Law:

Section:

Section 4 of the Income-tax Act, 1961 - Hindu undivided family - Assessable as - Assessment year 1962-63 - Joint family business after partition in family was converted into partnership firm consisting of assessees and their father as partners - Subsequently, it was converted to private limited company which took over business of firm and assessees and their father were appointed life time directors of company under articles of association of company - Assessees did not contribute any amount towards share capital of company - Assessees received remuneration from company for rendering extra services of general nature - Whether since remuneration paid to assessees was because of shares held by family and not on account of their personal qualification, remuneration received by them was to be assessed as income of family and not as their individual income - Held, yes FACTS The assessees were brothers and along with their father constituted joint family which was carrying on a business. There was a partial partition in the family when the joint family business was converted into a partnership firm consisting of the two brothers and their father as partners. Thereafter, a private limited company was formed which took over the business run by the partnership firm. The assessees and their father were appointed as lifetime directors of the company. The articles of association provided that if any director was willing he might be called upon to perform extra services for the business of the company and might be remunerated for such services. The assessees agreed to render extra services and remuneration was paid to each one of them. The assessees claimed that remuneration so received constituted their personal income and should be so assessed. The ITO rejected the contention and included the salary received by the assessees in the assessment of the joint family on the ground that the shares which qualified them to become directors of the company were acquired out of the joint family funds. The AAC and the Tribunal affirmed the decision of the ITO. On reference : HELD The assessees and their father were appointed as lifetime directors of the company under the articles of…

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