Case: Commissioner Of Income-Tax, Bangalore Vs. Shri D. C. Shah

income of the Hindu Undivided Family. In M. D. Dhanwatey v. Commissioner of Income-tax, 68 ITR 285=(AIR 1968 SC 682 ) the facts were parallel to the facts in V. D. Dhanwateys case, 68 ITR 365 =(AIR 1968 SC 683 ) (supra) and the salary received by the Karta of the Hindu Undivided Family was treated as the income of the family. 4. In S. R. M. CT. PL. Palaniappa Chettiar v. Commissioner of Income-tax, 68 ITR 221 =(AIR 1968 SC 678 ) the material facts were different. The karta of a Hindu Undivided Family acquired 90 out of 300 shares in a transport company with the funds of the family. In course of time he became the Managing Director of the Company. As Managing Director the karta was entitled to salary and commission on the net profits of the company, and was entrusted with control over the financial and administrative affairs of the company. The only qualification under the Articles of Association for the office of a Director was the holding of not less than 25 shares in his own right. It was found that the shares were acquired by the family not with the object that the karta should become the Managing Director, but in the ordinary course of investment and there was no real connection between the investment of the joint family funds in the purchase of the shares and the appointment of the karta as Managing Director of the company. It was held therefore that the remuneration of the Managing Director was not earned on accounts of any detriment to the joint family assets and the amounts received by the karta as Managing Directors remuneration, commission and sitting fee were not assessable as the income of the Hindu Undivided Family. 5. In P. N. Krishna Iyer v. Commissioner of Income-tax Kerala, Civil Appeal No. 1997 of 1966, D/- 3-9-1968 = (AIR 1969 SC 893 ) the principle laid down in V. D. Dhanwateys case 68 ITR 365 = (AIR 1968 SC 683 ) (supra), was applied. It was held that the remuneration received by the assessee from the company of which he was the Managing Director together with commission and sitting fee, should be included in the assessment of the Hindu Undivided Family. It was pointed out that the shares which qualified the assessee to become a member of the company were purchased with the aid of the joint family funds. The shares which were allotted to the assessee in lieu of his services were also treated as shares belonging to the joint family. The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued. The income was primarily earned by utilising the joint family assets or funds and the mere fact that in the process of gaining the advantage an element of personal service or skill or labour was involved did not alter the character of the income. In cases of this class the character of the receipt must be determined by reference to its source, its relation to the assets of the family and the proximity of the connection between the investment from the joint family funds and the remuneration paid. Applying the principle laid down in V. D. Dhanwateys case, 68 ITR 365 = (AIR 1968 SC 683 ) (supra) it was held that the tribunal was justified in holding that the income from the salary, commission or sitting fees obtained by the assessee did not represent his individual income but was the income of the Hindu Undivided Family of which he was the karta. 6. In Commissioner of Income-tax Mysore v. G. V. Dhakappa, Civil Appeal No. 713 of 1965, D/- 23-7-1968 (SC) the principle laid down in V. D. Dhanwateys case, 68 ITR 365 =(AIR 1968 SC 683 ) (supra) was applied again. It was held that there was no finding that the income which was received by G. V. Dhakappa was directly related to any assets of the family utilised in the partnership, and, therefore, the income of G. V. Dhakappa cannot be treated as the income of the Hindu Undivided Family. 7. In our opinion, the present case falls within the principle laid down by this Court in S.R.M. Ct. PL. Palaniappa Chettiars case, 68 ITR 221 =(AIR 1968 SC 678 ) (supra). It has been found that Shri D. C. Shah was a man of rich experience in the line of business which these two firms were carrying on. Clauses 9 and 10 of the Partnership deed dated 5th June, 1961 indicate that the remuneration was paid not because of the family funds invested in the partnership but for the personal qualification of Shri D. C. Shah. In the case of Oriental Can Manufacturing Company clause 14 provided for Shri K. K. Dhote being appointed as the Managing partner. After the said Shri Dhote retired Shri D. C. Shah was appointed as the Managing partner during the assessment year 195960. Clause 15 of the partnership deed provided for such an appointment. A reading of Clauses 14, 15 and 16 of the Partnership Deed indicates that the remuneration was paid for the specific acts of management done by Shri D. C. Shah resting on his personal qualification and not because he represented the firm. It should also be noticed that no other partner was paid any salary. Upon the particular facts of this case, it is manifest that there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid by the partnership to Shri D.C. Shah. It follows that the remuneration of Shri D.C. Shah was not earned on account of any detriment to the joint family assets and the amounts of remuneration received by Shri D.C. Shah as the Managing partner of the two partnerships were not assessable as income of the Hindu Undivided Family.

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

Explanation:
0[ds]7. In our opinion, the present case falls within the principle laid down by this Court in S.R.M. Ct. PL. Palaniappa Chettiars case, 68 ITR 221  =(AIR 1968 SC 678  ) (supra). It has been found that Shri D. C. Shah was a man of rich experience in the line of business which these two firms were carrying on. Clauses 9 and 10 of the Partnership deed dated 5th June, 1961 indicate that the remuneration was paid not because of the family funds invested in the partnership but for the personal qualification of Shri D. C. Shah. In the case of Oriental Can Manufacturing Company clause 14 provided for Shri K. K. Dhote being appointed as the Managing partner. After the said Shri Dhote retired Shri D. C. Shah was appointed as the Managing partner during the assessment year 195960. Clause 15 of the partnership deed provided for such an appointment. A reading of Clauses 14, 15 and 16 of the Partnership Deed indicates that the remuneration was paid for the specific acts of management done by Shri D. C. Shah resting on his personal qualification and not because he represented the firm. It should also be noticed that no other partner was paid any salary. Upon the particular facts of this case, it is manifest that there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid by the partnership to Shri D.C. Shah. It follows that the remuneration of Shri D.C. Shah was not earned on account of any detriment to the joint family assets and the amounts of remuneration received by Shri D.C. Shah as the Managing partner of the two partnerships were not assessable as income of the Hindu Undivided Family.