MOHAN TAYAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is a petition under section 66(2) of the Income-tax Act for directing the Tribunal to state the case on the following questions :

(2.) The petitioner, Sri Mohan Tayal, became a director of a private limited company in the year 1946 in which the shareholders are the petitioner himself, his wife, two of his brothers and the wife of one of the brothers. He had three hundred shares of the company in his name which admittedly were acquired out of the assets of the Hindu undivided family which consists of himself and his two sons. In the year 1955 the petitioner was appointed managing director of the company and he received a sum of Rs. 5,100 as remuneration during the assessment year in question, namely, 1956-57. He also received director fees amounting to Rs. 200. The Income-tax Officer assessed the income of the family of the petitioner including the remuneration received by him as managing director as also the directors fees as that of an individual. An appeal was taken to the Appellate Assistant Commissioner on the ground that the status of the petitioner was that of a Hindu undivided family and not "individual" and that the salary and directors fees received from the company should have been assessed separately in the individual capacity of the petitioner. The Appellate Assistant Commissioner accepted the first contention but declined to treat the salary and the directors fees as the income of the petitioner in his individual capacity. On appeal to the Income tax Appellate Tribunal against this part of the decision of the Appellate Assistant Commissioner, the Tribunal recorded a short order on 5th February, 1958, saying that the assessee was acting as the managing director in the capacity of karta of his Hindu undivided family and not in his capacity as an individual. Thus the salary and directors fees had been rightly included in the assessment of the Hindu undivided family. The Tribunal having declined to state the case and refer the questions of law which were sought to be raised, the present petition has been instituted in this court.

(3.) The learned counsel for the petitioner contends that although the shares of the company were acquired out of the assets of the Hindu undivided family consisting of the petitioner and his two sons, the petitioner was appointed as the managing director in his individual capacity and owing to his competency for carrying on the work of the managing director of the company. It is further submitting that there is no detriment to the assets of the Hindu undivided family which has resulted or can result by virtue of the petitioner holding the office of the managing director or director and thus the tests that have been laid down for deciding whether in such circumstances the remuneration earned as managing director or the fees paid to a director would be income in the hands of the Hindu undivided family or would be individual income have to be properly considered and applied in the present case and, consequently, the questions of law set out before arise out of the order of the Tribunal. Our attention has been called to Piyare Lal Adishwar Lal v. Commissioner of Income-tax, where Ss father was the treasurer of a bank until his death. After the fathers death, S was appointed treasurer of the bank. Properties of the Hindu undivided family of which he was a member were furnished by him as security. It was held that having regard to the nature of his work and the control and supervision of the bank over the treasurer, the treasurer was a servant of the bank and there was nothing to show that S received any particular training at the expense of the family funds or that his appointment was the result of any outlay or expenditure of or detriment to the family property and consequently his salary was not the income of the Hindu undivided family. This case is of a very different kind. Their Lordships have observed that treasurership is an employment of responsibility, trust and fidelity and personal integrity and ability and mere ability to furnish a substantial security is not the sole or even the main reason for being appointed to such a responsible post in a bank like the Central Bank of India. On the other hand, Ss previous experience as an overseer of the bank and his being appointed on his applying for the post are indicative of personal fitness for it. The case of Gokal Chand v. Firm Hukam Chand Nath Mal and the earlier decision of the Supreme Court in Commissioner of Income-tax v. Kalu Babu Lal Chand were distinguished on the ground that in the former case the Privy Council had relied upon all cases where joint family funds had been expended to fit a member of the joint family for the particular profession or avocation, the income of which was the subject matter of dispute and that in the latter case the words "risk of or detriment to family property" must be read in the context in which they were used. According to their Lordships, it had not been shown in that case that there was any detriment to the family property within the meaning of the terms as used in the decided cases. The learned counsel for the petitioner also relied on a Madras decision in Commissioner of Income-tax v. S.N.N. Sankaralinga Iyer, where the facts were almost similar to the facts in the present case. The Madras Bench took the view that the actual appointment and remuneration of the karta of the family as the managing director of a bank in which shares had been purchased by him out of joint family funds was the result of a contract of service entered into between him and the bank and not of the holding of the shares by him. According to Viswanatha Sastri J. the mere fact that he held a particular quantity of shares as manager of a joint family did not ipso facto enable him to function as the managing director. His personal qualifications were mainly responsible, in addition to the holding of shares, for his selection and appointment as the managing director of the bank. It was the individual that was appointed and that was functioning as the managing director and not the family and that the holding of shares was not the causa causans of his earnings. If the Madras decision had held the field, there was a good deal to say in favour of the petitioner, but in Commissioner of Income-tax v. Kalu Babu Lal Chand the Supreme Court doubted the correctness of this view in the following words :