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Jainarayan Chhotelal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 78 of 1981
Judge
Reported in[1985]152ITR11(MP)
ActsIncome Tax Act, 1961 - Sections 37(1)
AppellantJainarayan Chhotelal
RespondentCommissioner of Income-tax
Appellant AdvocateChaphekar, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
- .....of the case, the tribunal was justified in upholding the disallowance of the remuneration paid to shri nandkishore, being the karta of the family, for rendering services to earn the income for the family '2. the material facts as they emerge out of the statement of the case, giving rise to this reference, are as under : the assessee is a huf deriving income from house property, money-lending and share income from the firm m/s. jainarayan karodiram, indore. shri nandkishore is the karta of the assessee-huf. the assessment year in question is 1976-77. the assessee claimed deduction of rs. 9,000 on account of salary paid to the karta, shri nandkishore, during the assessment year in question for looking after the business of the assessee-family. the ito disallowed the said deduction.....
Judgment:

Faizan-Ud-Din J.

1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as ' the Act'), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred for the opinion of this court the question of law as follows :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance of the remuneration paid to Shri Nandkishore, being the karta of the family, for rendering services to earn the income for the family '

2. The material facts as they emerge out of the statement of the case, giving rise to this reference, are as under : The assessee is a HUF deriving income from house property, money-lending and share income from the firm M/s. Jainarayan Karodiram, Indore. Shri Nandkishore is the karta of the assessee-HUF. The assessment year in question is 1976-77. The assessee claimed deduction of Rs. 9,000 on account of salary paid to the karta, Shri Nandkishore, during the assessment year in question for looking after the business of the assessee-family. The ITO disallowed the said deduction following the decision of the Tribunal in the case of the assessee itself relating to the assessment year 1974-75. The said order was maintained in first appeal by the AAC. On further appeal, the Tribunal following the earlier orders dated July 22, 1976, passed in 1TA No. 401/Ind/74-75, relating to the assessment year 1971-72, and the order dated September 27, 1978, passed in ITA No. 354/Ind/77-78 maintained the disallowance of the salary paid to Shri Nandkishore, karta of the assessee-family. The reasoning of the Tribunal in the earlier two appeals referred to above was that any remuneration paid by the HUF to its karta or a coparcener for the services rendered by the latter to the partnership firm in which the karta is a partner is not legally allowable under the provisions of Section 37(1) of the Act, and that the service agreement was not a valid agreement in law as the whole earning is made by Shri Nandkishore himself, which can be treated as his earnings. Aggrieved by the order of the Tribunal, the question of law has been referred to this court at the instance of the assessee.

3. Thus, the question for determination is whether the remuneration paid to the karta of the HUF for carrying on the family business is allowable as deduction while computing the income of the HUF or not. In Jugal Kishore Baldeo Sahai v. CIT : [1967]63ITR238(SC) , their Lordships of the Supreme Court have observed that the test that should always be applied is whether the agreement has been made by or on behalf of all the members of the HUF and whether it was in the interest of the business of the family so that it could be justified on the ground of commercial expediency. Almost a similar view was expressed by their Lordships of the Supreme Court in Jitmal Bhuramal v. CIT : [1962]44ITR887(SC) , which was a case of a coparcener, in which it has been held that a HUF can be allowed to deduct the salary paid to the members of the family, if the payment is made as a matter of commercial or business expediency, provided service is rendered to the family.

4. In the present case, after going through the relevant orders of the Tribunal, we are not impressed by the observations of the Tribunal that the agreement was not valid. The minors are the sons of the karta and the agreement incurs no invalidity simply because the minors are represented by a person who received some benefit under the agreement. The other adult female member of the family is the wife of the karta himself, who did not challenge the validity of the said agreement or the authority of the karta to act as karta. The Department also never disputed that Shri Nandkishore was the karta of the assessee-family or that his salary was not paid to him or the payment of the salary to him was not in the interest of the family or it was not genuine or was excessive, etc. On the contrary, the Department had admitted the said position. The karta, Shri Nandkishore, is an experienced person in the business run by the firm and, therefore, the payment of salary to the karta was for business expediency. In these circumstances, we are of the opinion that the salary paid to Shri Nandkishore was an expenditure laid out wholly and exclusively for the purpose of the business of the family and must be held as an allowable deduction.

5. It may also be pointed out here that substantially the same question came up for consideration before another Division Bench of this court in CIT v. Prakask chandra Agrawal (M.C.C. No. 105 of 1980 dated 22-3-1982 [1985] 151 ITR 14 (Appx.) (infra), in which it was held that it was a permissible deduction from the income of the assessee-family.

6. We, therefore, answer the question referred to above in the negative, in favour of the assesses and against the Department. There will, however, be no order as to costs.


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