Law:

Section:

Section 3 of the indian income-tax Act, 1922 [corresponding to section 4 of the income-tax Act, 1961] Hindu undivided family Assessability of income Assessee-HUF held shares worth Rs. 22,800 out of Rs. 95,000 in a company where its karta was a director Karta having long experience in line of business received remuneration of Rs. 17,250 from company Whether tribunal legally justified in holding that such remuneration was his income as individual and not of HUF Held, on facts, yes Facts T, as karta of HUF, was a partner of the firm SD carrying on the business of manufacture of machinery used in the construction of building. On 29-3-1959, a private limited company by the name of SD Private Ltd was formed which took over the firm's business as a going concern. In this company the said HUF held 228 shares of the face value of Rs. 22,800 out of a total of Rs. 95,000. Out of the three directors of the company, T was given remuneration at the rate of Rs. 1,500 per month while the other two were allowed Rs. 500 per month each. In the assessment year 1060-61, T got a total salary of Rs. 17,250 from the company. The ITO rejected the assessee's contention that this amount of Rs. 17,250 was T's individual income. Relying on the decision in the case of CIT v. Kalu BabuLal Chand [1959] 37 ITR 123 (SC), he held that the salary income had to be attributed to the assessee-HUF as it had invested substantial funds to acquire the shares of the company which was to the detriment of HUF funds. The AAC confirmed the ITO's order which was reversed by the Tribunal. Relying on the Supreme Court decision in the case of S.RM. CP. PL. Palaniappa Chettiar v. CIT [1968] 68 ITR 221 it held that the income belonged to T in his individual capacity as it found ( i) that even though he had no academic qualification he had a long experience, ability and aptitude in the line of business carried on by the company for being appointed as a full-time director on remuneration ; and (ii) that there was no material to hold that he was allowed remuneration only because he owned shares as a karta and not for his personal services. On reference : Held 1. The available material shows that the assessee held a…

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