S P CHANDRAKANTH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) : The common question referred under s. 256(2) of the IT Act, 1961, by the Tribunal, Bangalore Bench, is as follows :

(2.) IN both the cases, the assessee is an HUF ("HUF") consisting of the Karta, his wife and minor children. The HUF is a partner through the Karta in certain firms. IN the assessment proceedings for the year 1975-76, it has claimed deduction of a sum paid to the Karta as remuneration for services rendered. IN I.T.R.C. No. 127/80, the deduction claimed was Rs. 12,000 and in I.T.R.C. No. 128-180, a sum of Rs. 6,000 was claimed. IN the previous assessment years such deductions were claimed to the extent of Rs. 4,800 and also allowed by the assessing officer. But, for the asst. yr. 1975-76, the ITO disallowed the claim on the ground that there was no agreement between the HUF and the Karta for payment of remuneration to the latter.

(3.) IN Jugal Kishore Baldeo Sahai vs. CIT (1967) 63 ITR 238, the Supreme Court has observed that remuneration could be paid to the Karta provided there is a valid agreement which is expedient in the interest of the business of the family and the payment being genuine and not excessive. The principle stated by the Supreme Court in the earlier decision in Jitmal Bhuramal vs. CIT (1962) 44 ITR 887, allowing deduction of the salaries paid to junior members of the family as a matter of commercial or business expediency was extended to the Karta of the HUF in Jugal Kishore Baldeo Sahai's case. There can, therefore, be no doubt or dispute that for claiming deduction under s. 37 (1) of the Act in respect of the remuneration paid to the Karta for services rendered, there shall be an agreement between the parties for payment of such remuneration. But such an agreement need not be in writing. It may be inferred from the course of conduct of the parties.