HIRALAL MAGANLAL PARIKH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question of law referred to us by the Income-tax Appellate Tribunal, Bombay Bench "B", under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act") is:

(2.) THE assessee is a Hindu undivided family whose manager was Shri Hiralal Maganlal, who is now reported to be dead. THE assessment years with which we are concerned are 1959-60 (ending on March 31, 1959), 1960-61 (ending on March 31, 1960) and 1961-62 (ending on March 31, 1961). THE family held 50,000 ordinary shares out of 2.00,000 shares in a company called Rajputana Mining Agencies Pvt. Ltd. (which will hereinafter be referred to as "the agency company"), During the year ending on March 31, 1961, 1,000 shares were transferred to Shri Hiralal M. Parikh. Similarly, the family held 9,053 shares in another company known as Associated Stone Industries (Kotah) Ltd. (to be hereinafter referred to as "the A.S.I."). THE total issued shares of this company were 1,85,000. During the year ending on March 31, 1961, the assessee-family came to hold 2,640 ordinary shares as a result of partial partition among some of its members. Shri Hiralal also held in his individual capacity 2,353 shares during that year. He was a director of the agency company and was also an ex-officio director of the A.S.I. It may be relevant to state here that, under Article 95 of the articles of association of the agency company, the qualification of a director is that he must hold at least one share in the company, which may be registered in his name solely or jointly with another person or persons. So also, under Article 102 of the articles of association of the A. S. I., the managing agents shall be entitled to nominate the directors not exceeding, subject to the provisions of Section 377 of the Companies Act, two directors who shall be known as ex-officio directors and such ex-officio directors will not be required to hold any qualification, shares. In this connection it may further be observed that the agency company were the managing agents of the A.S.I.

(3.) THIS passage only means that the remuneration of the director-in-charge of the managing agency company shall not be paid by A.S.I, THIS, however, does not change the nature of the remuneration paid to Shri Hiralal on account of services rendered by him. As observed by their Lordships in Raj Kumar Singh Hukam Chandji's case if the income was essentially earned as remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested the funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipts the income of the Hindu undivided family. We may point out here that in order that a remuneration for the services rendered by a coparcener may be considered as his individual income it is not necessary that the coparcener must possess any particular technical qualification. So far as the amount of Rs. 11,326 paid by the agency company to Shri Hiralal in the year 1961-62 is concerned, it may be noticed that Shri Hiralal had been made the managing director by the agency company by its resolution dated July 25, 1960.. He did not become the managing director of the company for the mere reason that his family had purchased considerable shares in the firm. He was appointed as a managing director by the board of directors and he received the salary for his personal services. There is no material on the record to hold that he was elected managing director on behalf of the family. In the past the remuneration received by him was assessed as his individual income. It appears to us that the directorship of Shri Hiralal was an employment of personal responsibility and ability. In these circumstances we find it difficult to agree with the conclusion reached by the Tribunal that the income in question must be treated as a part of the assessable income of the assessee-family.