Judgment

SHAH, J.:- P. N. Krishna Iyer-hereinafter called the assessee-set up in 1923 a motor transport business in the former State of Travancore. In 1945 there arose disputes between the assessee and his brothers about the division of the estate of the joint family of which they were members. The disputes were settled by mutual agreement dated October 23, 1951 and the motor transport business together with the "wrokshop, stores, agency, cinema companies etc." were treat as the business of the joint family, and on partition were allotted to the assessee. An application filed by the assessee before the 1st Additional Income-tax Officer, Trichur, for recording the partition was accepted.

2. In the meantime on July 3, 1952, a private limited company P. S. N. Motors (Private) Ltd. was floated with the object of taking over the motor transport business carried on by the assessee. By the Articles of Association, the assessee was to be the Governing Director of the Company for life and to draw such remuneration and exercise such powers detailed in the agreement to be entered into between him and the company in that behalf, and so long as he held the office of Governing Director, the general management of the company s business was to remain in his hands. The assessee purchased 100 shares of the Company of the face value of Rs. 100 each. On August 18, 1952, the assessee was appointed by the Company Governing Director with an officer allowance of Rs. 3,000 per mensem and a commission of 15 per cent on the net profit. On the same day the Directors approved the purchase from the Hindu undivided family of the assessee of assets (but not the liabilities) of the transport business valued at Rs. 8,01,074/1/4. In the books of the Company credit entries were posted in the name of the Hindu undivided family. On August 18, 1952, the Directors passed certain resolutions relating to the repayment of the amount due to the Hindu undivided family. On September 28, 1952, the Company passed a special resolution that in consideration of the "valuable services" rendered by the assessee in the promotion of the Company and of the "large sacrifices" made by him in agreeing to place his services at the disposal of the company and the benefit that the company received on account of his "long experience, goodwill and reputation in this line of business," the assessee be allotted 4880 fully paid up shares of the Company.

3. The Income-tax Officer brought to tax in the assessment year 1954-55 the remuneration received by the assessee from the Company together with the commission, "sitting fee" and income from property, business and other sources as the separate income of the assessee. The Appellate Assistant Commissioner modified that order, and directed that the income from salary, commission and "sitting fee" received from the Company be included in the assessment of the Hindu undivided family. The Income-tax Officer then carried out the direction and included the income from property, business and other sources in the total income of the Hindu undivided family and made corresponding modifications in the assessment of the assessee as an individual.

4. But the Commissioner of Income-tax being of the opinion that the order passed by the Income-tax Officer was wrong and prejudicial to the interests of revenue revised the order of the Income-tax Officer exercising power under Section 33B of the Income-tax Act, 1922, and included the income from salary, commission and "sitting fee" aggregating to Rs. 43,240 in the total income of the Hindu undivided family. In appeal against the order, the Tribunal reversed the order of the Commissioner and ordered that the three items be excluded from the assessment of the Hindu undivided family.

5. At the instance of the Commissioner of Income-tax, the following question was referred by the Tribunal to the High Court of Kerala :

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the