M/S Y. L. AGARWALLA AND ORS. versus COMMISSIONER OF INCOME TAX, CENTRAL, CALCUTTA

Citation: [1978] 3 S.C.R. 1059 · Decided: 27-07-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

) 
I 
J 
"/ 
105 9 
M/S Y. L. AGARWALLA AND ORS. 
v. 
CQMMISSIONER OF INCOME TAX, CENTRAL, CALCUTTA 
July 27, 1978 
[P. N. BHAGWATI AND V. D. TULZAPUKAR, JJ.] 
Hindu (Jndivided F'ami!y Finn-Karla having 36% shares as one of 
the 
partners of partnership firm and after his death his widow and three daughters 
di!Clined to continue in the partnership, but his three 1ninor sons were adniitted 
into. part1iership with lll% shares each under a new deed-Clau~e 6 of t/Je new 
di.ted ensure to !he firn; the continued use of tlze capital of Hindu Undivided 
Eamily standing in the account of the 1ninors' late father, free of intercst-
Jt'hethcr the share inco111c of three n1i11or sons frvnl the partnersbip firm liable 
to be assessed as tlte incon1e of Hindu Undivided Fa1nily ? 
One Yudhisthir Lal Agar¥iala, since deceased, was the Karta of a Hindu 
Undivided Family kno"'n as !\.1/s. Y. L. Agarwala & Co. and \Vas assessed to 
tax as such, including h;:s 36% share income from the Partnership firm known 
as 'M/s. Grand Smithy \Vorks'. After his death on 18-12-1967, his surviving 
wifQ qnd three major dt;.ughters by t\vo letters dated January 11, 1968 declined 
t0,. exercise the option n:served, under clause 13 of the Partnership deed dated 
2.0~9.-1961 and refused to join the Partnership business, however his three minor 
sons were admitted to the benefits of the partnership. 
Under the· new partner-
ship deed, the minor sont1 were given 14o/o share each with a right to become a 
fulb fledied partner on altaining majority. Clause 6 of the deed ensured to the 
fil:Db the-. continued use of the capital of Hindu Undivided Family standing in 
tftli ~unt of late Yudnisthir Lal, free of interest. 
In the return. filed by the 'vidow representing the H.U.F. for the relevant 
accounting period 1-9-67 to 31-8-68 i.e. the assessn1ent year 1969-70, the share 
of the income from 11/s. Grand Smithy Works was shown only from 1-9-67 
to 18~12-67 i.e. npto the date when Yudhisthir was alive and \Vas a partner in 
that firm, claiming that w.c.f. 19-12-67, the Hindu Undivided Family had no 
io.t,e;rest in the said firm and that her minor sons were ad1nitted to the benefits 
o;f. JWrtnership in their individual and personal capacity and therefore their share 
qf.tRs. 3,08,187/- could not be included. The 1ncome Tax Officer negatived that 
c.o.utention and held that the shares of the minor sons were assessable in the 
han<ls of the Hindu Undivided Fa1nily. The Appellate Assistant Commissioner 
on appeal and tQ.e Tribunal in further appeal confirmed it. 
On a reference the 
High Court also answered against the assessee. 
Di&~sing the appeal by special leave the Court 
_,/-, 
HELD : (1) In Rajk1011ar Singh Huku1nchandji v. Co111missio11er of lncorne 
T,a.x,.J. M1P. (78 1.T.R. 33) though the question that arose for aetermination was 
whether the 1-Ianaging Director's remuneration received from the Company by 
th£,. Karta. of a Hindu Undivided Family was assessable to tax as his individual 
iJ¥;.Q~ or as·, the income of Hindu Undivided F~mily, certain subsidiary tests. as 
a1$>1 bro.ader- principle of ~~eneral applicability were laid down. 
'fh~y are : 
11(1) Whether the income received, by a coparcener of a Hi:hdu Undivided 
Family as remuneration had any real· connection with. the investment 
of the joint family funds; 
(Z) whether the income re:ceived was directly related' to any utilization 
of family asset8; 
A' 
c 
D 
E 
F 
G 
(3)' whether the family had. sulfured' any detriment in the process· of the 
faw.ily funds; and 
H 
( 4) whether the income wa& received with the aid and· aesistance of the 
family funds, and 
A 
B 
c 
D 
1060 
SUPREME CUURT REPUR1S 
[J978J 3 S.C.R. 
(5) The broader principle is v.1hether the rc111uneration 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 \Vas essentially earned as a result of the funds invested 
the fact that a coparcener has rendered some service would not 
change the character of the receipt. 
But if on the other hand it lS 
essentially a remuneration for the services rendered by a coparcener, 
the circumstance that his serv

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