JUGAL KISHORE BALDEO SAHAI versus COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW

Citation: [1967] 1 S.C.R. 416 · Decided: 20-09-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

JUGAL KISHORE BALDEO SAHAI 
v. 
COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW 
September 20, 1966 
[J.C. SHAH AND V. BHARGAVA, JJ.j 
Income tax Act (11 o/ 1922), s. 10(2)(.rv)-Asses.ree, a Hindu joint 
family finn--Paymmt o/ remuneralion to karta /or managing business-If 
a deductible item of e.rpendlturt. 
The assessee was a Hindu undivided family carrying on a joint family 
business and was also deriving some income from partner.;hips, in which 
its brta. representing the family, was a partner. Tue family consisted of 
two brothers and tb,ei~ minor sons. 
One of the brothers, whe> was the 
kana. asked the other for a salary of Rs. 1,000 per month, since he was 
managing the business. The Oilier brother agreed to it, and the payments 
were made. 
Tue assessce claimed that the sum of Rs. 12,000 per year, 
paid as remuneration to the karta should be deducted as an item of expen-
diture under s. 10(2) (xv) of the Income-tax Act, 1922. The claim was 
rejected by the Department, the Tnbunal and the High Court. 
In appeal to this Court, 
HELD : As the remuneration was paid under a valid agreement which 
was bona fide and in the interest of, a~ expedient for, the business of the 
family, and the payment was genuine and not ""cessive and was not a 
device to escape income-tax. the remuneration must be held to be an 
expenditure laid out wholly and exclusively for the purpose of the busi-
n""s of the family and must be allowed as an expenditure under the sec-
tion. 
[421 B-C, DJ 
The karta of a family can be paid remuneration for carrying on family 
business, provi_c!ed it is under some valid agreement. 
The tes.t of the 
validity of such an agreement, when entered into on behalf of a minor, 
is that it should be for the benefit of the minor. The agreement in the 
instant case was entered into between the liwo adult members. 
Their 
minor sons were represented by them or by the karta and the agreement 
was not prejudicial to tho minors' interests. 
In fact, it was acquiesced in 
by those minors who had later become majors. If the agreement was in 
the interests of the family it would not be invalid, when executed on beh3lf 
of the minors by Jhe person authorised to act on their ·behalf. simply be-
cause the minors were represented by a person who received ~omc hcncfit 
under the agreement. 
Further, the 
remuneration was not 
intenllcd 
to 
cover any service rendered by the karta to the partnership firm-:;. hut \va-s 
for looking after the interests of the family in those businesses and for 
managing the affairs 
of the family. 
[419 H; 420 B.C, D-H; 421 D-E, 
422 E-FJ 
Jitmal Bhuramal v. Commissioner of lncome4Jll, Bihar and Orissa, 
(1962) 44 LT.R. 887 (S.C.J. explained and followed. 
CIVIL APPELLATE JURISDJ(."TION : Civil Appeal Nos. 594 to 
600 of 1965. 
Appeals by special leave from the judgment and order dated 
March 28, 1962 of the Allahabad High Court in l. T. Misc. Case 
No. 424 of 1959. 
416 
A 
B 
c 
D 
G 
H 
JUGAL KJSHORE v. C.!.T. (Bhargava, J.) 
417 
A 
A. K. Sen, T. A. Ramachandran, J. B. Dadachanji, for the 
B 
c 
D 
E 
F 
G 
H 
appellants (in all the appeals). 
S. T. Desai; Gopal Singh and R. N. Sachthey, fot the respondent 
(in all the appeals). 
The Judgment of the Court was delivered by 
Bhargava, J. These appeals by special leave are direct d 
against the judgment of the Allahabad High Court returning an 
answer to the following question referred to it by the Income-tax 
Appellate Tribunal: 
''Whether on the facts and circumstances of the case 
the salary paid or credited to a Karla of the family for 
looking after the family's business was a permissible deduc-
tion under s. I0(2)(xv) in computing the income of the fainily 
business.'' 
The assessee was a Hindu undivided family carrying on a joint 
fall)ilY business of commission agency in cloth under the name 
of Jugal Kishore Baldeo Sahai and was, in addition, deriving income 
from some property and from some partnership business in which 
the karta Babu Ram was a partner representing the interest of the 
Hindu undivided family. The family consisted of Babu Ram, 
his brother Gobardhandas and their sons. In fone, 1946, the 
karta Babu Ram wrote a letter to his brother Gobardhandas, who 
was the only other adult member of the family, stating that, since 
he was managing all the business, he ought to get a salary 'of Rs. 
1,000 per month. Gobardhandas promptly agreed to this proposal 
and consequently in the account books of the family for the year 
in questi

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