TaxTMI 
TaxTMI 
1973 (4) TMI 28
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....in 1951, his eldest son, Balakrishnan, was elected as the managing director on September 30, 1952. The shareholding of Balakrishnan, his mother and brothers after the death of the father, was as follows : A. H. S. R. Rukmani Ammal 241 shares A. R. Balakrishnan 840 " A. R. Ramakrishnan 840 " A. R. Radhakrishnan 840 " A. R. Rathinam 840 " The share income from the company as well as the remuneration received by Balakrishnan as managing director of the company were being assessed in his hands as an individual up to the assessment year 1957-58. On March 31, 1958, a son was born to him and from the assessment year 1958-59 onwards, till the assessment year 1962-63, the share income from the company was assessed in the hands of the Hindu undivided family consisting of Balakrishnan and his son and the remuneration received by Balakrishnan as managing director was assessed in his hands as an individual. However, for the first time in the assessment year 1963-64, the Income-tax Officer took the view that the remuneration received by Balakrishnan as managing director of the company ought to have been assessed in the hands of the Hindu undivided family of Balakrishnan and ....
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....quite valid. As regards the second contention, it was urged by the assessee that, at the point of time when Balakrishnan became the managing director of the company, the Hindu undivided family had no claims over the remuneration earned by the karta and that the remuneration earned by Balakrishnan had no relation to the holding of the shares in the company by the family. The Tribunal observed that out of 840 shares held by Balakrishnan, 700 shares were obtained by him in the partition between himself and his father and brothers and the remaining 140 shares came to him by way of inheritance on the death of his father and that, therefore, all the said 840 shares were ancestral and had become the joint family property of himself and his son. In support of this view the Tribunal relied on the decision of the Supreme Court in Gowli Buddanna's case. As regards the other contention that the remuneration earned by Balakrishnan as managing director of the company has no relation with the family, the Tribunal observed that the managing director of the company can be appointed only from and out of the directors of the company, that in order to become a director one has to hold at least 100 sha....
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....cond question. The assessee contends that the inclusion of the remuneration earned by the karta, Balakrishnan, as managing director of the company in the income of the assessee family was illegal and that the said remuneration has to be assessed only in the hands of the karta as an individual. It is pointed out by the assessee that at the point of time when Balakrishnan became the managing director of the company the Hindu undivided family did not come into existence and as such it was not the owner of any shares in the company at that time and therefore the shares becoming the property of the Hindu undivided family at a later stage will not make the appointment as one in favour of the family and the remuneration paid to the managing director the income of the Hindu undivided family and that the remuneration earned by the karta as managing director had no relation to the holding of the shares by the Hindu undivided family. As already stated, Balakrishnan became the managing director of the company from October 1, 1952. But a son was born to him only on March 31, 1958, and the joint family as such came into existence only from the date when the son was born to him. Having regard to ....
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....stion of share qualification for becoming a director. But it is open to a company to prescribe a share qualification for its directors and that cannot be taken to be in conflict with the provisions of the Companies Act. It is not in dispute that in this case the articles of association were not modified after the coming into force of the Companies Act of 1956 during the assessment years in question. We cannot, therefore, agree with the assessee that it is not necessary for a managing director to hold the minimum number of shares referred to in article 71 of the articles of association. It is in the light of this admitted position we have to see whether the remuneration as managing director received by the karta of the Hindu undivided family is the income of the Hindu undivided family. The learned counsel for the assessee would contend that even if the continuance of the karta as managing director of the company was dependent upon the Hindu undivided family holding the required shares, still the remuneration received by the karta cannot be taken to be the income of the Hindu undivided family in view of the decision of the Supreme Court in Raj Kumar Singh Hukam Chandji v. Commissi....
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....hat his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt the income of the Hindu undivided family. Applying the said broad principle the Supreme Court held in that case that the assessee did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm, that he was elected as a managing director by the board of directors, that he received his salary for personal services rendered, that there was no material to show that he was elected managing director on behalf of the family and that, therefore, the remuneration received by the managing director cannot be treated as the income of the Hindu undivided family. The above decision definitely supports the assessee's contention in this case. The learned counsel for the revenue, however, points out that the earlier decisions of the Supreme Court have held to the contrary on the same set of facts and that, therefore, these decisions ought to be followed in preference to the above decision. But, a....
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....res, for the other three brothers owned the same number of shares as Balakrishnan's family holds and if that 840 shares held by Balakrishnan alone is the reason for his being elected as the managing director, the other three brothers who owned the same number of shares are entitled to claim to be appointed as managing director. Therefore, it is not possible to say that Balakrishnan has been elected as managing director merely because he was holding 840 shares in the company. When an election to the managing director has taken place as between the persons holding equal number of shares, it cannot be said that the election of one of them was only because he held 840 shares in the company. Further, the main test propounded by the Supreme Court in the above decision is to see whether the remuneration received by Balakrishnan is in substance one of the modes of the return for the shares held by the family. As already stated, in this case, there are three other persons who owned the same number of shares each and if the remuneration is treated as a return for the shares held by Balakrishnan's family, then the other brothers will also be entitled to claim equal return for their investment....