Satyanarayana Rao, J. - The short question that arises for consideration in this reference is whether the managing agency commission earned by one Murugappa Chettiar is assessable to income-tax as the joint family income of Murugappa and his sons. The question formulated in this reference is as follows: “Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the proportionate income of the managing agents Messrs M. Nanjappa Chettiar and Sons was the income of the Hindu undivided Family of Murugappa Chettiar and not the individual income of the karta?”,

The facts relevant for the disposal of this reference may be shortly stated: On the 12th of May, 1932, Murugappa Chettiar and his brother Chikkanna Chettiar entered into a managing agency agreement with the Dhanalakshmi Mills, Ltd., whereunder Messrs. Nanjappa Chettiar and Sons, the name of the firm of which the two brothers are partners was appointed managing agents of the company subject to certain conditions and rights enumerated in the agreement. The two brothers, at the time when the agreement was entered into, were admittedly members of a Hindu joint undivided family. On the 7th February, 1941, the two brothers, Murugappa and Chikkanna, became divided and the partition is evidenced by a partition deed of that date. The partition was between Murugappa on the one hand and Chikkanna on the other and there was also a division inter se between Chikkanna and his sons. Murugappa also had sons but there was no division inter se between Murugappa and his sons. Murugappa seems to have obtained a deed of release on the 2nd April, 1941, from his sons, but that release may be left out of consideration as no argument is now based on the strength of that release. The partition deed made no reference to the rights under the managing agency agreement; nor was there any fresh agreement after partition between Dhanalakshmi Mills and the firm. The firm continues to manage the company and in the year of account 1942-43, Murugappa, for his share of the managing agency commission, obtained a sum of Rs. 26,607. This sum was treated by the income-tax officer as income of the joint family and was assessed as such overruling the objection of Murugappa that it was really his individual income and should not have been included in the income of the joint family. This decision was upheld by the Appellate Assistant Commissioner and also by the Appellate Tribunal. Hence this reference.

Undoubtedly on the date of the assessment, Murugappa and his sons were members of a Hindu joint family and Murugappa, the father, is no doubt also the karta of that family. The commission earned by Murugappa as managing agent under the managing agency agreement above referred to can be established to be joint family property in ore of two ways: (1) either by establishing that the managing agency agreement was in fact obtained on behalf of the joint family and that therefore the commission earned under that agreement must be deemed to be property of the family; or (2) by establishing that the income was earned by utilising joint family property or joint family money or at any rate by utilising the property of the joint family to its detriment. If none of these is established, it must be presumed that the managing agency commission earned by Murugappa is his separate and individual property and not property of the joint family.

Mr. Rama Rao Sahib, learned counsel for the Income-tax Commissioner, tried to sustain the decision of the Appellate Tribunal on those two grounds. We may here dispose of the basis of the decision of the Appellate Tribunal as it is now conceded and indeed it cannot be sustained-that merely because in the previous years Murugappa did not object to the assessment of this commission as income of the joint family, the income during the assessment year also must be treated as the income of the joint family. It is rather difficult to see on what principle the Appellate T

Click Here to Read the rest of this document