The main legal point established in the judgment is the interpretation and application of the Income Tax Act, 1961, with a focus on the taxation of earnings received by a partner who is also the Karta of an HUF.

MADAN B. LOKUR, J.

( 1 ) THE following questions of law have been referred for our opinion under section 256 (1) of the Income Tax Act, 1961:-

"1]. Whether on the facts and in the circumstances of the case, the salary of rs. 4,800/- and commission of Rs. 3,737/- received by Shri Lachhman Dasss Bhatia from the firm M/s Chetan Dass Lachhman Dasss in which he was a partner as Karta of his HUF, is includible in the total income of the Assessee HUF"

2]. Whether, on the facts and in the circumstances of the case, the HUF was barred by Section 247 of Income Tax Act, 1961 from claiming in its Karta from the firm in which he was a partner in his representative capacity and so allocated to his share under Section 67 of Income-tax Act, 1 961, was not the real income of the HUF but was the individual income of the Karta""

( 2 ) A perusal of the second question reveals that there are some typing mistakes but essentially both the questions raise the issue whether the salary and commission received by Lachhman Dass Bhatia from the firm M/s chetan Dass Lachhman Dass in which he was a partner by virtue of being a Karta of a Hindu Undivided Family is includible in the total income of the Hindu undivided Family or the individual, that is, Lachhman Dass Bhatia.

( 3 ) WE find that the firm M/s Chetan Dass Lachhman Dass was constituted by a deed of partnership dated 23rd April, 1977. There are two partners in the firm, that is, Lachhman Dass Bhatia as a representative and Karta of M/s lachhman Dass Bhatia and Sons Hindu Undivided Family (the Assessee) with 50% share in the profit and loss of the firm and Sh. Anil Kumar Bhatia who happens to be the son of Lachhman Dass Bhatia having the balance 50% share.

( 4 ) IT is the case of the Assessee that Lachhman Dass Bhatia rendered services for which he was paid some remuneration by way of salary and by way of commission. The view expressed by the Income Tax Appellate Tribunal was that the salary and commission is required to be included in the hands of the HUF as a partner and that is basis of the questions of law referred for our opinion.

( 5 ) IN Prem Nath and Ors. vs. Commissioner of Income Tax (1970) 78 ITR 319, the Supreme Court considered several decisions on the question of remuneration received by a member of the HUF who has joined a partnership as representing the huf and in which the assets of the joint family are invested. The Supreme Court reviewed the case law and concluded that if there is a "real and sufficient" connection between the joint Hindu Undivided Family, who is the partner, and the remuneration paid, then the remuneration is taxable as the income of the HUF. On the facts of that case, it was held that since Prem Nath was a working partner and there was no evidence on record to suggest that the remuneration agreed to be paid was not for services rendered to the partnership, it was held that the income received by Prem Nath was remuneration for services rendered by him and not the HUF.

( 6 ) IN a subsequent decision rendered by this Court in Pannalal Girdharilal vs. Commissioner of Income Tax (1971) 81 ITR 624, the law laid down by the supreme Court was applied and it was noted that the Supreme Court had effectively brought out a clear distinction between the different capacities of the partner, one in which he represents the Hindu Undivided Family and the other in which he represents none but himself.

( 7 ) IN so far as the present case is concerned, we find that the investment of the HUF in the firm was about Rs. 47,000/- and that of Anil Kumar bhatia son of Lachhman Dass Bhatia was about Rs. 19,000/- as on 31st March, 1978. In other words, it is quite clear that the firm is really being run as a family concern with the investment of family funds.

( 8 ) QUITE apart from this, we find that the firm had filed an appeal before the Commissioner of Income Tax (Appeals) in respect of assessment year 1978-79 and in the order passed by the Commissioner on 4th March, 1982, it was not