M.R.A. Ansari, J.
(1) The Income-Tax Appellate Tribunal, Delhi Bench 'B' has refered the following question under section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) :-
'WHETHERon the facts and in the circumstances of the case, the managing agency remuneration was the income of B. N. Bhaskar earned in his individual capacity or the income of the Hindu undivided family 'of which he was the karta ?'
(2) The assessed in this case is the Hindu undivided family consisting of Shri B. N. Bhaskar, the karta, his wife and sons. The assessment under reference is for the year 1959-60 and the relevant previous year is the financial year ending 31st March, 1959. During the relevant previous year, Shri B. N. Bhaskar was the sole proprietor of a managing agency business run under the name and style of M/s Bhaskar Brothers. This managing agency business came into existence under the following circumstances :
(3) B. N. Bhaskar, the karta of the assessed Hindu undivided family, was the joint owner along with his father, A. N. Bhaskar, and his two brothers, T. N. Bhaskar and R. N. Bhaskar, of two concerns, namely, Ishwar Pottery Works, Delhi, and Delhi Glass Works, Delhi. In August, 1943, a partnership was formed in the name of M/s Bhaskar Brothers consisting of the following partners to carry on the business of the above two concerns :-
(I)Shri A. N. Bhaskar, (ii) Shri B. N. Bhaskar, (iii) Shri T. N. Bhaskar, and (iv) Shri N. L. Bhardwaj.
The last-named person was a stranger. At about the same time, a limited company, namely, Ishwar Industries Limited, was incorporated to take over the business and assets of the Ishwar Pottery Works and the Delhi Glass Works as going concerns. On 8-2-1944, this company purchased the assets of these two concerns for a cash consideration of Rs. 3,23,722.00. A. N. Bhaskar and his sons purchased shares in this company totalling Rs. l,56,975.00. By an agreement dated 5th February, 1944, the Company appointed M/s Bhaskar Brothers as Managing Agents of the said Company for a period of 20 years. A. N. Bhaskar died in the year 1956 and the other partners of the managing agency firm also left the partnership in the same year with the result that B. N. Bhaskar became the sole proprietor of the said firm. A fresh agreement was executed on 13-7-1957 between the Company and M/s Bhaskar Brothers represented by the sole proprietor B. N. Bhaskar under which M/s Bhaskar Brothers were appointed the Managing Agents of the Company on the same terms as contained in the earlier agreement dated 5th February, 1944 except for certain modifications in the remuneration paybale to the Managing Agents.
(4) B. N. Bhaskar was being assesed in the status of an individual during the period prior to the assessment year 1959-60 not only in respect of the remuneration which the limited Company paid to M/s Bhaskar Brothers but also in respect of the dividend income on the shares held by him in the Company. In his assessment for the year 1959-60, B. N. Bhaskar claimed that the managing agency remuneration was assessable in his hands as an individual and that the dividend income and other income were assessable in the hands of the Hindu undivided family of himself his wife and sons. The Income-tax Officer, however, assessed the entire income including the managing agency remuneration in the hands of the Hindu undivided family. On appeal, the Appellate Assistant Commissioner deleted the managing agency remuneration from the assessment of the Hindu undivided family and directed that this remuneration should be assessed in the hands of B B. N. Bhaskar as an individual. The Department preferred an appeal before the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) aginst the order of the Appellate Assistant Commissioner, but the Tribunal dismissed the appeal and confirmed the order of the Appellate Assistant commissioner. The Tribunal has, however, made this refernce at the instance of the Commissioner under section 66(1) of the Act.
(5) Shri A. N. Kirpal, the learned counsel for the Revenue, has sought to support the order of the Income-tax Officer on the following grounds:-
(I)that the Managing Agency Firm of M/s Bhaskar Brothers came into existence at a time when the two concerns-Ishwar Pottery Works and Delhi Glass Works-belonged to the Hindu undivided family of A. N. Bhaskar and his sons, that the said firm was ituted for the purpose of carrying on the business of the two concerns and that, thereforee, the said firm formed part of the assets of the Hindu undivided family of A. N. Bhaskar and his sons. 17 (ii) that the firm of M/s Bhaskar Brothers was appointed Managing Agents of M/s Ishwar Industries Limited, by reason of the investment made by the Hindu undivided family of A. N. Bhaskar and his sons in the Company. (iii) that even if there was no direct connection between the appointment of M/s Bhaskar Brothers as Managing Agents of the Company and the investments made by the Hindu undivided family of A. N. Bhaskar, and his sons in the Company, the said appointment was part of the scheme under which the limited company purchased the two concerns of the Hindu undivided family; and (iv) that the partners of the firm of M/s Bhaskar Brothers represented their respective families in the partnership business.
(6) Before considering these contentions, it is desirable to state the legal position. There is divergence of opinion on this subject between the several High Courts and these divergent views seek support from the several decisions of the Supreme Court. But the position has now been clarified by the Supreme Court in a recent case, viz., Rai Kumar Singh Hukam Chandji v. Commissioner of Income-tax : 78ITR33(SC) , in which the Supreme Court after considering the case law on the subject, has laid down the following broad principle :-
'THEbroader 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.'
(7) Considering the contentions advanced by the learned counsel for the Revenue in the light of the principle laid down by the Supreme Court, we do not find any justification for treating the remuneration received by the Managing Agency during the relevant accounting year as income of the Hindu undivided family of B.N. Bhaskar, his wife and sons. It is, no doubt, true that the firm of M/s Bhaskar Brothers came into existence at a time when the two concerns, Ishwar Pottery Works and Delhi Glass Works, belonged to the Hindu undivided family of A. N. Bhaskar and his sons. But this fact by itself does not lead to the conclusion that the firm was also the property of the Hindu undivided family of A. N. Bhaskar and his sons. Prima facie. it was independent of the two concerns, Ishwar Pottery Works and Delhi Glass Works, because one of the partners of the firm, namely, Shri N. L. Bhardwaj, was a stranger. The partnership deed of this firm is not before us. The assessments of the firm during the period prior to 1956 when B. N. Bhaskar became the sole proprietor of the Managing Agency concern are also not before us and we do not know whether the share income of A. N. Bhaskar and his two sons, B. N. Bhaskar and T. N. Bhaskar, who were partners of that firm, was treated as the income of the Hindu undivided family of A. N. Bhaskar and his sons. The learned counsel for the Revenue suggests that we should call for a supplementary statement of the case from the Tribunal on this point. The Revenue could have made such a request to the Tribunal and could have brought on record the necessary facts; we do not feel called upon to gather such additional information at this stage. On the facts on record, it is not possible to say that the firm of M/s. Bhaskar Brothers consisting of four partners was an asset of the Hindu undivided family of A. N. Bhaskar and his sons.
(8) The second contention that the appointment of M/s Bhaskar Brothers as the Managing Agents of M/s Ishwar Industries Limited was due to the investment made by the Hindu undivided family of A. N. Bhaskar and his sons in the Company appears to be equally untenable. Under the Articles of Association of M/s Ishwar Industries Limited, the holding of any shares in the said Company was not a qualification for the appointment of the Managing Agents. The investment of the Hindu undivided family of A. N. Bhaskar and his sons in the Limited company was quite insignificant. Out of the total paid-up capital of Rs. 6,76,000.00, the investment of the Hindu undivided family amounted only to Rs. l,56,975.00. No connection has, thus, been established between the investment made by the Hindu undivided family in the Company and the appointment of M/s Bhaskar Brothers as its Managing Agents. On the other hand, the appointment of M/s Bhaskar Brothers as the Managing Agents of the limited company might very well have been due to the fact that the Managing agency firm consisted of persons who had considerable experience in running the business. There is hardly any material to hold that the appointment of M/s Bhaskar Brothers as Managing Agents of the limited company was part of the scheme under which the limited company purchased the two running concerns of the Hindu undivided family of A. N. Bhaskar and his sons. There is also no matetial for us to hold that the partners of the firm M/s Bhaskar Brothers represented their respective families in the partnership busines. On the other hand, it would appear from the statement of the case that B. N. Bhaskar was assessed in the status of an individual throughout up to and including the assessment year 1958-59 in respect of his entire income including the share income from the firm of M/s Bhaskar Brothers during the period when this firm consisted of four partners and also during the period when he was the sole proprietor of the Managing Agency business.
(9) It is finally contended on behalf of the Revenue that the principles which determine the nature of the remuneration paid to a director or a managing director of a company or to the managing partner of a firm do not apply to the case of a managing agency firm. The difference according to Mr. Kirpal is that whereas a director, managing director or managing partner gets remuneration for the services rendered by him for which he is specially qualified, the managing agency firm. need have no such special qualifications and the firm may have the services required from it, rendered through skilled employees. But this difference may not be present in all cases. Persons with no special skill may still be appointed as directors, manging directors or managing partners on account of other considerations. Firms may be appointed as managing agents on account of some special qualifications possessed by the partners of the firm. But the question whether the remuneration received either by the director, the managing director or the managing partner on the one hand, and the managing agency firm on the other hand, is their individual income or the income of their Hindu undivided families, does not primarily depend upon, the existence or absence of any special qualifications. It depends upon the tests laid down by the Supreme Court in the case of Raj Kumar Singh Hukam Chandji. In our view, these tests are applicable as much to cases of managing agency firm as to cases of directors, managing directors and managing partners. Applying the above tests to the present case, we have no hesitation in holding that the remuneration received by the managing agency concern of M/s Bhaskar Brothers during the relevant accounting year was the individual income of B. N. Bhaskar and not the: income of the assessed Hindu undivided family. We, thereforee, answer the question referred to us accordingly, i.e., in favor of the assessed. The revenue will bear the costs of the reference. Counsel fee is fixed at Rs. 250.00.