COMMISSIONER OF INCOME TAX Vs. RAJKUMAR SINGH HUKUMCHANDJI

JUDGEMENT

(1.) AT the instance of the Commissioner of Income -tax, the Appellate Tribunal, Bombay, has stated the case under section 66(1) of the Income -tax Act, 1922 and referred to this court for its opinion the following question of law :

(2.) THE material facts as appearing in the statement of the case are these : The assessment year is 1954 -55 the corresponding account year being the one ending on Diwali of 1953 (6th November, 1953). There was a Hindu undivided family carrying on business in the name and style of Sarupchand Hukumchand. A disruption of that family took place on 30th March, 1950. The assessee is a branch of that bigger family. A day after the disruption of the bigger family, on 31st March, 1950, to be more precise, a company called Sarupchand Hukumchand (Private) Ltd. was incorporated. The capital of the company consisted of Rs. 5 crores divided into preference shares of Rs. 1,000 each and ordinary shares of Rs 1,000 each. In the partition, 5,000 shares, each of the face value of Rs. 1000 were allotted to each of the three branches of the bigger undivided family, namely, Sir Hukumchand, Lady Kanchanbai and Rajkumarsingh. Thus the family, represented by its karta, got 5,000 shares. Subsequently, Rajkumar Singh acquired with the aids of the funds of the Hindu undivided family 30 more shares, 10 in his own name, 10 in the name of his wife (Premkumari Devi) and another 10 in the name of his son (Rajabahadur Singh). This company was incorporated for the purpose of acquiring from the bigger Hindu undivided family (Sarupchand Hukumchand) certain managing agencies, businesses, factories and properties. In order to fulfil that purpose the company entered into an agreement with Sarupchand Hukumchand and became managing agent of Rajkumar Mills Ltd., Hukumchand Mills Ltd., and Hira Mills Ltd. and other businesses more particularly mentioned in the memorandum of association of the company. The first directors of the company were (1) Sir Hukumchand Sarupchand, (2) Rajkumar Singh, (3) Lady Kanchanbai Hukumchand, (4) Mrs. Premkumari Devi (wife of Rajkumar Singh), (5) Rajbahadur Singh (son of Rajkumar Singh) and (6) Rustomji Cowasji Jall. According to article 52 of the articles of association of the company, the qualification prescribed for a director was holding of at least 10 shares of the company, either ordinary or preference or partly ordinary and party preference. Article 55 provided that the directors could appoint one or more from amongst themselves to the office of the managing director or manager on terms and conditions to be determined by them. In exercise of those powers, the directors, by their resolution dated 31st March, 1950, appointed Sir Hukumchand, Rajkumar Singh and Rajabahadur as managing directors of the company on a monthly remuneration of Rs. 5,000 for each of them. These managing directors had to work under the control of the board of directors. The 5,030 shares held in the names of Rajkumar Singh, his wife and there son were shown in the books as assessees property. The dividend in respect of these shares were also similarly credited in the account books. for the assessment year 1951 -52, 1952 -53 and 1953 -54, the remuneration of Rs. 5,000 per month received by Rajkumar Singh, was however, treated as his individual income and assessed on that basis. It may be mentioned here that the remuneration received by Sir Hukumchand and Rajabahadur were also similarly treated as their individual income. Even for the relevant assessment year, namely, 1954 -55, the Income -tax Officer treated Rajkumar Singhs remuneration of Rs. 60,000 received by him on his account and Rs. 1,420 as his sitting fees as his individual income. On 10th Jan, 1961 the Commissioner of Income -tax, acting under section 33B of the Act, issued a notice to the assessee to show cause why the assessment should not be revised and the two sums of Rs. 60,000 and Rs. 1,420 should not be treated as income of the assessees Hindu joint family. After the assessee submitted his reply dated 17th January, 1961, and was afforded an opportunity of being heard, the Commissioner, by his order dated 28th February, 1961, held that the two sums should be treated as the income of the assessees family and the assessment should be enhanced accordingly. Being aggrieved, the assessee preferred an appeal to the Tribunal, which took a contrary view and held, by its order dated 20th October, 1962 (as amended by the order dated 12th July, 1963 passed under section 35 of the Act), that the two sums could not be included in the income of the assessee (Hindu undivided family) and had to be treated as the individual income of Rajkumar Singh.

(3.) THEREUPON , as already indicated, this reference was made at the instance of the Commissioner.