M/S. Y. L. Agarwalla And Ors. vs Commissioner Of Income -Tax, Central, Calcutta

1064 represent the Hindu Undivided Family in the firm and in the absence of any finding that there was any agreement between the surviving partners and any one on behalf of the heirs of Yudhisthir Lal to the effect that the Hindu Undivided Family was to continue to be the real owner of the shares given to the minors neither the Tribunal nor the High Court could come to the conclusion that the share income allocated to the three minors amounting in aggregate to Rs. 3,08,187 for the period from 19-12-1967 to 31-8-1968 was liable to be assessed as the income of the Hindu Undivided Family. On the other hand, on behalf of the Revenue it was urged by the learned Attorney General that where a minor had been admitted to the benefits of the partnership it was not necessary to show that he was either the benamidar or nominee of the Hindu Undivided Family in the partnership firm for the purpose of assessing his share of profit in the firm as income of the Hindu Undivided Family but the real test was whether such share income was earned with the aid and assistance of the Hindu Undivided Family funds and the Hindu Undivided Family had suffered any detriment in the process of realisation of such income, in fact, he urged that the question had to be viewed from the broader principle, namely, whether the share income received by minor coparcener was by way of. return made to the family because of the investment of family funds in the business and if that was so it would be the income of the Hindu Undivided Family. In this behalf reliance was placed by the learned Attorney General upon the principles enunciated by this Court in its two decisions, namely, Dhanwatey's, case and Raj Kumar's case (supra). He pointed out that since in the instant case the three minor sons of Yudhisthir Lal had been admitted to the benefits of the partnership there was no question of any remuneration, commission, fees or salary being paid to any one of them for rendering any services to the firm, and therefore, having regard to clause 6 of the new deed of partnership dated January 11, 1968, the direct nexus between the share income allocated to the minors and the utilisation of the capital amount belonging to the Hindu Undivided Family was established and what was more such capital amount of the Hindu Undivided Family was permitted to be retained and utilised by the firm to the detriment of the Hindu Undivided Family since such retention or user of the said capital amount was free of interest and, therefore, the share income allocated to the three minor sons had been rightly assessed as income of the assessee Alternatively, he urged that though no formal finding had been recorded by- the Tribunal the facts and circumstances obtaining in the case furnished. clear material leading to-the only inference that the admission of the three minors to the benefits of the partnership on the terms contained in the new deed was not without t he assent and agreement of the widow who was a natural guardian of the three minors though she bad not formally executed the deed.. Therefore, no fault could be found with the ultimate conclusion drawn by the Tribunal and the High Court.

Having regard to the rival contentions urged by counsel on either side, which we have summarised above, it will be clear that the ques-

1065 tion which really falls for our determination in this case is whether the share of profits or income allocated and received from the partnership firm for the period from December 19, 1967 to August 31, 1968 by the three minor sons who were admitted to the benefits of the partnership is really the individual income of the minors or that of the Hindu Undivided Family ?

Dealing with the factual aspect of the question we shall first indicate the broad and undisputed facts that emerge clearly on the record. Admittedly, deceased Yudisthir Lal represented the Hindu Undivided Family as its Karta in the firm of M/s Grand Smithy Works right up to the time of his death and his share of 36% in the profits of the firm was always assessed as the income of the Hindu Undivided Family. It is not disputed that on his death on December 19, 1967 the family continued to be joint, and as per clause 13 of the partnership deed dated September 20, 1961, the heirs of Yudhisthir Lal were given the option of joining the partnership firm but by two letters b6th dated January 11, 1968, the widow and the four major daughters declined the offer; instead the three minor sons were admitted to the benefits of the partnership each one getting 14% share in the profits and a new deed of partnership dated January II, 1968 was executed by surviving partners having retrospective effect as from December 19, 1967. Since strong reliance was placed by counsel for the appellant on these two letters of disclaimer it would be desirable to note what exactly was disclaimed under these two letters.The four major daughters categorically stated that "we do not intend to exercise our option to become partners and declined to be partners with you in M/s Grand Smithy Works". The widow stated : "Now I am a widow with minor sons and minor daughters. I already understand that the amount of capital lying to the credit of H.U.F. in the firm exceeds the liability of the H.U.F. In the circumstances I am not willing to join the partnership business of my behalf and on the behalf of the H.U.F." It will thus be clear that by these two letters all that the widow and the daughters did was that they declined to become partners in the firm presumably because none wanted to take the risk of being held liable for the losses the firm might incur, but it would be significant to note that none of the heirs disclaimed or relinquished his or her right to claim the share, right, title and interest of deceased Yudhisthir Lal in the partnership firm and its assets. In fact no demand for the return of the capital amount lying to the credit of Yudhisthir Lal's account, which admittedly stood at Rs. 10,00,000, was made by any of the heirs from the date of Yudhisthir Lal's death till the date of the new deed; on the other hand clause 6 of the new deed runs thus :

"6. That the capital of the partnership shall be the amount as will be found to the credit of the Parties Hereto of the first (Shiv Charan Laul), Second (Ram Gopal Garodia) Third (Tola Ram Budhia) Parts and the said Yudhisthir Lal Agarwalla since deceased."

1066 What is more, there is no provision for payment of interest on the respective amounts of capital lying to the credit of three surviving partners and the deceased Yudhisthir Lal. In our view clause 6 is a tell-tale clause which carries its own tale that this new partnership agreement containing such a term could not have come about without the assent and agreement on the part of the widow on behalf of the Hindu Undivided Family.

Further the factual interest-free retention and utilization of the said capital amount of the Hindu Undivided Family by the Firm for the entire relevant period i.e. from December 19. 1967 to August 31, 1968-presumably pursuant to the said clause--clinches s the said inference. It is true that the widow is not a signatory to the new deed of partnership; it is also true that the three minor sons could not in law be regarded as the nominees or benamidars of the Hindu Undivided Family in the firm, but the facts and circumstances discussed above, especially the incorporation of a term like clause 6 in the new deed and the factual interest-free retention and utilization of the Hindu Undivided Family's Funds for the relevant period by the firm clearly lead to the inference that the new partnership under the deed dated January 11, 1968 was brought about with the tacit assent and agreement on the part of the widow representing the Hindu Undivided Family and that the quid pro quo for admitting the three minor sons of Yudhisthir Lal to the benefits of the partnership was the continued free of interest use of the capital amount lying in Yudhisthir Lal's account for the firm which was ensured to it by clause 6. In these circumstances there was direct and substantial nexus between the share income earned by and allocated to the three minor sons and the family-funds that remained with and were utilized by the firm and hence the share income would not be their individual income but the income of the Hindu Undivided Family. Turning to the legal aspect of the question it is unnecessary to refer to the several decisions cited at the bar but a reference to only one decision of this Court in Raj Kumar's case (supra.) will suffice. It is true that the question that arose for determination before this Court in that case was whether th e Managing Director's remuneration received from the company by the Karta of a Hindu Undivided Family was assessable to tax as his individual income or as the income of Hindu Undivided Family. But this Court, after discussing the entire previous case law on the subject laid down certain tests land guide lines which would cover the question raised in the appeal before us. From the earlier decisions this Court culled out some Jr tests which were described as subsidiary tests or subsidiary principles and then indicated a broader test or, principle which would be of general application. At pages 43-44 of the report, this Court has observed thus :-

"The other tests enumerated are:

(1) whether the income received by a coparcener of a Hindu Undivided Family as remuneration had any real connection with the investment of the joint family funds;

1067 (2) whether the income received was directly related to any utilization of family assets; (3) whether the family had suffered any deteriment in the process of the family funds; and (4) whether the income was received with the aid and assistance of the family funds.

In our opinion from these subsidiary principles, the broader principles that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu Undivided Family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu Undivided Family."

In the instant case the question raised before us gets easily answered by applying the subsidiary principles indicated at Nos. 2, 3 and 4 above as well as by applying the broader principle indicated above. There can be no doubt that the share income that was received by the three minor sons during the relevant period was earned with the aid and assistance of Hindu Undivided Family Funds and was directly related to the utilization of such funds by the firm and further that Hindu Undivided Family had suffered detriment in the process of realisation of such income inasmuch as the capital amount, lying to the credit of deceased Yudhisthir Lal was utilized by the firm free of interest. Further in this case there was no question of any services being rendered by the three minors and therefore the share income received by them must, in substance, be regarded as a return made to the family because of the investment of family funds in the business. In our View. therefore, the taxing authorities as also the Tribunal and the High Court were right in assessing the said income in the, bands ,of the Hindu Undivided Family assessee. The appeal is, therefore, dismissed with costs.

S. R. Appeal dismissed. 1068