H.N. Seth, J. - (1.) THE following question of law, based on identical set of facts, has been referred to this court for opinion in the above noted references : "Whether the Tribunal, on the facts and in the circumstances of the case, was right in holding that the salary received by the assessee was the income of the Hindu joint family of which the assessee was the karta, and not his individual income ?"
(2.) THE assessees are brothers and along with their father constituted a Hindu joint family. This joint family carried on business in the name and style of Kohinoor General Industries up to the assessment year 1959-60. Later, there was a partial partition in the family when the joint family business was converted into a partnership firm consisting of the two brothers and their father as partners. In July, 1961, a private limited company was formed in the name and style of M/s. Ghaziabad General Industries (P.) Ltd., which took over the business run by the partnership firm. THE assessees and their father were appointed as lifetime directors of the company. Article 15 of the Articles of association provides that if any director is willing he may be called upon to perform extra services for the business of the company and may be remunerated for such services. THE assessees agreed to render extra services and for the assessment year 1962-63, a remuneration of Rs. 5,400 was paid to each one of them. THE assessees claimed that the remuneration so received by them was for personal exertion by rendering extra services to the company and, therefore, constituted their personal income and should be so assessed. The Income-tax Officer rejected the contention and included the salary received by the assessees in the assessment of the joint family on the ground that the shares which qualified them to become directors of the company were acquired out of the joint family funds. The Appellate Assistant Commissioner affirmed the decision holding that there was direct connection between the shareholding of the company and the receipt of the remuneration. The Tribunal found that undisputedly the shares were acquired with the family funds and the appointment as a lifetime director was based upon the shares. If the assessees were not appointed as directors, which they could become by reason of their shareholding which they acquired with the funds of the joint family, the assessees would not have been able to perform any extra service. In the opinion of the Tribunal the performance of the extra services did not alter the character of the income. At the instance of the assessees the question set out above has been referred to this court for opinion. A Bench of this court of which one of us was a member, by an order dated May 18, 1973, directed the Tribunal to record a finding on the material already on record as to whether the assessees rendered any service to the company and if so what was the nature and extent of service. The Bench took the view that the fact that the assessees acquired the shares which qualified them to become directors out of the joint family funds is not decisive nor is decisive the fact that there is a provision in the articles of association authorising such payments. The answer to the question would depend on the nature and extent of services rendered by the assessees to the company, namely, as to whether the services rendered were of such a nature as depended on the personal qualification of the assessees or were of a general nature.
(3.) THE Tribunal has submitted a supplementary statement of the case. It referred to a letter of the assessec (P. V. Kakkar) dated February 22, 1967, addressed to the Income-tax Officer as the only relevant material on record. In the letter it was asserted that the assessee had good experience in the line of business carried on by the company and was actively engaged in the daily conduct and working of the company and that the holding of shares had nothing to do with his earning from the company as salary. THE Tribunal, on an interpretation of its earlier order, took the view that the Tribunal may be said to have found it as a fact that some services were rendered by the assessee to the company. THEre is no finding with regard to the nature and extent of services rendered by the assessees to the company, namely, as to whether the services rendered were of such a nature as depended on the personal qualification of the assessees. THE Tribunal may be said to have recorded a finding that the assessees rendered some service of a general nature. The question of law arising for our decision, based on more or less similar set of facts, came up for consideration before the Supreme Court in P. N. Krishna Iyer v. Commissioner of Income-tax [1969] 73 ITR 539, 546 (SC). In that case the karta of a Hindu undivided family received salary, commission and sitting fees as governing director of a private company which carried on transport business. The shares which qualified the karta to become a member of the company were purchased with the aid of joint family funds. The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued. The Supreme Court observed : "The income was primarily earned by utilising the joint family assets or funds and the mere fact that in the process of gaining the advantage an element of personal service or skill or labour was involved did not alter the character of the income." ;