V. D. DHANWATEY versus THE COMMISSIONER OF INCOME TAX, M.P. NAGPUR

Citation: [1968] 2 S.C.R. 62 · Decided: 26-10-1967 · Supreme Court of India · Bench: K.N. WANCHOO · Disposal: Dismissed

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Judgment (excerpt)

V. 0. DHANWATEY
v.
THE COMMISSIONER OF INCOME TAX, M.P. NAGPUR
(With Connected Appeal)
October 26, 1967
[K. N. WANCllOO, C.J., R. S. BACllAWAT. V. RAMASWAMI,
G. K. MITTER AND K. S. HEGDE. JJ.)
~nconu·-1ax~Hindu 11ndh·ided Fc.1nily-KarlQ as parlner <>/ fir111--also
1:e111ng salary as 111anagrr utrdfr partnt•rsliip de'"'ed-capita/
co11tributio11
11uiclt• by .~a1ni/y alone-if .i;;a/ar,v inco1ne of fanrily or of ind.\·idual pf.rtncr.
Tne appellant in Civil Appeals Sos. 13-72 and 1373, was a Hindu
undivided family of \l•hich V v.·as the karta and v.·as. as such, a partner in
a bu~incss of lithography and art printing "''ilh other
members of the
family, including M. who was 1hc karta of the appellant HUF in Civil
Appeal No. 1371.
Tl>' capilal in tht> c~<c of l>olh V '!lnd M was entirely
contributed hy their rcspc~tive famili~s. The partnership was governed by
two successive partnership deeds \.\o'hich v.·crc in .similar tenns durinJ? th:
relevant period. v.hercby it \ll3S provid·:d. inter alia, that interest "·ou1J he
payable to each partner on the amount of capital. th.it the general mana-
g·~ment and supervio;;ion of the business "·ould be in the hands o[ V; M
would be the manager of the "'orks and l>olh he and V would have power
to make contracts, etc.
Provision v.·as also made for the payment of
spt"Cified amounts by way of remuneration 10 various other partners out of
the gross earnings of rhe p~rtncr"hio husine\s.
For the accounting pcrio<l
relating to the assessment year 1954-55 and 1955-56. V was paid a sum
of Rs. 18.000 in each year and JI.I was paid Rs. 7.500 in respect of the
assessment vear 1955·56.
The appellants. being the assessee Hiodu un-
divided family in each of 1he appeals, sho"''d these amounts in Section D
of their retums an<l it v.·as contended that these amounts v.·ere not taxahk:
in their hands as they represented income earned hy \' and f\.f for the
services rendered hy each of them to th·! pannero;;hip and constituted
their individual income. The Income Tax Officer re~cted this contention
and appeals to the Appellate Assistant
Commissioner were
dismiss·:?d.
Further appeals were also dismissed by the Appellate Tribunal and it held
that although V was an employee of the firm even before the family was
taken as a partner. after hi.! v.-·as taken as such partner, he could not at
lhe same time be an employee of th-~ partnership firm; the remuneration
received by him must therefore l>o held to he only a~ adjustment of the
share in profits of the family in the partnership.
The High Court, upon
a ref·~rcnce. also held again~t the a"sessecs.
On app,al to lhis Court.
HeU/ : (By Majority) in Appeals l'<os. 1372 and 1373 : The High
Court had rightlv ansYt·crct..1 lhc question of Ja,,·
against the assessce and
rhc appeals must therefore be dismissed.
(i) It was the investment· or the joint family funds in the partne~hip
v.·hich enabled V ro become a partner and there was a real and sufficient
connection. bctYt·ecn that investment and the remuneration paid to V under
the deed of partnership.
It follov.·s therefore that the remuneration of V
.,.·as not earned without detrin1cnt to the Hindu joint family funds and
tne case fell dir..ctly within the principle laid down in The C.l.T .. Wes,
Ben!M v. Kalu Babu Lal Chand. [1960) I S.C.R. 320; and in Mathur,
Prn<<1d. v. C.I. T .• U.P. 60 l.T.R. 428.
[7~ C.E!
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A
B
c
D
E
F
G
H
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...
V. D. DHAllWATEY I'. C.!.'f.
63
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A
Mis. Piyare Lal Adislm-ar Lal v. Tile C.l.T., Delhi, [1960] 3. S.C.R.
B
c
D
E
F
G
H
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669; referred to.
The general doctrine of Hindu Law is that property acquired by a
karta or a ccparcener with the aid or assistance of joint family assets is
impressed with the character of joint family property.
The test of self-
acquisition by the karta or copartener is that it should be without detriment
to the ancestral estate and before an acquisition can be claimed to be a,
separate property, it must be shown that it was made without any a,jd or
assistance from the ancestral or joint family property.
[68B, CJ
The finding of the Tribunal that even before the partnership was from-
cel V was receiving the salary from the business which \Vas carried on the
larger joint family. was not relevant for the determination of the question
of Jaw in the present case. The salary given to V before he
became a:
partner had no connection with the remuneration earned by him aft.er

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