RAJARATHNAM V C Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference relates to the asst. yr. 1963-64, for which the relevant accounting year ended with March 31, 1963. Sri V. C. Rajarathnam was a member of an HUF along with his father, Shri V. Chinnaswamy Mudaliar, and his other brothers. There was a partition of the assets of the HUF under the partition deed dated February 17, 1943. A copy of the partition deed is Annexure "A" and forms part of the statement of the case. The partition deed recited that the movables belonging to the HUF had already been divided and that the immovable properties were divided as per the schedules attached to the document. Thereafter, Rajarathnam and his sons constituted a HUF. In 1946, Rajarathnam acquired 25 shares of the face value of Rs. 25,000, in the United Engineering Corporation (P) Ltd., hereinafter referred to as "the company". Later, he acquired another 21 shares in the same company. Thus, he held 46 shares of the face value of Rs. 46,000 in the company. The dividend income from these shares was treated as the income of the HUF consisting of Rajarathnam and his sons and it was so assessed in the hands of the family.

(2.) RAJARATHNAM was a director of the company and was drawing remuneration and sitting fees for services rendered as director. This remuneration and sitting fees were being assessed in the hands of RAJARATHNAM as an individual and were not included in the income of the HUF. However, during the asst. yr. 1963-64, the ITO treated an amount of Rs. 3,589 received as sitting fees and remuneration by RAJARATHNAM 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. A copy of the order of the ITO is Annexure "B" and forms part of the statement of the case.

(3.) . . . . . . . . . . . . . . . . . (omitted as unnecessary).