Law:

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Section 4 of the Income-tax Act, 1961 - Hindu undivided family - Assessability of - Assessee - HUF was partner in a firm through its karta who received salary payments from firm in terms of partnership deed for services rendered by him to firm-Said salary payment was without detriment to HUF funds - Whether salary payments were includible in assessment of HUF - Held, on facts, no FACTS The assessee-HUF was partner in a firm through its karta. For the assessment years 1972-73 and 1973-74, the said karta received certain payments from the firm as salary. The assessee-HUF claimed that the karta had earned this salary income in his individual capacity for services rendered by him to the partnership firm and hence it could not be treated as the income of the assessee-HUF. The ITO rejected the assessee's claim. On appeal, the AAC accepted the assessee's contentions that the karta had received the salary for his services to the firm and without any detriment to the HUF's assets, and held that the ITO had not made out any case for treating these salary payments as the income of the assessee-HUF. He, accordingly, deleted the additions made. The Tribunal, however, allowed the revenue's appeal taking the view that since the payments were part of the partnership agreement and were made by virtue of the person concerned being the karta of the assessee-HUF, the ITO was justified in treating these payments as the income of the assessee-HUF. On reference: HELD It is a well settled principle that payment by way of remuneration to the karta or a coparcener of a HUF by a firm in which the HUF is a partner, cannot be assessed as the income of the family unless it has a direct nexus with the investment of funds of the family in the firm. In other words, unless such payment is to the detriment of the family funds invested in the firm, it cannot be treated as the income of the family. In the instant case, the disputed payments having been made to the karta for services rendered by him to the firm and without any detriment to the funds invested by the assessee-HUF in the firm, could not be treated as the income of the assessee-HUF. CASE REVIEW CIT v. D.C. Shah [1969] 73 ITR 692 (SC),…

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