Sahai, J. - (1.) The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for the opinion of this court under Section 256(1) of the I.T. Act, 1961 : "Whether, on the facts and in the circumstances of the case, salary paid to the karta of the Hindu undivided family was an allowable deduction ?" The assessee, an HUF, comprising of Gopi Nath Seth, his wife and their two minor sons under guardianship of their mother, claimed deduction under Section 37 of the I.T. Act of salary paid by it to Gopi Nath, the karta, for rendering service to it and looking after its business interest, etc. Although the AAC accepted the claim because : "Participation of minors is not essential for an agreement. The only point on which the Tribunal threw away the claim of salary was that the agreement was not a valid one. The Tribunal never expressed the opinion that the amount had not been paid for commercial expediency. The appellant's wife was certainly not a coparcener, but she was a member of the HUF. In the spirit of the two judgments quoted above, if carefully analysed, it will be seen that the claim of salary in the hands of the HUF is clearly an allowable expense", it was disallowed by the Tribunal ; "We cannot accept the plea of the assessee that the agreement dated 11-8-69 was relevant for the assessment year 1970-71 which was under dispute. It has been specifically mentioned in Clause 6 of the agreement dated 11-8-69 that the agreement will come into force from 11-7-69. The previous year of the assessee ended on 15-7-69 and, therefore, the agreement dated 11-8-69 was only operative for the assessment year 1971-72 and not for the assessment year 1970-71. Under the circumstances, the deduction could only be claimed on the basis of agreement dated 4-7-66. The Tribunal, vide its order for the assessment years 1968-69 and 1969-70, has held that the agreement dated 4-7-66 was not a valid agreement. The Tribunal has also held that payment made by the assessee was not for business or commercial expediency." The income of the assessee was from share income from different firms in which it was a partner and some interest earned on deposits. The assessee, therefore, did not carry on any independent business. Although the claim of the assessee has not been disallowed by the Tribunal due to this, yet learned counsel for the Commissioner put forward the observations made in the case of this very assessee, for the earlier year (Gopinath Seth v. CIT [1982] 135 ITR 365, 367), that, we are not satisfied that in the present case the karta was required to do any specific work or job in connection with the business of the partnerships in which the family has shares except, of course, to see that he receives the share income from the various partnership firms.. From this point of view, "we are not satisfied that the finding that the agreement is not dictated by any commercial expediency suffers from any error of law". It is apparent that these observations were made to highlight the finding of fact recorded by the Tribunal.
(2.) Deductibility of salary paid by an HUF to its karta, as an expenditure wholly and exclusively for business purposes under Section 37, I.T. Act, has two facets, one, whether deduction could be claimed even if the HUF did not carry on any independent business, second, whether-such a claim can be made by the karta at all as he, by nature of his status, is under obligation to look after the interest of family including the business without any remuneration. And both these aspects have been put beyond controversy by the Supreme Court.
(3.) The first aspect came up for consideration in CIT v. Ramniklal Kothari [1969] 74 ITR 57 (SC). It was held that profits earned by a person by himself or in partnership with others was income under Section 10 of the Act of 1922 and any expenditure incurred for earning it was deductible under Section 10(2) of the Act as business expenditure. It did not approveof the view of the Calcutta High Court in Ishwardas Subhkaran v. CIT (ITR No. 38 of 1952, decided on June 2, 1953), that salary paid to a munim to look after the interest of the assessee, an HUF, which entered into a partnership agreement with third parties to run a rice mill, which could not be attended to by any member personally, was not deductible.;