This is a petition under section 66(2) of the Income-tax Act for directing the Tribunal to state the case on the following questions :
'1. Whether on the facts and in the circumstances of this case the wo sums of Rs. 5,100 and Rs. 200 received by Sri Mohan Tayal as managing directors salary and directors fees respectively from Tayal Bros. Ltd., by virtue of its board of directors resolution and in terms of the articles of association is his personal income or that of the Hindu undivided family of which he is the karta ?
2. Is there any material on record to hold that Sri Mohan Tayal, while acting as managing director of Tayal Bros. Ltd., was doing so as a representative of the Hindu undivided family of which he was the karta ?'
The petitioner, Sri Mohan Tayal, became a director of a private limited company in the year 1946 in which the shareholders are the petitioner himself, his wife, two of his brothers and the wife of one of the brothers. He had three hundred shares of the company in his name which admittedly were acquired out of the assets of the Hindu undivided family which consists of himself and his two sons. In the year 1955 the petitioner was appointed managing director of the company and he received a sum of Rs. 5,100 as remuneration during the assessment year in question, namely, 1956-57. He also received director fees amounting to Rs. 200. The Income-tax Officer assessed the income of the family of the petitioner including the remuneration received by him as managing director as also the directors fees as that of an individual. An appeal was taken to the Appellate Assistant Commissioner on the ground that the status of the petitioner was that of a Hindu undivided family and not 'individual' and that the salary and directors fees received from the company should have been assessed separately in the individual capacity of the petitioner. The Appellate Assistant Commissioner accepted the first contention but declined to treat the salary and the directors fees as the income of the petitioner in his individual capacity. On appeal to the Income tax Appellate Tribunal against this part of the decision of the Appellate Assistant Commissioner, the Tribunal recorded a short order on 5th February, 1958, saying that the assessee was acting as the managing director in the capacity of karta of his Hindu undivided family and not in his capacity as an individual. Thus the salary and directors fees had been rightly included in the assessment of the Hindu undivided family. The Tribunal having declined to state the case and refer the questions of law which were sought to be raised, the present petition has been instituted in this court.
The learned counsel for the petitioner contends that although the shares of the company were acquired out of the assets of the Hindu undivided family consisting of the petitioner and his two sons, the petitioner was appointed as the managing director in his individual capacity and owing to his competency for carrying on the work of the managing director of the company. It is further submitting that there is no detriment to the assets of the Hindu undivided family which has resulted or can result by virtue of the petitioner holding the office of the managing director or director and thus the tests that have been laid down for deciding whether in such circumstances the remuneration earned as managing director or the fees paid to a director would be income in the hands of the Hindu undivided family or would be individual income have to be properly considered and applied in the present case and, consequently, the questions of law set out before arise out of the order of the Tribunal. Our attention has been called to Piyare Lal Adishwar Lal v. Commissioner of Income-tax, where Ss father was the treasurer of a bank until his death. After the fathers death, S was appointed treasurer of the bank. Properties of the Hindu undivided family of which he was a member were furnished by him as security. It was held that having regard to the nature of his work and the control and supervision of the bank over the treasurer, the treasurer was a servant of the bank and there was nothing to show that S received any particular training at the expense of the family funds or that his appointment was the result of any outlay or expenditure of or detriment to the family property and consequently his salary was not the income of the Hindu undivided family. This case is of a very different kind. Their Lordships have observed that treasurership is an employment of responsibility, trust and fidelity and personal integrity and ability and mere ability to furnish a substantial security is not the sole or even the main reason for being appointed to such a responsible post in a bank like the Central Bank of India. On the other hand, Ss previous experience as an overseer of the bank and his being appointed on his applying for the post are indicative of personal fitness for it. The case of Gokal Chand v. Firm Hukam Chand Nath Mal and the earlier decision of the Supreme Court in Commissioner of Income-tax v. Kalu Babu Lal Chand were distinguished on the ground that in the former case the Privy Council had relied upon all cases where joint family funds had been expended to fit a member of the joint family for the particular profession or avocation, the income of which was the subject matter of dispute and that in the latter case the words 'risk of or detriment to family property' must be read in the context in which they were used. According to their Lordships, it had not been shown in that case that there was any detriment to the family property within the meaning of the terms as used in the decided cases. The learned counsel for the petitioner also relied on a Madras decision in Commissioner of Income-tax v. S.N.N. Sankaralinga Iyer, where the facts were almost similar to the facts in the present case. The Madras Bench took the view that the actual appointment and remuneration of the karta of the family as the managing director of a bank in which shares had been purchased by him out of joint family funds was the result of a contract of service entered into between him and the bank and not of the holding of the shares by him. According to Viswanatha Sastri J. the mere fact that he held a particular quantity of shares as manager of a joint family did not ipso facto enable him to function as the managing director. His personal qualifications were mainly responsible, in addition to the holding of shares, for his selection and appointment as the managing director of the bank. It was the individual that was appointed and that was functioning as the managing director and not the family and that the holding of shares was not the causa causans of his earnings. If the Madras decision had held the field, there was a good deal to say in favour of the petitioner, but in Commissioner of Income-tax v. Kalu Babu Lal Chand the Supreme Court doubted the correctness of this view in the following words :
'With great respect to the learned judges, it appears to us that they overlooked the principles laid down by the Judicial Committee in Gokal Chand v. Firm Hukam Chand Nath Mal, where it was pointed out that there could be no valid distinction between the direction use of the joint family fund and the use which qualified the member to make the gains on his own efforts.'
A great deal of reliance has been placed by the learned counsel for the Commissioner of Income-tax on this judgment of the Supreme Court. The Appellate Tribunal had found that the shares held in the names of R and his brother had been 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 R made no contribution in his respect. The company was all along financed by the family. Prior to the accounting year relevant to the assessment year 1943-44, the managing directors remuneration received by R was credited in the books of the family. It was for the first time in the assessment year 1943-44 that it was claimed that the managing directors remuneration constituted the personal earnings of R and should not be included in the income of the family. It was held that the managing directors remuneration received by R was the income of the family and should be assessed in its hands. There are observations at various places in this judgment which run counter to the contention which has been advanced by the learned counsel for the petitioner based on the Madras judgment referred to before as also on another Madras judgment in Murugappa Chetty and Sons v. Commissioner of Income-tax. There can, however, be no doubt that in this case the Supreme Court accepted the test laid down by the Privy Council in Gokal Chands case and, therefore, it is necessary to accept that test as final and binding.
This court has already followed the principles laid down in Gokal Chands case as also in Commissioner of Income-tax v. Kalu Babu Lal Chand. In Bhagwant Singh v. Commissioner of Income-tax, Bhandari C.J. made it clear that the fundamental principle of Hindu law is that all property acquired by a member of a coparcenary with the aid of joint family property becomes joint property of the family. In the words of the learned Chief Justice, the answer to the question, therefore, whether a certain acquisition is or is not joint family property turns on the answer to the question whether it was made without detriment to the joint estate or, in other words, whether it was acquired without any aid from or detriment to the family fund. The courts are inclined to the view that any assistance from the joint estate, however indirect and inconsiderable, is a detriment to the estate. Indeed, they have gone to the length of stating that there is no valid distinction between the direct use of the joint family fund and the use which qualified the member to make the gains on his own efforts. In that case it had been established that S. Bhagwant Singh was a member of a joint Hindu family, that he invested a part of thejoint family funds in a partnership and that it was in consequence of that investment that he became a partner in that enterprise and became entitled to draw salary as a partner. Thus the investment of the family funds in the partnership business and the salary earned by S. Bhagwant Singh were related to each other as cause and effect. The right to draw a salary was made possible by the use of joint family funds which enabled him to become a partner and to claim remuneration for the services rendered by him. This view can be appositely applied to the present case and it must be taken to be settled that on the facts which have been found by the Appellate Assistant Commissioner and the Tribunal the right to draw the salary as a managing director and to earn directors fees of the petitioner became possible because of the use of the holding of shares which belonged to the joint family and without which the petitioner could not have been appointed either a director or a managing director. In Kidar Nath & Sons v. Commissioner of Income-tax it was agreed at the Bar that the question whether in the circumstances and on the facts of that case the sum of Rs. 1,420 received by Kidar Nath as managing agents remuneration from the Ambala Cantonment Electric Supply Company Limited could be said to be a part of the income of the Hindu undivided family of which he was the karta should de answered in accordance with the decision in Commissioner of Income-tax v. Kalu Babu Lal Chand in the affirmative. It may be that the facts in the Supreme Court decision were somewhat stronger than what is to be found in the present case but there can be no difficulty in discovering the principle which was followed and which was laid down by the Privy Council in Gokal Chands case.
In the result, this petition is dismissed with costs, which I assessee at Rs. 100.