Case: Mathura Prasad Vs. Commissioner of Income Tax, Uttar Pradesh

that if the manager was appointed a managing director as representing the Hindu undivided family, the income received would be taxable as the income of the Hindu undivided family. It was observed at page 130" The articles of association of the company provided for the appoint ment 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 the 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 same scheme, the managing directorship of the company when incorporated . . . . 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."7. In the present cases the Tribunal has found that Mathura Prasad had become a partner in the firm of Badri Prasad Jagan Prasad with the aid of the funds of the Hindu undivided family, and as a partner of the firm he was entrusted with the management of the Agarwal Iron Works and he earned the allowance which was claimed to be salary. The right to draw the allowance was, in the view of the Tribunal, made possible, by the use of family funds. The family funds enabled him to become a partner and to claim the allowance for the services rendered. There was in the view of the Tribunal an inseparable connection between the joint family funds and the allowance received. The right to draw the allowance therefore arose direcly from the joint family fundsIt may be recalled that in the second paragraph of clause 8 of the partnership agreement, though a monthly allowance of Rs. 1, 500 was named as the amount which Mathura Prasad was entitled to withdraw, the amount was liable to be reduced, if the profits earned did not justify the withdrawals, and Mathura Prasad was bound to refund the excess of the withdrawals over his appropriate share in the profits. Therefore, by the agreement it was intended that subject to a maximum of Rs. 1, 500 per month, Mathura Prasad will be entitled to make withdrawals commensurate with the profits of the firm. In the light of the principle laid down by this court in Kalu Babu Lal Chands case , it must be held that on the finding recorded by the Tribunal, the question, which it was claimed should be referred to the High Court, was concluded by the judgment of this court, and any further elaboration would have been academic. It cannot be denied and it was not disputed that the Tribunal is entitled to reject an application for reference, if the question of law, even though arising from the order, is academic or is concluded by a judgment of the highest court8. The decision in Piyare Lal Adishwar Lal v. Commissioner of Income-tax, on which reliance was sought to be placed, has no bearing on the question sought to be raised in this appeal. That was a case in which a member of a Hindu undivided family had furnished as 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 court rejected that claim. We see no analogy between a case in which the property of the Hindu undivided family is sought to be encumbered for obtaining a benefit which is essentially personal to the manager, and a case in which with the aid of the family funds the manager of the family is able to enter into a partnership and to earn allowance, which he would not otherwise have been entitled to receiveThe second contention needs no elaboration. It was suggested that Mathura Prasad earned the allowance sought to be brought to tax because of the special aptitude he possessed for managing the Agarwal Iron Works, and the allowance claimed by him was not earned by the use of the joint family funds. But no such contention was raised before the High Court. We have been taken through the petition filed in the High Court under section 66(2) of the Act, and there is no averment to the effect that Mathura Prasad had any special aptitude for management of the Agarwal Iron Works, and what was agreed to be paid to him was as remuneration for performing services because of such aptitude. Again, the Tribunal found as a fact that the right to draw the allowance was made possible by the use of the joint family funds which enabled Mathura Prasad to become a partner and claim remuneration. The finding was based on evidence, and the High Court could not ignore that finding9. It is unnecessary, therefore, to consider whether remuneration earned by a person from a partnership in which he is inducted because he brings into the partnership his joint family funds, would be regarded as separate income of such person and not taxable in the hands of the Hindu undivided family, if he possesses some special aptitude for performing the duties with which he is entrusted by the partnership10.

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

Explanation:
0[ds]It was conceded before the Tribunal that Mathura Prasad, the manager of the Hindu undivided family, had entered into a partnership as representing the Hindu undivided family of which be was the manager and for the benefit of the family. There is also no dispute that in the firm of Badri Prasad Jagan Prasad the assets of theIn the present cases the Tribunal has found that Mathura Prasad had become a partner in the firm of Badri Prasad Jagan Prasad with the aid of the funds of the Hindu undivided family, and as a partner of the firm he was entrusted with the management of the Agarwal Iron Works and he earned the allowance which was claimed to be salary. The right to draw the allowance was, in the view of the Tribunal, made possible, by the use of family funds. The family funds enabled him to become a partner and to claim the allowance for the services rendered. There was in the view of the Tribunal an inseparable connection between the joint family funds and the allowance received. The right to draw the allowance therefore arose direcly from the joint family fundsIt may be recalled that in the second paragraph of clause 8 of the partnership agreement, though a monthly allowance of Rs. 1, 500 was named as the amount which Mathura Prasad was entitled to withdraw, the amount was liable to be reduced, if the profits earned did not justify the withdrawals, and Mathura Prasad was bound to refund the excess of the withdrawals over his appropriate share in the profits. Therefore, by the agreement it was intended that subject to a maximum of Rs. 1, 500 per month, Mathura Prasad will be entitled to make withdrawals commensurate with the profits of the firm. In the light of the principle laid down by this court in Kalu Babu Lal Chands case , it must be held that on the finding recorded by the Tribunal, the question, which it was claimed should be referred to the High Court, was concluded by the judgment of this court, and any further elaboration would have been academic. It cannot be denied and it was not disputed that the Tribunal is entitled to reject an application for reference, if the question of law, even though arising from the order, is academic or is concluded by a judgment of the highest courtWe see no analogy between a case in which the property of the Hindu undivided family is sought to be encumbered for obtaining a benefit which is essentially personal to the manager, and a case in which with the aid of the family funds the manager of the family is able to enter into a partnership and to earn allowance, which he would not otherwise have been entitled toIt is unnecessary, therefore, to consider whether remuneration earned by a person from a partnership in which he is inducted because he brings into the partnership his joint family funds, would be regarded as separate income of such person and not taxable in the hands of the Hindu undivided family, if he possesses some special aptitude for performing the duties with which he is entrusted by the partnership