RAMASWAMI, - (1.) THE following Judgment of Wanchoo,C. J., Bachawat, Ramaswami and Mitter, JJ.was delivered by :-
(2.) THESE appeals arebrought, by certificate, on behalf of theassessee from the judgment of the BombayHigh court dated 23/07/1964 in IncomeTax Reference No 85 of 1963. The appellant (hereinafter calledthe 'assessee') is a Hindu Undivided Familyrepresented by its Karta, Shri V. D. Dhanwatey. The assessment years involved inthese appeals are 1954-55 and 1955-56. Forthe year 1954-55 there was a deed of partnership dated 1/04/1951 governing therelationship of the partners. For the year1955-56 there was another partnership deeddated 1/10/1953. There was, however, no material change in the terms ofthe two deeds of partnership. The businesscarried on by the partnership was of lithography and art printing and was carried onthrough a Press under the name and styleof Shivraj Fine Art Litho Works. The capital of the partnership under the partnershipdeed was Rs. 10,50,000.00. Clause (4) of thepartnership deed enumerated the share capital contributed by the partners as follows: JUDGEMENT_683_AIR(SC)_1968Html1.htm Clause (5) states that interest at the rate of5 per cent per annum shall payable to eachpartner on the amount of the capital.Clause (7) provides that general management and supervision of the partnershipbusiness shall be in the hands of Shri V. D.Dhanwatey. Clause (8) states that Marotirao Dhanwatey shall be the manager incharge of the works and both he andVasantrao Dhanwatey shall have power tomake contracts and arrange terms with constituents or customers. Clause (10) empowered three partners, viz., V. D. Dhanwatey, M. D. Dhanwatey and ShamraoDhanwatey to appoint such person or persons on such salary as they deem fit forcarrying on the work of the partnership anddelegate to them such powers as they thinkproper. Clause (15) provided that the various adult members of the partnership shalldevote their whole time and attention tothe partnership in the sphere of their respective duties. Clause (16) is to the following effect: "The said Baburao alias VasantraoDattaji Dhanwatey shall be paid remuneration at the rate of Rs. 1,250.00 (Rupees TwelveHundred Fifty) per month, the said Marotirao Dattaji Dhanwatey shall be paid remuneration at the rate of Rs, 1,000.00 (RupeesOne thousand) per month, the said ShamraoDattaji Dhanwatey shall be paid remuneration at the rate of Rs. 700.00 (Rupees Sevenhundred) per month, the said ShankarraoDattaji Dhanwatey and Krishnarao DattajiDhanwatey shall each be paid remunerationat the rate of Rs. 500.00 (Rupees five hundred)each out of the gross earnings of the partnership business. This amount of remuneration of any or all can, however, be revised687at any time it all the partners agree to revise." According to this clause the remunerationpaid to the various partners shall be paidto them out of the gross earnings of thepartnership business. The remuneration provided for Shri V. D. Dhanwatey was laterraised to Rs. 1,500.00 per month. For the accounting period relating to the assessmentyears 1954-55 and 1955-56 Shri V. D. Dhanwatey had been paid Rs. 18,000.00 in each year.The assessee showed the said amount inhis return in Section D. It was contendedon behalf of the appellant that the amountwas not taxable because it was the incomeearned by Shri V. D. Dhanwatey for theservices rendered by him to the partnership and the amount constituted his individual income and not the income of theHindu Undivided Family. It was urgedthat the said amount should be taxed in thehands of Shri V. D. Dhanwatey in his statusas individual and not in his status as kartaof the Hindu Undivided Family. The Income Tax Officer rejected the contention ofthe assessee. The appeals of the assesseewere disallowed by the Appellate AssistantCommissioner of Income-tax, Nagpur. Theassessee took the matter in further appealbefore the Income-tax Appellate tribunalin Bombay. It was contended by the assessee that Shri V. D. Dhanwatey was an employee of the firm even before the familywas taken as a partner. It was said thaton partition of the larger Hindu UndividedFamily in 1939 of which Shri V. D. Dhanwatey was a member, Shri V. D. Dhanwateyrepresenting the small Hindu UndividedFamily of which he became the Karta, became a partner in the said firm and received salary from it. The tribunal, by itsorder dated 4/09/1962 dismissedthe appeal of the assessee. The tribunalaccepted the contention of the assessee thatShri V. D. Dhanwatey was rendering services to the firm and was getting salaryeven before his family became a partner inthe firm. But the tribunal held that ShriV. D. Dhanwatey who was a partner of thefirm could not at the same time be an employee of the partnership firm and the remuneration received by him must be heldto be only an adjustment of the share inprofits of the Hindu Undivided family inthe partnership. At the instance of theassessee the Appellate tribunal stated a caseto the High court under S. 66 (1) of theIncome-tax Act, 1922 on the following question of law: "Whether on the facts and in the circumstances of the case, the sum of Rupees18,000.00 was rightly included in the total income of the assessee-family for the assessment- years 1954-55 and 1955-56?" By its judgment dated 23/07/1964 theHigh court answered the reference againstthe assessee, holding that the entire capitalcontribution was made by the Hindu jointfamily, that the remuneration paid to ShriV, D. Dhanwatey was paid under a clauseof the deed of partnership, that the remuneration paid was only an increased sharein the profits of the firm paid to Shri V. D.Dhanwatey as representing the Hindu undivided family and so the said amount ofremuneration was taxable in the hands ofthe assessee. The High court took the viewthat the case was governed by the decisionof this court in Commr. of Income-tax WestBengal v. Kalu Babu Lal Chand, 1960-1SCR 320: (AIR 1959 SC 1289) . On behalf of the assessee learnedCounsel stressed the argument that the remuneration to Shri V. D. Dhanwatey was byreason of his own exertions and it was notearned with the help of the joint familyassets. It was contended that there was nonexus between the joint family funds and'the remuneration paid to Shri V. D. Dhanwatey for the services rendered by him andthere was no evidence that any training hadbeen given to Shri V, D. Dhanwatey at theexpense of the family funds for equippinghim for the services rendered by him to thepartnership. It was argued that the remuneration earned by Shri V. D. Dhanwateycould not be said to have been earned bydetriment to the joint family funds. It wastherefore said that the High court waswrong in applying the principle laid downby this court in 1960-1 SCB 320: (AIR 1959SC 1289) supra, in deciding the presentcase.
(3.) THE general doctrine of Hindu lawis that property acquired by a karta or acoparcener with the aid or assistance ofjoint family assets is impressed with ihecharacter of joint family property. To putit differently, it is an essential feature ofself-acquired property that it should havebeen acquired without assistance or aid ofthe joint family property. THE test of selfacquisition by the karta or coparcener isthat it should be without detriment to theancestral estate. It is therefore clear thatbefore an acquisition can be claimed to bea separate property, it must be shown thatit was made without any aid or assistancefrom the ancestral or joint family property.THE principle is based on the original textof Yajnavalkya who while dealing with property not liable to partition, states:688 "Whatever else is acquired by the coparcener himself, without detriment to thefather's estate, as a present from a friendor a gift at nuptials, does not appertain toco-heirs. Nor shall he, who receives hereditary property which had been taken away,give it up to co-parceners; nor what hasbeen gained by science"(Yajnavalkya 2, verses 119-120). Commenting on this text of Yajnavalkya theauthor of Mitakshara states: "THE author explains what may not bedivided: whatever else is acquired by thecoparcener himself, without detriment to thefather's estate, as a present from a friend, ora gift at nuptials, does not appertain to theco-heirs. Nor shall he, who recovers hereditary property which had been taken away,give it up to the coparceners; nor what hasbeen gained by science." THE author sets out in verse 2 the textof Yajnavalkya in his own words and statesin verse 6: "Here the phrase- anything acquired byhimself, without detriment to the father'sestate must be everywhere understood, andit is thus connected with each member ofthe sentence what is obtained froma friend without detriment to thepaternal estate: what is received inmarriage, without waste of the patrimony,what is redeemed, of the hereditary estatewithout expenditure of ancestral property;what is gained by science, without use ofthe father's goods. Consequently, what isobtained from a friend, as the return of anobligation conferred at the charge of thepatrimony: what is received at a marriageconcluded in the form termed Asura or thelike. what is recovered, of the hereditaryestate, by the expenditure of the father'sgoods; what is earned by science acquiredat the expense of ancestral wealth; all thatmust he shared with the whole of the brethren and with the father." The expression 'without detrimentto the fathers estate' in the text of Yajnavalkya is; "fwmw" Dealing withsame matter, Devanna Bhatta states inSmriti Chandrika: "27. The principle contained in Yajnavalkya's text i. e., 'Whatever else is acquiredby the coparcener himself without detriment to the father's estate' is explained byManu in his passage, 'What has been acquired by labour without prejudice to thefather's estate.' 28. In both the above passages, theword 'father signifies an undivided co-heirgenerally - 'By labour' means by acts requiring labour, such as agriculture, etc.Without prejudice,' means without detriment. 29. Vyasa, too; 'Whatever a man gainsby his own labour without the assistance ofthe father's estate shall not be given by himto the co-heirs.' 30. "Without the assistance', means without deriving assistance for the purpose ofgaining. The word 'father' is used to denote an undivided co-heir generally". (Setlur's translation, Ch. VII, Paragraphs 27 to 30)." ;