K.S. SUBBIAH PILLAI

THE COMMISSIONER OF INCOME TAX

MARCH 10, 1999

[S.P. BHARUCHA, S.S. MOHAMMED QUADRI

AND R.C. LAHOTI, JJ.)

Income Tax Act, 1922/lncome Tax Act, 1961 :

Hindu Undivided Family-Remuneration and Commission eamed by Karta-lncome Tax Appellate Tribunal, recording a finding that the

. remuneration and commission earned by Karta were 011 account of his personal qualifications and exertions-Held, the amounts cannot be treated as income of HUF.

Appellant assessee, a Hindu Undivided Family was assessed in State of Tamil Nadu for the assessment years 1959-60 to 1965- 66, 1969-70 and 1970-71 and in the State of Andhra Pradesh for the assessment years 1966-67 to 1968-69. The question whether the remuneration and commission received by the Karla was assessable in the hands of the assessee E Hindu Undivided Family, was referred to the High Court at Madras. A similar question was referred to the Andhra Pradesh High Court with regard to the assessment years 1966-67 to 1968-69. The Andhra Pradesh High Court answered the reference in favour of the assessee and the Revenue did not file any appeal in that case. The High Court at Madras F dissented from the view of the Andhra Pradesh High Court and held against the assessee. Aggrieved, the assessee filed the present appeals.

Allowing the appeals, this Court

HELD : 1.LThe broad principle that emerged, as rightly concluded G by the High Court, was whether the remuneration received by the coparcener was in .substance 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 compensation made for services rendered by the individual coparcener. If it was the former, it was the income of the HUF; but if it was the.

H 'iatter, then it was the income of the individual coparcener. [982-C]

KS. SUBBIAH PILLAI v. C.l.T. (BHARUCHA, J.] 981

1.2. The High Court failed to take into consideration the finding A ... recorded by the Income Tax Appellate Tribunal, which is the final fact finding authority, that the remuneration and commission that were earned by the Karta of the HUF were earned by him on account of his personal qualifications and exertions and not on account of the investment of the family funds in the company. Therefore, the income could nol. be treated B as the income of the HUF. [982-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 877-885 of 1991.

From the Judgment and Order dated 11.3.82 of the Madras High c Court in T.C. No. 791-94 and 825-29 of 1977.

Uttam Reddy, AV. Rangam and A Ranganathan for the Appellant.

K.N. Shukla, T.C. Sharma for B.K. Prasad for the Respondent.

The Judgment of the Court wad delivered by D ..

BHARUCHA., J. In these appeals filed by the assessee, which is a Hindu Undivided Family, we are concerned with the Assessment Years 1959-60 to 1965-66 and 1969-70 and 1970-71. The question that we are required to consider reads thus: E

"Whether, on the facts and in the circumstances of the case, the remuneration and commission received by Sri K.S.Subbiah Pillai was assessable in the hands of the assessee Hindu Undivided Family?

F It may be mentioned at the outset that the same assessee was assessed in Andhra Pradesh for the Assessment Years 1966-67 to 1968-69.

The same question arose in regard to those assessments. The question was answered on reference by the High Court of Andhra Pradesh in favour of the assessee and the Revenue did not carry the matter further.

The judgment, of the Andhra Pradesh High Court afore-mentioned was cited before the High Court at Madras "in the reference proceedings

;. out of which these appeals arise but the Madras High Court dissented therefrom. It dilated at length on Hindu Law but, with great respect, missed the point that the Income Tax Appellate Tribunal is the final H

SUPREME COURT REPORTS

[1999] 1 S.C.R.

A fact-finding authority and, as it has itself noticed in the judgment under

challenge, the Tribunal had held that the remuneration and commission received by the Karta of the HUF were earned by him on account of his personal qualifications and exertions and not on account of the investment of the family funds in the company and, therefore, could not be treated as the income of the HUF.

B The High Court, having analysed the law, rightly concluded that the broad principle that emerged was whether the remuneration received by the coparcener was in substance one of the modes of return made to the family because of the investment of the family funds in the business or C whether it was compensation made for services rendered by the individual coparcener. If it was the former, it was the income of the HUF: but if it was the latter, then it was the income of the individual coparcener. Applying this test, the High Court held, "There is absolutely no evidence to support the contention of the learned counsel for the assessee that the development of the business was due to any peculiar qualification or D experience on the part of the assessee. "

We cannot agree. Having analysed the law, as "it did correctly, the High Court should have taken note of the finding recorded by the Tribunal and noticed by it earlier, namely, that the remuneration and commission E that were earned by the Karta were earned by him 011 account of his

personal qualifications and exertions and not on account of the investment of the family funds and, therefore, should have held that the -income could not be treated as the Income of the HUF.

In the result, the appeals are allowed. The judgment and order under p appeal is set aside. The question is answered in the negative and in favour

of the assessee. No order as to costs.

R.P.

Appeals allowed.