V. G. OAK C.J. - These are three connected proceedings under section 66, Indian Income-tax Act, 1922. In all the three cases the assessee is a Hindu undivided family consisting of Trilok Singh and his sons.
The India Motor Transport Co. Ltd. is a private limited company incorporated in 1945. The total issued shares are 4,086 of the face value of Rs. 100 each. There are only three shareholders, S. Trilok Singh, S. Satwant Singh and S. Anup Singh. The assessee, a Hindu undivided family, consisting of Trilok Singh and his sons, holds 2,501 shares. The remaining shares are held by Satwant Singh, who is Trilok Singhs real brother, and by Anup Singh, who is Trilok Singhs brother-in-law. The company carries on the business of plying passenger buses and goods trucks. S. Trilok Singh was appointed managing director of the company for a period of 20 years on a monthly remuneration of Rs. 500.
The question arose whether the salary of Rs. 6,000 received by S. Trilok Singh annually should be treated as his personal income or the income of the Hindu undivided family. This question came up for consideration before the income-tax authorities in four successive assessment years. For the assessment years 1959-60 and 1960-61 the Income-tax Officer decided that the receipt of Rs. 6,000 as salary ought to be included in the income of the Hindu undivided family. When this matter went up in appeal, the Appellate Assistant Commissioner reversed the finding. He held that the receipt of Rs. 6,000 per annum as salary was the individual income of S. Trilok Singh. When the matter reached the Income-tax Appellate Tribunal, Delhi Bench, the Tribunal reversed the dinging of the Appellate Assistant Commissioner on July 17, 1962, and restored the decision of the Income-tax Officer on this point. The assessee applied for a reference to the court under section 66(1) of the Act. Accordingly, the Tribunal has referred the following question of law to this court for its decision :
'Whether, on the facts and in the circumstances of the case, the salary of Rs. 6,000 earned by S. Trilok Singh as managing director has been rightly held to be the income of the assessee family ?'
This is Income-tax Reference No. 837 of 1963.
When the Income-tax Officer took up the assessment of the undivided Hindu family for the assessment year 1961-62 and 1962-63, he again took the view that the receipt of Rs. 6,000 per annum represented the income of the undivided Hindu family. That view was upheld in appeal by the Appellate Assistant Commissioner. But the decision on this point was reversed in appeal by the Income-tax Appellate Tribunal, Delhi Bench. The Tribunal held that the remuneration paid to S. Trilok Singh ought to be assessed in the individual hands of S. Trilok Singh, and not in the hands of the assessee-Hindu undivided family. Being aggrieved by that decision, the Commissioner of Income-tax filed two separate applications under section 66(1) of the Act for a reference to the court. Those applications were dismissed by the Tribunal on the ground that no question of law arose in these cases. The Commissioner of Income-tax has, therefore, filed before this court two separate applications under section 66(2) of the Act for directing the Tribunal to state a case. The Commissioner of Income-tax has proposed the following question of law :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the salary received by Shri Trilok Singh as managing director of the private limited company, M/s. India Motor Transport Co. Ltd. was not assessable to tax as income of the assessee-Hindu undivided family ?'
It will be noticed that these three connected proceedings raise a common question whether the salary received by S. Trilok Singh ought to be treated as his personal income or income of the Hindu undivided family. The evidence in the two sets of cases is slightly different. It is, therefore, necessary to treat the two sets of cases separately.
Firstly, we take up Income-tax Reference No. 837 of 1963. A copy of the articles of association has been attached. Article 16 mentions names of the three directors, S. Trilok Singh, S. Satwant Singh and S. Anup Singh. Article 22 provided for the appointment of the managing director. Article 22 ran thus :
'Sardar Trilok Singh shall be the managing director for a period of twenty years from the date of the incorporation of the company, unless he dies or resigns or becomes disqualified from being a director...At the termination of Sardar Trilok Singhs term of managing directorship or its determination earlier, the directors may choose any one from among themselves to act as the managing director..........'
In its appellate order dated July 17, 1962, the Tribunal observed :
'........... the investment of the joint family funds in the company and the salary earned by S. Trilok Singh are related to each other as cause and effect.'
This is the inference drawn by the Tribunal from the facts of the case. The only important fact bearing on this question mentioned by the Tribunal was that S. Trilok Singh did not possess any academic qualifications or special training in automobile engineering. The Tribunal observed that the company was a sort of family affair. That observation is misleading. We have been that the three directors of the company were S. Trilok Singh, S. Satwant Singh and S. Anup Singh. They were not members of the same family, Trilok Singhs brother-in-law. In any case the three directors were not members of the Hindu undivided family, which is the assessee in the present proceedings.
In Commissioner of Income-tax v. Kalu Balu Lal Chand 1 R was the karta of a Hindu undivided family. He was one of the promoters of a company to be floated. The articles of association provided that R would be the first managing director. The shares held in the names of R and his brothers were acquired with funds belonging to the joint family. The family was in enjoyment of dividends paid on these shares. The company was floated with funds provided by the family. R made no contribution in this respect. The company was all along financed by the family. It was held that the managing directors remuneration received by R was, as between him and the Hindu undivided family, the income of the family, and should be assessed in its hands.
In Pyarelal Adishwar Lal v. Commissioner of Income-tax 1 the father of S was the treasurer of a bank until his death. During the fathers lifetime S was employed as an overseer in the bank. After the fathers death S was appointed treasurer of the bank on a monthly salary. Properties of the Hindu undivided family of which he was a member were furnished by him as security. It was held that the treasurer was a servant of the bank. There was nothing to show that S received any particular training at the expense of the family fund or that his appointment was as a result of any outlay or expenditure on or detriment to the family property. The salary was the income of the individual, S, and not the income of the Hindu undivided family.
We note that, in the instant case, when S. Trilok Singh was appointed managing director, he held only one share. It appears that subsequently the Hindu undivided family acquired 2,500 shares. 2,500 shares acquired by the Hindu undivided family had nothing to do with the appointment of S. Trilok Singh as the managing director. Nor has it been shown that the solitary share possessed by S. Trilok Singh at the time of his appointment as managing director came from joint family funds. Under the circumstances, we are unable to accept the view taken by the Tribunal that the joint family and the salary earned by S. Trilok Singh are related to each other as cause and effect. Even on the footing that S. Trilok Singh did not possess any special qualifications, we cannot treat his salary as income of the joint Hindu family. It must be held that the Tribunal was wrong in holding that the salary of Rs. 6,000 per annum earned by S. Trilok Singh was income of the assessee family.
Now we take up Income-tax Cases No. 65 and 66 of 1966. In these cases the Tribunal in its order dated January 22, 1965, had found a few more facts in favour of the assessee. It has been definitely found that the solitary share held by Trilok Singh was not acquired out of the nucleus of the joint family funds. He was appointed managing director, because he was already doing business in motor service. It was definitely found that S. Trilok Singhs appointment as managing director was not an outcome of investment of joint family funds in the company. That was the outcome of the personal individual qualifications possessed by him in either line of transport service business. The facts being so clear, it was impossible to contend that the salary received by S. Trilok Singh can be treated as income of the assessee family. The Tribunal was right in holding that no question of law arose in these two connected cases. The applications under section 66(2) of the Act have, therefore, to be dismissed.
In Income-tax Reference No. 837 of 1963 the question referred to this court is answered in the negative, and in favour of the assessee. The assessee will receive Rs. 200 as costs from the Commissioner of Income-tax. The fee of the standing counsel of the department is also assessed at Rs. 200.
In Income-tax Cases Nos. 65 and 66 of 1966 each application is dismissed with costs, which we assess at Rs. 100 in each case.