Remuneration received by a member of a Hindu undivided family as an officer of a company or firm, in which the assets of the Hindu undivided family have been invested, is the individual income of the member and not the income of the Hindu undivided family.

JUDGMENT :

P.N. Bhagwati, J.

These two references arise out of assessments to income-tax made on the assessee for the assessment years 1960-61 to 1965-66 for which the relevant accounting years were the financial years ending on 31st March, 1960, to 31st March, 1965. The assessee in each reference is a Hindu undivided family. One Vidyasagar is the karta of the Hindu undivided family in Income-tax Reference No. 50 of 1970, while one Prafulkumar is the karta of the Hindu undivided family in Income-tax Reference No. 54 of 1970. Vidyasagar and Prafulkumar are the sons of one Jethabahi. Jethabhai had four sons, namely, Kantidev, Arvindkumar, Vidyasagar and Prafulkumar and they constituted a Hindu undivided family. This Hindu undivided family was disrupted by partition on 27th September, 1948, and the business, which was till then being carried on by it as joint family business, was converted into partnership business with Jethabhai and his four sons as partners. The partnership of Jethabhai and his four sons carried on the business but it ran into heavy losses and a large amount had to be borrowed by it from one Rambhai. Ultimately, the partnership was reconstituted by the admission of Rambhai as a partner and the reconstituted partnership came into being from 1st January, 1953. Rambhai was given a share of 25 per cent. in the profits and losses of the partnership while the shares of the other partners were 30 per cent. for Jethabhai and 11+ per cent. for each of the four sons of Jethabhai. Jethabhai and Rambhai both died in the year 1953, and the partnership was again reconstituted and the partners in the reconstituted partnership were the four sons of Jethabhai and Mahendrakumar, the son of Rambhai. The share of Mahendrakumar in the profits and losses of the partnership was four annas while the remaining twelve annas share was divided equally amongst the four sons of Jethabhai. It was common ground between the parties that each of the four sons of Jethabhai was a partner in the partnership as representing his Hindu undivided family and the amount of profit or loss coming to the share of each of them was treated as belonging to his Hindu undivided family. This state of affairs continued for about 3+ years until a private limited company was floated by the four sons of Jethabhai and Mahendrakumar for the purpose of taking over the business of the partnership. The name of the company was N.S.P. Straw and Paper Products Private Ltd. and it was incorporated on or about 1st August, 1957. The company had an issued share capital consisting of 1,200 shares of the face value of Rs. 1,000 each and in consideration of taking over the business of the partnership, the company allotted 300 shares to Mahendrakumar and 225 shares to each of the four sons of Jethabhai. The first directors of the company were appointed by article 18 of the articles of association of the company and they were Kantidev, Vidyasagar, Prafulkumar and Mahendrakumar, and Arvindkumar who, it appears, had by that time become a medical practitioner, was appointed an alternate director of Prafulkumar. It was provided in article 18 that each of these four directors shall be a permanent director until he dies, resigns or becomes incapable of acting. Article 19 provides for remuneration of directors and it was in the following terms :

"19. (a) The remuneration of each director shall be such sum not exceeding Rs. 100 (one hundred rupees) for every meeting of the board attended by him as may be decided from time to time by the board of directors.

(b) If any director being willing shall be called upon to perform extra services for the purposes of the company, the company shall remunerate such director or directors (including managing director) by a fixed sum as may be determined by the directors from time to time."

2. The parenthetical clause "including managing director" was added in article 19, clause (b), because Kantidev was designated as managing director in article 18. There was n