Ramaswami, J. - (1.) This appeal is brought, by certificate, from the judgment of the Madras High Court in T. C. No. 151 of 1962 dated October 17, 1963.
(2.) The appellant (hereinafter referred to as the 'assessee') is a Hindu Undivided Family consisting of the father and four major sons. The assessee became a shareholder in the Trichy-Sri Rangam Transport Company Ltd. (hereinafter referred to as the 'company') in 1934 and owned 90 shares out of the 300 shares of the company. The shares were acquired with the funds of the Hindu undivided family of the father and his four major sons. There were initially four shareholders including the assessee, two of whom were directors. On the death of one of the Directors, the assessee became a director in 1941 and on the death of another director who was managing the business the assessee became the Managing Director with effect from 1942. By a resolution dated April 16, 1944 the company granted him an honorarium of Rs. 3,000 for the year 1943 44 and subsequently raised it gradually till it became Rs. 1,000 per month with 121/2 per cent commission on the net profits of the company. The Managing Director had control over the financial and administrative affairs of the company and the only qualification required was set out under Article 19 of the Articles of Association of the company which was to the following effect:- "The qualification of a Director including the first Director shall be the holding in his own right alone and not jointly with any other person of not less than 25 shares and the qualification shall be acquired within two months of appointment." From 1938-39 to 1959-60 the assessee had been submitting returns in the status of Hindu undivided family and upto l949-50 the assessments were completed in that status. For the assessment years 1950-51 to 1955-56, the assessments were completed in the status of individual, though returns were submitted in the status of Hindu undivided family and the remuneration was included in those assessments. For the assessment year 1956-57, the assessee submitted the return in the status of Hindu undivided family but claimed for the first time that the remuneration and sitting fees from the company should he assessed separately in the Karta's hands. The claim was accepted and a separate assessment made on him as an individual in respect of the remuneration and commission received from the company. This continued till-the assessment for the year l958-59. For the year ended April 13 1959 which was the previous year for the assessment year 1959-60, the assessee family returned an income of Rs. 26,780) which did not include the Salary, Commission and Sitting fees received by the karta which amounted to Rs. 18,683. The Income-tax Officer added the remuneration of the karta for the assessment of the Hindu undivided family and on the basis of the decision of this Court in C. I. T., West Bengal v Kalu Babu Lal Chand (1980) 1 SCR 320 held that the commission was to be treated as income of the family. The assessee appealed to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee took the matter in further appeal to the Income-tax Appellate Tribunal, Madras Bench The Tribunal held that the case was governed by the decision of the Madras High Court in C. I. T., Madras vs. S. N. N. Sankaralinga Iyer, 1950-18 ITR 194 and that the remuneration of the Managing Director ought not to be treated as income of the family. The Tribunal came to the conclusion that the judgment in 1950-18 ITR 194 was not affected by the decision of this Court in (1960) 1 SCR 320 . At the instance of the assessee the Appellate Tribunal stated a case to the Madras High Court on the following question of law - "Whether sums of Rs. 9,000, Rs. 8,133 and Rs. 1,550 received by the assessee as Managing Director's remuneration, commission and sitting fees are assessable as the income of the Hindu undivided family of which Palaniappa Chettiar is the Kartha - The High Court took the view that the decision in 1950-18 ITR 194 was not authoritative as this Court had subsequently impliedly overruled that decision in (1960) 1 SCR 320 and the later decision of this Court in Piyare Lal Adishwar Lal v I. T. Commr. Delhi, (1960) 3 SCR 669 was distinguishable. The High Court held that the case was governed by the ruling of this Court In (1960) l SCR 320 and accordingly decided the question of law against the assessee and in favour of the Income-tax Department.
(3.) On behalf of the assessee Mr. Gopalakrishnan put forward the argument that the High Court was in error in holding that the present case was governed by the decision of this Court in (1960) l SCR 320 that the remuneration earned by the Managing Director was not earned as a result of the utilisation of the joint family funds in the business and there was no detriment to the joint family assets or the use of the joint family assets in the business. It was not therefore a right proposition to state that under the principles of Hindu Law the remuneration of the Managing Director in the present case was directly an accretion from the utilisation of the joint family funds and therefore constituted the income of the Hindu joint family. It was pointed out that in (1960) l SCR 320 the income of the Managing Director arose directly from the use of joint family funds, but the material facts in the present case are different In our opinion, the argument of the appellant is well founded and must be accepted as correct.;