1999 JTR(SC) 282
1999 AIR(SC) 1220 ; 1999 AIR(SCW) 886 ; 1999 152 CTR 428 ; 1999 237 ITR 11 ; 1999 2 JT 124 ; 1999 2 Scale 14 ; 1999 3 SCC 170 ; 1999 1 SCR 980 ; 1999 TaxLR 363 ; 1999 103 Taxman 400 ; 1999 KHC 1126 ; 1999 2 Supreme 511
1999(2) Supreme 511
Supreme Court of India
(From Madras High Court)
S.P. Bharucha, S.S. Mohammed Quadri & R.C. Lahoti, JJ.
K.S. Subbiah Pillai -Appellant
versus
The Commissioner of Income Tax -Respondent
Civil Appeal Nos. 877-885 of 1991
Decided on 10-3-1999
Counsel for the Parties :
For the Appellant : Uttam Reddy, A.V. Rangam, A. Ranganathan, Advocates.
For the Respondent : K.N. Shukla, Sr. Advocate T.C. Sharma, Advocate for B.K. Prasad, Advocate.
Important Point
Where Tribunal found that the assessee Karta of HUF earned remuneration and commission on account of his personal qualifications and exertions and not on account of the investment of family funds, the income could not be assessed as the income of HUF.
Act
Referred
:CONSTITUTION OF INDIA : Art.4
INCOME TAX ACT : S.2(3)(1)(ii), S.252, S.4, S.254, S.2(4), S.256
(A) The Income Tax Act provisions operative in this case govern the assessment of income arising to a Hindu Undivided Family, specifically addressing the determination of assessability of remuneration and commission. Section 2(3)(1)(ii) defines the unit of assessment, while Section 252 confers appellate authority to adjudicate factual disputes. Sections 4 and 256 provide the framework for filing and revising assessments, and Section 2(4) offers interpretive guidance. These provisions collectively establish the procedural and substantive law for resolving disputes over income attribution within the family structure. The Constitution of India, Article 4, directs the State to secure a uniform civil code, providing the underlying policy context for judicial interpretation of personal law principles affecting family assets and income allocation.
(B) The core legal principle is that remuneration and commission earned by the Karta of a Hindu Undivided Family are assessable in the individuals hands and not in the familys hands if such income arises from the personal qualifications and exertions of the individual and not from the investment of family funds in the business.
Facts of the case:
The assessee, a Hindu Undivided Family, was assessed to income tax for multiple assessment years. The central issue was whether the remuneration and commission received by the Karta were assessable in the hands of the HUF or the individual. An earlier assessment in another jurisdiction concluded in favor of the assessee, a view not contested by the revenue.
Findings of Court:
The Income Tax Appellate Tribunal found that the income was earned by the Karta on account of personal qualifications and exertions, not from family investments. The High Court at Madras failed to give due weight to this finding and misapplied the principle governing the attribution of income.
Issues:
The primary issue was whether the remuneration and commission received by the Karta of the HUF were assessable in the hands of the HUF or the individual assessee.
Ratio Decidendi:
The income of a coparcener is attributable to the individual and not to the HUF if it results from personal qualifications and exertions, rather than from the utilization of family funds in the business.
Result:
The appeals are allowed, the impugned judgment is set aside, and the question is answered in favor of the assessee.
(A) The Income Tax Act provisions operative in this case govern the assessment of income arising to a Hindu Undivided Family, specifically addressing the determination of assessability of remuneration and commission. Section 2(3)(1)(ii) defines the unit of assessment, while Section 252 confers appellate authority to adjudicate factual disputes. Sections 4 and 256 provide the framework for filing and revising assessments, and Section 2(4) offers interpretive guidance. These provisions collectively establish the procedural and substantive law for resolving disputes over income attribution within the family structure. The Constitution of India, Article 4, directs the State to secure a uniform civil code, providing the underlying policy context for judicial interpretation of personal law principles affecting family assets and income allocation.
(B) The core legal principle is that remuneration and commission earned by the Karta of a Hindu Undivided Family are assessable in the individuals hands and not in the familys hands if such income arises from the personal qualifications and exertions of the individual and not from the investment of family funds in the business.
Facts of the case:
The assessee, a Hindu Undivided Family, was assessed to income tax for multiple assessment years. The central issue was whether the remuneration and commission received by the Karta were assessable in the hands of the HUF or the individual. An earlier assessment in another jurisdiction concluded in favor of the assessee, a view not contested by the revenue.
Findings of Court:
The Income Tax Appellate Tribunal found that the income was earned by the Karta on account of personal qualifications and exertions, not from family investments. The High Court at Madras failed to give due weight to this finding and misapplied the principle governing the attribution of income.
Issues:
The primary issue was whether the remuneration and commission received by the Karta of the HUF were assessable in the hands of the HUF or the individual assessee.
Ratio Decidendi:
The income of a coparcener is attributable to the individual and not to the HUF if it results from personal qualifications and exertions, rather than from the utilization of family funds in the business.
Result:
The appeals are allowed, the impugned judgment is set aside, and the question is answered in favor of the assessee.
Judgment
Bharucha, J.-In these appeals filed by the assessee, which is a Hindu Undivided Family, we are concerned with the Assessment Years 1959-60 to 1965-66 and 1969-70 and 1970-71. The question that we are required to consider reads thus:
“Whether, on the facts and in the circumstances of the case, the remuneration and commission received by Sri K.S. Subbiah Pillai was assessable in the hands of the assessee Hindu Undivided Family?"
2. It may be mentioned at the outset that the same assessee was assessed in Andhra Pradesh for the Assessment Years 1966-67 to 1968-69. The same question arose in regard to those assessments. The question was answered on reference by the High Court of Andhra Pradesh in favour of the assessee and the Revenue did not carry the matter further.
3. The judgment of the Andhra Pradesh High Court afore-mentioned was cited before the High Court at Madras in the reference proceedings out of which these appeals arise but the Madras High Court dissented therefrom. It dilated at length on Hindu Law but, with great respect, missed the point that the Income Tax Appellate Tribunal is the final fact-finding authority and, as it has itself noticed in the judgment under challenge, the Tribunal had held that the remuneration and commission received by the Karta of the HUF were earned by him on account of his personal qualifications and exertions and not on account of the investment of the family funds in the company and, therefore, could not be treated as the income of the HUF.
4. The High Court, having analysed the law, rightly concluded that the broad principle that emerged was whether the remuneration received by the coparcener was in substance 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 compensation made for services rendered by the individual coparcener. If it was the former, it was the income of the HUF; but if it was the latter, then it was the income of the individual coparcener. Applying this test, the High Court held, “There is absolutely no evidence to support the contention of the learned counsel for the assessee that the development of the business was due to any peculiar qualification or experience on the part of the assessee.”
5. We cannot agree. Having analysed the law, as it did correctly, the High Court should have taken note of the finding recorded by the Tribunal and noticed by it earlier, namely, that the remuneration and commission that were earned by the Karta were earned by him on account of his personal qualifications and exertions and not on account of the investment of the family funds and, therefore, should have held that the income could not be treated as the income of the HUF.
6. In the result, the appeals are allowed. The judgment, and order under appeal is set aside. The question is answered in the negative and in favour of the assessee. No order as to costs.
(C.R.) Appeals allowed.
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