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

1. A Hindu undivided family consisting of fivePrasad, Har Prasad, Mathura Prasad, Sheo Prasad, Basdeo Prasad and their nephew, Dilsukh Rai (son of Badri Prasad, deceased), owned considerable property and carried on different businesses in the names of Messrs. Agarwal Iron Works, Agra, Messrs. Jagan Prasad Sheo Prasad, Messrs. Jagan Prasad Har Prasad and Messrs. Nek Ram Jagan Prasad. On October 11, 1948, a partition of the properties and the businesses of the family was made among the six branches and as a result of that partition a sixth share was allotted in the assets partitioned to the smaller Hindu undivided family of which Mathura Prasad was the managerAfter partition of the joint family estate, the managers of the six branches entered into an agreement of partnership to carry on in the name of Badri Prasad Jagan Prasad the businesses which were formerly conducted on behalf of the larger Hindu undivided family. By clause 8 of the partnership agreement, it wasthe business of a place shall be managed by one of the members who reside at a place of the business to the best of his or their ability. The allowances of the managing partners of a particular place shall be debited to the profit and loss account of that place at the end of the year. But such allowance shall not be more than profits disclosed by that business of that place in that particular year. If the business is managed by more than one partner, such allowance shall be divided equally between them. The member or members shall be entitled to withdraw for such allowance a sum of money monthly which will approximately be proportionate to the expected profits of the year. But if he or they have withdrawn more than the actual profits, disclosed at the end of the year, the balance of withdrawal over and above the profits shall have to beto Agra office, i.e., Agarwal Iron Works, Shri Mathura Prasad who will manage (sic) the allowance of Rs. 1, 500 but for him too the terms mentioned above will apply, i.e., if the profits disclosed at the place do not justify the withdrawals in the manner mentioned above, he will have to refund the excess of the withdrawals over the profits.For the assessment yearthe Hindu undivided family of Mathura Prasad filed a return for the previous year Samvat 2006. Mathura Prasad filed another return in the status of an individual for the same previous year and in that year he disclosed an income of Rs. 21, 000. It received as remuneration from the firm of Messrs. Badri Prasad Jagan Prasad ". Thed, Agra, held that the income disclosed by Mathura Prasad as an individual was liable to be taxed in the hands of the Hindu undivided family and directed inclusion of that amount in the assessment of the Hindu undivided family of Mathura Prasad. The order passed by theOfficer was confirmed in appeal by the Appellate Assistant Commissioner and by thehe appellant then applied under section 66(1) of the IndianAct, 1922, for an order referring the following question to the High Court for itsWhether, on the facts and in the circumstances, the sum of Rs. 21, 000 (received by Shri Mathura Prasad as salary from Agarwal Iron Works, Agra) was the income of the assessee family or Shri Mathura Prasad in his personal capacity ?Tribunal rejected the application, and refused to state a case to the High Court. A petition submitted to the High Court under section 66(2) of the Act was also rejected. The Tribunal and the High Court were of the view that the question of law sought to be raised was concluded by a judgment of this court in Commissioner ofv. Kalu Babu Lal Chand and need not be referred for opinion. With special leave, the appellant has appealed to this court

Reasoning: 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