COMMISSIONER OF INCOME TAX Vs. JATANLAL

JUDGEMENT

(1.) THE Tribunal has referred the following question of law arising out of its order dt. 12th May, 1982 under S. 256(1) of the INCOME TAX ACT, 1961 :

(2.) THE brief facts of the case are that the firm Masuria Saree Centre, Kota, comprised of 4 partners, namely, Bhanwarlal, Kanwarlal, Shantilal and Jatanlal. While submitting the return of HUF, a salary of Rs. 9,000 was claimed to have been paid to Sri Jatan Lal in his individual capacity in the return of income of HUF. The ITO held that whatever amount has been received from the firm that will be the income of the HUF and the said amount of Rs. 9,000 cannot be allowed as deduction. In appeal before the AAC the matter was agitated and it was submitted that there was an agreement dt. 15th Nov., 1977, between the HUF and Sri Jatan Lal, by which the said salary was payable. The AAC came to the conclusion that the assessee failed to produce copy of the above agreement to the ITO and, therefore, it is not admissible. Besides this, it was observed that there was no major coparcener of the HUF other than Jatan Lal, who was Karta of the HUF and, therefore, he could not have acted to the detriment of interest of the HUF or other coparceners. No justification was found for making payment of salary of Rs. 9,000 by the HUF to its Karta in his individual capacity, in view of the fact that the business of the firm was being looked after by the said Karta without any salary since last 7 to 8 years and, therefore, the appeal was dismissed. In the second appeal before the Tribunal, it was found that the HUF's investment in the Kota firm was to an extent of Rs. 85,000 and it has 80% share in the firm's profit/losses. The share income received from the said firm was substantial, namely, around Rs. 20,000. It was also found that the assessee's wife had also became a partner in another firm in 1974 and the HUF has paid the amount of salary to safeguard the interest in the Kota firm. The Tribunal observed that the genuineness of the payment is not disputed nor it was suggested that the agreement is a fake document and the arrangement was to safeguard the interest of HUF and, therefore, looking to the substantial share of income, the monthly salary @ Rs. 750 could not be said to be unreasonable.