COMMISSIONER OF INCOME TAX Vs. SITAMANI SAHOO

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961 at the instance of the Revenue. Following questions have been referred to this Court by the Tribunal for opinion of the Court :

(2.) ASSESSEE is wife of Paramananda who was a member in partnership firm styled as M/s Sahoo Stores representing his undivided family in the partnership. On reconstitution of the firm w.e.f. 1st Jan., 1978, Paramananda retired and in his place Sitamani, his wife, was inducted into partnership business as a member. Paramananda remained as a salaried servant of the partnership firm. When Sitamani was being assessed for her income in individual capacity for asst. yrs. 1979-80 to 1981- 82 as reflected from the orders of assessment, remuneration of Paramananda received from the partnership was added to her income. Being unsuccessful in appeals before AAC, Sita preferred appeals before the Tribunal where her grievance was appreciated and it was held relying upon a decision of Patna High Court reported in CIT vs. Banaik Industries (1979) 119 ITR 282 (Pat) that the remuneration of Paramananda cannot be added to the income of Sitamani qua HUF. Aggrieved by the same, Revenue sought for reference to this Court.

(3.) SITA was being assessed for the income from the partnership firm. Finding of fact is that HUF was the partner. Paramananda as Karta was representing the HUF as karta. If at that stage remuneration would have been paid to Karta by the firm, such remuneration might have been held to be income of HUF if Paramananda could not have explained otherwise. This is the principle decided in M.D. Dhanwatey vs. CIT (1968) 68 ITR 385 (SC) : AIR 1968 SC 682 and V.O. Dhanwatey vs. CIT (1968) 68 ITR 365 (SC) : AIR 1968 SC 683. Interest of the joint family in the partnership no longer remained with the Karta. Another member of the HUF represented the HUF in the partnership. Income of Karta as remuneration and bonus, cannot in the circumstances become the income of undivided family as provided in S. 64(2) of the IT Act. It becomes his own income because such interest of the HUF is not represented by him. A lady member of the HUF is capable of representing interest of the joint family but is not a Karta. Accordingly, remuneration of Paramananda and bonus received by him as an employee of the firm in which the HUF has invested funds cannot be treated as income of the family in hands of Sitamani in absence of further materials relating to nature of job of Paramananda and the skill utilised by him. Presumption as applied in (1968) 68 ITR 385 (SC) : AIR 1968 SC 682 and (1968) 68 ITR 365 (SC) : AIR 1968 SC 683 (supra) is not attracted. Majority finding in (1968) 68 ITR 365 (SC) : AIR 1968 SC 683 (supra) was that the Karta was receiving the salary by virtue of contract of partnership. He was also representing the family in the partnership business. Minority finding was that the Karta was treating the remuneration received by him as his individual income with consent of his family. He was getting the same remuneration when his quondam joint family was running the business. He could not have received the same on behalf of the family. Taxing authorities have not delved into these material factual aspects for treating the income of Paramananda as remuneration and bonus from the firm as family income.