D.R.KHANNA, J. - (1.) AT the instance of the CIT, the Tribunal has referred the following question under S. 66(1) of the Indian IT Act, 1922, for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the remuneration received by Bhai Trilochan Singh from M/s Bhai Sundar Dass and Sons Private Ltd. did not constitute income of the assessee -family ?" The assessee has been the HUF of Bhai Tirlochan Singh. The assessmentyear was 1960 -61.
(2.) THE background of the facts is that there was a firm known as Bhai Sundar Dass and Sons, carrying on the business of manufacture of machinery utilised in the construction of buildings, etc. In this firm, Bhai Trilochan Singh, as Karta of the HUF, was a partner. On March 29, 1959, company in the name and style of Bhai Sundar Dass & Sons Pvt. Ltd. was incorporated. This company took over the running business of that firm. In this company, the assessee -family held 228 shares of the face value of Rs. 22,800. By a resolution passed on. April 16, 1959, an extraordinary general meeting of the said company allowed remuneration of Rs. 1,500 per month to Bhai Trilochan Singh from that date onwards. Bhai Trilochan Singh at that time held the status of director of the company. Two other directors, namely, Sundar Dass and Swinder Singh, were similarly allowed salaries of Rs. 500 per month each. The salaries of these two directors were, however, later retrospectively withdrawn by a resolution of the company passed on March 31, 1960. The total salary enjoyed by Bhai Trilochan Singh for the asst. year 1960 -61 from the said company amounted to Rs. 17,250. The question arose at the assessment stage whether this salary could be treated as income of the assessee -family. From its side, it was asserted that the salary amount was the individual income of Bhai Trilochan Singh. This, however, did not prevail with the ITO, who, after referring to the decision of CIT vs. Kalu Babu Lal Chand (1959) 37 ITR 123 (SC), held that the salary income had to be attributed, to the HUF. It was observed that substantial funds of the family were utilised in the purchase of the shares of the company and, therefore, there was detriment to the funds of the HUF. This decision was upheld in appeal by the AAC.It was noted by him that Trilochan Singh did not have any academic qualifications to entitle him to the remuneration in question although it had been submitted before him that he had several years' experience in the building contract business and also in the manufacture of machinery which the company had started manufacturing.
(3.) THE assessee, feeling still aggrieved, then moved the Tribunal. It was then urged that Trilochan Singh was earlier a partner in a number of firms which were carrying on business of manufacturing machinery useful in building works and had acquired great experience in the particular line of business since a long time. His income for the year 1957 -58 alone was assessed at Rs. 88,754. The Tribunal, after considering all these circumstances and taking into account the ratio of the decision given by the Supreme Court in the case of Palaniappa Chettiar vs. CIT (1968) 68 ITR 221(SC), came to the conclusion that the salary income enjoyed by Bhai Trilochan Singh had to be treated as his individual earnings. It was observed that he, by his experience, ability and aptitude was mainly suited for being appointed as a full -time director on remuneration. It was further observed that there was no material to hold that he was allowed remuneration not because he possessed personal qualification but because he owned shares of the company as a Karta of the assessee - family. It is in these circumstances that the Revenue, feeling aggrieved, has obtained the present reference. As this reference came up for hearing it has been brought to our notice that the entire paid up shareholding of the company amounted to Rs. 2,95,000. This would thus show that the shares held by the assessee -family were a little less than 1/4th of the entire share capital. It, therefore, could not be said that the company was floated mainly with the HUF funds. Moreover, the Tribunal in the present case has given clear findings that Bhai Trilochan Singh had personal qualifications because of long experience in the line of manufacture of the machinery utilised in the construction of buildings. In the circumstances, it could not be entirely said that the salary that was paid to him was on account of the shares held by the family in the company.;