Case: Prem Nath and Others Vs. Commissioner of Income Tax, Delhi and Rajasthan

1. The assessee is a Hindu undivided family. Prem Nath, the manager of the family, was admitted as representing the family to a partnership styled "M/s. K. C. Raj & Company". Under the terms of the partnership Prem Nath was entitled to an "allowance of Rs. 700 per month" for "rendering service" to the partnership. In proceedings for assessment ofx of the Hindu undivided family, thex Officer rejected the contention that the remuneration paid to Prem Nath was the individual income of Prem Nath. The order was confirmed in appeal by the Appellate Assistant Commissioner and, in second appeal, by thex Appellate Tribunal The Tribunal submitted the following question to the High Court of Punjab at Delhi for opinion      "Whether the remuneration received by Prem Nath, karta of theu undivided family, for services rendered to the firm of M/s. K. C. Raj & Co. and thep of M/s. Kishan Lal in which he is a partner representing the interests of theu undivided family was rightly included in the total income of theu undivided family ?"      The High Court answered the question in the affirmative. With special leave, the assessee has appealed to this court

Reasoning: In Commissioner ofx v. D. C. Shah, a Hindu undivided family was a partner in two firms through its manager. The manager received remuneration from the firm. This court held that, in the absence of any real and sufficient connection between the investment of the joint family funds and the remuneration paid to the manager, the remuneration was not earned on account of any detriment to the joint family assets and the remuneration received by the manager as the managing partner of the two firms was not assessable as the income of the Hindu undivided familyThis court in Raj Kumar Singh Hukam Chandji v. Commissioner of, after a review of the decisions, observed"......... the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family, but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener had rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that lie had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family."Applying these principles, there can be no doubt that the income received by Prem Nath was remuneration for services rendered by him and there was no real and sufficient connection between the investment of the joint family assets and the remuneration paid to himThe answer to the question referred must be in the negative