Dhanwatey. vs CIT(SC)
Supreme Court Decision
[The judgment of Wanchoo C.J., Bachawat, Ramaswami and Mitter JJ. was delivered by Ramaswami J. Hegde J. delivered a separate judgment.]
RAMASWAMI J.---This appeal is brought, by certificate, on behalf of the assessee from the judgment of the Bombay High Court dated July 23, 1963, in Income-tax Reference No. 5 of 1962.
The appellant (hereinafter called the "assessee") is a Hindu undivided family of which Shri M. D. Dhanwatey is the karta. The assessment year involved in this appeal is 1954-55, the corresponding accounting year being the year ended September 30, 1953. Shri M. D. Dhanwatey was a partner in the partnership firm carrying on business under the name and style of M/s. Shivraj Fine Art Litho Works. The share capital of Shri M. D. Dhanwatey was entirely contributed by the assessee Hindu undivided family. The rights of the partners were governed at the relevant time by a partnership agreement dated April 1, 1951. According to the agreement the partnership was of lithography and art printing and was carried on by means of a press under the name and style of "Shivraj Fine Art Litho Works". Clause (4) of the partnership deed enumerated various capital contributions of the partners. The share contribution of Shri M. D. Dhanwatey was shown as Rs. 1,96,875. It is admitted that this amount belonged to the Hindu undivided family. Clause (5) provided for payment of interest at a certain rate to the partners on the share contribution. Clause (7) provided that general management and supervision of the partnership business shall be in the hands of Shri V. D. Dhanwatey. Clause (8) stated that Shri M. D. Dhanwatey shall be the manager in charge of the works and both he and Shri V. D. Dhanwatey shall have power to make contracts, and arrange terms with constituents or costomers, Clause (10) empowered three partners, viz., V. D. Dhanwatey, M. D. Dhanwatey and Shamrao Dhanwatey to appoint such person or persons on such salary as they deem fit for carrying on the work of the partnership and delegate to them such powers as they think proper. Clause (15) provided that the various adult members of the partnership shall devote their whole time and attention to the partnership in the sphere of their respective duties. Clause (16) is the material clause and it provides for various amounts to be paid by way of remuneration to the partners. The remuneration provided to be paid to Shri M. D. Dhanwatey under clause (16) is Rs. 1,250 per month. For the relevant accounting year Shri M. D. Dhanwatey was paid Rs. 7,500 as remuneration. For the assessment year 1954-55 the assessee showed the said amount in section D of the return. It was contended that the salary received by Shri M. D. Dhanwatey, the karta of the assessee-family was received by him in his individual capacity and that it was not taxable in the hands of the assessee. The Income-tax Officer, Special Investigation Circle " B ", Nagpur, by his assessment order dated May 28, 1955, negatived the contention of the assessee. The assessee took the matter to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee preferred a further appeal to the Appellate Tribunal which rejected the contention of the assessee that the amount of Rs. 7,500 was earned by Shri M. D. Dhanwatey in his individual capacity and that it should not have been included in the taxable income of the assessee. As directed by the High Court, the Appellate Tribunal stated a case on the following question of law under section 66(2) of the Indian Income-tax Act, 1922 :
" Whether, on the facts and circumstances of the case, the payment of Rs. 7,500 (Rupees seven thousand five hundred) paid to Shri M. D. Dhanwatey for rendering services to the firm, could be included in the total income of the assessee-family ?"
The High Court answered the reference in favour of the income-tax department and against the assessee. The High Court observed that Shri M. D. Dhanwatey was one of the partners in the partnership as representing the Hindu undivided family consisting of himself and his two minor sons. There was no evidence whatever to show that Shri M. D. Dhanwatey was in the service of the partnership firm in his individual capacity and the High Court held that what was paid to him in the form of remuneration was only for the purpose of adjustment of the rights inter se between the partners. The remuneration paid to the karta was, therefore, the income of the Hindu undivided family and it cannot be said on the facts found in the case, that the remuneration paid to Shri M. D. Dhanwatey was without any detriment to the joint family property. It was also found that the share capital contributed by Shri M. D. Dhanwatey came from the joint family assets.
The material facts of the present case are almost identical with those in V. D. Dhanwatey v. Commissioner of Income-tax, judgment in which has been pronounced today. For the reasons elaborately set out in that case we hold that the decision of the question of law in the present case is governed by the decisions of this Court in Commissioner of Income-tax v. Kalu Babu Lal Chand, and in Mathura Prasad v. Commissioner of Income-tax.
We are accordingly of the opinion that the question referred to the High Court was rightly answered against the assessee and this appeal must be dismissed with costs.
HEGDE J.---I agree with the conclusion reached by my learned brothers. For the reasons stated in my judgment in Civil Appeals 1372 and 1373 of 1966, V. D. Dhanwatey v. Commissioner of Income-tax. I am unable to subscribe to the observation in the majority judgment that the material facts of the present case are almost indentical with those in V. D. Dhanwatey v. Commissioner of Income-tax.