1. This order will dispose of Income-tax References Nos. 48 and 49 of 1971, as the same question of law has been referred for opinion to this court. Two references have been filed because they relate to different assessment years. I.T.R. No. 48 of 1971 relates to the assessment year1961-62, while I.T.R. No. 49 of 1971 relates to the assessment year1962-63.
2. The assessee is a Hindu undivided family with Shri Mohan Lal Sanganeria as its karta. During the previous years relevant to the assessment years 1961-62 and 1962-63, it derived income from its shares in various firms. The assessee-Hindu undivided family also held shares in a limited company known as Sanganeria and Co. Ltd., of which Shri Mohan Lal Sanganeria was a director and received Rs. 3,000 as director's remuneration from the company in each year. The assessee-Hindu undivided family claimed that this amount of Rs. 3,000 was not its income but was the income of Shri Mohan Lal Sanganeria as an individual. The Income-tax Officer repelled this contention of the assessee and held that the assessee was a director of the company on account of shares acquired out of the funds invested by the Hindu undivided family and that the remuneration received was the income of the Hindu undivided family and not of Shri Mohan Lal Sanganeria as an individual. For this view, the Income-tax Officer relied upon the decision of their Lordships of the Supreme Court in Commissioner of Income-tax v. Kalu Babu Lal Chand : 37ITR123(SC) . He, accordingly, included the amount in the total income of the Hindu undivided family. The assessee filed an appeal which was allowed by the Appellate Assistant Commissioner on the ground that the remuneration in dispute was the salary belonging to Shri Mohan Lal Sanganeria in his individual capacity on account of services rendered by him to the companyand not in consideration of the funds invested by the assessee-Hindu undivided family in the said company. The department filed an appeal before the Income-tax Appellate Tribunal which was dismissed with the observation that, in view of the terms of the articles of association of the company in regard to the qualification for directorship, it could not be held that the income belonged to the family even though the investment in shares was made by the family. On these facts, the following question of law has been referred to this court for its opinion by the Income-tax Appellate Tribunal in both the cases:
'Whether, on the facts and in the circumstances of the case, the amount of Rs. 3,000 on account of the director's remuneration received from the company by Shri Mohan Lal Sanganeria was liable to be included in the total income of the assessee-Hindu undivided family ?'
3. The facts of the Supreme Court judgment (See : 37ITR123(SC) ) relied upon by the Income-tax Officer were these. Rohatgi, the karta of a Hindu family, took over a business as a going concern and carried on its business on behalf of a company to be promoted until it was actually incorporated in December, 1930. He was one of the promoters of that company, the articles of association of which provided that Rohatgi would be the first managing director, specified his remuneration and required the company to enter into an agreement with him. The agreement, however, was not actually entered into until January, 1934. It was found by the Appellate Tribunal that the shares held in the name of Rohatgi and his brother were acquired with funds belonging to the joint family and the family was in enjoyment of the dividends paid on those shares. Further, the company was floated with funds provided by the family and Rohatgi made no contribution in this respect. The company was all along financed by the family. Prior to the accounting year relevant to the assessment year 1943-44, the managing director's remuneration received by Rohatgi was credited in the books of the family. In the assessment year 1943-44, for the first time it was claimed that the whole of the managing director's remuneration constituted the personal earnings of Rohatgi and should not be added to the income of the family. It was held that the managing director's remuneration received by Rohatgi was, as between him and the Hindu undivided family, the income of the family and should be assessed in its hands. It will be noticed that the facts in that case were different, that is, the income of Rohtagi as managing director had been included in the income of the Hindu undivided family for a number of years, that is, for the assessment years 1931-32 to 1942-43, and it was only in the assessment year 1943-44, for the first time that it was claimed that the remuneration of the managing director constituted Rohatgi's personal income and not that of the Hindu undivided family. In the instant case, Shri Mohan LalSanganeria and the assessee-Hindu undivided family claimed right from the beginning that his remuneration as director was his individual income and not that of the Hindu undivided family. Without distinguishing these facts, the Income-tax Officer included the remuneration of Shri Mohan Lal Sanganeria as director, in the income of the Hindu undivided family following the decision of the Supreme Court, referred to above. That decision was distinguished by their Lordships of the Supreme Court in S. Rm. Ct. PL Palaniappa Chettiar v. Commissioner of Income-tax : 68ITR221(SC) , the facts of which were: In 1934, the karta of a Hindu undivided family acquired 90 out of 300 shares in a transport company with the funds of the family. There were initially four shareholders including the karta and two of them were directors. On the death of one of them in 1941, the karta became a director of the company. On the death of another, who was managing the business of the company, he became the managing director of the company in 1942. At the relevant period he was entitled to a salary and a commission on the net profits of the company. The managing director had control over the financial and administrative affairs of the company and the only qualification under its articles of association for being a director was the holding of not less than 25 shares in his own right. The question was whether the managing director's remuneration and commission and sitting fees received by the karta were assessable as the income of the family. It was held :
'........ that the shares were acquired by the family not with theobject that the karta should become the managing director but in the ordinary course of investment and there was no real connection between the investment of joint family funds in the purchase of the shares and the appointment of the karta as managing director of the company. The remuneration of the managing director was not earned by any detriment to the joint family assets. The amounts received by the karta as managing director's remuneration, commission and sitting fees were not assessable as the income of the Hindu undivided family.'
4. The matter was again examined by their Lordships in Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax : 78ITR33(SC) , wherein all the previous cases were reviewed and it was observed as under (page 43):
'In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babu's case : 37ITR123(SC) makes reference to the observations of Lord Sumner in Gokal Chand's case (Amar Nath v. Hukam Chand Nathu Mal) AIR 1921 PC 35, that ' in considering whether gains are partible, there is no valid distinction between the direct use of thejoint family funds and a use which qualifies the member to make the gains by his own efforts '. We think that that principle is no more valid. The other tests enumerated are :
(1) Whether the income received by a coparcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds;
(2) whether the income received was directly related to any utilization of family assets;
(3) whether the family had suffered any detriment in the process of realization of the income ; and
(4) whether the income was received with the aid and assistance of the family funds.
In our opinion from these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter, then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested, the fact that a coparcener has rendered some service would not change the character of the receipt. But if, on the other hand, it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. Applying the tests enumerated above to the facts found by the Tribunal in the present case, there is hardly any room to doubt that the income in question was the individual income of Raj Kumar. He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm. He was elected as a managing director by the board of directors. The Tribunal has found that he received his salary for his personal services. There is no material to hold that he was elected managing director on behalf of the family. In the past the salary received by him was assessed as his individual income. The same was the case as regards the salary received by the other managing directors. The Tribunal has found that he was not appointed as a managing director as a result of any outlay or expenditure of, or detriment to, the family property. It has further found that the managing directorship was an employment of personal responsibility and ability. In these circumstances, we agree with the conclusions reached by the Tribunal thatthe income in question cannot be treated as the income of the assessee. For these reasons we are unable to agree with the High Court that the income in question can be held to be the income of the assessee.'
5. This latest judgment of the Supreme Court really governs the case before us. AH that has been stated by the Income-tax Officer in his order is that:
'The assessee received Rs. 3,000 as director's remuneration from Sanganeria & Co. It is claimed by him that this remuneration represents the assessee's income in his individual capacity. The assessee is a director of the company on account of the funds invested by the Hindu undivided family and these remunerations belong to the Hindu undivided family and not to the assessee in his individual capacity. The joint family assets were used for acquiring the share in the concern and so these remunerations belong to the Hindu undivided family as has been held in the case of Commissioner of Income-tax v. Kalu Babu Lal Chand : 37ITR123(SC) .'
6. The mere fact that the Hindu undivided family held some shares in the limited company does not necessarily lead to the conclusion that the income received by its karta from that company as its director also was the income of the Hindu undivided family and not his own individual income. It was noted by the Income-tax Appellate Tribunal in the case of Shri Kesar Dev Sanganeria, who was also a director of Messrs. Sanganeria & Co. Ltd., and had received remuneration of Rs. 3,000 in each of the years in question that the articles of association of the said company did not provide any specific qualification for being appointed as a director and that it was not necessary to hold any share in the company for being appointed as a director. The tests laid down by their Lordships of the Supreme Court in Raj Kumar Singh Hukam Chandji's case : 78ITR33(SC) are not satisfied in the instant cases in order to hold that the remuneration received by Shri Mohan Lal Sanganeria as director of Messrs. Sanganeria & Co. Ltd., was the income of the Hindu undivided family and not his own individual income.
7. The question referred to us in each case is consequently answered in the negative, that is, in favour of the assessee and against the revenue. We, however, make no order as to costs.