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Gopinath Seth Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 57 of 1976
Judge
Reported in[1982]135ITR365(All)
AppellantGopinath Seth
RespondentCommissioner of Income-tax
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateM. Katju, Adv.
Excerpt:
- interpretation of statutes definition clause: [markandey katju & h.l. dattu, jj] meaning given to an expression in one statute cannot be applied to another statute. - the assessee went up in appeal but failed and then went up to the tribunal in further appeal. on this view, the tribunal held that it was not satisfied that the agreement in question was dictated by commercial expediency. it is in this sense the tribunal laid emphasis on the fact that, nearly all the firms are situated at kanpur itself, we are not satisfied that in the present case, the karta was required to do any specific work or job in connection with the business of the partnerships in which the family has shares except, of course, to see that he receives the share income from the various partnership firms......as revenue expenditure on the ground that it was salary paid to the karta for looking after the family's business interests. the ito disallowed the claim. he held that in substance the karta was paying salary to himself in his individual capacity. he further held that the salary paid was excessive. the assessee went up in appeal but failed and then went up to the tribunal in further appeal. the tribunal also repelled this submission and upheld the disallowance.2. the tribunal has held that out of the total income of rs. 52,687, the share income from the partnership firm was about rs. 48,000, the balance being interest on loans. the assessee-family had no independent business. the karta of the assessee-family, namely, gopinath, was a partner on behalf of the family, namely, in the.....
Judgment:

Satish Chandra, C.J.

1. For the assessment year 1969-70, the Tribunal has submitted the statement of case and has referred the following question of law for our opinion :

'Whether, on the facts and in the circumstances of the case, the salary paid to the karta of the Hindu undivided family was an allowable deduction ?'

The assessee is an HUF consisting of Sri Gopi Nath and his two minor children. Gopi Nath and his wife entered into an agreement on 4th of July, 1966, whereunder the husband was to be paid a salary of Rs. 1,000 per month for looking after the interests of the family. At that time, the family had made investments in various partnership firms through the karta, namely, the husband. The other source of income of the HUF was from interest on loans. The HUF claimed deduction of a sum of Rs. 12,000 as revenue expenditure on the ground that it was salary paid to the karta for looking after the family's business interests. The ITO disallowed the claim. He held that in substance the karta was paying salary to himself in his individual capacity. He further held that the salary paid was excessive. The assessee went up in appeal but failed and then went up to the Tribunal in further appeal. The Tribunal also repelled this submission and upheld the disallowance.

2. The Tribunal has held that out of the total income of Rs. 52,687, the share income from the partnership firm was about Rs. 48,000, the balance being interest on loans. The assessee-family had no independent business. The karta of the assessee-family, namely, Gopinath, was a partner on behalf of the family, namely, in the various businesses in which it had shares and as such was supposed to look after the family's interest in his capacity as a partner of the firm. No specific services were required to be done by him other than the normal functions of a partner. All the firms, except one, were situate in Kanpur. The loans advanced were also to all concerns in Kanpur itself. It was not, therefore, as if the karta had to frequently visit out-station places to look after the business interest of the family. On this view, the Tribunal held that it was not satisfied that the agreement in question was dictated by commercial expediency. The Tribunal also held that the agreement was not valid because it was not on behalf of the members of the family. Minor children were also members of the family but the agreement did not purport to be on their behalf.

3. Learned counsel for the assessee has assailed both the findings. The family income was mainly from investments or loans. Some of the funds were invested in various firms. From them they derived income. Rest were advanced by way of loans on which interest was earned. The assessee has not put forward the case that the karta had to render any specific services in order to earn the income for the family. There is not even a whisper in the judgment of any of the three authorities below that the assessee submitted that the karta was required to carry on business activities in any of the firms in which he was a partner representing the family or that he had to do any specific services in connection with the business of those partnership firms. So far as the investments by way of loans are concerned, it is obvious that nothing much has to be done except to see that the interests are paid and the loans are repaid as and when the debt becomes due. It is on this basis that the Tribunal emphasised that no specific services were done by the karta on behalf of the assessee-family in the various businesses and his normal function was not in every case to manage the affairs of those firms. That is confined to the work of the managing partners of those firms. However, a sleeping partner is not normally required to participate in the actual carrying on of the business of the firm. It is in this sense the Tribunal laid emphasis on the fact that, nearly all the firms are situated at Kanpur itself, We are not satisfied that in the present case, the karta was required to do any specific work or job in connection with the business of the partnerships in which the family has shares except, of course, to see that he receives the share income from the various partnership firms. From this point of view, we are not satisfiedthat the finding that the agreement is not dictated by any commercial expediency suffers from any error of law.

4. In Jugal Kishore Baldeo Sahai v. CIT : [1967]63ITR238(SC) , the Supreme Court emphasised that before a karta receives remuneration, it should be under a valid agreement. In judging what is a valid or proper agreement the test applied is whether it is bona fide, in the interests of and expedient for the business of the family and the payment is genuine and not excessive. Such remuneration would be an expenditure wholly and exclusively for the benefit of the family and must be allowed. Here, on facts, it has been found that the agreement was neither dictated by commercial expediency nor it was bona fide. The ITO also held that the salary paid was excessive. This finding does not appear to have been specifically challenged before the Tribunal. That is why we do not find any mention of it in the appellate judgment of the Tribunal. These facts distinguish the present case from the case of Shankarlal H. Dave v. CIT : [1980]124ITR733(Guj) . There, services were rendered by the karta in several partnership businesses. The question was whether he was rendering the services as a partner or as a representative of the HUF. The High Court held that in view of the agreement and on the facts, the karta was rendering services as a representative of the family and so the agreement was bona fide and dictated by commercial expediency. In our view, this decision is distinguishable. In this view, it is not necessary to dilate on the finding that the agreement itself was not valid because it was not on behalf of the minor members of the family.

5. Accordingly, our answer to the question referred to us is in the negative, in favour of the revenue and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200.


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