Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1963-64 - Whether fee or other remuneration received by karta of HUF as director of company should not be necessarily treated as joint family income merely because qualifying share had been purchased out of family funds - Held, yes FACTS The assessee was the karta of HUF consisting of himself and sons. The assessee acquired certain shares of a company in which he was a director. For the assessment year 1963-64, the dividend income from these shares and it was treated as the income of the HUF and it was so assessed in the hands of the family. The remuneration and sitting charges received from the aforesaid company were being assessed in the hands of assessee as an individual and were not included in the income of the HUF. However, during the assessment year 1963-64, the ITO treated the amount received as sitting fees and remuneration by assessee as the income of the HUF on the ground that the qualifying shares in the company had been admittedly purchased out of the joint family funds. On appeal, the AAC deleted the aforesaid addition. On further appeal, however the Tribunal held that the sitting fees and remuneration received by assessee were assessable in the hands of the HUF. On reference : HELD One principle that is clear from the various decisions of the Supreme Court is that the fees or other remuneration received by the karta as director of a company should not be necessarily treated as joint family income merely because the qualifying shares had been purchased out of the family funds; but in such cases, the fee, salary or other remuneration received by the karta as a director or partner, though it may be partially traceable to the personal exertions of the member, should be held taxable as the income of the family, if (1) it is earned by detriment to the family funds, (2) it is earned with the aid or assistance of those funds, or (3) there is a real connection between the income and the investment of the family funds. In the instant case, there was no material to hold that the shares in question were purchased by assessee with the object of becoming a director of the company.…

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