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V.D. Dhanwatay Vs. Commissioner of Income-tax Madhya Pradesh and Bhopal, Nagpur - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 50 of 1957
Judge
Reported in[1957]32ITR682(Bom)
AppellantV.D. Dhanwatay
RespondentCommissioner of Income-tax Madhya Pradesh and Bhopal, Nagpur
Excerpt:
.....taxation - income from partnership - income tax act, 1922 - income received by karta of joint family from partnership - no service rendered by him towards partnership - payment made as an adjustment of right inter se between partners - such income part of income of joint family not personal income of karta. - - dhanwatay as well as the other partners at the rates mentioned in that clause. commissioner of income-tax and the principle of law that appears to emerge from these decisions is by now well established; moreover, the clause which deals with remuneration to different partners, which is clause (16), may well give rise to the presumption which apparently the income-tax appellate tribunal raised, that what was being sought to be done was not to give remuneration for services..........of rs. 18,000 was legally included in the assessee family's total incom ?' 2. the assessee is a hindu undivided family. its karta is on v. d. dhanwatay. there was a business known as shivaji fine art litho works which was carried on by a partnership under a deed of partnership dated the 1st april, 1951. v. d. dhanwatay was one of the partners and it is common ground that in this partnership he represented the hindu undivided family consisting of himself and his two minor sons. clause (16) of the partnership deed provided for the payment of remuneration to v. d. dhanwatay as well as the other partners at the rates mentioned in that clause. v. d. dhanwatay was to get rs. 1,250 per month, which appears subsequently to have been increased to rs. 1,500 per month in the accounting year, so.....
Judgment:

Tendolkar, J.

1. A very short question of law arises for determination upon this reference, and the question i :

'Whether the sum of Rs. 18,000 was legally included in the assessee family's total incom ?'

2. The assessee is a Hindu undivided family. Its karta is on V. D. Dhanwatay. There was a business known as Shivaji Fine Art Litho Works which was carried on by a partnership under a deed of partnership dated the 1st April, 1951. V. D. Dhanwatay was one of the partners and it is common ground that in this partnership he represented the Hindu undivided family consisting of himself and his two minor sons. Clause (16) of the partnership deed provided for the payment of remuneration to V. D. Dhanwatay as well as the other partners at the rates mentioned in that clause. V. D. Dhanwatay was to get Rs. 1,250 per month, which appears subsequently to have been increased to Rs. 1,500 per month in the accounting year, so that the remuneration he received during the accounting year was Rs. 18,000. It was found by the Tribunal that there was not an iota of evidence to show that Dhanwatay rendered any service to the partnership in his individual capacity and the Tribunal held that what was paid to Dhanwatay in the form of remuneration was only for the purpose of adjustment of the rights inter se between the parties. In that view, the Tribunal considered that the remuneration received was received by him on behalf of the Hindu undivided family and was, therefore, properly included in the income of the Hindu undivided family.

3. Now, in the first instance, it must be noted that this income of Rs. 18,000 was included in the return filed by the Hindu undivided family and it was subsequently that, by a letter addressed to the Income-tax Officer, the Hindu undivided family put forward the claim that this was the personal income of the karta and relied upon the deed of partnership in that regard. Apart from clause (16) which fixes the remuneration to be paid to each partner, there is in the deed one other clause which provides that V. D. Dhanwatay shall be designated general manager of the business. The contention of Mr. Thakar on behalf of the assessee is that since this was remuneration given to Mr. Dhanwatay for services rendered, it was not the income of the Hindu undivided family but was his own individual income and it was included in the return of the Hindu undivided family under a mistake of law. Now, Mr. Thakar, in support of his argument, has drawn our attention to three reported decisions in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer, Murugappa Chetty & Sons v. Commissioner of Income-tax and Knightsdale Estates v. Commissioner of Income-tax and the principle of law that appears to emerge from these decisions is by now well established; and that principle is that if a karta of a joint Hindu family receives a remuneration in consideration of services rendered and without any detriment to the family property, it is his own personal income and not the income of the Hindu undivided family. Out of these three decisions, the decision in Knightsdale Estates v. Commissioner of Income-tax is a decision in which a karta was paid remuneration for managing the business, and, dealing with this item of remuneration, Rajagopalan, J., in his judgment, specifically states at pages 667- :

It could not be said that the income that he received as remuneration for the services that he rendered was in any way acquired by expenditure detrimental to the property of the joint family of which he was the karta.'

4. Therefore, the ratio is quite clear, that if it is established that the remuneration was for services rendered and without detriment to the family property, then it is the individual income of the karta and not that of the Hindu undivided family. Now, apart from the clause in the partnership deed that V. D. Dhanwatay shall be designated as a general manager, there is no evidence on the record to show that in fact he rendered any services to this partnership. Moreover, the clause which deals with remuneration to different partners, which is clause (16), may well give rise to the presumption which apparently the Income-tax Appellate Tribunal raised, that what was being sought to be done was not to give remuneration for services rendered, but remuneration was provided in the said clause merely for the purpose of adjustment of the rights inter se between the partners. Undoubtedly, V. D. Dhanwatay became a partner by reason of the fact that the joint family invested its capital in the partnership, and in the absence of proof that he rendered any services to the partnership and on the basis of the finding of fact by which we are bound on this reference that the remuneration was only for the purpose of adjustment of the rights inter se between the partners, in our opinion, no other conclusion was possible than that the income was that of the Hindu undivided family and indeed, the Hindu undivided family in making its return, also had taken the same view until legal advice intervened.

5. In our opinion, therefore, the answer to the question is in the affirmative. Assessee to pay the costs.

Reference answered in the affirmative.


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