Law:

Section:

Section 4 of the Income-tax Act, 1961 – Income – Chargeable as – Assessment years 1968-69 & 1969-70 – Whether where member of HUF became permanent director of company on strength of shareholding which was asset of HUF but remuneration was paid to said director for contribution of his own time, labour, attention, skill and experience in management of company, said remuneration could not be said to be referable to utilisation of joint family property in shape of shares in said company and income earned by him in that manner could not be taxed in hands of HUF – Held, yes FACTS ‘D' was appointed a permanent director of a mill-company in place of his father ‘S' with the aid of assessee HUF shareholding in the said company. In view of wide experience and knowledge of ‘W' with regard to the industry, the company agreed to pay him remuneration for his full time service to the company. In the course of proceedings for assessment to income-tax it was contended on behalf of the assessee that the remuneration received by ‘D' was in consideration of the services rendered by him to the mill-company and that it was his individual income with which the Hindu undivided family had no concern. The ITO rejected the assessee's claim holding that (1) ‘D' was made a permanent director by virtue of the shareholding which was the asset of the Hindu undivided family; (2) whatever income he earned as a permanent director was by virtue of the exploitation of the Hindu undivided family property in the shape of such shareholding; and (3) he did not in his individual capacity hold even a single share in the mill-company. The ITO accordingly, taxed the said remuneration in HUF's hands. On appeal, the AAC found that (1) the evidence on record disclosed that ‘D' had been appointed only on account of his personal qualifications and not because the Hindu undivided family held shares in the mill-company; (2) there was no nexus between the investment of the family and the remuneration paid by the mill-company to him; (3) there was no detriment to the joint family funds as a result of the investment; and (4) even ‘S' was a permanent director before ‘D' and who received remuneration from the…

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