COMMISSIONER OF INCOME-TAX, BANGALORE versus SHRI D. C. SHAH

Citation: [1969] 3 S.C.R. 586 · Decided: 06-02-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

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Judgment (excerpt)

586 
COMMISSIONER OF INCOME·TAX, BANGALORE 
·A 
v. 
SHRI D. C. SHAH 
February 6, 1969 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.) 
B 
Jncome-tcx-Hindu undivided fami(v invested funds in firm-Remun-
eration earned by member as offker of the firm-Whether income of 
family or individ11al member. 
The assessee-a Hindu undivided family-through its karta was a 
partner in two firms. The Karta had rich experience in the line of busi-
ness carried on by the fil'llls. In oile of the films, the Karta was appoint-
ed as its Managiag Partner and paid .a remuneration as Managing 'Partner 
in addition to the benefits enjoyed as a partner. 
In the other firm, 
another partner was appointed as the Managing Partner, and it was pro-
vided that on his retirement, the Karta was to be appointed as the Manag-
ing Partner. and entitled to the remunerations. The Karta was appointed 
the Managing Partner of the se<Pnd firm also on the retirement of its 
earlier Managing Partner. The assessee-family claimed that the remune-
rations received by the Karla as Managing Partner should be deleted from 
the assessment of the assessee, and they were the personal income of the 
Karta. 
HELD : The remuneration of the Karta was not earned on account 
of any detriment to the joint family assets and the accounts received by 
the Karta as the Managing Partner of the two partnerships were not 
assessable as tbe income of the Hindu undivided family. [591 Fl 
Upon the facts of the case, there was no real or sufficient connection 
between the investment of the joint family funds and the remuneration 
paid. by the partners to the Karta. 
The remuneration 
was 
paid 
not 
because of the family funds invested in the partnership, but for the per-
sonal qualifications of the Karta. [591 D-F] 
c 
D 
E 
S. R. M.CT. PL. Pa/aniappa Chettiar v. Commissioner of Income-tax, 
F 
68 I.T.R. 221, followed. 
Gurunnth V.. Dhakappa v. Commissioner of Income-tax, Mysore, 53 
J.T.R. 575; V. D. Dhanwatey v. Commissioner of Income.tax, 68 J.T.R. 
365; M. D. Dlianwate,v v. Commissioner of Income-tax, 68 J.T.R. 285; 
P. N. Krishna Iyer v. Com1nissioner of Inco1ne-tax Kera/a, [1969) 1 
S.C.R. 943 and Co1nn1issioner of Jnco1ne-tax, Mysore v. G V. Dhakappa, 
Civil Appeal No. 713 of 1965 decided on 23-7-1968, referred to. 
G 
CIVIL APPELI.ATE JURISDICTION: Civil Appeals Nos. 817 and 
818 of.1966. 
Appeals by special leave from the judgment and order dated 
January 19, 1965 of the Mysore High Court itn. I.T.R.C. No. 1 of 
19~ 
H 
Niren De, Attorney-General, S. C. Manchanda and R. N. Sach-
they, for the appellant. 
A 
B 
c 
D 
E 
F 
G 
H 
C.J.T. v. SHAH D. c. (Ramaswami, /.) 
587 
M. C. Chagla, Sharad !. Mhaispurkar, 0. P. Malhotra and 
0. C. Mathur, for the respondent. 
The Judgment of the Court was delivered by 
Ramaswami, J, The respondent is a Hindu Undivided Family 
(hereinafter called the assessee) of which Shri D. C. Shah is the 
karta. The assessment years are 1959-60 and 1960-61 and the 
relevant accounting periods are Samvat years 2014 and 2015. 
The assessee through its karta Shri D. C. Shah was a partner in 
the firms of (1) M/s C. U. Shah and Co. and (2) M/s Oriental 
Can Manufacturing Co. as per terms and conditions set out in th«: 
Instruments of Partnership dated 5-6-1961 and 11-9-1957. Shn 
D. C. Shah was paid a remuneration of Rs. 12,000/- per year for 
both the assessment years by M/s C. U. Shah and Company. He 
was paid Rs. 10,000/- for the assessment year 1959-60 by the 
Oriental Can Manufacturing Company. The amounts received by 
Shri D. C. Shah were shown by the assessee in its returns of in-
come along with balanc.~ of the share income from the aforesaid 
firms. The Income Tax Officer in assessing the Hindu Undivided 
Family included the iemuneration received by Shri D. C. Shah as 
a part of the share income from the respective firms. Before the 
Appellate Assistant Commissioner the assessee contended that the 
remuneration received by Shri D. C. Shah was his personal in-
come and the amounts were wrongly shown in the returns of the 
Hindu Undivided Family as its income and should not have been 
included in the assessment. In so contending the assessee relied 
on clauses 8, 9 and 10 of the Instrument of Partnership dated 
5-6-1961 by which the firm of Mis C. U. Shah and Company was 
constituted. The assessee also relied on clauses 14, 15 and 16 of 
the Instrument of Partnership dated 11-9-1957 by which the firm 
of Mis Oriental Can Manufacturing Company was con

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