High Court Of Punjab & Haryana
Shri Sham Lal Sajdesh vs. CIT
Sections 4, 37
S.P. Goyal & A.L. Bahri, JJ.
IT Ref. No. 81 of 1978
29th July, 1988
Bhagirath Dass & Ramesh Kumar, for the Assessee : L.K. Sood, for the Revenue
S. P. GOYAL, J. :
The assessee is an HUF consisting of Sham Lal Sajdeh, the Karta, his wife and two minor daughters. It derives share income from four firms, namely, Himalaya Woollen Mills, Rana Textile Weaving Mills, Shri Bharat Woollen Mills and Dhanoo Mal Mohan Lal, all situated at Amritsar. Apart from the share income from the business concerns, the family also has income from house property. The assessee claimed deduction of Rs. 20,000 which was paid to the Karta by way of annual salary in pursuance of an agreement between the Karta and the other members of the family. The deduction was disallowed by the assessing authority. His order was reversed by the AAC but restored by the Tribunal holding that the female members of the family have no right in the property or income of the HUF and that the agreement entered into was void, being without consideration and, as such, the assessee was not entitled to the deduction of the said amount alleged to have been paid by way of salary to the Karta. However, on the application of the assessee, the Tribunal referred the following three questions for the opinion of this Court :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income assessed in the hands of the joint Hindu family from the four firms, belongs to Shri Sham Lal Sajdeh and that the female members, wife and daughters, have no right in the said income from the firms ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the agreement dated June 5, 1973, is without consideration and, therefore, is invalid ? and (3) Whether, on the facts and in the circumstances, salary paid to Sham Lal Sajdeh, Karta of the HUF, for devoting his time, attention, skill and energy for the management and conduct of the business of the various firms in which the assessee-HUF is a partner is an allowable deduction in the assessment of the HUF, notwithstanding the fact that there is no valid agreement to claim the salary between the Karta and the HUF ?”
Learned counsel for the assessee did not dispute that the female members of the family have no right of ownership in the business or the property and their right is confined to maintenance out of its income. If that is so, the female members would have no right to enter into any agreement with the Karta for the disposal of the family income. It is again well-established and was also not disputed by learned counsel for the petitioner that when the HUF has only one male member, he has the absolute right of management and disposal of the property and its income. The agreement entered into by the female members with the Karta was, therefore, not only without jurisdiction but also without any authority. Questions Nos. (1) and (2), therefore, have to be answered in the affirmative, i.e., in favour of the Revenue and against the assessee.
In spite of the answers to questions Nos. (1) and (2) in the affirmative, learned counsel for the assessee, relying on the Supreme Court judgment in Jugal Kishore Baldeo Sahai vs. CIT (1967) 63 ITR 238 (SC) and a judgment of the Madras High Court in CIT vs. Annamalai (S. A. P.) (1970) 75 ITR 109 (Mad), contended that the amount paid to the Karta for his services in the management of the family business and its affairs would be an allowable deduction as legitimate business expense.
In Jugal Kishore’s case (supra), the family consisted of two major male members apart from several minor male and female members. The Karta offered to pay to the junior member, Gobardhandas, a remuneration of Rs. 1,000 per month for managing all the businesses of the family. The payment not being excessive, the agreement was upheld and the salary paid allowed as business expense. The remuneration was not paid to the Karta by the family and, instead, it was the Karta who paid it to a junior member of the family, who was under no legal obligation to render his services in running the family affairs or its business. The Karta under the Hindu Law is duty bound to manage the affairs of the family and run its business. It is not that the Karta has only obligations in his capacity as such. He enjoys certain rights as well. It is, therefore, highly doubtful if he can charge for the performance of the duties enjoined upon him by law. In the present case, even such a situation also does not exist because when the family consists of only one male member, the other family members having no right in the joint Hindu family property or the business, would not be competent to enter into an agreement with the Karta regarding the disposal of the property or its income. The reliance on the Supreme Court decision is, therefore, wholly misplaced.
In Annamalai’s case (supra), the learned Judges constituting the Bench wrongly observed that the Jugal Kishore’s case (supra), related to the payment of remuneration to a Karta. As noticed above, in fact, in Jugal Kishore’s case (supra), it was the Karta who agreed to pay remuneration to a junior member of the family. It was because of this misconception that the Bench, following Jugal Kishore’s case (supra), held that remuneration paid to the Karta of an HUF, even in the absence of any agreement, would be an allowable deduction. No other case has been brought to our notice holding that a Karta would be entitled to any remuneration for his services rendered to the HUF in running the family business or its affairs particularly when there is no other male member in the family. Question No. (3) is answered in the negative, i.e., in favour of the Revenue and against the assessee. No costs.
[Citation : 176 ITR 190]