V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following question of law arising out of its order dt. 12th May, 1982 under S. 256(1) of the INCOME TAX ACT, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the payment of salary of Rs. 9,000 to its Karta by the assessee -HUF ?"
(2.) THE brief facts of the case are that the firm Masuria Saree Centre, Kota, comprised of 4 partners, namely, Bhanwarlal, Kanwarlal, Shantilal and Jatanlal. While submitting the return of HUF, a salary of Rs. 9,000 was claimed to have been paid to Sri Jatan Lal in his individual capacity in the return of income of HUF. The ITO held that whatever amount has been received from the firm that will be the income of the HUF and the said amount of Rs. 9,000 cannot be allowed as deduction. In appeal before the AAC the matter was agitated and it was submitted that there was an agreement dt. 15th Nov., 1977, between the HUF and Sri Jatan Lal, by which the said salary was payable. The AAC came to the conclusion that the assessee failed to produce copy of the above agreement to the ITO and, therefore, it is not admissible. Besides this, it was observed that there was no major coparcener of the HUF other than Jatan Lal, who was Karta of the HUF and, therefore, he could not have acted to the detriment of interest of the HUF or other coparceners. No justification was found for making payment of salary of Rs. 9,000 by the HUF to its Karta in his individual capacity, in view of the fact that the business of the firm was being looked after by the said Karta without any salary since last 7 to 8 years and, therefore, the appeal was dismissed. In the second appeal before the Tribunal, it was found that the HUF's investment in the Kota firm was to an extent of Rs. 85,000 and it has 80% share in the firm's profit/losses. The share income received from the said firm was substantial, namely, around Rs. 20,000. It was also found that the assessee's wife had also became a partner in another firm in 1974 and the HUF has paid the amount of salary to safeguard the interest in the Kota firm. The Tribunal observed that the genuineness of the payment is not disputed nor it was suggested that the agreement is a fake document and the arrangement was to safeguard the interest of HUF and, therefore, looking to the substantial share of income, the monthly salary @ Rs. 750 could not be said to be unreasonable. The submission of the learned counsel for the Revenue is that the assessee failed to produce the copy of the agreement before the ITO and the AAC has disbelieved the existence of the said document by observing that "I am, therefore, not inclined to accept this new piece of evidence". The other factors which were taken by the AAC was that Sri Jatanlal is the only major coparcener of the HUF and that the HUF has not paid any salary during the last 7/8 years and there being no change of circumstances, the necessity to make any payment by way of salary to its Karta is not justified. The Tribunal has proceed only on the assumption that the genuineness of the agreement has not been doubted. It is submitted that once a document is not produced either before the assessing authority and the appellate authority has not accepted the same as a piece of evidence, there was no question to consider the genuineness of the document or payment made thereunder on the basis of such document which was not found admissible and on merit the appellate authority came to the conclusion that, there was no change of circumstances since last 8 years and the payment of salary in this very year is without justifying the necessity and is only a device to reduce the liability of tax in the hands of HUF. In Gopinath Seth vs. CIT (1982) 135 ITR 365 (All), it was held by Allahabad High Court that where no specific services are required to be done by Karta except normal function of a partner, it cannot be said that the agreement was based on commercial expediency. The agreement was held not bona fide. In order to be entitled for salary, there must be a valid agreement and for the purpose of examining the validity, it must be (1) bona fide agreement (2) in the interest of and expedient for the business of the family (3) and the payment is genuine and not excessive. It is the commercial and business expediency which has to be seen for the service which is rendered by Karta in consideration of a remuneration. For remuneration, another factor which is to be examined is that an HUF is entitled to deduct the salary paid to the Karta or to any other member of the family if such payment is under a valid agreement and is expedient in the interest of the business of the family and payment is genuine and is not excessive or unreasonable. The agreement could be in writing or an oral agreement. The Karta was looking after the interest of the family business since last 7 to 8 years and no payment was made in the past. It is also not brought on record as to what additional services were rendered by the Karta during the relevant previous year. It has been observed by the Tribunal that in the agreement it has been mentioned that the Karta would devote full time. Firstly, the agreement itself was not produced by the assessee before the Tribunal and the AAC has not placed much reliance and observed that it would be most unfair to accept the said agreement. The agreement was found detrimental to the interest of HUF. A document has to be admitted in evidence in accordance with law and, secondly, it has not been brought on record as to whether the Karta was devoting full time to the business of the HUF in the past and has devoted full time during the year in dispute whether any extra services were rendered. The Tribunal has not taken into consideration the services and verbal agreement of the parties vis -a -vis the services rendered by the Karta during the year. From the facts which are available on the record, it is not proved that what was the expediency for making the payment and as such we are of the view that the Tribunal was not right in allowing the payment of salary of Rs. 9,000 to its Karta. The reference answered in negative, in favour of the Revenue. No order as to costs.;