BADRI DASS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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(1.) THIS appeal by the assessee is directed against the order of the AAC, dated 22-11-1981, relating to the assessment year 1978-79. It raises a very interesting issue for determination. But before the issue is framed, it is necessary to have the factual back-drop of the case as under :
(2.) Shri Badri Dass is an individual. He is also the karta of a HUF known as Badri Dass & Sons, which owns a manufacturing concern working under the name and style of Vishal Motor Industries located at Link Road, Industrial Area A, Ludhiana. Shri Badri Dass is a technical hand and has sufficient experience in the line of manufacture and sale of motor parts. The HUF wanted his services to be utilised in the joint family business run by it. Therefore, on 3-10-1977 when the business was actually running, the HUF through Shri Badri Dass as its karta on one hand, and Shri Badri Dass, individual, on the other hand, entered into an agreement, the terms and conditions of which are as under :
1. That the party of the 1st part shall pay a monthly salary of Rs. 1,500 to the party of the 2nd part. The said amount of salary may be increased or decreased according to the trading results of the said business. It is, however, stipulated that the party of the 2nd part shall be entitled to his salary from the party of the 1st part, as from the 1st April, 1977.
2. That the party of the 1st part shall be competent to terminate the services of the party of the 2nd part by serving on him one calendar month's notice or by paying one month's salary to him. Similarly, the party of the 2nd part shall also be at liberty to relinquish his above said assignment by giving one month's clear notice to the party of the 1st part or by forfeiting his one month's salary.
That any dispute arising out of the terms and conditions of this agreement shall be referred to arbitration according and subject to the provisions of the Indian Arbitration Act then in force.
(3.) THAT the party of the second part has accepted the said assignment as from the 1st April, 1977.
3. In view of the terms and conditions mentioned above, for the assessment year 1978-79, the assessee filed the return of income on 11-7-1978 declaring total income of Rs. 14,360. In arriving at this totaly income, the assessee took into consideration remuneration of Rs. 18,000 received from the HUF for running their business in terms of the above agreement. This sum of Rs. 18,000 was shown by the assessee under the head 'Salaries', and deduction under Section 16(a) of the Income-tax Act, 1961 ('the Act'), was claimed. The ITO considered whether he should tax this amount under the head 'Salaries' or under the head Income from other sources'. According to him, the issue depended upon whether there was an employer and employee relationship between the HUF and the assessee. According to him, no person can be an employee and employer at the same time. He, therefore, held the view that the assessee, having received the income from himself, was liable to be taxed under the head 'Income from other sources'. The standard deduction under Section 16(0 was though claimed, but not allowed.
4. The assessee took the matter in appeal before the AAC but the AAC also held that in the absence of an employer and employee relationship, the amount of Rs. 18,000 was to be taxed under the head 'Income from other sources' as done by the ITO. On this issue, the appeal of the assessee was dismissed. Hence, the present proceedings.;
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