# "/ 105 9 M/S Y. L. AGARWALLA AND ORS v. CQMMISSIONER OF INCOME TAX, CENTRAL, CALCUTTA

- **Citation:** [1978] 3 S.C.R. 1059
- **Court:** Supreme Court of India
- **Decided:** 1978-07-27
- **Bench:** P. N. Bhagwati, V. D. Tulzapukar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/105-9-m-s-y-l-agarwalla-and-ors-v-cqmmissioner-of-income-tax-central-calcutta-7456
- **Pages:** 9

## Headnote

Hindu (Jndivided F'ami!y Finn-Karla having 36% shares as one of
the
partners of partnership firm and after his death his widow and three daughters
di!Clined to continue in the partnership, but his three 1ninor sons were adniitted
into. part1iership with lll% shares each under a new deed-Clau~e 6 of t/Je new
di.ted ensure to !he firn; the continued use of tlze capital of Hindu Undivided
Eamily standing in the account of the 1ninors' late father, free of intercstJt'hethcr the share inco111c of three n1i11or sons frvnl the partnersbip firm liable
to be assessed as tlte incon1e of Hindu Undivided Fa1nily ?
One Yudhisthir Lal Agar¥iala, since deceased, was the Karta of a Hindu
Undivided Family kno"'n as !\.1/s. Y. L. Agarwala & Co. and \Vas assessed to
tax as such, including h;:s 36% share income from the Partnership firm known
as 'M/s. Grand Smithy \Vorks'. After his death on 18-12-1967, his surviving
wifQ qnd three major dt;.ughters by t\vo letters dated January 11, 1968 declined
t0,. exercise the option n:served, under clause 13 of the Partnership deed dated
2.0~9.-1961 and refused to join the Partnership business, however his three minor
sons were admitted to the benefits of the partnership.
Under the· new partnership deed, the minor sont1 were given 14o/o share each with a right to become a
fulb fledied partner on altaining majority. Clause 6 of the deed ensured to the
fil:Db the-. continued use of the capital of Hindu Undivided Family standing in
tftli ~unt of late Yudnisthir Lal, free of interest.
In the return. filed by the 'vidow representing the H.U.F. for the relevant
accounting period 1-9-67 to 31-8-68 i.e. the assessn1ent year 1969-70, the share
of the income from 11/s. Grand Smithy Works was shown only from 1-9-67
to 18~12-67 i.e. npto the date when Yudhisthir was alive and \Vas a partner in
that firm, claiming that w.c.f. 19-12-67, the Hindu Undivided Family had no
io.t,e;rest in the said firm and that her minor sons were ad1nitted to the benefits
o;f. JWrtnership in their individual and personal capacity and therefore their share
qf.tRs. 3,08,187/- could not be included. The 1ncome Tax Officer negatived that
c.o.utention and held that the shares of the minor sons were assessable in the
han<ls of the Hindu Undivided Fa1nily. The Appellate Assistant Commissioner
on appeal and tQ.e Tribunal in further appeal confirmed it.
On a reference the
High Court also answered against the assessee.
Di&~sing the appeal by special leave the Court
_,/-,
HELD : (1) In Rajk1011ar Singh Huku1nchandji v. Co111missio11er of lncorne
T,a.x,.J. M1P. (78 1.T.R. 33) though the question that arose for aetermination was
whether the 1-Ianaging Director's remuneration received from the Company by
th£,. Karta. of a Hindu Undivided Family was assessable to tax as his individual
iJ¥;.Q~ or as·, the income of Hindu Undivided F~mily, certain subsidiary tests. as
a1$>1 bro.ader- principle of ~~eneral applicability were laid down.
'fh~y are :
11(1) Whether the income received, by a coparcener of a Hi:hdu Undivided
Family as remuneration had any real· connection with. the investment
of the joint family funds;
(Z) whether the income re:ceived was directly related' to any utilization
of family asset8;
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(3)' whether the family had. sulfured' any detriment in the process· of the
faw.ily funds; and
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( 4) whether the income wa& received with the aid and· aesistance of the
family funds, and
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1060
SUPREME CUURT REPUR1S
[J978J 3 S.C.R.
(5) The broader principle is v.1hether the rc111uneration 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 \Vas essentially earned as a resu

## Text

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105 9
M/S Y. L. AGARWALLA AND ORS.
v.
CQMMISSIONER OF INCOME TAX, CENTRAL, CALCUTTA
July 27, 1978
[P. N. BHAGWATI AND V. D. TULZAPUKAR, JJ.]
Hindu (Jndivided F'ami!y Finn-Karla having 36% shares as one of
the
partners of partnership firm and after his death his widow and three daughters
di!Clined to continue in the partnership, but his three 1ninor sons were adniitted
into. part1iership with lll% shares each under a new deed-Clau~e 6 of t/Je new
di.ted ensure to !he firn; the continued use of tlze capital of Hindu Undivided
Eamily standing in the account of the 1ninors' late father, free of intercstJt'hethcr the share inco111c of three n1i11or sons frvnl the partnersbip firm liable
to be assessed as tlte incon1e of Hindu Undivided Fa1nily ?
One Yudhisthir Lal Agar¥iala, since deceased, was the Karta of a Hindu
Undivided Family kno"'n as !\.1/s. Y. L. Agarwala & Co. and \Vas assessed to
tax as such, including h;:s 36% share income from the Partnership firm known
as 'M/s. Grand Smithy \Vorks'. After his death on 18-12-1967, his surviving
wifQ qnd three major dt;.ughters by t\vo letters dated January 11, 1968 declined
t0,. exercise the option n:served, under clause 13 of the Partnership deed dated
2.0~9.-1961 and refused to join the Partnership business, however his three minor
sons were admitted to the benefits of the partnership.
Under the· new partnership deed, the minor sont1 were given 14o/o share each with a right to become a
fulb fledied partner on altaining majority. Clause 6 of the deed ensured to the
fil:Db the-. continued use of the capital of Hindu Undivided Family standing in
tftli ~unt of late Yudnisthir Lal, free of interest.
In the return. filed by the 'vidow representing the H.U.F. for the relevant
accounting period 1-9-67 to 31-8-68 i.e. the assessn1ent year 1969-70, the share
of the income from 11/s. Grand Smithy Works was shown only from 1-9-67
to 18~12-67 i.e. npto the date when Yudhisthir was alive and \Vas a partner in
that firm, claiming that w.c.f. 19-12-67, the Hindu Undivided Family had no
io.t,e;rest in the said firm and that her minor sons were ad1nitted to the benefits
o;f. JWrtnership in their individual and personal capacity and therefore their share
qf.tRs. 3,08,187/- could not be included. The 1ncome Tax Officer negatived that
c.o.utention and held that the shares of the minor sons were assessable in the
han<ls of the Hindu Undivided Fa1nily. The Appellate Assistant Commissioner
on appeal and tQ.e Tribunal in further appeal confirmed it.
On a reference the
High Court also answered against the assessee.
Di&~sing the appeal by special leave the Court
_,/-,
HELD : (1) In Rajk1011ar Singh Huku1nchandji v. Co111missio11er of lncorne
T,a.x,.J. M1P. (78 1.T.R. 33) though the question that arose for aetermination was
whether the 1-Ianaging Director's remuneration received from the Company by
th£,. Karta. of a Hindu Undivided Family was assessable to tax as his individual
iJ¥;.Q~ or as·, the income of Hindu Undivided F~mily, certain subsidiary tests. as
a1$>1 bro.ader- principle of ~~eneral applicability were laid down.
'fh~y are :
11(1) Whether the income received, by a coparcener of a Hi:hdu Undivided
Family as remuneration had any real· connection with. the investment
of the joint family funds;
(Z) whether the income re:ceived was directly related' to any utilization
of family asset8;
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(3)' whether the family had. sulfured' any detriment in the process· of the
faw.ily funds; and
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( 4) whether the income wa& received with the aid and· aesistance of the
family funds, and
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D
1060
SUPREME CUURT REPUR1S
[J978J 3 S.C.R.
(5) The broader principle is v.1hether the rc111uneration 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 \Vas 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 lS
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".
[1066 F-H, 1067 A-DJ
In the instant case the t<lxing authorities as well as the Tribunal and the
High Court were right in assessing the said income in the hands of the Hindu
Undivided Family asscssee.
[1067 G]
·
(a) Applytng the subsidiary principles Nos. 2, 3 and 4 it will be clear that
the share income that \vas received by the three minor sons durjng 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 realization
of such income inasmuch JS tb~ capital amount lying to the credit of deceased
Yudhistair Lui was utilized by the firn1 free of interest. [1067 E-F}
(b) There ¥.ras no question of any services being rendered by the three minor
sons and therefore applying the broader principles 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. [1067 F]
Rajkun1ar Singh fluk111ncha11dji v. Conzmissioner of lncon1e Tax, M,P. 78
E,
J.T.R. 33; applied.
G
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P. D. Dhanwatey v. C./.T., M. /'., 68 J.T.R. 365; explained.
(c) There was direct and ~;ubstantial nexus between the share incon1e earned
by and allocated to the three minor sons and the family funds th<it remained
with and were utilized by the firm and hence the share income would not be
their individual income but ti.1e
income of the
Hindu
Undivided
Family.
[1066 D-E]
(i) It is clear that by the two letters dated January 11, 1968 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.
[1065 E-G]
(ii) Clause 6 is a tell-tale clause which carries its O\Vn tale that this new
· 1artnership 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 Hinlu Undivided Family. [1066 A]
(Iii) the factual interes~-free retention and utilization of the said capital
amount of the H"ndu Undivided Family by the Firm during the
entire relevant period i.e. from December 19, 1967 to _i.\ugust 31,
1968-presumably pursuant to the said clause-clinches the said
inference, It is true that the widow is not a signatory to the new
deed of pnrtner'>hir; it is also true that thC' three minor 'ions could
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AGA:RWALLA v. C.l.T. CENTRAL CALCUTTA (Tulzapurkar, J.)
106 l
CIVIL
1976.
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 1Sons 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 'vas
ensured
to it by clause 6. [1066 B-E]
APPELLATE JURJSD!CRION : Civil Appeal No. 1112
of
Appeal by _Special Leave from the Judgment and Order dated
23-3-76 of the Calcutta High Court in I.T.R. No. 206 of 1973.
S. T. Desai, V. D. Desai, Sanjay Bhattacharya, P. K. Dhar, Sardar
Amzad Ali and Rathin Das for the Appellant.
S. V. Gupte, Attorney GeneraL R. N. Sachthey, K. C. Dua and
Miss A. Subhashini for the Respondent.
The Judgment of the Court was delive.red by
TULZAPURKAR, J,-This appeal by special
leave
raises
an
important question as to whether the sum of Rs. 3,08,187, being the
share income of three minor sons from the firm of M/s. Grand
Smithy Works for the period from 19-12-1967 to 31-8-1968
is
liable to be assessed as the income of the Hindu Undivided FamilyM/s. Y. L. Agarwalla & Company-for the assessment year 1969-70?
The facts giving rise to the question may briefly be stated
as
follows : One Yudhisthir Lal Agarwalla, since..cteceased, was the
Karla of a Hindu Undivided Family known as M/s Y. L. Agarwalla
& Co. (the Assessee herein).
During his life time in his capacity
, as the Karla of the said Hindu Undivided Family he carried on busi1 ness in partnership with three others (Shiv Charan Lau!, Ram Gopal
1•. Garodia and Tula Ram Budhia) in the name and style of M/s.
Grand Smithy Works.
His share in that firm was 36%.
Under
clause 13 of the Partnership Deed dated September 20, 1961, pursuant to which the said firm used to carry on its business, it was provided that "the death or retirement of any of the partners shall not
have the effect of dissolving this co-partnership; in such an eventuality
the co-partnership business may be carried on between the surviving
partners and the heirs/legal representatives of the deceased and or
retiring partner or if mutually agreed upon between the surviving
partners and heirs etc. of the deceased or retiring partner with outsiders also." Yudhisthir Lal died on December 18, 1967 leaving behind him his widow Smt. Bhagwati Devi, six daughters (three married
and three unmarried out of whom two were minors) and three minor
sons. By two letters both dated January 11, 1968, one addressed by
the widow on behalf of herself and the Hindu Undivided Family and
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1062
SUPREME COURT REPORTS
(1978] 3 S.c;.R.
the _Qther by the four major daughters, Smt. Bhagwati Devi and the
four major daughters declined to exercise the option reserved to them
under clause ( 13) of the deed and refused to join the partnership
business; however, the three minor sons were admitted -to the benefits
of !he partnership. Since Yudhisthir Lal died on December 18, 1967
i.e. before the expiry of the year of account of the firm which was
from 1-9-1967 to 31-8-1968, the firm closed its accounts on December 18, 1967 and the surviving partners after admitting the three
minor sons to the benefits thereof continued to carry on the busi1iess
of the partnership with effect from December 19,
1967 and a new
deed of partnership was executed by the surviving partners on January 11, 1968 the terms and conditions whereof were made effective
from December 19, 1967. Under this new deed -each one
of the
three minor sons of Yudhisthir Lal was given 14% share in the profits of the firm, as also a right to become a full-fledged parfiier on his
attaining majority. Clause 6 of the deed ensured to the firm the continued use of the capital of Hindu Undivided Family standing in the
account of late Yudhisthir Lal free of interest.
For the assessment year 1969-70, (the relevant accounting period
being 1-9-1967 to 31-8-1968) Smt. Bhagwati Devi Agarwalla filed
the return on behalf of Hindu Undivided Family disclosing the share
income from the firm of Grand Smithy Works for the period from
September 1, 1967 to December 18, 1967 only i.e. up to the date
when her husband was alive and was a partner in that firm.
It was
claimed that with effect from December 19, 1967 the Hindu Undivided
Family of which her husband was the Karla and after whose death
she was managing the affairs had no interest in the said firm and that
her three minor sons were admitted to the benefits of partnership in
their individual and personal capacity as agreed to between the three
surviving partners of that firm and, therefore, the share income of
the firm received by her three minor sons for the period December
19, 1967 to August".111, 196S amounting to Rs. 3,08,187, could not be
included in the income of the Hindu Undivided Family and assessed
as such.
The Income Tax Officer negatived that contention; he
noticed that in spite of the two letters of disclaimer addressed to the
surviving partners, the three minor sons of late Yudhisthir Lal Agarwalla had been admitted to the benefits of the partnership with collective shares of 42 % which was more than what their father was
holding at the time of his death and further that the Hindu Undivided
Family had not charged any interest on its capital amount which was
permitted to lie with the firm for which no explanation had been
offered by the assessee.
He, therefore, took the
view
that
the
family of late Yudhisthir Lal continued to have interest in the business of the firm and that the share of profit allocated to the three
minor sons really belonged to the Hindu Undivided Family and was
accordingly assessable in its hands.
On appeal, the Appellate Assistant Commissioner, by his order
dated March 24, 1971, confirmed the view of the Income Tax Officer.
The asse>see carried the matter in further appeal to the Appellate
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AGAR\VALLA v. C.l.T. CENTRAL CALCUTTA (Tulzapurkar, !.) 1063
Tribunal but the Tribunal also dismissed the appeal.
On a reference
the High Court following the principles and guidelines enunciated by
this Court in the case of Raj Kumar Singh Hukumchandji v.
Commissioner of lncome Tax, M.P. ('), in substance, held that the shares
that had been allocated to the three minor sons in the assessee Hindu
Undivided Family.
The assessee has come up in appeal to this Court
by special leave,
In support of the appeal counsel for the assessee raised two or
1hree contentions.
Jn the first place be urged that when a minor was
admitted to the benefits of a partnership bis share of profits of firm
would be his individual income unless it was shown by the Department
that in the firm he was really a benamidar or nominee of the Hindu
Undivided Family of which he was a member and in that behalf relying upon three undisputed circumstances it was urged that the Department had failed to disc_harge that burden.
Jn the fir?! place it was
pointed out that the Department had never doubted the genuineness
or bona fides of the transaction of the admission of the three minor
sons of Yudhisthir Lal to the benefits of the Partnership of M/s. Grand
Smithy Works with effect from December 19, 1967 under the new
deed of partnership dated January 11, 1968; it was further pointed
out that the said three minors did not and could not in law represent
the Hindu Undivided Family in the firm and thirdly, it was pointed
out that the minors had been admitted to the benefits of the partnership after Smt. Bhagwati Devi on behalf of the
Hindu Undivided
Family and the four major daughters had by their letters ofi disclaimer
<lated January 11, 1968 refused ID have any connection with
the
partnership busi:ness.
Jn spite of these three circumstances
the
Tribunal had, counsel contended, wrongly held that the minors were
either the benamidars or nominees of the Hindu Undivided Family
and that, therefore, the share income allocated to them was of the
Hindu Undivided Family. It was further contended that there was
no finding recorded by the Tribunal that there was any agreement
between the surviving partners and anyone on behalf of the heirs of
deceased Yudhisthir Lal to the effect that the
Hindn
Undivided
Family was to continue to be the real owner of the shares given to
the minors nor was there any evidence to that effect and since the
burden of proving any such transaction was on the Departtnent which
the Department had failed to discharge, the Tribunal as well_ as _ the
High Court had wrongly come to the conclusion that the shares allocated to the three minors constituted the income of the Hindu Undivided Family and was assessable as such in the hands of the Hindu
Vndivided Family.
According to him the decisions on the subject
of remmuneration, commission, lees or salaries earned by a Karla
and other members of a Hindu Undivided Family such as, for instance,
Dhanwatey's(2) case and Raj Kumar(') case could have no relevance
to the case of a minor admitted to the benefits of partnership.
He,
1herefore, urged that since the three minor sons could not in law
{I) 78 lT.R. 33.
{2) 68 lT.R. 365.
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1064
SUPREME COURT REPORTS
[1978] 3 S.C.R.
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
H~ 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 tp 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 remunerntion, commission, fees or salary being paid to
any one of them for rendering any services to the firm, and· tlrerefore,
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 th~J: the admission of the three minors to the benefits of the partnership on the terms
eontained in the new deed was not without the assent and agreement
of the widow who was a natural guardian of the three minors though
she had .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-
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AGARWALLA v. C.l.T. CENTRAL CALCUTTA (Tulzapurkar, !.)
1065
tion which really falls for our determination in this case is whether
A
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 ?
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' '
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 Jal were given the option of joining the partnership firm but by
two letters both 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
11, 1968 was executed by surviving partrrers 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
aod 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 dear 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
_;i,.
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 credi~ of the Parties Hereto
of the first (Shiv Charan Lau!), Second
(Ram Gopal
Garodia) Third (Tola Ram Budhia) Parts and the said
Yu<lhisthir Lal Agarwalla since deceased."
0
D
F
G
H
A
B
c
D
E
F
G
H
1066
SUPREME COURT REPORTS
(1978] 3 S.C.R.
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 en~re rele'\lant period i.e. from December
19. 1967 to August 31, 1968-presumably pursuant to the
said
clau·se-clinches the said inference. It is true that the widow is not
a signatory to· the new deed of partnership; it is also true tha't 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 ineorporaticin of
a term like
clau·se 6 in the new deed and the facfUal interest-free
retention and utilization of the Hip.du 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
ljbount with the tacit assent and agreement on the part of the widow
representing the Hindu Undivided Family at1d that the quid pro quo
for admitting the three minor sons of Yudhisthir Lal to the benefits of
the partnei:~hip was the continued free of interest use of the capital
amount lyirig in Yudhisthir Lal's account for the firm which was ensured to it by clause 6. In these circumstances there was direct and
~ubstantial nexus between the share income earned by and allocated
to the three minor sons and the family1unds 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
Farrii!y.
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 !ie!ore this
Court in that case was whether the Managing Director's remuneration received from the company by the Karla 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 Jaw on the subject laid down certain tests
and guide lines which wonld cover the question raised in the appeal
before us.
From the earlier decisions this Court culled out some
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;
t
+
)
l -
~-
-
··~
/
AGAR.WALLA v. C.I.T. CENTRAL CALCUTTA (Tulzapurkar, !.)
10 67
.)
(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 co!)lpensation made for the
services
rendere_d 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 tbe 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 hi3
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 answere<,I 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
A
B
c
D
E
and assistance of Hindu Undivided Family Funds and was directly related to the utilization of such funds by the firm and further
that
F
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.
G
In our view, therefore, the taxing authorities as also the Tribunal and
the High Court were right in assessing the said income in the hands·
of the Hindu Undivided Family assessee.
The appeal is, therefore, dismissed with costs.
S. R.
Appeal dismi~sed.