Delhi H.C : the remuneration received by Shri Balak Ram, Karta of the assessee-HUF was assessable in the assessee’s hands

Counsel Appeared

B. Gupta, & D. N. Malhotra, for the Revenue

K. SHIVASHANKAR BHAT J.:

This is a reference under s. 256(1) of the IT Act, 1961, in respect of the asst. yr. 1972-73, at the instance of the assessee. The question referred reads 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 assessee-HUF was assessable in the assessee’s hands ?”

2. The 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 funds of the assessee-HUF ; and (2) that the said revenue received by Balak Ram, the Karta of the assessee-HUF from the company in question has been taxed in the hands of the assessee-HUF right up to the accounting period relevant to the asst. yr. 1971-72 and that this revenue received by Balak Ram along with other income of the assessee-HUF were being merged with each other. The history of the formation of the company also shows that out of the larger HUF, the smaller HUF 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 HUF. 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 Tribunal ultimately concluded that the remuneration paid to the said Balak Ram belonged to the HUF. The relevant finding of the Tribunal is as follows : “Here the assessee-HUF owns at least 1/2 share of the company. The company was floated with the funds of the family. Balak Ram himself 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 assessee-HUF. 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 Tribunal. The finding is fully justified in view of the decision of the Supreme Court in P. N. Krishna Iyer vs. CIT [1969] 73 ITR 539 (SC). The relevant test had been propounded by the Supreme Court at page 545 as follows :

“Income received by a member of an HUF from a firm or a company in which the funds of the HUF 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 Tribunal. The question referred to us is answered in the affirmative and in favour of the Revenue. No costs.

[Citation : 221 ITR 678]