Ramaswami, J. - (1.) The respondent is a Hindu Undivided Family (hereinafter called the assessee) of which Shri D. C. Shah is the Karta. The assessment years are 1959-60 and 1960-61 and the relevant accounting periods are Samvat years 2014 and 2015. The assessee through its karta Shri D. C. Shah was a partner in the firms of (1) M/s. C. U. Shah 1and Co. and (2) M/s. Oriental Can Manufacturing Co. as per terms and conditions set out in the Instruments of Partnership dated 5th June, 1961 and 11th September, 1957. Shri D. C. Shah was paid a remuneration of Rs. 12000/- per year for both the assessment years by M/s. C. U. Shah and Company. He was paid Rs. 10000/- for the assessment year 1959 -60 by the Oriental Can Manufacturing Company. The amounts received by Shri D. C. Shah were shown by the assessee in its returns of income along with balance of the share income from the aforesaid firms. The Income Tax Officer in assessing the Hindu Undivided family included the remuneration received by Shri D. C. Shah as a part of the share income from, the respective firms. Before the Appellate Assistant Commissioner the assessee contended that the remuneration received by Shri D. C. Shah was his personal income and the amounts were wrongly shown in the returns of the Hindu Undivided Family as its income and should not have been included in the assessment. In so contending the assessee relied on clauses 8, 9 and 10 of the Instrument of Partnership dated 5th June, 1961 by which the firm of M/s. C. U. Shah and Company was constituted. The assessee also relied on clauses 14, 15 and 16 of the Instrument of Partnership dated l1th September, 1957 by which the firm of M/s, Oriental Can Manufacturing Company was constituted. Clauses 8, 9 and 10 of the Instrument of Partnership dated 5th June, 1961 are to the following effect. "8. The partner No. 1 Shri D. C. Shah who has been managing the business of this firm shall hereinafter also continue to act as Managing partner for conducting the said business free from any interference of other partners, of whatsoever nature. The said Managing partner shall manage, direct, appoint and/or remove any one of the employees, and/or do all other things, which include right to draw cheques, to make, deliver and accept documents either legal or commercial in respect of the partnership business as may be deemed necessary for effectively carrying on the partnership business. The said Managing partner shall be paid Rs. 1000/- (Rupees one thousand only) per month in addition to all other benefits that he is entitled to enjoy as a partner of the firm. 9. The said Managing partner shall continue to be the Managing Partner for his lifetime or his retirement whichever is earlier. 10. All other partners shall devote as much time to the furtherance of the partnership business as they think proper, necessary and advisable". Clauses 14, 15 and 16 of the Instrument of Partnership dated 11th September, 1957 are to the following effect: "14. The partner No. 2 shall be the Managing Partner for conducting the said business free from any interference of whatsoever nature by others. The said Managing Partner shall manage, carry, direct, appoint and/or remove any of the employees and/or Agent and do all other things, as may be deemed necessary, for effectively carrying on the Partnership business. The said Managing Partner shall be entitled, in addition to all other benefits, to a monthly remuneration of Rs. 2000/- (Rupees two thousand only). 15. The Partner No. 2. continue to be the Managing Partner for his lifetime or retirement the event of Partner No. 2's demise or retirement, whichever is earlier, the Partner No. 1. shall then act and perform duties and functions of Managing Partner. In the event of the demise or retirement of Partner No. 1, the Managing Partner shall be appointed by the remaining partners or their legal representatives, as the case may be. 16. Partner No. 3 shall be responsible for the duties and functions to be performed under the direction of No. 2, the Managing Partner. In the event of failure on the part of No. 3 to perform duties and functions or otherwise entrusted by No. 2, the Managing Partner, the matter shall be referred to, No, 2 and his decision shall be binding on No. 3".
(2.) The Appellate Assistant Commissioner accepted the contention of the assessee and held that the remuneration paid and received by Shri D. C. Shah should be deleted from the assessment of the assessee. The Income Tax Officer thereafter preferred appeals to the Income Tax Tribunal which set aside the order of the Appellate Assistant Commissioner and held that the remuneration paid should be included in the total income of the assessee. At the instance of the assessee, the Income Tax Appellate Tribunal stated a case to the High Court on the following question of law:- "Whether on the facts and in the circumstances of the cue, was the salary received by D. C. Shah from the two firms of M/s. C. U. Shah and Co. and M/s. Oriental Can Manufacturing Co., includible in the assessment of the H. U. F. of which Shri D. C. Shah was the Karta '' The High Court relying upon its earlier decision in Gurunath V. Dhakappa, vs. Commissioner of Income-tax, Mysore, (1964) 53 ITR 575 (Mys) held that the salary received by Shri D. C. Shah from the aforesaid firms cannot be included in the assessment of the Hindu Undivided Family of which he was the karta. These appeals are brought by special leave on behalf of the Commissioner of Income-tax, Bangalore from the judgment of the Mysore High Court dated 19th January, 1965 in Income-tax Reference No. 1 of 1964.
(3.) The question whether the remuneration earned by a member of a Hindu Undivided Family as an officer of a company or a firm in which the assets of the Hindu Undivided Family have either been invested or the office has been acquired with the aid of the funds of the family is the income of the family or the individual income of the member has been the subject-matter of consideration in several cases before this Court. In V. D. Dhanwatey vs. Commissioner of Income-tax, 68 ITR 365 V the karta of a Hindu Undivided family contributed to the capital of a firm out of the funds of the family. Under the agreement of the partnership the general management and supervision of the partnership business was to be in the hands of V and he was to be paid a monthly remuneration out of the gross earning of the partnership business. It was found that V joined the partnership as representing the family an became a partner on account of the investments of the joint family assets in the capital of the partnership and that the remuneration received by V was only an increased share of the profits paid to him as representing the family. In this state of facts it was held by this Court that the remuneration paid to V was directly related to the investments of the assets of the family in the partnership business and "there was a real and sufficient connection between the investment from the joint family funds and the remuneration paid to V." It was therefore held by this Court that the salary paid to V was, rightly assessed as the income of the Hindu Undivided Family. In M. D. Dhanwatey vs. Commissioner of Income-tax, 68 ITR 285 the facts were parallel to the facts in V. D. Dhanwatey's case, (supra) and the salary received by the Karta of the Hindu Undivided Family was treated as the income of the family.;