THE COMMISSIONER OF INCOME-TAX, WEST BENGAL versus KALU BABU LAL CHAND

Citation: [1960] 1 S.C.R. 320 · Decided: 15-05-1959 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

320 
SUPREME COURT REPORTS [1960(1)) 
'959 
suspicions, conjectures and surmises and acted without 
Lalchand Bhagat any evidence or upon a view of the facts which could 
Ambicat Ram not reasonably be entertained or the facts found were 
v. 
such that no person acting judicially and properly 
The Commissioner instructed as to the relevant law could have found, or 
of Income-ta• 
the finding was, in other words, perverse and this Court 
is entitled to interfere. 
:.
Bhagwali f. 
We are therefore of opinion that the High Court was 
z959 
May r5. 
clearly in error in answering the referred question in 
the affirmative. The proper answer should have been 
in the negative having regard to all the circumstances 
of the case which we have adverted to above. 
· The appeals will accordingly be allowed, the judg-
ment and order passed by the High Court will be set 
aside and the referred question will be answered in the 
negative. The appellant will be entitled to its costs of 
the reference in the High Court and of these appeals in 
this Court as against the respondent. 
Appeals allowed. 
THE COMMISSIONER OF INCOME-TAX, 
WEST BENGAL 
v. 
KALU BABU LAL CHAND 
(S. R. DAS, C. J., N. H. BHAGWATT, and 
M. HIDAYATULLAH, JJ.) 
Income-tax-Income of the Hindu undivided fam'ily-Manager 
of the joint family using family funds for promoting company and 
subsequently becoming managing director-Remuneration of the 
managing director-Whether taxable as income of the undivided 
family. 
R was the karta of the Hindu undivided family which 
became interested in a business concern which ~'as then being 
carried on by others. With a view to taking over the said 
business as a going concern, a company was floated \vith R as one 
of the promoters. 
Pursuant to an agreement with the vendors 
of the business and in anticipation of the incorporation of the 
company, Ron behalf of the company, took over the concern, 
carried it on and supplied the finance at all stages out of the 
joint family funds. 
On December rg, 1930, the contemplated 
company was incorporated under the Indian Companies Act as 
S.C.R. 
SUPREME COURT REPORTS 
321 
a private company with limited liability, in which of the total 
z959 
950 ordinary shares, R had 326 shares and his brother 356 
. . 
shares. The Articles of Association of the company provided for The Commisssins1r 
the appointment of R as the first managing director of the 
0! Income-ta• 
company. Prior to the accounting year relevant to the assess-
v. 
ment year 1943-44 the amount received by R as managing 
Kalu Babu Lal 
director's remuneration was credited in the books of the Hindu 
Chand 
undivided family just as the dividends on the shares held in the 
names of R and his brother had been done. For the assessment 
year 1943-44 it was claimed that the amount which R received 
as the managing director's remuneration in the relevant account-
ing year was his personal earnings and that it should not be 
added to the income of the Hindu undivided family, but the 
Income-tax Officer rejected this claim. It was contended for 
the assessee that under the Indian Companies Act a Hindu 
undivided family cannot, by reason of the definition given in 
s. 2(9-A) be appointed a managing agent of company and that 
the office of managing director involves a personal element and 
the appointment of a managing director must necessarily be of a 
particular person for his personal skill and other qualities and 
therefore the remuneration received by him must be his personal 
earnings. 
Held, that though vis-a-vis the company the managing 
director was undoubtedly the individual person who was appoint-
ed as such and the company was not concerned with the 
managing director's Hindu undivided family or the members 
thereof, the question whether the amount received by the karta 
by way of managing director's remuneration was his personal 
income or was the income of the Hindu undivided family arises 
as between the karta and the members of his family and would 
depend on whether it was earned with the help of joint family 
assets. 
In the present case, on the facts found that the promotion 
of the company, the taking over of"the concern and the financing 
of it were all done with the help of the joint family funds and 
that R did not contribute anything out of his personal funds, 
held that the managing director's remuneration received by R 
was, as between him and the Hindu undivided family, the income 
of the latter and should be assesse

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