Judgment

HEGDE, J: The question of law arising for decision in these appeals by certificate under S. 66A (2) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the Act) is:

"Whether on the facts and in the circumstances of the case, the managing director s remuneration received by Sri Rajkumar Singh was assessable in his individual hands and not in the hands of the assessee Hindu Undivided Family?"

2. This question was referred by the Income-tax Appellate Tribunal, Bombay Bench A to the High Court of Judicature at Bombay (of M. P.?) on an application made under S. 66 (1) of the Act by the Commissioner of Income-tax Madhya Pradesh. The High Court has answered that question in favour of the Revenue. As against that decision this appeal has been brought.

3. The assessee in this case is a Hindu Undivided Family and the concerned assessment year is 1954-55, the relevant accounting period being the year ending Diwali 1953 i.e. November 6, 1953. Previously a Hindu Undivided Family was carrying on business under the name and style of Sarupchand Hukamchand. That family was carrying on several businesses one of which was the management certain mills. That family disrupted on March 30, 1950. The assessee is the branch of that family. On March 31, 1950, a company under the name and style of Sarupchand Hukumchand Private Ltd. was incorporated. The capital of the company consisted of Rs.5 crores divided into 20,000 preference shares of Rs. 1000 each and 3,000 ordinary shares of Rs. 1000 each. The company itself was incorporated for the purpose of acquisition from M/s. Sarupchand Hukumchand, certain managing agencies, businesses, factories and properties and for that purpose to enter into an agreement with the said firm and to carry on business as managing agents of Rajkumar Mills Ltd., the Hukumchand Mills Ltd. and the Hira Mills Ltd. and the other businesses mentioned more particularly in the Memorandum of Association of the company. The first Directors of the company were:

(1) Sir Hukumchand Saroopchandji

(2) Rajkumarsingh Hukumchand ji

(3) Lady Kanchanbai Hukamchand ji

(4) Mrs. Premkumaridevi Rajkumarsinghji

(5) Raja Bahadursingh Rajkumarsinghji

(6) Rustomji Cowasji Jall.

4. The qualification prescribed for a director under Art. 53 was the holding of at least 10 shares in the company whether preference or ordinary or partly preference or partly ordinary. Article 55 provided that the Directors may from time to time appoint one or more of their body to the office of managing Director or manager on such terms and at such remuneration as may be determined by the Directors. In pursuance of the powers conferred on them under Art. 55, the Directors by their resolution dated March 31, 1950 appointed for the purpose of management of the business of the company Sir Hukumchand Rajbahadur, Rajkumar and Rajabahadur as managing Directors of the company on a remuneration of Rs. 5,000/per month for each of them for their services. Under Art. 63, the Directors were given certain powers for the management of the company. They were subject to the control of the Board of Directors. The three branches of the original Hindu Undivided Family namely the branches of Sir Seth Hukumchand, Lady Kanchanbai and Sri Rajkumar were allotted 5000 shares of the face value of Rupees 1000/- each. The assessee s branch represented by its Karta got 5000 shares. Rajkumar acquired 30 further shares in the name of his wife, Prem kumari and 10 shares in the name of Rajabahadur. The consideration for all these subsequent acquisitions was found admittedly from the Hindu Undivided Family funds. All the 5030 sharer were treated in the books and the balance sheet of the assessee family as its property. The dividends in respect of these shares were also credited to the account of the family. Sir Hukumchand died and after his death the other two continued to be the managing Directors. For the years 1951-52, 1952-53 and 1953-54, the receipt of this Rs. 5,000/- per month received