Lachman Das Bhatia And Sons vs The Commissioner Of Income-Tax
2007 Latest Caselaw 741 Del

JUDGMENT

Madan B. Lokur, J.

Page 1295

1. The following questions of law have been referred for our opinion under Section 256(1) of the Income Tax Act, 1961:

1. Whether on the facts and in the circumstances of the case, the salary of Rs. 4,800/- and commission of Rs. 3,737/- received by Shri Lachhman Dasss Bhatia from the firm M/s Chetan Dass Lachhman Dasss in which he was a partner as Karta of his HUF, is includible in the total income of the assessed HUF.

Page 1296

2. Whether, on the facts and in the circumstances of the case, the HUF was barred by Section 247 of Income Tax Act, 1961 from claiming in its Karta from the firm in which he was a partner in his representative capacity and so allocated to his share under Section 67 of Income-tax Act, 1961, was not the real income of the HUF but was the individual income of the Karta.

2. A perusal of the second question reveals that there are some typing mistakes but essentially both the questions raise the issue whether the salary and commission received by Lachhman Dass Bhatia from the firm M/s Chetan Dass Lachhman Dass in which he was a partner by virtue of being a Karta of a Hindu Undivided Family is includible in the total income of the Hindu Undivided Family or the individual, that is, Lachhman Dass Bhatia.

3. We find that the firm M/s Chetan Dass Lachhman Dass was constituted by a deed of partnership dated 23rd April, 1977. There are two partners in the firm, that is, Lachhman Dass Bhatia as a representative and Karta of M/s Lachhman Dass Bhatia and Sons Hindu Undivided Family (the assessed) with 50% share in the profit and loss of the firm and Sh.Anil Kumar Bhatia who happens to be the son of Lachhman Dass Bhatia having the balance 50% share.

4. It is the case of the assessed that Lachhman Dass Bhatia rendered services for which he was paid some remuneration by way of salary and by way of commission. The view expressed by the Income Tax Appellate Tribunal was that the salary and commission is required to be included in the hands of the HUF as a partner and that is basis of the questions of law referred for our opinion.

5. In Prem Nath and Ors. v. Commissioner of Income Tax , the Supreme Court considered several decisions on the question of remuneration received by a member of the HUF who has joined a partnership as representing the HUF and in which the assets of the joint family are invested. The Supreme Court reviewed the case law and concluded that if there is a 'real and sufficient' connection between the joint Hindu Undivided Family, who is the partner, and the remuneration paid, then the remuneration is taxable as the income of the HUF. On the facts of that case, it was held that since Prem Nath was a working partner and there was no evidence on record to suggest that the remuneration agreed to be paid was not for services rendered to the partnership, it was held that the income received by Prem Nath was remuneration for services rendered by him and not the HUF.

6. In a subsequent decision rendered by this Court in Pannalal Girdharilal v. Commissioner of Income Tax (1971) 81 ITR 624, the law laid down by the Supreme Court was applied and it was noted that the Supreme Court had effectively brought out a clear distinction between the different capacities of the partner, one in which he represents the Hindu Undivided Family and the other in which he represents none but himself.

Page 1297

7. In so far as the present case is concerned, we find that the investment of the HUF in the firm was about Rs. 47,000/- and that of Anil Kumar Bhatia son of Lachhman Dass Bhatia was about Rs. 19,000/- as on 31st March, 1978. In other words, it is quite clear that the firm is really being run as a family concern with the investment of family funds.

8. Quite apart from this, we find that the firm had filed an appeal before the Commissioner of Income Tax(Appeals) in respect of assessment year 1978-79 and in the order passed by the Commissioner on 4th March, 1982, it was noted that the firm was required to lead evidence for the extra services rendered by Lachhman Dass Bhatia in his individual capacity other than as Karta of the HUF being a partner of the firm. The firm failed to lead any such evidence. It was also noted that no evidence was produced to establish that any services were rendered by Lachhman Dass Bhatia in his individual capacity for which commission was paid other than services rendered by him as a Karta of the HUF being a partner in the firm. This clearly shows that any efforts put in, if at all, by Lachhman Dass Bhatia in the management of the firm were in his capacity as Karta of the HUF Lachhman Dass Bhatia and Sons (the assessed) and not in his individual capacity. In other words, there is a 'real and sufficient' connection between the joint family funds and the salary and commission paid by the firm to Lachhman Dass Bhatia. There is no evidence on record to show that Lachhman Dass Bhatia has rendered any services which could dispel this view or to show that there was no 'real or sufficient's connection between the management of the firm and the salary or commission paid to Lachhman Dass Bhatia for any services said to be rendered by him.

9. This being the position, we answer the questions referred to us by concluding that the salary and commission received by Lachhman Dass Bhatia is includible in the total income of the assessed HUF and that it was not the individual income of Lachhman Dass Bhatia.

10. The referenced is answered accordingly.