Law:

Section:

Section 4 of the Income-tax Act, 1961 [Correspondent to section 3 of the Indian Income-tax Act, 1922] - HUF - Assessable as - Assessment years 1959-60 to 1962-63 - One 'T' was appointed as a managing director of company 'M' and held one share - Major portion of share capital of company was acquired by assessee-HUF consisting of T, his sons, his brother and brother-in-law - Whether since acquisition of shares by HUF had nothing to do with appointment of T as managing director and also it could not be shown that solitary share possessed by T came from joint family funds, salary earned by 'T' could not be treated as income of assessee-HUF - Held, yes FACTS The total issued shares were 4,086 of the face value of Rs. 100 each. The assessee, a HUF, consisting of T and his sons, held 2501 shares. The remaining shares are held by S, who was T's real brother, and by A who was T's brother-in-law. For the assessment years 1959-60 and 1960-61 the Income-tax Officer decided that the receipt as salary ought to be included in the income of the HUF. When this matter went up in appeal, the AAC reversed the finding. On appeal that Tribunal reversed the order of the AAC and restored that of the ITO. On reference : HELD The three directors of the company were T, S. and A. They were not members of the same family. T and S were real brothers, while A was T's brother-in-law. In any case the three directors were not members of the Hindu undivided family, which was the assessee in the present proceedings. Further in the instant case, when T was appointed managing director, he held only one share. It appeared that subsequently the HUF acquired 2,500 shares. 2,500 shares acquired by the HUF had nothing to do with the appointment of T as the managing director. Nor had it been shown that the solitary share possessed by T at the time of his appointment as managing director came from joint family funds. Under the circumstances, the view taken by the Tribunal that the joint family fund and the salary earned by T were related to each other as cause and effect could not be accepted. Even on the footing that T did not possess any special qualification, the Court could not treat his salary as…

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