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

1. The respondent is a Hindu Undivided Family (hereinafter called the assessee) of which Shri D. C. Shah is the Karta. The assessment years are 1959-60 and 1960-61 and the relevant accounting periods are Samvat years 2014 and 2015. The assessee through its karta Shri D. C. Shah was a partner in the firms of (1) M/s. C. U. Shah 1and Co. and (2) M/s. Oriental Can Manufacturing Co. as per terms and conditions set out in the Instruments of Partnership dated 5th June, 1961 and 11th September, 1957. Shri D. C. Shah was paid a remuneration of Rs. 12000/- per year for both the assessment years by M/s. C. U. Shah and Company. He was paid Rs. 10000/- for the assessment year 1959 -60 by the Oriental Can Manufacturing Company. The amounts received by Shri D. C. Shah were shown by the assessee in its returns of income along with balance of the share income from the aforesaid firms. The Income Tax Officer in assessing the Hindu Undivided family included the remuneration received by Shri D. C. Shah as a part of the share income from, the respective firms. Before the Appellate Assistant Commissioner the assessee contended that the remuneration received by Shri D. C. Shah was his personal income and the amounts were wrongly shown in the returns of the Hindu Undivided Family as its income and should not have been included in the assessment. In so contending the assessee relied on clauses 8, 9 and 10 of the Instrument of Partnership dated 5th June, 1961 by which the firm of M/s. C. U. Shah and Company was constituted. The assessee also relied on clauses 14, 15 and 16 of the Instrument of Partnership dated l1th September, 1957 by which the firm of M/s, Oriental Can Manufacturing Company was constituted

Reasoning: 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.