V. D. DHANWATEY versus THE COMMISSIONER OF INCOME TAX, M.P. NAGPUR

.In accordance with the opinion of the majority the appeals are dismissed with costs. One hearing fee.

p. 85, margin E

C.A. 1371 of 1966.

p. 85, margin G

Ramaswami, J. This appeal is brought, by· certificate on behalf of the assessee from the judgment of the Bombay Hich Court dated July 23, 1963 in Income Tax Reference No. 5 'of 1962.

p. 85, margin G

The app.~llant (hereinafter called the "assessee') is a Hindn ~ndivided family of which Shri M. D. Dhanwatey is the Karla. The IS assessment year involved in this appeal is 1954-55 the corresponding. accounting year being the year ended Septeiuber 30, 1953. Shri M. D. Dhanwatey was a partner in the partnership firm c_arrymg on. business under the name and style of M's. Shivraj Fine Art Lltho Works. The share capital of Shri M. D. Dhanwatey was entirely contributed by the assessee Hindu undivided family. Th~ rights of the partners were governed at the relevant time by a partnership agreement dated April I, 1951. According

pp. 85–86, margin G

the agreement,. the partnership was of lithography and art pr;ntmg and was earned on by meaps of a press under the name and style of "Shivraj Fin.e Art Litho Works'. C1ause· ( 4) of the partnership deed enumerated various capital contribution5 of the partners. The share contribution of Shri .M. D. Dhanwatey was shown as Rs. 1,96,875/-. It is admitted that this amount belonged to the Hindu undivided family. Ciau5e (5) provid.~d for payment of interest at a certain rate io the partners on the share contribution. Clause ( 7) provided that general management and supervision of the partnership business shall be in the hands of Shri V. D. Dhanwatey. Clause ( 8) stated that Shri M. D. Dli:!nwatey shall be the manager in charge of the works and both he and Shri V. D. Dhanwatey shall have power to make contracts, and arrange terms with constituents or customers. Clause ( 10) empowered three partners. viz .. V. D. Dha•·'vatey, M. D. Dhanwatey and Shamrao Dhanwatcy to appoint such person or persons on such salary as they deem fit for carrying on the work of the partnership and delegate to them such powers as they think p1 oper. Clause (15) provided that the various adult members of the 11annership shall devote their whole time and al!en·ion to the partnership in the >phere of their respective duties. Clause ( 16) is Jle material clause and it provides for various amounts to be paid by way of r.~muncration to the partners. The remuneration provided to be paid to Shri M. D. Dhanwatey under cl. ( 16) is Rs. 1,250 per ·111onth. For the relevani accounting year Shri M. D. Dhanwatey was paid Rs. 7 .500 as remuneration. For the assessment year 1954-55 the assessee showed the sa•d amount in Section D of the return. It was contended that the salary received by Shri M. D. Dhanwatcy, the karta of the as~~ssec family was received ·by him in h's individual capaci:y and that it was not taxable in the hands of the asscssee. The Income-tax Officer, Spe=ia! Investigation Circle 'B'. Nagpur, by his assessment order dated May 28 . 1955 neeatived the contention of the assessee. The assessee took thc'ma!ter (o the Appellate Assistant Commiss;oner but the appeal was dismissed. The asscssee preferred a further appeal to the Appellate Tribunal which rejected the contention of the asses.see that the amount of Rs. 7,500 was earned by Shri M. D. Dhanwatey in his individual capacity and that it should not have been included in the taxable income of the assessee. As directed by the High Court. the Appellate Tribunal stated a case on the following

p. 86, margin B

v. v: c:I.T. (Hegdl!, J.). ST question of 1aw under s. 66 (2) of the Indian Income-tax Act, 1922:

p. 87

"Wheiher on the facts and circumstances of the case, the payment of Rs. 7,500 (Rupees seven thousand five hundred) paid to Shri M. D. Dhanwatey for rendering services to the firm, could be included in the total

p. 87, margin A

income of the assess.ee. family?". The High Court answered the reference in favour of the Income· tax Dep!lrtment and against the assessee. The High Court observed that Shri M. D: Dhanwatey was one of the partners in the partnership as representing th-~ Hindu undivided family consisting of himself and his two minor sons. There was no evidence whatever to show that Shri M. D. Dhanwatey was in the service of the partnership firm in his individual capacity and the High Court held that what was paid tQ him in the ·fo-mi of remuneration was only for the purpose of adjustment of the rights inter 8e be.tween the partners. The remuneration paid to karta was therefore the income of the Hindu undivided family and it cannot be said. on the facts found in the case, that the remuneration paid to Shri M. D. Dhanwatey was wi'.hout any detriment to the joint family property. It was also found that the share capital contributed l>y Shri M. D. Dhanwatey came from the joint family assets.

p. 87, margin A

The material fac.ts of the present case are almost identical with those in Shri V. D. Dhanwatey v. Commissioner of Income Tax, M.P. Nagpur(') judgment in which has been pronounced today. For the reasons elaborately set out in that case we hold that the decision of the question of law in the pres.en! case is governed by the decisions of this Court in The C.l.T. West Bengal v .. Kalu Babu Lal Chand(') and in Mathura Prasad v. C.l.T. U.P.(').

p. 87, margin D

We are accordingly of the opinion thai the question referred to the High Court was rightly answered against the assessee and this appeal must be dismissed with costs.

p. 87, margin E

Hegde, J. I agree With the conclusion reached by my learned brothers. For the reasons stated in my judgment in Civil Appeals 1372 and 1373 of 1966 (Shri V. D. Dhanwatey v. Commissioner of Income Tax, M.P., Nagpur) I am unable to subscribe to the observation in the majority judgment that the hlaterial facts of the present case are almost identical with those in Shri V. D. Dhanwatey v. Commissinner of Income Tax, M.P .. Nagpur. R.K.P.S. Appeal dismissed.

p. 87, margin F