Case: S. Rm. Ct. Pl. Palani Appa Chettiar Vs. The Commissioner Of Income-Tax, Madras

had any. The Articles of Association of the Company provided for the appointment as managing director of the very person who, as the Karta of the family, had promoted the Company. The acquisition of the business, the floatation of the Company and appointment of the managing director appear to us to be inseparably linked together The joint family assets were used for acquiring the concern and for financing it and in lieu of all that detriment to the joint family properties the joint family got not only the shares standing in the names of two members of the family but also, as part and parcel of the scheme, the managing directorship of the company when incorporated.The recitals in the agreement also clearly point to the fact of B. K. Rohatgi having been appointed managing director because of his being a promoter of the company and having actually taken over the concern of India Electric works from Mikhi Ram and others. The finding in this case is that the promotion of the Company and the taking over of the concern and the financing of it were all done with the help of the joint family funds and the said B. K. Rohatgi did not contribute anything out of his personal funds if any In the circumstances, we are clearly of opinion that the managing directors remuneration received by B. K. Rohatgi was, as between him and the Hindu Undivided Family, the income of the latter and should be assessed in its hands."Now, what are the facts found by the Appellate Tribunal in the present case? In 1934, the joint family had acquired 90 shares out of the 300 shares of the company. The shares were acquired with the funds of the Hindu Undivided Family of which the father was the Karta. On the demise of one of the directors, the assessee became a director in 1941 and on the death of another director who was managing the business the assessee became the Managing Director with effect from 1942. It is apparent therefore that the joint family had control only of 90 out of 300 shares and the shares were purchased in the ordinary course of business and not for the purpose of qualification of the karta to become a director. The shares were purchased in 1934, about 8 years before the Karta was appointed as the managing director. It is apparent that the shares were purchased by the joint family not with the object that the Karta should become the managing director but in the ordinary course of investment. To put it differently, there was no real connection between the investment of joint family funds in the Purchase of the shares and the appointment of the Karta as managing director of the company. Applying the doctrine of Hindu law, the remuneration of the managing director was not earned by any detriment to the joint family assets. We are therefore of the opinion that the High Court was in error in holding that the present case falls within the principle of the decision of this Court in l960-l SCR 320 - (AIR 1959 SC 1289 ). On the contrary, we are of the opinion that the present case bears analogy to the decision of this Court in 1960-3 SCR 669 = (AIR 1960 SC 997 ). In that case a member of a Hindu Undivided Family had furnished as a security the properties of the family under an agreement whereby he was appointed treasurer of a bank. Remuneration received by the manager of the family for working as a treasurer was claimed to be income of the Hindu Undivided Family, because the properties of the family were furnished as security, but this claim was rejected by this Court on the ground that there was no detriment and risk to the joint family property and the emoluments of the treasurer could not be treated as an accretion to the income of the Hindu Undivided Family. We consider it also necessary to state that the decision of Madras High Court in 195018 ITR 194 = (AIR 1950 Mad 610 ) was not impliedly overruled by this Court in 1960-1 SCR 320 = (AIR 1959 SC 1289 ). It was merely pointed out that the material facts of that case were different from those of Kalu Babu Lal Chands case, 1960-1 SCR 320 = (AIR 1959 SC 1289 ). It was, for instance, found in 1950-18 ITR 194 = (AIR 1950 Mad 610 ) that the remuneration of the managing director was earned by rendering services to the bank and no part of the Family funds was utilised except that the necessary shares to acquire the qualification of a managing director were purchased out of joint family funds. It was held that there was no detriment to the family property in any manner or to any extent. In view of this finding it follows that the remuneration of the managing director could not be treated as an accretion to the income of the joint family and taxed in its hands. The process of reasoning of the Madras High Court in 1950-18 ITR 194 = (AIR 1950 Mad 610 ) may be open to criticism and may not be sound but,in our opinion, the actual decision in that case is correct and is supported by the principle that there is no detriment to the family property and no part of the family funds had been spent or utilised for acquiring the remuneration of the managing director.The facts in the present case are almost parallel to those in 1950-18 ITR 194 = (AIR 1950 Mad 610 ) and there is no detriment to the joint family assets and no part of the joint family property was spent in earning the remuneration or making the acquisition. It therefore follows that the principle of the decision in 1960-1 SCR 320 = (AIR 1959 SC 1289 ) cannot be applied for deciding the question presented for determination in this case.

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

Explanation:
1[ds]Applying the doctrine of Hindu law, the remuneration of the managing director was not earned by any detriment to the joint family assets. We are therefore of the opinion that the High Court was in error in holding that the present case falls within the principle of the decision of this Court in l960-l SCR 320 - (AIR 1959 SC 1289  ). On the contrary, we are of the opinion that the present case bears analogy to the decision of this Court in 1960-3 SCR 669   = (AIR 1960 SC 997  ). In that case a member of a Hindu Undivided Family had furnished as a security the properties of the family under an agreement whereby he was appointed treasurer of a bank. Remuneration received by the manager of the family for working as a treasurer was claimed to be income of the Hindu Undivided Family, because the properties of the family were furnished as security, but this claim was rejected by this Court on the ground that there was no detriment and risk to the joint family property and the emoluments of the treasurer could not be treated as an accretion to the income of the Hindu Undivided Family. We consider it also necessary to state that the decision of Madras High Court in 195018 ITR 194 = (AIR 1950 Mad 610  ) was not impliedly overruled by this Court in 1960-1 SCR 320   = (AIR 1959 SC 1289  ). It was merely pointed out that the material facts of that case were different from those of Kalu Babu Lal Chands case, 1960-1 SCR 320   = (AIR 1959 SC 1289  ). It was, for instance, found in 1950-18 ITR 194   = (AIR 1950 Mad 610  ) that the remuneration of the managing director was earned by rendering services to the bank and no part of the Family funds was utilised except that the necessary shares to acquire the qualification of a managing director were purchased out of joint family funds. It was held that there was no detriment to the family property in any manner or to any extent. In view of this finding it follows that the remuneration of the managing director could not be treated as an accretion to the income of the joint family and taxed in its hands. The process of reasoning of the Madras High Court in 1950-18 ITR 194   = (AIR 1950 Mad 610  ) may be open to criticism and may not be sound but,in our opinion, the actual decision in that case is correct and is supported by the principle that there is no detriment to the family property and no part of the family funds had been spent or utilised for acquiring the remuneration of the managing director.The facts in the present case are almost parallel to those in 1950-18 ITR 194   = (AIR 1950 Mad 610  ) and there is no detriment to the joint family assets and no part of the joint family property was spent in earning the remuneration or making the acquisition. It therefore follows that the principle of the decision in 1960-1 SCR 320   = (AIR 1959 SC 1289  ) cannot be applied for deciding the question presented for determination in this case.