M. S. MENON C.J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922. The assessment year concerned is 1954-55.
During the accounting period relevant to the assessment year 1954-55, the assessee received from the P. S. N. Motors (Private) Ltd. Rs. 36,000 by way of salary, Rs. 7,161 by way of commission and Rs. 79 by way of sitting fees. The first question referred - on the motion of the Commissioner of Income-tax, Kerala - relates to these receipts and is worded as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income from salary, commission and sitting fees obtained by Sri. P. N. Krishna Iyer from Messrs. P. S. N. Motors (Private) Ltd., Trichur, represented his individual income and not the income of the Hindu undivided family of which he is the karta ?'
The P. S. N. Motors (Private) Ltd. was incorporated on July 3, 1952 There were only two shareholders, Krishna Iyer mentioned in the question referred and a nephew of his. Krishna Iyer took a hundred shares and the nephew twenty. The value of each share was Rs. 100.
Articles 28, 29 and 30 of the company have been reproduced in paragraph 11 of the statement of the case. They read as follows :
'28. Sri. P. N. Krishna Iyer shall be the governing director of the company for life and he shall draw such remuneration and exercise such powers as are detailed in the agreement to be entered into between him and the company in this behalf. He shall have the power to nominate his successor and such nomination shall be binding on the company.
29. So long as he holds the office of the governing director, the general management of the companys business shall be in the hands of Sri. P. N. Krishna Iyer, subject to the general control and supervision of the directors. The directors shall forthwith enter into an agreement with him regarding his period of office, remuneration, powers and privileges in terms of the draft which, for purposes of identification, has been certified by Sri. P. Sankara Menon, Advocate, Trichur.
30. The appointment of the said governing director shall not during the said period be liable to removal except under the enabling provisions thereto contained in the Indian Companies Act, 1913.'
The agreement referred to in the articles was signed on August 18, 1952. It was under that agreement that Krishna Iyer became entitled to a salary of Rs. 3,000 per month and a commission of 15 per cent of the net profits of the company.
The agreement is not before us. Paragraph 12 of the statement of the case says :
'On August 18, 1952, the agreement with Sri. P. N. Krishna Iyer was signed. His remuneration was fixed as an office allowance of Rs. 3,000 per mensem and a commission of 15 per cent. on the net profit.'
It is not contended that the payment of Rs. 3,000 per month represents a payment by way of office allowance and not a payment by way of salary.
The main matter for determination, as we see it is the source of the Rs. 10,000 which Krishna Iyer paid for the hundred shares he took on the formation of the company. Those shares are the foundation of the salary, commission and sitting fees with which we are concerned; and if the price of those shares came not from the personal funds of Krishna Iyer but from those of the Hindu undivided family of which he was the karta, there can be no doubt that the income should be considered not as the personal income of Krishna Iyer but as the income of that Hindu undivided family.
The Commissioner of Income-tax in his order under section 33B of the Indian Income-tax Act, 1922, dealt with the source of Rs. 10,000 as follows :
'It is claimed that this sum of Rs. 10,000, contributed by Sri. Krishna Iyer, was out of his own funds and not from the family property. There is no indication of any personal source of income to Sri. Krishna Iyer prior to his receiving salary from the newly floated company.'
The Appellate Tribunal has not differed from the Commissioner on this point and held that Krishna Iyer was not possessed of personal funds. In view of that, we must take it that there is no indication of any personal source of income to Sri Krishna Iyer at or before the relevant date, and that, as a result, Rs. 10,000 should be deemed to have come out of the funds of the Hindu undivided family consisting of himself and his minor children. There is no doubt that the said family was in an affluent position; and we think the only possible inference is that Rs. 10,000 came out of the funds of that family.
Three other matters appear to be of significance in evaluating the nexus between the company and the Hindu undivided family. They are mentioned below :
(1) On the very date on which the agreement was signed -August 18, 1952 - the Hindu undivided family sold to the company buses and other items essential for the commencement of the business for which it was formed for a sum of Rs. 8,01,074.14 nP. No portion of the consideration was paid and there was not even a written agreement to pay interest on the amount.
(2) About a month later, on September 28, 1952, the company passed the following special resolution :
'That in consideration of the valuable services rendered by Sri. P. N. Krishna Iyer for the promotion of this company and the very large sacrifices he has made in agreeing to place his services at the disposal of the company and the immense benefit that the company received on account of his long experience, goodwill and reputation in this line of business, which can modestly be valued at Rs. 5 lakhs, it is resolved that 4,880 shares of the value of Rs. 100 each be allotted as fully paid up shares to Sri P. N. Krishna Iyer and/or his nominee and that the same be numbered in the books of the company and certificates issued and a goodwill account be made for the corresponding amount.
(3) The dividends from all the shares in the name of Krishna Iyer, it is admitted, are being credited not in the personal account of Krishna Iyer but in those of this family.'
In Commissioner of Income-tax v. Kalu Babu Lal Chand, the Supreme Court pointed out that the question whether the amount received by the karta of a Hindu undivided family by way of managing directors remuneration is his personal income or is the income of his Hindu undivided family is a question that arises not between the company and the karta but between the karta and his family and that the answer to the question will depend on whether the remuneration or profit was earned with the help of joint family assets. In Commissioner of Income-tax v. S. RM. CT. PL. Palaniappa Chettiar, the Madras High Court, following the decision above mentioned, said :
'The true view is that the manager of a joint family cannot gain a pecuniary advantage by utilising the family assets or funds, and claim that advantage as his own separate property, merely on the ground that in the process of gaining that advantage an element of personal service or skill or labour is involved. The character of the income has to be determined, taking into account the basic foundation from which it emanates. In all cases where the income is traceable to family property, it must partake of the joint family character, and it would not be open to the manager or any other member of the family to claim it as his own individual and separate income.'
In the light of what is stated above, we must answer the question in the negative and in favour of the department. We do so.
The second question referred - on the motion of the assessee - reads as follows :
'Whether the Commissioner has jurisdiction to revise the order of the Income-tax Officer in view of the decision of the Appellate Assistant Commissioner in appeals for the assessment years 1954-55 to 1957-58 in the assessment of Sri P. N. Krishna Iyer in the status of an individual
We are concerned in this case only with the assessment of the Hindu undivided family for the assessment year 1954-55 by the assessment order dated July 31, 1958. It is that order that has been revised by the Commissioner under section 33B of the Indian Income-tax Act, 1922, by his order dated July 27, 1960. The assessment order of July 31, 1958, has not been the subject of any further proceedings and we see no reason to hold that order cannot be revised under section 33B of the Act. The wide wording of section 33B supports our conclusion. It is enough to extract sub-section (1) thereof :
'The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.'
It is true that the assessment made on July 31, 1958, of the income of the Hindu undivided family was what is termed a protective assessment; but that or the fact that the assessment of the income of Krishna Iyer as an individual has become final before the order of the Commissioner dated July 27, 1960, does not affect the question of jurisdiction. We take the view that there was ample jurisdiction for the revision under section 33B of the Act and answer the question in the affirmative and against the assessee.
The questions referred are answered as above; but, in the circumstances of the case, without any order as to costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.