GULATI, J. - (1.) THIS is a reference under Section 256(1) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act ').
(2.) THE assessee, Bimal Kumar Jain, was a director and the general manger of a company, known as Jain Glass Works Private Ltd., Firozabad. For the assessment year 1964 -65 he filed two returns, one in the status of a Hindu undivided family showing an income of Rs. 29,398 and the other in his individual capacity showing an income of Rs. 26,048. This amount of Rs. 26,048 was received by him from the company by way of remuneration. Thus, the assessee put forward the claim that the income which he had received from the company by way of remuneration should not be includedin the income received by his family from dividends on shares held in the company. This claim of the assessee was rejected by the Income -tax Officer holding that the entire income was to be assessed in the hands of the Hindu undivided family. His appeals to the Appellate Assistant Commissioner of Income -tax and to the Income -tax Appellate Tribunal failed. At his request the Income -tax Appellate Tribunal has referred the following question for our opinion ; ' Whether the sum of Rs. 26,048 received by the assessee as general manager's remuneration is assessable as the income of the Hindu undivided family of which Sri Bimal Kumar Jain is the karta ? ' The facts as appearing from the statement of the case and from the appellate order of the Tribunal are these. Formerly, there was a joint family of the name and style of M/s. Motilal Chhadami Lal, which owned a business styled Jain Glass Works. The assessee and his father were the two coparceners of the family. There was a partial partition in the family from the beginning of the assessment year 1955 -56, when the business of the family was converted into a partnership firm in which the assessee and his father were the partners. On May 3, I960, the firm transferred its machineries and other assets to a limited company named Jain Glass Works Private Ltd. and the assessee and his father were allotted shares in the company in lieu of the assets of the firm so transferred. Previously, the assessee's income from the aforesaid business used to be assessed in his individual status presumably because he had no male issue. On May 5, 1962, a son was born to him and thereafter his status was changed to that of a Hindu undivided family and the income arising to him was assessed in his hands as the karta of a Hindu undivided family. The total share capital of the company consisted of 2204 equity shares of Rs. 100 each and 100 preference shares. Bimal Kumar Jain and his father held 1,051 equity shares each, while the remaining 102 shares were held by Bimal Kumar's wife and his brother -in -law. Out of 100 preference shares the assessee and his father held 50 shares each. Under article 35 of the articles of association of the company, the assessee's father, Seth Cbhadami Lal, became its permanent managing director with an option to nominate any other person in his place and, in the absence of such nomination, the assessee was automatically to become the managing director with the same powers of nomination, etc., as his father had after the latter's death or resignation. Article 37 provided that the remuneration of Seth Chhadami Lal, as managing director, and that of Bimal Kumar Jain, director, as the manager and technical adviser, shall be as may be settled by agreement and/or by resolution. On May 23, 1960, a resolution was passed by the directors of the company in which the remuneration of Seth Chhadami Lal was fixed at Rs. 3,000 per month ' keeping in view his past experienceand ability in the trade '. By another resolution the board of directors resolved ' that Sri Bimal Kumar Jain, director of the company be appointed general manager on a remuneration of Rs. 2,000 per month till the board of directors decide otherwise '. For the year 1964 -65, which is the year in dispute, the income from salary was credited to the account of the Hindu undivided family. Later on, however, the assessee claimed that his income from salary should be assessed separately in his individual capacity. On these facts the Income -tax Officer, the Appellate Assistant Commissioner of Income -tax and the Income -tax Appellate Tribunal have held that the income derived by the assessee by way of remuneration from the company was the income of the Hindu undivided family.
(3.) ADMITTEDLY , the shares which qualified the assessee to become a director of the company were purchased with the funds of the joint Hindu family and, as such, any income earned by him in his capacity as the director of the company would belong to the Hindu undivided family. But it is argued that the salary received by the assessee from the company was by virtue of his holding the post of the general manager and not on account of his being the director. The Tribunal has not accepted this contention and the only question that arises for consideration is as to whether the Tribunal was right in doing so.;