COMMISSIONER OF INCOME TAX Vs. BIPINBHAI VADILAL

JUDGEMENT

(1.) THE assessee is the karta of the Hindu undivided family (hereinafter referred to as 'the HUF') consisting of himself, his wife, son and daughter. The assessee held shares of several companies and those shares were his self -acquired and separate property. M/s. C. Doctor and Co. (P.) Ltd. (hereinafter referred to as 'the company') was one of such companies. The assessee held 61 shares of the company and he was also one of its directors. By a resolution dated November 7, 1961, passed by the board of directors of the company, a committee consisting of its two directors (the assessee and one Vimlaben Vadilal Mehta) was appointed 'to manage the business and affairs of the company in accordance with the memorandum and articles of association of the company and subject to the provisions of the Companies Act, 1956, and subject to further superintendence and control of the board of directors'. The members of the said committee were designated as directors -in -charge and extensive powers for the effective management of the company were conferred upon them which they were authorised to excises jointly and/or severally. The resolution fixed the 'remuneration' to be paid in the directors -in -charge 'at a minimum of Rs. 48,000 (exclusive of fees for attending the board's meetings and traveling and other expenses incurred by them for the purpose of attending the board's meetings or any other business of the company) per year which should be paid to them in the proportion of 2 : 1, respectively, i.e., Rs. 32,000 to Shri Bipinbhai Vadilal and Rs. 16,000 to Smt. Vimlaben Vadilal Mehta at the end of each financial year of the company or 10% of the net profits of the company, whichever is higher.' The amount, if any, becoming payable in excess of the sum of Rs. 48,000 in accordance with the said formula was also to be paid to the Two directors -in -charge in the ration of 2 : 1, that is, two -thirds to the assesse and one -third to Vimlaben Vadilal Mehta. Pursuant to this resolution, the assessee entered upon the office of the director -in -charge and remuneration as under became payable to him for the below -mentioned periods : Period AmountRs.1 -4 -1963 to 31 -3 -1964 32,0001 -4 -1964 to 31 -3 -1965 32,0001 -4 -1965 to 31 -3 -1966 50,717

(2.) BY a declaration made on March 27, 1964, the assesse threw into the hotchpot of the HUF, amongst others, 61 shares of the company held by him and impressed those shares with the joint family character with effect from that date. The said declaration was totally silent with regard to the remuneration receivable by the assessee as the director -in -charge of the company. However, by a letter of even date, the assessee requested the company 'to credit now onwards' the remuneration as well as the fees payable to him for attending the meetings of the board of directors to the HUF's account with the company. It might be stated that, accordingly, from March, 1964, onwards, the remuneration payable to the assessee was from time to time credited directly in the HUF's account in the books of account of the company. Similarly, the remuneration was credited form time to time in the books of account of the HUF and no part of the remuneration was credited in the books of account of the assessee.

(3.) THE assessee preferred appeals against the orders of assessment in respect of each assessment year in question. During the course of the hearing of the appeals before the Appellate Assistant Commissioner, it was conceded on behalf of the assesse that it was not his case that he was appointed as the director -in -charge because of the investment of the HUF funds in the company. In fact, it was interims admitted that his appointment as the director -in -charge had nothing whatsoever to do with the funds of the HUF. The only argument which was advanced before the Appellate Assistant Commissioner was that the assessee had manifested a clear intention 'to transfer the managing director's remuneration to the HUF books' and that this intention became apparent from his conduct in throwing 61 shares into the hotchpot of the HUF and the manner in which the remuneration was subsequently dealt with in the books of account of the HUF as well as of the company. This Appellate Assistant Commissioner accepted the contention of the assessee and held that having regard to the fact that the assesse had instructed the company to credit the remuneration receivable by him in the account of the HUF in the books of the company and in view of the subsequent conduct of the parties which showed that the remuneration received was actually an credited in the books of account of the company as also in the books of account of the HUF, it was clearly established that the assesse intended to impress the income with the joint family character. Accordingly, the Appellate Assistant Commissioner held that the amount of remuneration received during the course of each of the relevant previous years was not assessable in the hands of the assessee.