Commissioner of Income Tax vs Dwarka Prasad, Rameshwar Prasad Mehrotra, T.N. Mehrotra, Shivanath Prasad and Bishwanath Prasad

Hari Lal Agrawal, J.—All these cases have been heard together and are being disposed of herewith as the facts and the question of law are same and identical. The assessment years in question are 1971-72 and 1972-73 relating to all the assessees, five in number.

The hearing of these cases was awaiting the disposal of Tax Case No. 3 of 1975 [ Commissioner of Income Tax Vs. Atma Ram Budhia, ], which was referred to a Full Bench because the question referred in these cases and the earlier case is almost similar, namely, as to whether, on the facts and in the circumstances of the case, the salary received by a member of the HUF from a firm in which he was working as a partner, could be assessed in his personal assessment or was includible in the total income for the assessment of the HUF represented by him.

The relevant facts are as follows. The business carried on by the HUF consisting of the assessees and others was being carried in the name and style of M/s. Patna Electric Works from some time past. On a partition in the family with effect from April 1, 1958, it was constituted into a partnership firm with nine partners including the five assessees. The assessees became partners by investing their shares received in partition. All the partners had equal shares in the profit and loss of the firm. Eight of them are brothers and the ninth partner is their mother. The five assessees were described as working partners and were allowed salary under Clause 14 of the partnership deed. Each of the assessees received a salary of Rs. 16,800 from the firm in each of the assessment years.

The ITO included the aforesaid salary income along with the share income received by the smaller HUFs of the assessees. The assessees raised a dispute that the said income should not have been included in the assessment of the HUF inasmuch as it was paid to them for their personal services rendered to the firm and was not related to any asset of the HUF and was thus taxable in the individual status of each of the assessees. Appeals were filed by the assessees before the AAC of Income Tax, who allowed all the appeals. It was observed by the appellate authority that "the ITO has not given any finding anywhere to the effect that there was any real and sufficient connection between the investment of the joint family funds and the remuneration paid to the karta. The appellant, therefore, must succeed in this appeal ".

The Department then preferred appeals before the Income Tax Appellate Tribunal and all of them were heard and were disposed of by a consolidated order. The Tribunal also, relying upon the case of Prem Nath and Others Vs. Commissioner of Income Tax, Delhi and Rajasthan, , came to the same conclusion, namely, that "as far as the five HUFs of the five working partners were concerned, there was no detriment to the HUF nor is it a compensation made for the service rendered by the individual coparcener. The interest of the HUF remained intact and unaffected adversely. There is no distribution of profit.... The salaries have been paid under an agreement" and, accordingly, the Tribunal confirmed the order of the AAC.

The Tribunal has referred these cases after formulating the following question of law :

"Whether, on the facts and in the circumstances of this case, the Tribunal were justified in law to hold that the salary could not be assessed in the hands of the HUF of the working partners ?"

We have heard learned counsel for the parties and from the facts stated above, it is clear that the facts and circumstances of the present cases are almost identical and similar to those of Commissioner of Income Tax Vs. Atma Ram Budhia, , where a Full Bench, on a review of a large number of cases of the Supreme Court, laid down the principle that where there was no real and sufficient connection between the investment of the joint family funds in acquiring the shares, and the payment of the remuneration to the karta, the remuneration paid to him was not earned by any detriment to the joint family assets and the amounts received by him were not assessable as the income of the HUF.

Mr. B.P. Rajgarhia, appearing for the Department, in view of this authoritative decision, rightly did not challenge the correctness of the findings of the Tribunal, but he contended that in view of the importance of the question and a conflict in the views of different High Courts as well as their Lordships of the Supreme Court in the cases of Prem Nath and Others Vs. Commissioner of Income Tax, Delhi and Rajasthan, and Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others, , it is a fit case where this court should give a certificate to enable the Department to file an appeal to the Supreme Court as provided u/s 261 of the Income Tax Act.

In my view, this prayer of the learned counsel for the Department is fit to be allowed. I would, accordingly, certify that this is a fit case for appeal to the Supreme Court of India.

In the result, all the cases are dismissed and the question of law referred to us is answered in favour of the assessee and against the Department. In the circumstances, however, I shall make no order as to costs.

S.S. Sandhawalia, C.J.

I agree.