Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allow-ability of - Assessee-HUF, consisting of karta, his wife and two minor daughters, derived income from firms - By an agreement between karta and other family members, assessee paid annual salary to karta for management of its business and claimed deduction - Whether female members of HUF having no right of ownership in family property, could not legally enter into agreement with karta who was a lone male member and was duty bound to manage affairs of family and, thus, salary paid to karta was not an allowable deduction - Held, yes FACTS The assessee was a HUF consisting of the karta, his wife and two minor daughters. It derived share income from four firms, as also income from house property. The assessee-HUF 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 other members of the family. The deduction was disallowed by the ITO. His order was reversed by the AAC but restored by the Tribunal holding that female members of the HUF, had 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. On reference: HELD The female members of the family having no right of ownership in the business or the property and their right being confined to maintenance out of its income, the family members had no right to enter into any agreement with the karta for the disposal of the family income. It is again well-established that when the HUF has only one male member, he has the absolute right to 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. The karta under the Hindu law is duty bound to manage the affairs of the family and run its business. It is not that karta has only obligation in his capacity as such. He enjoys certain rights as well. It is, therefore, highly doubtful if he can…

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