LAWS(BOM)-1975-12-23

KHUSHAL K SHAH Vs. COMMISSIONER OF INCOME TAX

Decided On December 10, 1975
Khushal K Shah Appellant
V/S
COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

(1.) THIS reference relates to the assessment of Shri K. K. Shah as the karta of the Hindu undivided family for the assessment years 1955 -56 and 1956 -57, the relevant previous years for which ended on 31st March, 1955, and 31st March, 1956, respectively. A firm called Gill and Company, consisting of five partners, all Englishmen, was carrying on the business in partnership. On 26th February, 1947, a private limited company by name Gill and Company Ltd. was incorporated, which company had been formed to acquire the business of the partnership firm of cotton brokers and merchants with effect from 1st March, 1947. The assessee is the karta of the Hindu undivided family. The Hindu undivided family held 340 shares of Rs. 500 each in the Gill and Company and the assessee came to be appointed as one of the directors of the said company, the other four directors being four of the five erstwhile partners of the said firm. During the relevant assessment years K. K. Shah received by way of salary from Gill and Company (Private) Ltd. a sum of Rs. 42,000 and by way of bonus a sum of Rs. 14,000. He also received a remuneration for attending the meetings of directors. Up to the assessment year 1954 -55, the amounts received by K. K. Shah as director of the Gill and Company by way of salary, bonus and director's fees were entered in the books of accounts of the Hindu undivided family, and they were assessed as such. For the two assessment years in question, however, the remuneration received by K. K. Shah as director of the private limited company was not shown in the books of the Hindu undivided family nor was it shown as income of the Hindu undivided family in the returns filed for the two respective years. It was claimed that the director's remuneration should be assessed in the hands of K. K. Shah personally and not in the hands of the Hindu undivided family. This claim was accepted by the Income -tax Officer. However, later on, reassessment proceedings under section 34(1)(b) of the Indian Income -tax Act, 1922, were commenced for these two assessment years. The assessee challenged the validity of the reassessment proceedings on the ground that the condition laid down in section 34 (1)(b) was not fulfilled. On merits it was contended that the remuneration received by K. K. Shah was his personal income and could not be taxed in the hands of the Hindu undivided family. These contentions were rejected by the Income -tax Officer and the amounts were brought to tax. The assessee, thereafter, appealed to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner allowed the appeal. Various findings are to be seen in the order of the Appellate Assistant Commissioner and it was on the basis of these findings that the Appellate Assistant Commissioner was persuaded to accept the contentions on merits urged on behalf of the assessee. The Income -tax Officer being aggrieved by the order of the Appellate Assistant Commissioner preferred a further appeal to the Income -tax Tribunal and it was contended before the Tribunal that this was a case where the family was taxable as the basic fact was that the family's assets, viz., shares, represented the qualification for directorship. The Tribunal by its order dated 12th February, 1964, upheld the application of section 34(1)(b), but on the merits, after considering the decisions cited at the bar, viz., Commissioner of Income -tax v. Kalu Babu Lal Chand : [1959]37ITR123(SC) and Piyare Lal Adishwar Lal v. Commissioner of Income -tax : (1966)IILLJ759SC held that in the case before it there was nothing to show that the directorship (of K. K. Shah) owed its origin to any personal qualifications. It went on further to conclude that :

(2.) ACCORDINGLY , the Tribunal reversed the decision of the Appellate Assistant Commissioner and upheld the assessment made by the Income -tax Officer for the two years.

(3.) LAST year the reference came up for hearing before another Bench consisting of the learned Chief Justice and Tulzapurkar J. and by an order the learned Chief Justice, speaking on behalf of the Bench, referred to a further decision of the Supreme Court in Raj Kumar Singh Hukam Chandji v. Commissioner of Income -tax : [1970]78ITR33(SC) , where the Supreme Court had laid down the test for determining whether the remuneration received by an individual is the income of the individual to whom it is purported to have been given or that of the Hindu undivided family of which he is a coparcener. In the opinion of that Bench that test to which reference will be made hereinafter would be required to be applied for determination of the question referred to in this reference. It was found further considering the statement of case originally submitted and the appellate order of the Tribunal that all necessary facts required to decide this question and for the application of the test were not to be found therein and, accordingly, a supplemental statement of case was sought for from the Tribunal. The Tribunal was required by the said order to state facts necessary to determine the following points :