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PETITIONER: RAJ KUMAR SINGH HUKAM CHANDJI

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX MADHYA PRADESH

DATE OF JUDGMENT: 11/08/1970

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C. GROVER, A.N.

CITATION:  1971 AIR 1454            1971 SCC  (1) 748  CITATOR INFO :  RF         1976 SC1715  (11)  R          1978 SC1412  (4,5,6,9)  F          1986 SC  79  (16)

ACT: Indian Income-tax Act (11 of 1922)-Remuneration as  Managing Director-Whether  assessable as income of individual  or  of Hindu undivided family.

HEADNOTE: A Hindu undivided family carrying on management of a company disrupted  into 3 branches, one being that of the  assessee, and the shares of the company were more in the names of  his family members.  The consideration for all these  subsequent acquisitions was from the Hindu undivided family funds.  All the  shares-the  previous  and  subsequent  acquisition-were treated  in the books and the balance slice of the  assessee family as its property and its dividends were also  credited to  the account of the family.  As Managing Director of  the company the assessee received certain remuneration.  On  the question   whether  the  managing  director’s   remuneration received  by the assessee was assessable in  his  individual hands  or  in the hands of the  assessee’s  Hindu  undivided family, this Court HELD  :-The  remuneration was assessable as  the  assessee’s individual  income  and  not  as the  income  of  his  Hindu undivided family. The broad principle that has, to be applied in such cases is whether  the  remuneration  received by  the  coparcener  in substance  though not in form was but one 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  in- vested 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  circumstances  that his  services were availed of because of the reason that  he

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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. [759 D] Applying  the tests enumerated above to the facts  found  by the tribunal in the present case, there was hardly any  room to  doubt  that the income in question  was  the  individual income of assessee.  He did not become the managing director of  the  firm  for  the mere  reason  that  his  family  had purchased  considerable shares in the firm.  He was  elected as  a  managing  director by the board  of  directors.   The tribunal  had  found  that he received his  salary  for  his personal  services.  There was no material to hold  that  be was  elected managing director on behalf of the family.   In the  past  the salary received by him was assessed  as  hi-, individual  income.   The same was the case as  regards  the salary  received  by  the  other  managing  directors.   The tribunal  had  found that he was not appointed  as  managing director  as  a result of any outlay or  expenditure  of  or detriment to the family property.  It had further found that the  managing  directorship was an  employment  of  personal responsibility and ability. [759 G] 749 Commissioner-  of Income,-tax, West Bengal v. Kalu Babu  Lal Chand,  37  I.T.R. 123; Mathura Prasad  v.  Commissioner  of Income-tax  60  I.T.R.  428, Piyeare Lal  Adhishwar  Lal  v. Commissioner of Income-tax, 40 I.T.R. 17; V. D. Dhanwatey v. Commissioner of income-tax M.P. 68, I.T.R. 365;M.D.Dhanwatey v.  Commissioner of Income-tax M.P. 68, I.T.R.  385;S.RM.CT. PL.    Palaniappa  Chettiar  v.  Commissioner   of   Income- tax,Madras  68,  I.T.R.  221;  Commissioner  of  Income-tax, Mysore  v.  Gurunath Dhakappa, 72 I.T.R. 192 P.  N.  Krishna Iyer v. Commissioner of Incometax Kerala, 73 I.T.R. 539, and Commissioner of Income-tax, Mysore v.D. C. Shah, 73,  I.T.R. 692, explained. Principle laid down in Gokul Chand v. Hukum Chand Nath  Mal, 48,I.A. 162; held no more valid.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 326 and 327 of 1967. Appeals  from the judgments and orders dated May 3, 1966  of the Madhya Pradesh High Court in Misc.  Civil Cases Nos. 186 of 1963 and 39 of 1964. M.  C.  Chagla, Ashoke Chitale and Rameshwar Nath,  for  the appellant (in both the appeals). S.  C.  Manchanda, G. S. Sharma, R. N. Sachthey  and  B.  D. Sharma, for the respondent (in both the appeals). The Judgment of the Court was delivered by HEGDE, J. The question of law arising for decision in  these appeals by certificate under s. 66A(2) of the Indian Income- tax Act, 1922 (to be hereinafter referred to as the Act) is               "Whether on the facts and in the circumstances               of   the   case,   the   managing    directors               remuneration  received by Sri  Rajkumar  Singh               was assessable in his individual hands and not               in  the hands of the assessee Hindu  Undivided               Family ?" This  question  was  referred by  the  Income-tax  Appellate Tribunal, Bombay Bench ’A to the High Court of Judicature at Bombay  on an application made under s. 6(1) of the  Act  by the  Commissioner of Income-tax, Madhya Pradesh.   The  High Court  has answered that question in favour of the  Revenue.

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As against that decision this appeal has been brought. The  assessee in this case is a Hindu Undivided  Family  and the  concerned  assessment  year is  1954-55,  the  relevant accounting  period being the year ending Diwali  1953  i.e., November  6, 1953.  Previously a Hindu Undivided Family  was carrying on business under the name and style of  Sarupchand Hukamchand.  That family was carrying on several  businesses one  of  which was the management of  certain  mills.   That family disrupted on March 750 30,  1950.  The assessee is the branch of that  family.   On March  31,  1950,  a company under the  name  and  style  of Sarupchand Hukumamchand Private Ltd. was incorporated.   The capital  of  the company consisted of Rs. 5  crores  divided into  20,000  preference shares of Rs. 1,000  each  and  Rs. 3,000 ordinary shares of Rs. 1,000 each.  The company itself was  incorporated for the purpose of acquisition  from  M/s. Sarupchand    Hukumchand,   certain    managing    agencies, businesses, factories and properties and for that purpose to enter  into an agreement with the said firm and to carry  on business  as  managing agents of Rajkumar  Mills  Ltd.,  the Hukamchand Mills Ltd. and the Hira Mills Ltd. and the  other businesses mentioned more particularly in the Memorandum  of Association  of  the company.  The first  Directors  of  the company were (1)  Sir Hukamchand Saroopchandji (2)  Rajkumarsingh Hukamchandji (3)  Lady Kanchanbai Hukamchandji (4)  Mrs. Premkumaridevi Rajkumarisinghji (5)  Raja Bahadursingh Rajkumarsinghji (6)  Rustomji Cowasji Jall. The  qualification prescribed for a director under  Art.  53 was the holding of at least 10 shares in the company whether preference  or  ordinary  or  partly  preference  or  partly ordinary.  Art. 55 provided that the Directors may from time to time, appoint one or more of their body to the office  of managing  Director  or  manager on such terms  and  at  such remuneration  as  may be determined by  the  Directors.   In pursuance of the powers conferred on them under Art. 55, the Directors by their resolution dated March 31, 1950 appointed for the purpose of management of the business of the company Sir  Hukumchand  Rajoahadur,  Rajkumar  and  Rajabahadur  as managing Directors of ’,he company on a remuneration of  Rs. 5,0001-  per  month  for each of them  for  their  services. Under  Art. 63, the Directors were given certain powers  for the  management  of the company. they were  subject  to  the control  of the Board of Directors.  The three  branches  of the, original Hindu Undivided Family namely the branches  of Sir Seth Hukumchand, Lady Kanchanbai and Sri  Rajkumarsingh, were  allotted 5,000 shares of the face value of  Rs.  1,000 each.   The assessee’s branch represented by its  Karta  got 5,000  shares.  Rajkumar acquired 30 further shares  in  the name  of his wife, Premkumari and 10 shares in the  name  of Rajabahadur.   The  consideration for all  these  subsequent acquisitions was admittedly from the Hindu Undivided  Family funds.  All the 5,030 shares were treated in the books,  and the 751 balance  sheet of the assessee family as its property.   The dividends  in respect of these shares were also credited  to the  account of the family.  Sir Hukumchand died  and  after his  death  the  other  two continued  to  be  the  managing Directors.  For the years 1951-52, 1952-53 and 1953-54,  the receipt   of  this  Rs.  5,00011-  per  month  received   as remuneration  was  treated as the income of Rajkumar  as  an

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individual  and  assessed  on  that  basis.   Similarly  the remuneration received by Sir Hukumchand and Rajabahadur have been  and  continued  to be  assessed  as  their  individual income.   In  making the assessment of the assessee  in  the year  1954-55, the Income-tax Officer referred to this  item in the following words               "It was claimed that the income from  managing               directors remuneration and from directors fees               is  assessable  in  his  hands  in  individual               capacity.    As   was  done   in   the   early               assessments also." For that reason he did not assess the sum of Rs.  60,000/and the  sitting fee of Rs. 1,420/- received by Rajkumar in  the account year relevant to the assessment year 1954-55 in  the hands  of the Hindu undivided family but they were  assessed in, the hands of Rajkumar as an individual.  On January  10, 1961,  the  Commissioner of Income-tax, in exercise  of  his power under s. 33(B) issued a notice to the assessee to show cause why the assessment of the assessee for the  assessment year  1954-55 should not be revised by treating the  sum  of Rs. 60,000/- plus Rs. 1,42O/- as the income of the  assessee Hindu Undivided Family of which Rajkumar was the Karta.  The assessee  opposed  that notice.  He claimed  the  amount  in question as his individual income.  The Commissioner did not accept the contention of the assessee and purporting to rely on the decision of this Court in Commissioner of Income-tax, West Bengal v. Kalu Babu Lal Chand,(1) held that  income was of  the  assessee.   He  taxed  the  assessee   accordingly. Aggrieved by that decision, the assessee took’ us the matter in appeal to the Income-tax Appellate Tribunal.  Before  the tribunal, learned Counsel for the assessee conceded that the sitting  fee of Rs. 1,420/- may be treated as the income  of the  assessee.  Hence the dispute centered round the sum  of Rs. 60,000,/- received by Rajkumar as salary.  The  tribunal upheld  the contention of the assessee.  The tribunal  after tracing the history of the Private Ltd.Co. of Rajkumar was a Director  and  the manner in which the  earlier  assessments were made observed : -- "From the facts set out above it is clear that this is not a part  and parcel of the same transaction or the same  scheme of arrangement.  Whatever may be said of (1) 37 I. I. T. R. 123.; 752 the bigger Hindu undivided family, it was sheer accident  of circumstances  that the smaller Hindu undivided family  came to hold these shares.  Both Rajkumar and Rajabahadur  belong to the same branch and both of them are managing  directors. The managing directors were appointed by a resolution of the Board  of Directors and they were subject to removal by  the Directors at any time.  The appointment of managing director was  not  conditioned upon either  Rajkumar  or  Rajabahadur acquiring  these  shares.  On the disruption of  the  larger Hindu  undivided family the smaller Hindu  undivided  family got  for its share certain shares.  Whatever may be said  of the  directors.’  fees,  that having been  now  conceded  as income  of  the Hindu undivided family, the same  cannot  be said of the managing directors’ remuneration.  The  managing director  holds  office by virtue of the resolution  of  the Board of Directors.  He may not be a servant of the  Company but still he receives his salary for his personal  services. The contribution of the capital may at best be considered as acquiring  the qualification of a director.  It is  not  all people  who hold shares that could automatically aspire  +to be  managing directors.  There is no evidence to  show  that Rajkumar  and Rajabahadur were appointed managing  directors

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on  behalf  of the family or that the income was  earned  by utilizing the joint family property or was detriment to  the family property.  There is no material in this case to  hold that  the  acquisition of the business or flotation  of  the company  and the appointment of the managing directors  were inseparably linked together.  As already noticed right up to the accounting year relevant to the present assessment  year the  income  was  treated  as  income  of  Rajkumar  in  his individual  capacity.  It is true no doubt that there is  no question  of res judicata but this fact has certainly to  be taken  into  consideration.  This income has  been  assessed under S. 7. It has been earned by Rajkumar for his services. It  has accrued in his hands.  It is open to him to give  it over to the family and the mere fact that it was included in the  family’s  account or the balance sheet  cannot  in  any event affect the question at issue............. Rajkumar was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property.   The managing   directorship  was  an  employment   of   personal responsibility  and ability and the mere fact  that  certain qualification  shares and other shares were property of  the Hindu undivided 753               family  was  not  the sole or  even  the  main               reason for his appointment to the  responsible               post of managing director.  We are clearly  of               the  opinion therefore that  the  remuneration               received  by Rajkumar was assessable  only  in               his hands as an individual and cannot be  con-               sidered as and clubbed with the income of  the               Hindu undivided family." The  High  Court of Madhya Pradesh did not  agree  with  the conclusion reached by the Income-tax Appellate Tribunal.  It felt  that  in  view  of the,  decision  of  this  Court  in Commissioner  of  Income-tax, West Bengal v. Kalu  Babu  Lal Chand(1) the answer to the question referred to it should be in favour of the Revenue. The  question of law arising for decision in this  case  has been the subject matter of numerous decisions of this  Court and of various High Courts.  But yet the law cannot be  said to  have been settled beyond controversy.  The two  opposing view  points to which we shall refer presently try  to  seek sustenance  from one or the other decisions of  this  Court. As  far  back  as 1921 in Gokul Chand v.  Hukum  Chand  Nath Mal(’) the Judicial Committee ruled "that there could be  no valid distinction between the direct use of the joint family funds  and the use which qualified the members to  make  the gains  on  his efforts".  In making  this  observation,  the Judicial  Committee appears to have been guided  by  certain ancient  Hindu  law texts.  That view of the  law  became  a serious impediment to the progress of the Hindu society.  It is  well  known that the decision in Gokul  Chand’s  case(’) gave  rise to great deal of public dissatisfaction  and  the central legislature was constrained to step in and enact the Hindu  Gains  of  Learning  Act, 1930  (30  of  1930)  which nullified  the  effect  of that  decision.   Then  came  the decision of this Court in Commissioner of Income-tax v. Kalu Babu  Lal Chand. (1) On the facts of that case,  this  Court held that the remuneration earned by Rohatgi as the managing director  of  a firm was the income of his  Hindu  Undivided Family.   The  facts of that case  were  somewhat  peculiar. They were set out at p. 130 of the report.  It would be best to quote that passage which reads :               "Here was the Hindu undivided family of  which               B.  K.  Rohatgi  was  the  karta.   It  became

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             interested  in the concern then carried on  by               Milkhi Ram and others under the name of  India               Electric  Works.  The  karta was  one  of  the               promoters of the company which he floated with               a  view to take over the India Electric  Works               as  a going concern.  In anticipation  of  the               incorporation of that company the karta of the               family took over the (1) 37 I. T. R. 123. 69 Sup.  C.I. (P)/71-4 (2) 48, I. A. 162. 754               concern,  carried  it  on  and  supplied   the               finance at all stages out of the joint  family               funds  and  the  finding  is  that  he   never               contributed  anything  out  of  his   separate               property,  if,  he had any.  The  Articles  of               association  of the company provided  for  the               appointment  as managing director of the  very               person  who, as the karta of the  family,  had               promoted the company.  The acquisition of  the               business,  die  flotation of the  company  and               appointment  of -the managing director  appear               to us to be inseparably linked together.   The                             joint  family assets were used  for  a cquiring               the  concern and for financing it and in  lieu               of  all  that detriment  to  the-joint  family               properties  the joint family got not only  the               shares standing in the names of two members of               the family but also, as part and parcel of the               same scheme, the managing directorship of  the               company when incorporated.  It is also  signi-               ficant  that right up to the  accounting  year               relevant  to the assessment year 1943-44,  the               income was treated as the income of the  Hindu               undivided family.  It is true that there is no               question of res judicata but the fact that the               remuneration  was  credited to the  family  is               certainly   a   fact   to   be   taken    into               consideration." The  next came the decision of this Court in Mathura  Prasad v. Commissioner, of Income-tax(’).  The facts found in  that case  are more or less similar to those found in  Kalu  Babu Lal  Chand’s case  (2 ).  Those facts are : Mathura  Prasad, the manager of his Hindu Undivided Family had entered into a partnership  as representing his family of which he was  the karta  for  the benefit of the family.  There  was  also  no dispute  that in the firm of Badri Prasad Jagan Prasad,  the assets  of the assessee family were ,vested.   The  Tribunal found that Mathura Prasad, the manager, became a partner  in the firm with the help of joint family funds and as  partner he  was  entrusted with the management of the  Agarwal  Iron Works.   On the basis of those facts, it was held  that  the allowance received by Mathura Prasad was therefore  directly related  to  the  investment  of the  family  funds  in  the partnership business.  In the course of the judgment, it was observed :               " It was suggested that Mathura Prasad  earned               the  allowance  sought to be  brought  to  tax               because  of the special aptitude he  possessed               for  managing the Agarwal Iron Works, and  the               allowance claimed by him was not earned by the               use  of the joint family funds.  But  no  such               contention  was raised before the High  Court.

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             We have been taken through the petition  filed               in the High (1) 60 I.T.R. 428. (2) 37 I.I.R. 123. 755               Court  under  section 66(2) of  the  Act,  and               there  is  no  averment  to  the  effect  that               Mathura  Prasad had any special  aptitude  for               management of the Agarwal Iron Works, and what               was   agreed  to  be,  paid  to  him  was   as               remuneration  for performing services  because               of such aptitude." Then  we come to the decision of this Court in  Piyeare  Lal Adishwar, Lal v. Commissioner of Income-tax(’); Therein  one Sheel  Chandra,  who was the karta of  his  Hindu  Undivided family  consisting  of  himself  and  his  younger  brother, furnished  as  security  his  family  properties  for  being appointed  the treasurer of a bank.  He would not have  been appointed treasurer of the bank but for the security  given. In  that  case  also,  it was contended  on  behalf  of  the Commissioner  of Income-tax that the salary earned by  Sheel Chandra  was  a family income and is liable to be  taxed  as such.   That contention was negatived by this  Court.   From that  decision it follows that it is not any add every  kind of aid received from family funds which taints an income  as family income.  Before ’an income earned by the exertions of a coparcener can be considered as a family income, a, direct and substantial nexus between the income in dispute and  the family funds should be established. On  October  27, 1967, this Court rendered  three  different decisions namely V. D. Dhanwatey v. Commissioner of  Income- tax, M.p.(2), M. D. Dhanwatey v. Commissioner of Income-tax, M.P.(’)  and  S.  RM.   CT.   PL.   Palaniappa  Chettiar  v. Commenr.  of  Income-tax, Madras (4 ) ; The facts in  V.  D. Dhanwatey’s  case are : V. D. Dhanwatey as the karta of  his Hindu  undivided  family  was  a partner  of  a  firm.   His contribution  to  the capital of the firm  belonged  to  the family.  Interest was payable on the capital contributed  by each partner.  Under cl. (7) of the deed of partnership  the general  management  and  supervision  of  the   partnership business  was to be in the hands of V. D. Dhanwatey.   Under cl.  ( 1 6), he was to be paid monthly remuneration  at  the gross earning of the partnership business.  The question was whether   the  salary  received  by  V.  D.  Dhanwatey   was assessable  in the hands of his Hindu Undivided Family.   On the  above facts, the High Court held that the  remuneration paid  to V. D. Dhanwatey was only an increased share in  the profits of the firm paid to V. D. Dhanwatey as  representing his  Hindu  undivided family and hence the said  amount  was taxable in the hands of his undivided family.  By a majority decision  this Court agreed with the view taken by the  High Court.   This Court held that the remuneration paid  by  the firm to V. D. Dhanwate directly related to the invest- (1)  40, I. T. R. 17. (3)  68 I. T. R. 385. (2)  68 I. T. R. 365. (4)  68 I. T. R. 221. 756 ments  in  the partnership business from the assets  of  the family  and  that there was real and  sufficient  connection between the investments from the joint family funds and  the remuneration  paid to him.  On that basis this  Court  ruled that  the salary paid to V. D. Dhanwatey was  assessable  as the income of his Hindu Undivided Family. The facts found in M. D. Dhanwatey’s case(’) were that M. D.

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Dhanwatey, as the karta of his Hindu undivided family was a partner  in the firm. His share in the capital of  the  firm was  entirely contributed by the family.  Clause (5) of  the deed, of partnership providedfor payment of interest to  the partners on their share contribution.  Under Cl. (8), he was to be the manager in-charge of the works and under cl.  (16) he was to be paid a monthly remuneration.  The question  was whether the salary received by him could be included in  the total income of his Hindu undivided family.  This Court held that  the  salary received by him could be included  in  the total income of his Hindu undivided family. In Pataniappa Chettiar’s case 2 the facts found are as  fol- lows : In  1934, the karta of a Hindu undivided family acquired  90 out  of 300 shares in a transport company with the funds  of the   family.   There  were  initially   four   shareholders including the karta and two of them were directors.  On  the death of one of them in 1941, the karta became a director of the company.  On the death of another, who was managing  the business of the company, he became the managing director  of the company in 1942.  At the relevant period he was entitled to  a  salary  and a commission on the net  profits  of  the company.   The  managing  director  had  control  over   the financial and -administrative affairs of the company and the only qualification under its articles of association was-the qualification of a, director, viz., the holding of not  less than  25 shares in his own right.  The question was  whether the  managing  director’s remuneration  and  commission  and sitting  fees received by the karta were assessable -as  the income of the family.  This Court held that the shares  were acquired  by the family not with the object that  the  karta should  become  the manazing director but  in  the  ordinary course  of  investment  and there  was  no  real  connection between the investment of joint family funds in the purchase of  the shares and the appointment of the karta as  managing director  of the company.  The remuneration of the  managing director was not earned by any detriment to the joint family assets.  Hence the amount received by the karta as  managing director’s  remuneration, commission and sitting  fees  were not assessable as the income of the Hindu undivided family. (1) 68 I. T. R. 385.            (2) 68 I. T. R. 221 757 The next case decided by this Court was Commissioner Income- tax, Mysore v. Gurunath Dhakappa(1). Therein the karta of  a Hindu  Undivided family was a partner in a registered  firm, representing  his family.  He was appointed manager  of  the firm  on  a remuneration of Rs. 5001- per  month.   For  the assessment  year 1960-61, he received a sum of Rs.  14,737/- from the firm including a sum of Rs. 6,000/- as, his  salary for  managing  the firm’s business.  There, was  no  finding that the salary received, by the karta had directly  related to  the assets of the family utilised in the firm.   On  the basis  of those facts, this Court held that the sum  of  Rs. 6,OO0/-  could  not be treated as the income of  the’  Hindu undivided family.  In the course of the judgment this  Court observed               "In  the absence of a finding that the  income               which  was received by Dhakappa  was  directly               related  to any assets of the family  utilised               in  the  partnership,  the  income  cannot  be               treated  as the income of the Hindu  Undivided               Family." Then we come to the decision of this Court in P. N.  Krishna lyer  v.  Commissioner  of  Income-tax,  Kerala.(’)  Therein Krishna  lyer,  the  karta of  his  Hindu  undivided  family

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received  salary, commission and sitting fees  as  governing director  of  a private company which carried  on  transport business,  The shares which qualified the karta to become  a member  of the company were purchased with the aid of  joint family  funds.   The entire capital assets  of  the  company originally  belonged  to  the joint  family  and  were  made available to the company in consideration of a mere  promise to  pay  the  amount  for  which  the  assets  were  valued. dividends from shares of the value of Rs. 4,88,000  allotted to  the  karta by the company in consideration  of  valuable services  rendered by him were also treated as belonging  to the family.  The Tribunal held that the income from  salary, commission  and  sitting fees earned by the  karta  was  his separate income.  The High Court, on a reference, held  that the  income was assessable in the hands of the  family.   On appeal this Court held that the question whether the  income was  the  income  of the Hindu undivided family  or  of  the individual,  was  a mixed question of law and fact  and  the final,  conclusion  drawn by the tribunal from  the  primary evidentiary facts was open to challenge on the plea that the relevant principle has been misapplied by the tribunal.   On the facts of the case, this Court affirming the decision  of the High Court held that the income was primarily earned  by utilising  the  joint family assets or funds and  the,  mere fact that in the process of gaining the advantage an element of personal service or skill or (1) 72 I. T. R. 192. (2) 73 I. T. R., 539. 758 labour  was  involved  did not alter the  character  of  the Income.   Therein this Court further observed that in  cases of  this  class  the character of the  receipt  had  to  be, determined  by reference to its source, its relation to  the assets of the family of which the recipient was a member and the  primary  object  with which the  benefit  received  was disbursed. Lastly we come to the decision of this Court in Commissioner of  Income-tax,  Mysore  v.  D.  C.  Shah.(’)  Therein   the respondent, a Hindu undivided family was the partner in  two firms  through its karta D. C. Shah.  The karta was paid  by the  two firms remuneration as a managing partner.   He  was found to be a man of rich experience in the line of business which  the  two firms were carrying on.  Clause (8)  of  the partnership  deed of the first firm provided that  Shah  who has been managing the business of the firm shall continue to act  as  managing partner for conducting the  said  business free from any interference of the other partners with  power to  manage,  direct, appoint and/or remove, any one  of  the employees and/or do all other things including the right  to draw  cheques, to make, deliver and accept documents  either legal or commercial in respect of the partnership  business. Clause  (9)  provided  that Shah shall continue  to  be  the managing   partner  for  his  lifetime  or  his   retirement whichever is earlier.  In the deed of the second firm Clause (14) provided for appointment of another partner, K, as  the managing  partner  and  gave  the  managing  partner  powers similar to those in the deed of the other firm.  Clause (15) provided  for  Shah’s appointment after K’s  retirement  and Shah  was appointed after his-retirement.  No other  partner was paid any salary in this firm.  On these facts this Court held that there was no real or sufficient connection between the   investment   of  the  joint  family  funds   and   the -remuneration  paid  to Shah and that remuneration  was  not earned  on  account  of any detriment to  the  joint  family assets and-the remuneration received by Shah as the managing

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partner of the two firms was not assessable as the income of his Hindu undivided family. At first sight there appears to be conflict between the  two lines of decisions namely Kalu Babu’s case, Mathura Prasad’s case;  two Dhanwatey’s cases and Krishna Iyer’s case on  one side  Palaniappa Chettiar’s case, Dakappa’s case, and D.  C. Shah’s  case on the other.  The line that  demarcates  these two lines of decisions is not very distinct but on a  closer examination that line can be located.  In order to find  out whether a given income is that of the person to whom it  was purported to have been given or that of his family,  several tests  have been enumerated in the aforementioned  decisions but none of them excepting Kalu Babu’s case (1) 73 I. T. R. 692. 759 makes reference to the observations of Lord Sumner in  Gokal Chand’s   case  that  "in  considering  whether  gains   are partible,  there is no valid distinction between the  direct use of the joint family funds and a use which qualifies  THe member to make the gains by his own efforts".  We think that principle is no more valid.  The other tests enumerated  are :               (1)  whether  the  income received  by  a  co-               parcener  of  a  Hindu  undivided  family   as               remuneration had any real connection with  the               investment of the joint family funds;               (2)  whether the income received was  directly               related to any utilization of family assets;               (3)  whether  the  family  had  suffered   any               detriment in the process of realization of the               income; and               (4)  whether the income was received with  the               aid and assistance of the family funds; In our opinion from these subsidiary principles, the broader 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  in- vested 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.  Applying  the  tests enumerated  above to the facts found by the tribunal in  the present  case,  there is hardly any room to doubt  that  the income  in question was the individual income  of  Rajkumar. He did not become the managing director of the firm -for the mere  reason  that  his family  had  purchased  considerable shares  in the firm.  He was elected as a managing  director by  the board of directors.  The tribunal has found that  he received his salary for his personal services.  There is  no material  to hold that he was elected managing  director  on behalf  of the family.  In the past the. salary received  by him was assessed as his individual income.  The same was the case  as regards the salary received by the  other  managing ,directors.   The  tribunal  has  found  that  he  -was  not

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appointed as 760 managing  director as a result of any outlay or  expenditure of  or  detriment to the family property.   It  has  further found  that the managing directorship was an  employment  of personal responsibility and ability.  In these circumstances we  agree with the conclusions reached by the tribunal  that the  income in question cannot be treated as the  income  of the assessee.  For these reasons we are unable to agree with the High Court that the income in question can be held to be the income of the assessee. Hence this appeal is allowed and in the place of the  answer given  by the High Court to the question referred to it,  we answer that question as follows :               On  the facts and in the circumstances of  the               case  the  managing  director’s   remuneration               received by Raj Kumar Singh was assessable  as               his individual income and not as the income of               his Hindu undivided family. The department shall pay the costs of the appellant both  in this Court and in the High Court.  Hearing fee one set. Y.P.                              Appeal allowed. 761