JAINARAYAN CHHOTELAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as " the Act"), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred for the opinion of this court the question of law as follows :

(2.) THE material facts as they emerge out of the statement of the case, giving rise to this reference, are as under : THE assessee is a HUF deriving income from house property, money-lending and share income from the firm M/s. Jainarayan Karodiram, Indore. Shri Nandkishore is the karta of the assessee-HUF. THE assessment year in question is 1976-77. THE assessee claimed deduction of Rs. 9,000 on account of salary paid to the karta, Shri Nandkishore, during the assessment year in question for looking after the business of the assessee-family. THE ITO disallowed the said deduction following the decision of the Tribunal in the case of the assessee itself relating to the assessment year 1974-75. THE said order was maintained in first appeal by the AAC. On further appeal, the Tribunal following the earlier orders dated July 22, 1976, passed in 1TA No. 401/Ind/74-75, relating to the assessment year 1971-72, and the order dated September 27, 1978, passed in ITA No. 354/Ind/77-78 maintained the disallowance of the salary paid to Shri Nandkishore, karta of the assessee-family. THE reasoning of the Tribunal in the earlier two appeals referred to above was that any remuneration paid by the HUF to its karta or a coparcener for the services rendered by the latter to the partnership firm in which the karta is a partner is not legally allowable under the provisions of Section 37(1) of the Act, and that the service agreement was not a valid agreement in law as the whole earning is made by Shri Nandkishore himself, which can be treated as his earnings. Aggrieved by the order of the Tribunal, the question of law has been referred to this court at the instance of the assessee.

(3.) IT may also be pointed out here that substantially the same question came up for consideration before another Division Bench of this court in CIT v. Prakask chandra Agrawal (M.C.C. No. 105 of 1980 dated 22-3-1982-[1985] 151 ITR 14 (Appx.) (infra), in which it was held that it was a permissible deduction from the income of the assessee-family.