COMMISSIONER OF INCOME TAX Vs. RAGHUNANDAN SARAN

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Delhi Bench "B", has referred the following question for our opinion :

(2.) THE reference relates to the assessment years 1968-69 and 1969-70. THE assessee is a Hindu undivided family consisting of Shri Raghunandan Saran, the karta, his wife and the minor children. THE karta was a partner in 5 firms as a representative of the family. THEse firms were : M/s. Brijlal Kishan Lal, M/s. Dharam Prakash Vikram Sain, M/s. Dharam Prakash Nagalia and Co., M/s. Ramnath Gupta and Co. and M/s. Kishan Lal Open Pan Sugar Plant. In the accounts of the firm, M/s. Brij Lal Kishan Lal, an amount of Rs. 500 per month, i.e., Rs. 6,000 per annum, was debited to the account of the family in the books of the firm and the corresponding credit was given to the account of Sri Raghunandan Saran. THE entry was passed at the end of each year. THE assessee claimed before the Income-tax Officer that it was entitled to deduction of Rs. 6,000 paid by way of salary to the karta against share of profit from the firm in which the karta was a partner as its representative. THE Income-tax Officer disallowed the claim on the ground that no evidence had been led in support of the claim. THE order was maintained by the Appellate Assistant Commissioner of Income-tax on the ground that no evidence had been led regarding services rendered by the karta to the family, and the payment was merely a debit entry in the books of account on the last day of the accounting period. An appeal was thereafter filed before the Tribunal. THE Tribunal held that inasmuch as Raghunandan Saran was acting as partner of various firms, and as an agent in all transactions of partnership he was rendering special service to the family, apart from his acting as representative of the family in the firms concerned. It took the view that acting as a representative of the family in these firms, and thereby helping the business of the family amounted to rendering service to the family. As regards the mode of payment it came to the conclusion that no objection could be taken to the arrangement, that instead of the payment being made direct to the karta for the special services rendered by him to the family by looking after its business in various firms, payments were made to the karta by credit entries being made in the books of the firm in favour of the karta and debiting the same in the account of the family. It also held that the amount of Rs. 500 per month paid to Raghunandan Saran was not excessive. It also held that the amount of Rs. 6,000 that was debited in the account of the firm, M/s. Brijlal Kishan Lal to the account of the family represented remuneration paid to Raghunandan Saran for his looking after the interest of the family in all the firms including the firm in question.

(3.) COUNSEL for the revenue, however, urged that in Jugal Kishore Baldeo Sahai's case [1967] 63 ITR 238 (SC) the Supreme Court has laid down that before the remuneration can be allowed as a business expenditure it had to be made under a valid agreement. In that case the Hindu undivided family consisted of Baburam, the karta, his brother, Gobardhan Dass, and their sons. The sons were minors and the only two adult male members were Baburam and Gobardhan Dass. Baburam, the karta, had written to Gobardhan Dass that as he was managing all the business, he ought to get a salary of Rs. 1,000 per month which was promptly accepted by Gobardhan Dass. Now, Jugal Kishore Baldeo Sahai's case [1967] 63 ITR 238 (SC) it has not been laid down as to how an agreement regarding remuneration is to be brought into existence. It is true that an agreement need not always be in writing and can be inferred from the conduct of the parties. In the instant case, we have seen that the Hindu undivided family consisted of only three members, Raghunandan Saran, the karta, his wife and his minor children. The fact that the Hindu undivided family had claimed the deduction of the salary in all the years was a clear indication of the fact that the only other adult member of the family, viz., the wife of Raghunandan Saran, was not objecting to the payment of salary by the Hindu undivided family and, in fact, was a party to the claim made before the Income-tax Officer for the deduction. The fact that the Hindu undivided family was claiming the amount of salary paid to Raghunandan Saran as a deduction and was consenting to the amount in question being debited in its account with the firm, is indicative of the fact that there was an agreement that such remuneration should be paid to him. Our attention has also been drawn to a decision of the Madras High Court in the case of Commissioner of Income-tax v. S.A.P. Annamalai [1970] 75 ITR 109 (Mad), where the family consisted of an adult male member and his minor son. It was held in that case that as it was not possible to visualise an agreement with the other member, who was a minor, no agreement was necessary in such a case, and as the remuneration paid was not excessive, it could be allowed as a deduction. In the present case, however, an agreement appears to have existed between the karta and the Hindu undivided family, which can be inferred from the fact that the claim for the salary has all along been made by the Hindu undivided family.