1974 (5) TMI 11

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....ed in the purchase of the shares of the company of which the assessee became the director. On appeal the finding was affirmed and it was held that the managing director's remuneration was the income of the Hindu undivided family. The assessee carried the dispute to the Tribunal but failed. At the instance of the assessee the Tribunal has referred the following question of law for the opinion of this court: "Whether, upon the facts and circumstances of the case, the amount of Rs. 6,000 received by Sri Hari Krishna as salary in the capacity of a managing director of M/s. Beharilal Mannilal Investors and Financiers Pvt. Ltd. constitutes his individual income or is liable to tax in the hands of the assessee Hindu undivided family ?" ....

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....to conduct the business of the company. He was given powers to borrow, to lend and invest money and to acquire and dispose of property and to do all other acts and things necessary to act as managing director. Hari Krishna's Hindu undivided family consisted of himself, his wife and four sons. In 1953, there was a partial partition under which out of 200 shares held by this Hindu undivided family in the company, 50 were allotted to Hari Krishna and the remaining were given to the sons. The sons separated from the family. Thereafter, the family consisted of Hari Krishna and his wife only. Since the partition and till the assessment year 1963-64, the managing director's remuneration received by Hari Krishna was assessed in the status of an ....

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....ndivided family revived and the shares held by Hari Krishna belonged to the Hindu undivided family consisting of himself, his wife and his new born son. The fact that the department chose to assess Hari Krishna in the status of an individual till the birth of a son did not mean that the nature and character of the shares change from ancestral to individual. Since the nucleus for the qualifying shares was Hindu undivided family funds, the remuneration received as managing director would belong to the Hindu undivided family. With regard to the other plea, the Tribunal held: "It is no doubt true that under the terms of the agreement between the company and the karta of the assessee appointing the latter as the managing director of the fo....

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....ay of remuneration earned by Shri Hari Krishna arose to the family and had been rightly assessed in its hands." The Supreme Court in Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax considered the Privy Council decision in Gokul Chand Amar Nath v. Hukam Chand Nathu Lal, and held that the principle adopted in it that "in considering whether gains are partible, there is no valid distinction between the direct use of the joint family funds and a use which qualifies the member to make the gains by his own efforts" is no longer valid. The court considered its own previous decisions and ultimately held that the relevant tests are: "(1) Whether the income received by a coparcener of a Hindu undivided family as remuneration had any....

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....y 50 which enabled Hari Krishna to become a director. No doubt, being a director was a qualifying condition for appointment as managing director, but there were other qualified directors in this company. Hari Krishna became a managing director by virtue of the agreement entered into by him with the company under which he had to render services befitting an investment and financing company. The duties that he had to perform for the company required experience and knowledge in the line of the business carried on by the company. There is nothing to suggest that the joint family suffered any detriment because of the remuneration paid to the managing director. There is no finding that the shares held by the family did not yield dividend. The fam....