K.S. SUBBIAH PILLAIversusTHE COMMISSIONER OF INCOME TAX

A                         K.S. SUBBIAH PILLAI
                                   v.
                   THE COMMISSIONER OF INCOME TAX

                                 MARCH 10, 1999
B
                [S.P. BHARUCHA, S.S. MOHAMMED QUADRI
                           AND R.C. LAHOTI, JJ.)

           Income Tax Act, 1922/lncome Tax Act, 1961 :

c            Hindu Undivided Family-Remuneration and Commission eamed by
       Karta-lncome Tax Appellate Tribunal, recording a finding that the
    ·. remuneration and commission earned by Karta were 011 account of his
       personal qualifications and exertions-Held, the amounts cannot be treated
       as income of HUF.
D
        Appellant assessee, a Hindu Undivided Family was assessed in State
  of Tamil Nadu for the assessment years 1959-60 to 1965- 66, 1969-70 and
  1970-71 and in the State of Andhra Pradesh for the assessment years
  1966-67 to 1968-69. The question whether the remuneration and commis-
  sion received by the Karla was assessable in the hands of the assessee
E Hindu Undivided Family, was referred to the High Court at Madras. A
  similar question was referred to the Andhra Pradesh High Court with
  regard to the assessment years 1966-67 to 1968-69. The Andhra Pradesh
  High Court answered the reference in favour of the assessee and the
  Revenue did not file any appeal in that case. The High Court at Madras
F dissented from the view of the Andhra Pradesh High Court and held                ..
  against the assessee. Aggrieved, the assessee filed the present appeals.

           Allowing the appeals, this Court

          HELD : 1.LThe broad principle that emerged, as rightly concluded
G by the High Court, was whether the remuneration received by the copar-
   cener was in .substance 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 compensation made for services rendered by the individual copar-
   cener. If it was the former, it was the income of the HUF; but if it was the.
H 'iatter, then it was the income of the individual coparcener. [982-C]
                                        980
Jr

                  KS. SUBBIAH PILLAI v. C.l.T. (BHARUCHA, J.]               981

...         1.2. The High Court failed to take into consideration the finding      A
      recorded by the Income Tax Appellate Tribunal, which is the final fact
      finding authority, that the remuneration and commission that were earned
      by the Karta of the HUF were earned by him on account of his personal
      qualifications and exertions and not on account of the investment of the
      family funds in the company. Therefore, the income could nol. be treated
      as the income of the HUF. [982-E]
                                                                                   B

            CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 877-885
      of 1991.

           From the Judgment and Order dated 11.3.82 of the Madras High
      Court in T.C. No. 791-94 and 825-29 of 1977.
                                                                                   c
           Uttam Reddy, AV. Rangam and A Ranganathan for the Appellant.

            K.N. Shukla, T.C. Sharma for B.K. Prasad for the Respondent.
                                                                                   D
 ..         The Judgment of the Court wad delivered by

            BHARUCHA., J. In these appeals filed by the assessee, which is a
      Hindu Undivided Family, we are concerned with the Assessment Years
      1959-60 to 1965-66 and 1969-70 and 1970-71. The question that we are
      required to consider reads thus:                                             E
                  "Whether, on the facts and in the circumstances of the case,
              the remuneration and commission received by Sri K.S.Subbiah
              Pillai was assessable in the hands of the assessee Hindu Undivided
              Family?
                                                                                   F
            It may be mentioned at the outset that the same assessee was
      assessed in Andhra Pradesh for the Assessment Years 1966-67 to 1968-69.
      The same question arose in regard to those assessments. The question was
      answered on reference by the High Court of Andhra Pradesh in favour of
      the assessee and the Revenue did not carry the matter further.
                                                                                   G
            The judgment, of the Andhra Pradesh High Court afore-mentioned
      was cited before the High Court at Madras "in the reference proceedings
 ;.   out of which these appeals arise but the Madras High Court dissented
      therefrom. It dilated at length on Hindu Law but, with great respect,
      missed the point that the Income Tax Appellate Tribunal is the final         H
                                                                                  \.


    982                  SUPREME COURT REPORTS                  [1999] 1 S.C.R.
A fact-finding authority and, as it has itself noticed in the judgment under
    challenge, the Tribunal had held that the remuneration and commission
    received by the Karta of the HUF were earned by him on account of his
    personal qualifications and exertions and not on account of the investment
    of the family funds in the company and, therefore, could not be treated as
    the income of the HUF.
B
          The High Court, having analysed the law, rightly concluded that the
    broad principle that emerged was whether the remuneration received by
    the coparcener was in substance one of the modes of return made to the
    family because of the investment of the family funds in the business or
C   whether it was compensation made for services rendered by the individual
    coparcener. If it was the former, it was the income of the HUF: but if it
    was the latter, then it was the income of the individual coparcener. Apply-
    ing this test, the High Court held, "There is absolutely no evidence to
    support the contention of the learned counsel for the assessee that the
    development of the business was due to any peculiar qualification or
D   experience on the part of the assessee. "

          We cannot agree. Having analysed the law, as "it did correctly, the
    High Court should have taken note of the finding recorded by the Tribunal
    and noticed by it earlier, namely, that the remuneration and commission
E   that were earned by the Karta were earned by him 011 account of his
    personal qualifications and exertions and not on account of the investment
    of the family funds and, therefore, should have held that the -income could
    not be treated as the Income of the HUF.

          In the result, the appeals are allowed. The judgment and order under
p   appeal is set aside. The question is answered in the negative and in favour
    of the assessee. No order as to costs.

    R.P.                                                     Appeals allowed.