was noted that the Tribunal did not dispute the finding that the income could be traced to the individual skill and experience of the karta. The Court referred to the Supreme Court's ruling in Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax, which stated that if the income is essentially a remuneration for personal services rendered, it should be considered individual income, even if the qualifying shares were acquired from family funds. The High Court concluded that the sitting fees and commission were remuneration for the karta's services and thus individual income, not HUF income.2. Inclusion of Rs. 2,375 and Rs. 12,375 in the Total Income of the Hindu Undivided Family for the Assessment Year 1965-66:Similarly, for the assessment year 1965-66, the sums of Rs. 2,375 and Rs. 12,375 were included in the HUF's income by the Income-tax Officer and upheld by the Tribunal. The Tribunal applied the same reasoning as for the 1966-67 assessment, stating that the income was earned by virtue of the shares held by the family.The High Court again found that the Tribunal had not correctly appreciated the legal principles. The Court reiterated that the acquisition of shares from family funds alone does not determine the nature of the income. The Court emphasized that the income was due to the karta's personal skill and experience, not the investment in shares. The High Court referred to the Supreme Court's decision in V. D. Dhanwatey v. Commissioner of Income-tax, which highlighted the need to determine whether the income was essentially earned due to personal services or the investment of family funds. The High Court concluded that the sitting fees and commission were remuneration for the karta's services and should be considered individual income, not HUF income.Conclusion:The High Court held that the Tribunal was wrong in including the sums of Rs. 1,000 and Rs. 10,348 for the assessment year 1966-67 and Rs. 2,375 and Rs. 12,375 for the assessment year 1965-66 in the total income of the HUF. The Court clarified that these amounts were remuneration for the personal services rendered by the karta and should be treated as his individual income. The questions referred were answered in the negative and in favor of the assessee. The assessee was entitled to the costs of these references, with an advocate's fee of Rs. 250.