Case: Raj Kumar Singh Hukam Chandji Vs. Commissioner of Income Tax, M.P

partner. He was found to be a man of rich experience in the line of business which the two firms were carrying on. Clause (8) of the partnership deed of the first, firm provided that Shah who has been managing the business of the firm shall continue to act as managing partner for conducting the said business free from any interference of the other partners with power to manage, direct, appoint and/ or remove any one of the employees and /or do all other things including the right to draw cheques, to make, deliver and accept documents either legal or commercial in respect of the partnership business. Clause (9) provided that Shah shall continue to be the managing partner for his lifetime or his retirement whichever is earlier. In the deed of the second firm Clause (14) provided for appointment of another partner, K. as the managing partner and gave the managing partner power similar to those in the deed of the other firm. Clause (15) provided for Shahs appointment after Ks retirement and Shah was appointed after his retirement. No other partner was paid any salary in this firm. On these facts thin Court held that there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid to Shah and that remuneration was not earned on account of any detriment to the joint family assets and the remuneration received by Shah as the managing partner of the two firms was not assessable as the income of his Hindu undivided family. 16. At first sight there appears to be conflict between the two lines of decisions namely Kalu Babus case, 37 ITR 123 = (AIR 1959 SC 1289 ) and Mathura Prasads case, (1966) 60 ITR 428 (SC); two Dhanwateys cases, 68 ITR 365 = (AIR 1968 SC 683 ) and 68 ITR 385 = (AIR 1968 SC 682 ) and Krishna Iyers case. 73 ITR 539 , Palaniappa Chettiars case, 68 ITR 221 = (AIR 1968 SC 678 ), Dakappas case, (1969) 72 ITR 192 (SC) and D. C. Shahs case, 73 ITR 692 = (AIR 1969 SC 927 ) on the other. The line that demarcates these two lines of decisions is not very distinct but on a closer examination that line can be located. In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babus case, 37 ITR 123 = (AIR 1959 SC 1289 ) makes reference to the observations of Lord Sumner in Gokal Chands case, 48 Ind App 162 = (AIR 1921 PC 35) that"in considering whether gains are partible, there is no valid distinction between the direct me of the joint family funds and a use which qualifies the member to make the gains by his own efforts." We think that that principle is no more valid. The other tests enumerated are:(1) whether the Income received by a coparcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds; (2) whether the income received was directly related to any utilization of family assets; (3) whether the family had suffered any detriment in the process of realization of the income and (4) whether the income was received with the aid and assistance of the family funds; 17. In our opinion from these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered ,some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that 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 tests enumerated above to the facts found by the tribunal in the present case, there is hardly any room to doubt that the income in question was the individual income of Rajkumar. He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm. He was elected as a managing director by the board of directors. The tribunal has found that he received his salary for his personal services. There is no material to hold that he was elected managing director on behalf of the family. In the past the salary received by him was assessed as his individual income. The same was the case as regards the salary received by the other directors. The tribunal has found that he was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property. It has further found that the managing directorship was an employment of personal responsibility and ability. In these circumstances we agree with the conclusions reached by the tribunal that the income in question cannot be treated as the income of the assessee. For these reasons we are unable to agree with the High Court that the income in question can be held to be the income of the assessee.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]16. At first sight there appears to be conflict between the two lines of decisions namely Kalu Babus case, 37 ITR 123   = (AIR 1959 SC 1289  ) and Mathura Prasads case, (1966) 60 ITR 428 (SC); two Dhanwateys cases, 68 ITR 365   = (AIR 1968 SC 683  ) and 68 ITR 385   = (AIR 1968 SC 682  ) and Krishna Iyers case. 73 ITR 539  , Palaniappa Chettiars case, 68 ITR 221   = (AIR 1968 SC 678  ), Dakappas case, (1969) 72 ITR 192 (SC) and D. C. Shahs case, 73 ITR 692   = (AIR 1969 SC 927  ) on the other. The line that demarcates these two lines of decisions is not very distinct but on a closer examination that line can be located. In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babus case, 37 ITR 123   = (AIR 1959 SC 1289  ) makes reference to the observations of Lord Sumner in Gokal Chands case, 48 Ind App 162 = (AIR 1921 PC 35) that"in considering whether gains are partible, there is no valid distinction between the direct me of the joint family funds and a use which qualifies the member to make the gains by his own efforts."We think that that principle is no more valid. The other tests enumerated are:(1) whether the Income received by a coparcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds;(2) whether the income received was directly related to any utilization of family assets;(3) whether the family had suffered any detriment in the process of realization of the income and(4) whether the income was received with the aid and assistance of the family funds;17. In our opinion from these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered ,some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that 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 tests enumerated above to the facts found by the tribunal in the present case, there is hardly any room to doubt that the income in question was the individual income of Rajkumar. He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm. He was elected as a managing director by the board of directors. The tribunal has found that he received his salary for his personal services. There is no material to hold that he was elected managing director on behalf of the family. In the past the salary received by him was assessed as his individual income. The same was the case as regards the salary received by the other directors. The tribunal has found that he was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property. It has further found that the managing directorship was an employment of personal responsibility and ability. In these circumstances we agree with the conclusions reached by the tribunal that the income in question cannot be treated as the income of the assessee. For these reasons we are unable to agree with the High Court that the income in question can be held to be the income of the assessee.