ASHOK KUMAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under section 256(1) of the Income-tax Act, 1961 ("Act"), the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar ("Tribunal") has referred the following three questions of law to this Court for opinion at the instance of the assessee :

(2.) MATERIAL facts necessary for deciding the controversy in this case, briefly stated, are as follows. The assessee is a Hindu undivided family. In its return for the assessment year 1978-79, it made a claim for deduction of a sum of Rs.6, 000/- paid as salary to its karta, Shri Ashok Kumar, for looking after the interest of the Hindu undivided family in the partnership firm M/S Tirath Ram Lal Chand which was engaged in the business of cloth. Shri Ashok Kumar, who was the karta of the Hindu undivided family with effect from 6th August, 1969, was a partner in the said firm representing the Hindu undivided family. No remuneration, however, was allowed to him by the Hindu undivided family for looking after its interest in the partnership. The Hindu undivided family consisted of Shri Ashok Kumar, karta, Smt. Madhu Balla, wife of the karta, Master Suman, son of Ashok Kumar, a minor aged eight years and Miss Anupam, daughter of Ashok Kumar, a minor aged nine years. In its assessment for the assessment year 1978-79, the assessee- Hindu undivided family claimed that it had paid Rs.6, 000/- as salary at the rate of Rs.500/- per month to its karta, Sri Ashok Kumar, for looking after the interest of Hindu undivided family in the firm M/S Tirath Ram Lal Chand. The payment was made pursuant to an agreement between Sri Ashok Kumar, the karta of the Hindu undivided family as party of the first part and Smt. Madhu Balla, wife of the first party, as party of the second part. The terms of the agreement were incorporated in an "Agreement Deed" drawn on 20th April 1977. In its return for the assessment year 1978-79, the assessee- Hindu undivided family claimed deduction of the said amount in computation of its income, as business expenditure. The Income-tax Officer turned down the claim of the assessee as, in his opinion, it was the normal obligation of the karta to look after the interest of the family. The Income-tax Officer also observed that there was no particular circumstance or development that entitled the karta to claim remuneration for looking after the interest of the family in the partnership firm in the relevant assessment year. The assessee appealed to the Appellate Assistant Commissioner who did not agree with the findings of the Income-tax Officer and reversed the same. He was of the view that the karta Sri Ashok Kumar, who was working whole heartedly for safeguarding the interest of the Hindu undivided family in the firm, M/S Tirath Ram Lal Chand, was definitely entitled to claim remuneration. He, therefore, held that the assessee- Hindu undivided family was entitled to claim deduction of Rs.6, 000/- paid as salary to its karta for looking after the interest of the family in the partnership firm where he was a partner in his representative capacity as its karta . Aggrieved by the order of the Appellate Assistant Commissioner, revenue appealed to the Income-tax Appellate Tribunal ("Tribunal"). The Tribunal was of the opinion that the agreement between the karta of the Hindu undivided family and his wife for payment of salary to the karta was an invalid agreement. The Tribunal, therefore, reversed the order of the Appellate Assistant Commissioner and disallowed the salary paid to the karta Sri Ashok Kumar for looking after its interest in the firm in which he was a partner on its behalf. Hence this reference at the instance of the assessee.

(3.) ON perusal of the above agreement and the facts and circumstances of the case, the Appellate Assistant Commissioner was satisfied that Shri Ashok Kumar, the karta of the family, had been working whole heartedly to protect the interest of the family which had paid dividend to the family.He recorded a categorical finding to that effect. The Tribunal has not reversed that factual finding of the Appellate Assistant Commissioner. The Tribunal agreed with the contention of the assessee that the karta of a Hindu undivided family is entitled to vote himself the salary for the pains he undertakes and the investment of the time he makes in looking after the affairs of the joint family and it does not require any agreement to authorise such a payment. The Tribunal, however, was of the opinion that in the instant case, the agreement between the karta and the major member of the family, who happened to be his wife, was an invalid agreement, because the interests of the minors were not taken care of while entering into the agreement. The Tribunal, therefore, held that the agreement in question was invalid and disallowed the claim of the assessee-Hindu undivided family for deduction of the amount of salary of Rs.6, 000/- paid to the karta pursuant thereto as a deduction in computation of its income.