COMMISSIONER OF INCOME-TAX Vs. PARTAP VEER KAKKAR

JUDGEMENT

(1.) The Tribunal has referred the following question of law for our opinion :

(2.) The assessee is a joint Hindu family carrying on business in the name and style of " Kohinoor General Industries ". Earlier, up to the assessment year 1959-60, the business was carried on by a bigger HUF consisting of Sri Ram Lal Kakkar, his two sons, Basant Veer Kakkar and Pratap Veer Kakkar. Thereafter, a partial partition took place in the family and the business was taken over by a partnership firm which carried on the business in the same name in the accounting year relating to the assessment year 1960-61. In July, 1961, the partnership was taken over by a private limited company. The share capital of Rs. 5,00,000 was divided into 5,000 equity shares of Rs. 100 each. The three erstwhile partners, Sri Ram Lal Kakkar, Sri Basant Veer Kakkar and Sri Pratap Veer Kakkar, became permanent directors of the company by virtue of Article 11 of the articles of association. They were allotted 600 equity shares of Rs. 100 each. Under Article 13 of the articles of association the remuneration of the directors was to be determined by the board of directors, which could be in the form of monthly salary, allowance or fixed by reference to the frequency of the board's meeting. The directors were, under this provision, entitled to charges, travelling expenses and allowance which had to be fixed by the board of directors from time to time. They were also given a sitting fee for attending the board's meeting up to a maximum of Rs. 860 for each meeting. In the event of a director being called upon by the company to perform extra services, the company was to remunerate the director by paying his expenses and a fixed sum referable to the percentage of profit, or, by fixing a monthly allowance, or otherwise as was determined by the directors. Articles 13, 14 and 15 of the articles of association dealt with these matters. In the assessment year 1962-63, the ITO held that, as the shares had been acquired with the help of the HUF funds, the salary which had accrued to the assessee by virtue of his shareholding had to be included in the income of the HUF. Appeals filed against the order failed. Thereupon an application for reference was made by the assessee, and the Tribunal referred the following question to this court:

(3.) This court by its order dated May 2, 1975 (Pratap Veer Kakkar v. CIT [1977] 107 ITR 435) answered the question in the affirmative and in favour of the department. The controversy subsided for a short time, but it again surfaced in the assessment years 1967-68, 1969-70 and 1971-72. On the ITO holding that the salary of the directors had to be included in the income of the respective HUFs, the assessee filed appeals. The AAC allowed the appeals holding that the salary income was the individual income of the directors. The department preferred an appeal against this order but that was dismissed. The reference applications filed against the appellate order were rejected. It does not appear that the department brought this matter to this court by filing a reference for those years. In the assessment year 1971-72, which is the pertinent year for this reference, the ITO again added the salary income in the income of the HUF. The amount added in the case of this assessee was Rs. 13,200. The assessee filed an appeal before the AAC, who, relying on the Tribunal's decision dated August 2, 1974, for the assessment years 1967-68, 1969-70 and 1971-72, knocked off the addition. The Tribunal dismissed the appeal filed by the department, following its decision in the earlier years.