Balak Ram (Huf) vs Commissioner Of Income-Tax
1994 Latest Caselaw 562 Del

JUDGMENT

K. Shivashankar Bhat, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1972-73, at the instance of the assessed. The question referred as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the remuneration received by Shri Balak Ram, karta of the assessed-Hindu undivided family was assessable in the assessed's hands ?"

2. The Appellate Tribunal in its order states that it was not in dispute that - (1) that the funds for the allotment of the shares in the company to Balak Ram (director) and his son, Vijay Kumar, were the hands of the assessed-Hindu undivided family; and (2) that the said revenue received by Balak Ram, the karta of the assessed-Hindu undivided family from the company in question has been taxed in the hands of the assessed-Hindu undivided family right up to the accounting period relevant to the assessment year 1971-72 and that this revenue received by Balak Ram along with other income of the assessed-Hindu undivided family were being merged with each other. The history of the formation of the company also shows that out of the larger Hindu undivided family, the smaller Hindu undivided family formed the partnership and subsequently converted themselves into a limited company. Thus the respective shares of all concerned persons certainly belonged to the erstwhile larger Hindu undivided family. It is in these circumstances and having regard to the fact that the articles of association of the company specifically provided for Balak Ram to be appointed as a director for life, the Appellate Tribunal ultimately concluded that the remuneration paid to the said Balak Ram belonged to the Hindu undivided family. The relevant finding of the Appellate Tribunal is as follows :

"Here the assessed - Hindu undivided family owns at least 1/2 share of the company. The company was floated with the funds of the family. Balak Ram itself contributed nothing. Balak Ram was appointed as a director under the articles of association of the company. The remunerations payable to him were fixed under the articles of association. The remuneration received in the past by Balak Ram has been credited to the account of the family and not to his personal account. On these facts an irresistible conclusion emerges that Balak Ram became the managing director because of the joint shares held by his family and not on account of any personal qualification and that the remunerations paid to him were the income of the assessed-Hindu undivided family. Even if there was some element of personal service that would not change the character of the income."

3. We do not find any error in the approach of the Appellate Tribunal. The finding is fully justified in view of the decision of the Supreme Court in P. N. Krishna Iyer v. CIT [1969] 73 ITR 539. The relevant test had been propounded by the Supreme Court at page 545 as follows :

"Income received by a member of a Hindu undivided family from a firm or a company in which the funds of the Hindu undivided family are invested, even though the income may be partially traceable to personal exertion of the member, is taxable as the income of the Hindu undivided family, if it is earned by detriment to the family funds or with the aid or assistance of those funds; otherwise it is taxable as the members' separate income."

4. In view of the above, we have no hesitation in agreeing with the conclusion reached by the Appellate Tribunal. The question referred to us is answered in the affirmative and in favor of the Revenue. No costs.