# V. 0. DHANWATEY v. THE COMMISSIONER OF INCOME TAX, M.P. NAGPUR

- **Citation:** [1968] 2 S.C.R. 62
- **Court:** Supreme Court of India
- **Decided:** 1967-10-26
- **Bench:** K. N. WANCllOO, R. S. BACllAWAT. V. RAMASWAMI, G. K. Mitter, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/v-0-dhanwatey-v-the-commissioner-of-income-tax-m-p-nagpur-4254
- **Pages:** 26

## Headnote

~nconu·-1ax~Hindu 11ndh·ided Fc.1nily-KarlQ as parlner <>/ fir111--also
1:e111ng salary as 111anagrr utrdfr partnt•rsliip de'"'ed-capita/
co11tributio11
11uiclt• by .~a1ni/y alone-if .i;;a/ar,v inco1ne of fanrily or of ind.\·idual pf.rtncr.
Tne appellant in Civil Appeals Sos. 13-72 and 1373, was a Hindu
undivided family of \l•hich V v.·as the karta and v.·as. as such, a partner in
a bu~incss of lithography and art printing "''ilh other
members of the
family, including M. who was 1hc karta of the appellant HUF in Civil
Appeal No. 1371.
Tl>' capilal in tht> c~<c of l>olh V '!lnd M was entirely
contributed hy their rcspc~tive famili~s. The partnership was governed by
two successive partnership deeds \.\o'hich v.·crc in .similar tenns durinJ? th:
relevant period. v.hercby it \ll3S provid·:d. inter alia, that interest "·ou1J he
payable to each partner on the amount of capital. th.it the general manag·~ment and supervio;;ion of the business "·ould be in the hands o[ V; M
would be the manager of the "'orks and l>olh he and V would have power
to make contracts, etc.
Provision v.·as also made for the payment of
spt"Cified amounts by way of remuneration 10 various other partners out of
the gross earnings of rhe p~rtncr"hio husine\s.
For the accounting pcrio<l
relating to the assessment year 1954-55 and 1955-56. V was paid a sum
of Rs. 18.000 in each year and JI.I was paid Rs. 7.500 in respect of the
assessment vear 1955·56.
The appellants. being the assessee Hiodu undivided family in each of 1he appeals, sho"''d these amounts in Section D
of their retums an<l it v.·as contended that these amounts v.·ere not taxahk:
in their hands as they represented income earned hy \' and f\.f for the
services rendered hy each of them to th·! pannero;;hip and constituted
their individual income. The Income Tax Officer re~cted this contention
and appeals to the Appellate Assistant
Commissioner were
dismiss·:?d.
Further appeals were also dismissed by the Appellate Tribunal and it held
that although V was an employee of the firm even before the family was
taken as a partner. after hi.! v.-·as taken as such partner, he could not at
lhe same time be an employee of th-~ partnership firm; the remuneration
received by him must therefore l>o held to he only a~ adjustment of the
share in profits of the family in the partnership.
The High Court, upon
a ref·~rcnce. also held again~t the a"sessecs.
On app,al to lhis Court.
HeU/ : (By Majority) in Appeals l'<os. 1372 and 1373 : The High
Court had rightlv ansYt·crct..1 lhc question of Ja,,·
against the assessce and
rhc appeals must therefore be dismissed.
(i) It was the investment· or the joint family funds in the partne~hip
v.·hich enabled V ro become a partner and there was a real and sufficient
connection. bctYt·ecn that investment and the remuneration paid to V under
the deed of partnership.
It follov.·s therefore that the remuneration of V
.,.·as not earned without detrin1cnt to the Hindu joint family funds and
tne case fell dir..ctly within the principle laid down in The C.l.T .. Wes,
Ben!M v. Kalu Babu Lal Chand. [1960) I S.C.R. 320; and in Mathur,
Prn<<1d. v. C.I. T .• U.P. 60 l.T.R. 428.
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V. D. DHAllWATEY I'. C.!.'f.
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Mis. Piyare Lal Adislm-ar Lal v. Tile C.l.T., Delhi, [1960] 3. S.C.R.
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669; referred to.
The general doctrine of Hindu Law is that property acquired by a
karta or a ccparcener with the aid or assistance of joint family assets is
impressed with the character of joint family property.
The test of selfacquisition by the karta or copartener is that it should be without detriment
to the ancestral estate and before an acquisition can be claimed to be a,
separate property, it must be shown that it was made without any a,jd or
assistance from the ancestral or joint family property.
[68B, CJ
The finding of the Tribunal that even before the partnership was fromcel V was receiving the salary from the business which \Vas carried on the
larger joint f

## Text

_Characters 0–39,958 of 71,925. This is a partial read: ask again with offset=39958 for what follows._

V. 0. DHANWATEY
v.
THE COMMISSIONER OF INCOME TAX, M.P. NAGPUR
(With Connected Appeal)
October 26, 1967
[K. N. WANCllOO, C.J., R. S. BACllAWAT. V. RAMASWAMI,
G. K. MITTER AND K. S. HEGDE. JJ.)
~nconu·-1ax~Hindu 11ndh·ided Fc.1nily-KarlQ as parlner <>/ fir111--also
1:e111ng salary as 111anagrr utrdfr partnt•rsliip de'"'ed-capita/
co11tributio11
11uiclt• by .~a1ni/y alone-if .i;;a/ar,v inco1ne of fanrily or of ind.\·idual pf.rtncr.
Tne appellant in Civil Appeals Sos. 13-72 and 1373, was a Hindu
undivided family of \l•hich V v.·as the karta and v.·as. as such, a partner in
a bu~incss of lithography and art printing "''ilh other
members of the
family, including M. who was 1hc karta of the appellant HUF in Civil
Appeal No. 1371.
Tl>' capilal in tht> c~<c of l>olh V '!lnd M was entirely
contributed hy their rcspc~tive famili~s. The partnership was governed by
two successive partnership deeds \.\o'hich v.·crc in .similar tenns durinJ? th:
relevant period. v.hercby it \ll3S provid·:d. inter alia, that interest "·ou1J he
payable to each partner on the amount of capital. th.it the general manag·~ment and supervio;;ion of the business "·ould be in the hands o[ V; M
would be the manager of the "'orks and l>olh he and V would have power
to make contracts, etc.
Provision v.·as also made for the payment of
spt"Cified amounts by way of remuneration 10 various other partners out of
the gross earnings of rhe p~rtncr"hio husine\s.
For the accounting pcrio<l
relating to the assessment year 1954-55 and 1955-56. V was paid a sum
of Rs. 18.000 in each year and JI.I was paid Rs. 7.500 in respect of the
assessment vear 1955·56.
The appellants. being the assessee Hiodu undivided family in each of 1he appeals, sho"''d these amounts in Section D
of their retums an<l it v.·as contended that these amounts v.·ere not taxahk:
in their hands as they represented income earned hy \' and f\.f for the
services rendered hy each of them to th·! pannero;;hip and constituted
their individual income. The Income Tax Officer re~cted this contention
and appeals to the Appellate Assistant
Commissioner were
dismiss·:?d.
Further appeals were also dismissed by the Appellate Tribunal and it held
that although V was an employee of the firm even before the family was
taken as a partner. after hi.! v.-·as taken as such partner, he could not at
lhe same time be an employee of th-~ partnership firm; the remuneration
received by him must therefore l>o held to he only a~ adjustment of the
share in profits of the family in the partnership.
The High Court, upon
a ref·~rcnce. also held again~t the a"sessecs.
On app,al to lhis Court.
HeU/ : (By Majority) in Appeals l'<os. 1372 and 1373 : The High
Court had rightlv ansYt·crct..1 lhc question of Ja,,·
against the assessce and
rhc appeals must therefore be dismissed.
(i) It was the investment· or the joint family funds in the partne~hip
v.·hich enabled V ro become a partner and there was a real and sufficient
connection. bctYt·ecn that investment and the remuneration paid to V under
the deed of partnership.
It follov.·s therefore that the remuneration of V
.,.·as not earned without detrin1cnt to the Hindu joint family funds and
tne case fell dir..ctly within the principle laid down in The C.l.T .. Wes,
Ben!M v. Kalu Babu Lal Chand. [1960) I S.C.R. 320; and in Mathur,
Prn<<1d. v. C.I. T .• U.P. 60 l.T.R. 428.
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V. D. DHAllWATEY I'. C.!.'f.
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Mis. Piyare Lal Adislm-ar Lal v. Tile C.l.T., Delhi, [1960] 3. S.C.R.
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669; referred to.
The general doctrine of Hindu Law is that property acquired by a
karta or a ccparcener with the aid or assistance of joint family assets is
impressed with the character of joint family property.
The test of selfacquisition by the karta or copartener is that it should be without detriment
to the ancestral estate and before an acquisition can be claimed to be a,
separate property, it must be shown that it was made without any a,jd or
assistance from the ancestral or joint family property.
[68B, CJ
The finding of the Tribunal that even before the partnership was fromcel V was receiving the salary from the business which \Vas carried on the
larger joint family. was not relevant for the determination of the question
of Jaw in the present case. The salary given to V before he
became a:
partner had no connection with the remuneration earned by him aft.er
the contract of partnership "'·hich had a different character. and whicll
arose out of a different legal relationship and was paid to him by virtue
of the partnership deed. [73H]
(ii) The conclusion reached hv the Tribunal that V had earned the
remuneration in question without any ctetriment to the familY funds v.·as.
not .a conclusion on a qu~stion of pure fact but 'A'as a conclusion on a
mixed question of law and fact.
Though this conclusion was based upon
primary evidentiary facts, its ultimate form had to he determined by the
application of the relevant legal principles of Hindu la'\'. In dealing:
v.·ith findings on questions of mixed la""· and fact the High Court must no
doUbt accept the findings ·of the Tribunal on th!.! primary questions of
fact~ but it is open to the High Court to examine v ... hether the Tribun~11
had applied the relevant legal principles c-0rrectly or not in reaching .its
final conclusion; and in that sense, the scope of enquiry and the extent
of the jurisdiction of the High Court in dealing with such points is the
same as in dealin~ with pure points of law
[74G-75B]
G. Venkataswa111i Naidu & Co .. v. C.l.T. 35 I.T.R. 594, referred to.
(Per Hegde. J., dlrsenting) The sum of Rs. 18,000 received by V as
his remuneration was not rightly
iricluded in the total
income of the
assessee.
From the facts found by the Tribunal it was established (i) that V
'A-·as attending to the business in question even· before the partnership
came into existence and that he was getting remuneration for the work
done by him: (ii) after the partnership came into existence, he,, OM our
of the several partners, was designated as the general manager and for
that work he was given a monthly remuneration of Rs. 1,500; and (iii)
the said remuneration was received by him without ariy detriment to his
family.
[76HJ
There was no basis for the conclusion reached by the Tribunal that
the remuneration received bv V was on1v "an increased share in the profits of the fir!ll paid to him "as r.eprescntiilg his HUF." The· remuneration
received by V had no relationship with the share capital subscribed by
him.
He was not appointed general manager merely· because he -was a
partner.
Jlt cannot be said that his joint family was the general manager
nor that for any act or omission of }:tis as the general manager his family
could. be held responsible. It was the family which was contending that
the jncome in question was V's individual income and it was therefore
reasonable to infer that his family had agrted to his receiving that income
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SUPREME. COURT REPORTS
[1968] 2 S.C.R.
~· . \ "
a~..._biS individual ·income; Jbe - assessee~s case \Vould therefore· fall. \vithin - A
the' rule laid dO\\'n in Jugal Kis_hore Ba1deo Salri v..
Co1nnJissioner of
lricome-rax.,'U.P._ [1967] I• S.C.R_ 416. [77G, H; 85B,E]
Piyare Lal v. Conunissioner. -of Jnco;n.e' Tax:
[1960] 3 S.C.R. 669;
Palc..f!iappa Chet1inr v .. Co11Jnti.rsioner of lnco111e· Tax. Bilzar and Orissa ..
C.A. 1055 of 1966; Sardar Baluidur 1nclra··Singlz v .. Conunissioner of Income Tar, Bi!zar and Orissa; 11 I .. T.R.. 16; Conunissioner of Income Tax,
Bihar- and Orissa v .. ,Darscnrani and Ors .. 13 I .. T.R. 419; and Co1n1nirstoner
·D
of Income Ta:c, lfadras
v..
S..N.N .. Sankaralinga Iyer,.
18 I.T .. R .. 194;
relied upon..
---..
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.
.
, Com1nissioner of Jnconze Tax. JVest Ben1:al v .. Ka(u Babu Lr..[ Chand.
(1960) t S.C .. R. 320; ~fathura Pr-asad _v .. Contntissioner of lnconte' tax,·
V,P., 60 I.T.R. 428; distinguished. .
"Palaniappa ChettiJT v .. Conunissioner of lnconte Tax, hfadraJ,-. [19~8]
C
;! S.C,:.R- 55; referred to.
.
. ·
The Tribunal and the High Court were wrong in thinking that the
partner of _the firm can under no circumstances be given remuneration
for taking part in the conduct of the partnership business..
It is clear
from s. 13(a) of the Partnership Act that by agreoment between the
partners, on-: of the partners can be remunerated for attendin·g to partner-
. 5hip, work; . (7701
S .. Afagnus "'· cOni11ii1sioner of lnconJe tdx. Bonibay City. 33 I .. T .. R ..
5.la: distinguished..-
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The High Court V..'as wrong in thinking that the finding of the. tribunal
that the_ remuneration received by V \Vas without detriment to his family
is not a fini:Jing of fact but a legal inferenc.! drawn by the tribunal from the
facts proved. The tribunal r·oached that finding on the basis of· the facts
placed before it and it had given cogent reasons in support of that finding..
· E
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The conclusion reached by th~ tribunal was- therefore a finding of fact ..
A finding of this character capnot be considered as a mixed question of
Jaw and fact as no legal principle ··Nas required to be applied in arriving
at that conclusion.
[77B.CI
·
Ile/d: In Civil Appeal No. 1371 of 1966 (Per Wanchoo C.J., Bachawat.
Ramasv.·ami and Mitt·~r, JJ): The material facts in the case of ~1 being
almost identical with those in Civil Appeals 1372 and 1373 of 1966, the
High Court rightly answered the, questton referred to it and the appeal
must therefore be dismissed..
-
(Hegde J. concurred with the decision of the majority that the appeal
-should be dismissed but disagreed that the material facts in the case of
~l were almost, identical with· those in the case of V).
· ClViL.APPELLATE JURISDICTION: Civil Appeal No . .1371-73
-Of 1966.
.
Appeals from the judgments· and orders dated July 23, 1963
and July 23, 1964 of the Bombay High Court, Nagpur -Bench in
Income-tax Reference No. 5 of 1962 and 85 of 1963.
G. L. Sanghi, A. S. Bobde, P; C. Bhartari and 0. C. Mathur,
for the appellant (in all the Appeals).
·
C. K: Dizphtary, Attorney-General, A. N. Kirpal and R. N.
Sachthey; for the respondent.
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Y. D. DIIANWATEY v. c.1.T. (Ramas1vami, J.)
65
The judgment of WANCHOO, C.J., BACHAWAT,
RAMASWAMI
AND MITTER, JJ. was delivered by RAMASWAMI J. HEGDE J. deli·
vcrcd a dissenting Opinion.
Ramaswami, .l.
These appeals arc brought, by certificate, on
behalf of tile asscssce from the judgment of the Bombay High
Court dated July 23, 1964 in Income Tax Reference. No. 85 of
1963.
The appellant (hereinafter called the 'asscssee") is a Hin<lu
Undivided family represented by its Karta, Shri V. D. Dhanwatcy.
The assessment years involved in these appeals arc 1954-55 anJ
1955-56. For the year 1954-55 there was a deed of partnership
dated April 1, 1951 governing the relationship of the partners.
For the year 1955-56 there was another partnership deed dmcd
October I, 1953. There was, however, no material change in the
Icnns of the two deeds of partnership. The business carried on by
the partnership was of lithography and art printing
and was
curried on through a Press under the name and style of Shivraj
Fine Art Litho Works. The capital of the partnership under the
partnership deed was Rs. 10,50,000. Clause ( 4) of the partner·
ship deed enumerated the share capital contributed by the Partners as follows :
·
"I. Baburao alias Vasantrao
Dattaji Dhanwatcy.
2. Marotirao Dattaji
Dhanwatcy.
.'l. Shamrao Dattaji
Dhanwatcy.
4. Shankarao Dattaji
Dhanwatey.
5. Krishnarao Dattaji
Dhanwatey.
6. Balu alias Yeshwanlrao
Dattaji Dhanwntey.
7: Shivaji Vasantrao
Dhanwatey.
Two ann:<s.
Three ann•l' .
Two annas.
three pies.
Two :mnas,
three' pies.
Two.anna,,
thrci! pies.
Two annas."
three pies.
Two annas.'
Clause ( 5) states that interest at the rate of 5 '1c per annum shall
be payable to each partner on the amount of the capital, Clause
(7) provides that general management and supervision of the
partnership business shall be in the hands of Shri V. D. DhanwaLcy
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SUPREME COURT REPORTS
(1968]2 S.C.R.
Clause ( 8) stales that Marotirao Dhanwatey shah be the manager
incharge of the works and both he and Vasantrao Dhanwatey
shall ha\'c power to make contracts and arrange terms with constitucnls or customers.
Clause ( 10) empowered three partnen..
>'i: .. Y. D. Dhanwatey, M. D. Dhanwatey and Shamrao Dhanwate) to appoint such person or persons on such salary as they
deem tit for c:irryinl! on the work of the partnership and delegate
to them such powers as they thirlk proper. Clause ( 15) provided
that the various adult members of the partnership shall devote
their whole time and attention to the oartnership in the sphere of
their respective duties. Clause°( 16) G to the follo..\-ing effect :
'
"The said Baburao alias Vasantrao Dattaii Dhanwatey shall be paid remuneration a: the rate of Rs. 1,250
(Rupees Twelve Hundred Fifty J per month, the said
Marotirao Dattaji Dhanwatey shall be paid remuneration at the rate of Rs. 1,000 (Rupees One thousand) per
month. the said Shamrao Dattaji Dhanwatey shall be
paid remuneration at the rate of Rs. 700 <Rupees seven
hundred) per month. the said Shankarrao Dattaji Dhanwatey and Krisbnarao Dattaji Dhanwatey shall each
be paid remuneration at the rate of Rs. 500 (Rupees five
hundred) each out of the gross eaming.s of the partnership business. This amount of remuneration of any or
all can, however. be revised at any time if all the parti..~rs
agree to revise."
According to this clause the remuneration paid to the variou,
partners ~.hall be paid to them out of the gross eam:ng.~ of the
partnership business. The remuneration provided for Shri V. D.
Dhanwatcy was later
raised to Rs. 1,500 per month.
For the
accounting period relating to the assessment years 1954-55 aod
J 955-56 Shri V. D. Dhanwatey had been paid Rs. 18,000 io each
r__ar.
The
a.ssessec showed the said amount in his return in
Section D. It was contended on behalf of the appellant that the
amount was not taxable because it was the income' earned by
Shri V. D. Dhanwatey for the services rendered by him to the
partnership and the amount constituted his individual income
and not the income of the Hindu Undivided Family. It was urJ.!ed
that the said amount should be taxed in the hands of Shri V. D.
Dhanwatey in his status as individual and not in his status as Kart.a
of the Hindu Undi' ided family. The Income Tax Officer rejected
the contention of the assessec. The appeals of the assessee were
disailowed by the Appellate Assistant Commissioner of Incomctax, Nagpur. The assessee took the matter in further appe:i.I before the lncome-:ax Appellate Tribunal in
Bombay.
It was
contended by the asscssee that Shri V. D. Dhanwatey was an
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v. D. DHANWATEY v. C.I.T. (Ramaswami, I.)
61:
employee of the firm even before the family was taken as a partner. It was said that on partition of ihe larger Hindu undivided
family in 1939 of which Shri V. D. Dhanwatey was a .member.
Shri V. D. Dhanwatey representing the small Hindu \undivided
family of which he became the karta, became a partner in the
said firm and received salary from it. The Tribunal, by its order
<lated September 4, 1962 dismissed the appeal of the asscssee ..
The Tribunal accepted the contention of the assessee that Shri
V. D. Dhanwatey was rendering service~ to the ,firm and was
getting salary even. before hi& family became a partner in the firm.
But the 'tribunal h~ld that Shri V. D. Dhanwatey who was a.
partner of the firn1 could. not at the same time be an employee of
the partnership finn and the remuneration received by him must
be held to be only an adjustment of the share in profits of the
Hindu Undivided family in the partnership.
At the instance of
the assessee the Appellate Tribunal stated a case to the High
Court under s. 66( I) of the Income Tax Act, 1922 on the following question of law :
"Whether on the facts and in the circumstances ol
the case, the sum of Rs. 18,000 was rightly included in
the total income of the assessee-family fo1• the as'sessment
years 1954-55 and I 955-56?"
By i" judgment dated July 23, I 964 the Il.igh Court answered the
rciercnce against the assessee, holding that the entire capital contribution was made by the Hindu Joint family, that the remuneration paid to Shri V. D. Dhanwatey was paid under a clause
of the deed of partnership, that the remuneration paid was only
an increased share in the profits ot the firm paid to Shri V. D.
Dhanwatey as representing the Hindu undivided family and so
the said amount of remuneration was. taxable in the hands of the·
assessee.
The High Court took the view that the case was gov-·
erned by the decision of this Court in The C.l.T., West Bengal v.
Kalu Babu Lal Chand(').
·
On behalf of the assessee learned Counsel stressed the argument that the remuneration to Shri V. D. Dhanwatey was by
reason of his own exertions and it was not earned with the help
of the joint family assets.
It was contended that there was no
nexus between the joint family funds and the remuneration paid
to Shri V. D. Dhanwatcy for the services rendered by him and·
there was no evidence that any training .had been given to Shri
V. D .. Dhanwatcy at the expense of the family funds for equipping
him for the services rendered by him to the partnership. It was.
argued that the re1mmeration earned by Shri V. D. Dhanwatey
could not be said to have been earned· by detriment to the joint
(I) [l 960] l S.C.R. 320.
SUPREME COURT REPORTS
(1968) 2 S.C.R.
family funds.
It was ·the.refor\: said. ~at the High Court was
wrong in applying the .Principle laid down by this Court in The
C.l.T., West Bengal v.'Ka/11 Babu Lal Chand(') in deciding th~
present case.
The general doctrinc .. of Hindu Law is that property acquired
by ~ karta or a coparcene!' with the aid or assistance of joint
family assets is impressed with the cl!aracter of joint family propcny. To 'put it differently, iti is. an essential feature of self-acquired property that it should have qeen" acquired without assi~tancc
or aid of the joint family property. The test of self-acqi!iSiilon by
the karta· or copafccner is that it should be without detriment to
the ":mcestral estate .. It _is therefore dear that bef.ore an· acquisition can be.claimed to be a separate property; it must be shown
th~t it was made without ~my aid or assistance from the ancestral
or joint family property.
The principle is based on the original
lc.\t of Yajnavalkya who while dealing with property not. liable
Ill p<irtition, stntes :
l'lqiiol<rflrl:liilf
11<F11q
~'It""~ 1
lf"l"li~ '<iq ~llHl<FrT if ITT" '1i«{ 11
'lf.lfFl'">lfl'Tn'
..it
ifoll"<'I'~ I!: I
~"fl<T lf ~ ~~rq f<r¥P<T \'fiU!fq 'i:f 11
.. Whatever else is acquired by the coparcencr him-.
self, without detriment to the father's estate, as a present
from a friend or a gift at nuptials, does not appertain. to
co-heirs. Nor shall he, who receives hereditary property
whi(·'1 had been taken away, give it up to coparceners;
nor what has been gained by science."
·
(Y,1jnavalkya _2, verses· I 19~120).
Commenting on this .text of Yajnava!kya the author of Mitak-
<-hiir~t states :
'The author explains what may not· be divided
whatevet else is acquired by the coparcc;ner himself, with··
out detriment to tho father's estate, as a present fro111 a
- friend, or a gift at nuptials, does not appertain to the coheirs. Nor shall he, who recovers hereditary property,
which had been taken away, give it up to the coparceners;
nor what has been gained by science."
Th~ author seis out iii v;rsc 2 the text of Yajnavalkya in his 0wn
.,,·urds and states in verse 6 :
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WG": I
~q:izirf<n:'r>f~ 1!•ii'fl!f"P!lr,
fq<(~fuifr'f 'f<;"iiITfy,_·.f firq...,.Tfon:iiJ 'I 1wr.i1Prrnm;:<i, fir~m..:tillf f<r¥P<r 1!~~
i:r~<olff>Tll'<Ps:ira 1
11> [196JJ I S.C.R. 320.
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V, D. DHANWATEY I'. C.1.T. (Ramasll'ami. J.)
6!)
<1>rr "f Fra-roiirf<n:r<T'f ll<'l'!'l'r~or >Rlflt. 3!Tip:rf• f'f'lr~'! 'l~'uii: <PH
fini'i:oll~'! 'l""1fl'lITT::I<i ""' fii<r•''llllT'f <1o"'1<:'l N~l ~"11\ ITT! ~
'l<r;.~.., , rr'l"r 'if r.-:.i;;;r.fl'l11 1
"Herc the phrase anything acquired by himself. without detriment to t~ father's estate most be everywhcr~.
understood; and-if is thus connected with each member
of the seninfe; what is obtained from a friend, without
detri111int to the paternal estate; what is received in marriage. without waste of the patrimony: w' mt is redeemed.
of the hereditary estate without expenditure of ancestr.al
property: what is gained by science. without me of the
father's goods. Consequently. what is obtained from a
friend, as the ·return of m1 obligation conferred at the
charge of the patrimony: what is received at a marriage
concluded in the form tem1ed A~ura or the like; what is
recovered. of the heredimry estate, by the expenditure of
the father's goods: what is earned by science acquired at
the expense of ancestral wealth: all that must be shared
with the whole of the brethcrn and with the father."
'l he expression 'without detriment to the father's estate' iu the
text al! ,Y ajnavnU .. -ya is : "fi«pr~lfr'f" Dealing with the same
matter, Devanna Bhatta states in Smriti Chandrika :
"27. The principle contained in Yajnavalkya's text
i.e .. 'Whatever else is acquired by the coparccner himself
without detriment to the fatbcr's c.~tate' is 'explained by
Manu in his passage, 'What has been acquired by labour
without prejudice to \he father's estate.'
28. In boll\ the kbove passages, the word 'father'
signifies
an undivided co'heir generally-'By labour'
means by acts requiting Jabour, such as agriculture, etc.
Without prejudice,' 'means without detriment.
29. Yyasa, too; '-Whatev!!r a man gains by hL~ mvn
labour without the assistance of the father's estate shalt
not be given by him to the co-heirs.'
30. 'Without the assistance', means without deriving
assistance for the purpose o_f gaining. The word 'father'
is used to denote an undivided co-heir generally··
(Setlur's translation, Ch. VII. Paragraphs 27 to 30) ··
Ti1is principle is implicit in the decision of this Court in Tile
C.l.T., West Bengal v. Kalu Babu Lal Clzand(') in whkh 0111."
Rohatgi, manager of a Hindu undivided family, who took over
a 'business as a going co~ccm, promoted a company which wa'
(I) [1960] I S.C.R. 320.
SUPREME COURT REPORTS
(1968] 2 S.C.R.
w :akc over the busmess.
The Articles of Association of th~
.comP.any provided that Rohatgi would be the first managing
.Uil"~ctor at a remuneration sp!:Cificd in the Articles.
l he share,,
which
stood
in
the
name . of Rohatgi and
his
brother
were acquired with funds belonging to the joint family ami th~
family was in enjoyment of the dividenels paid on those shares,
and the company was tloatcd with funds provided by the family,
and was at all material times financed by the joint family.
Jn
proceedings for assessment of the Hindu undivided family, it wa>
cl~.irucd that the managing director's remune~ation were personal
.earnings of Rohatgi and could not be added to the income of the
Hindu undivided family.
The contention was rejected by thi.s
Court and it was held that the managing director's remuneration
rc.ceived by Robatgi was, as between him and the Hindu undivided
family, the income of the family and should be assessed in its
hands.
Jn reaching that conclusion, the court fiN obsen·ed t!1at
.a Hindu undivided family cannot enter into a contract of panncrship with another person or persons.
The karta of the H_indu
undivided family, however, may, and in fact, docs, enter into
pannership with outsiders. on be}lalf and for the benefit of his
joint family, but when he does so, the oth_er members of the family
do not, vis-a-vi~ the outsiders, be.come partners in the firm. So
far as the outsiders arc concerned, it is the manager who is recognised as 2 partner.
Whether in entering into a partnership
with outsiders, the manager acted in his individual capacity and
fur his own benefit, or he did so as representing his joint fami!y
and for its benefit, is a question of fact.
If, for the purpose of
contribution of his share or the capital in the firm, the karta
brought in monies uut of the till of the Hindu undivided family
then he must be regarded as having entered into the partnership
for the benefit of the _Hindu undivided family, and as between him
.and the other members of his family ·he would be accountable for
all profits rc.ccivcd by him as his share out of the partnership
profits, and such
profits would be assessable as income in the
hands of the Hindu undivided family. The court then proceeded
to consider whether that principle was a_!lplicable to the income
derived by a manager as a panner-of a managing agent to remuneration received by the manager as the managing director of the
company, and held that if the manager was appointed a managing
director as representing the Hindu undivided family, the income
rc.ccived would be taxable a~ the income of the Hindu undivided
family. In the course of his judgment, S. R. Das, C. J. speaking
for the Court observed as followes at pages 331-332 of the Report :
''The karta was one of the promoters of the Company
which he floated with a view to take over the India
Electric Works as a going concern. In anticipation of
the incorporation of that Company the karta of the
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71
family took over the concern, carried it on and supplied
the finance at all stages out of the joint family· funds and
the finding is that he never contributed anything out of
his separate property, if he had any. The Articles of
Association of the Company provided for the appointment as managing director of the very person who, as
the karta of the family, had promoted the Company. The
acquisition of the business, the floatation of the Company
and appointment of t1'.e managing director appear to us
to be inseparably linked together.
The jomt family
assets were used for acquiring'the concern and for financing it ·and in lieu of all that detriment to the join~ family
properties the joint family got not only the shar.:s standing in the names of two members of the family bu~ also,
as part and parcel of the same scheme, the managing
directorship of the company when incorpqrated ..... .
. . . . . . . . . . . . . . . . The recitals in the agreement al<;o
clearly point to the fact of B. K. Rohutgi having been
appointed managing director because of his being a promoter of the company and having actually taken over
the concern of India Electri~ Works from Milkhi Ram
and others. The finding in this case is that the promotion of the Company and the taking oveq of the concern
and the financing of it were all done with thd help of the
joint family fund~ and the said B. K.. Rohatgi did not
contribute aiiything out of his personal funds if any.
In the circumstances, we are clearly of opinion that the
managing director's remuneration received by • B.
K.
Rohatgi was, as between him and the Hindt1 undivided
family, the income of the latter and should be assessed
in its hands."
The same principle was reiterated by this Coun in a sub;c
quent case--Mathura Prasad v. C.l.T., U.P.(1)
In that case.
a Hindu undivided family
owned considerable property and
carried on many businesses.
There was a partition among the
six branches in the family and a sixth sh_are of the property was
allotted to the smaller Hindu undivided family of which M_ was
the manager.
After partition the managers ;)f the six branche<;
entered into an agreement of partnership to carry on the businesses. Under the agreement, M, who was to manage the affairs
of one of the offices, was entitled to a monthly allowance of
Rs. 1,500, such allowance not exceeding tht:- profits disclosed at
that office.
It was conceded before· the Tribunal ihat M had
entered into partnership as representing his smaller Hindu undivided family for the benefit of the family. It was further found
that M became a partner with tb! help of joint family funds and
(l) 6U l.T.R. 428.
7'!.
SUPREME COURT REPORTS
[1968) 2 S.CR.
that the allow:111ce received by him was directly relalCd to the
investment of the family funds in the partnership business.
Accordingly, his allowance was taxed as the income of the smaller
Hindu undivided family in i:s hands.
The appellant thereupon
applied for a reference of the question whether the ailowance wa'
the income of the Hindu undivided family or of M in his personal
capacity.
Both the Tribunal and the High Court were of the
view that the question sought to be raised was concluded by the
judgment of this Court in C.1.1'. v. Ka/ti Babu Lal Chand( 1 ) am!
therefore it need not be referred for the opinion of the High Court.
The assessce preferred an appeal to this Court from the •Jn.lee
of the High Court rejecting his application for rcfcrcnc~. it wa»
held by this Court that on the findings recorded by the Tribunal,
· the question was concluded by the judgment of this Court in
C.l.T. v. Ka/11 Babu Lal Chand(') nnd any further claborntion
wus academic :ind thnt the Hi~h Court was therefore right
in
refusing to direct n case to be stated under s. ~6(2) of the Indiun
lncome-tnx Act, 1922. Reference was made on behalf of the
appellant to the decision of this Court in Mis. Piyare Lal Adishwur
Lal v. Tire C.1.1' .. Delhi("). But that case w~s distinguished am!
it was pointed out that there was no _analogy between a case in
which the property of the Hindu undivided family was sought to
he encumbered for obtaining a benefit which was
essentially
personal to the manager, and a case in which· with the aid of
the family funds the manager of the family was able to enter into
a partnership and to earn allowance, which he would not other-
" ise have been entitled to receive. Jn the course of his judgment
at page 433 of the Report. Shah. J. speaking [o( the Court observed as follows :
"In the present ca-;es the Tribunal has
found that
Mathura Prasad had 'become a partner in the firm of
Badri Prasad fogan Prasad with the aid of the funds of. the
Hindu undivided family. and as a partner of the firm he
was entrusted with the management of the Agarwal Iron
Works and he earned the allowance which was claimed
to be salary.
The right to draw the allowance was. in
the view of the Tribunal, made possible by the use of
family funds. The family funds enabled hin0 to become
a partner anu to claim the allowance for the service>
rendered. There was in the view of the Tribunal an inseparable connection between the joint fomily funds and
the allowance received.
The right to draw the allowance therefore arose directly from the joint family funds.
It may be recalled that in the second paragraph of
clause 8 of the partnership agreement. though a monthly
f·IJ 1196 l) I S.l.R. )~II.
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v. !}, DHANWATEY :r. <C.l.T. {11egde, .1.1
allowance of Rs. 1,500 was named as the amount which
Mathura Prasad was entitled to withdraw, the amount
was liable to be reduced, if the profits e'arne.;! uid not
justify the withdrawals, and Mathura Prasad was bound
to refund the excess of the withdrawals over his appropriate s_hare in the profits. Therefore, by the agreement
it was intended that subject to a maximum of R». 1,500
per month, Mathura Prasad will be entitled to
make
withdrawals commensurate with the profits of the firm.
In the light 0f the principle laid down by this Court in
Kalu Babu Lal Chand's case .[(1960) l S.C.F 320], it
must be held that on the finding recorded by the Tribunal,
the question, which it was claimed should b.e referred to
the High Court, was concluded by the judgment of this
Court.''
Now whllt ure the facts fo.und in the present casc1 It is not
in dispute that the capital contribution of Shri v. D. Dhanwatey
in the partnership belongep to the Hiridu undivided family which
he represe.nted.
In .. other ·words, the entire capital contribution
to the partnership was made by the Hindu undivided family of
which Shri V. D. Dhanwatey was the karta.
Xt has been found
that Shri V. D. Dhanwatey was in the partnership as representing
the Hindu undivided family and he became .a partner on account
of the investment of the joint family assets in the capital of the
partnership. It .is also not disputed that shri V. D. Dhanwatcy
got remuneration at the _rate of Rs. 1,500..per month by virtue of
clause ( 16) of the deed of partnership.
In other words, the
payment was made to Shri V. D. Dhanwatey because of the investment of the capital by. tb joinf family in the
partnership
business and had; it not been for such jnvestment -Shri V. D. Dhan-
.:watey would not h:cve got the remuneration.
It was stated by
Counsel on behalf of the assessee that the Appellate Tribunal
had found that even before' the partnership was formed Shri V. DDhanwatey was receiving salary from December 1930 to August
1939 from the business which was carried on by the larger joint
family.
In our opinion, this finding is not rP!evant for the determination of the question of. law in the present case. Even assuming that Shri V. D. Dhanwatey was rendering services to the business before the partnership was formed it does not necessarily
follow that the remuneration paioi to Shri V. D. Dhanwatcy after
the formation of the partnership should be deem.ed to be indiviclual income in his hands and did not belong to the Hindu joint
family of which he is the karta. The salary given. to Shri V. D.
Dhanwatey from December, 1930 to August, 1939 has no connection with the· remuneration earned by him after thP- contract
of partnership and has a different character and arises ouc of a
different legal relationship. On the ofher hand, the remuneratio:i
L11Sup.CI/68-6
7-1
SUPREME COURT 11.EPORTS.
(1968] 2 S.CR.
in the present case was given to Snri V. D. Dhanwatcy by virtue
of the contract of partnership.
It should also be nouced that
under cl. ( 16) of the partnership deed the amount of remuneration of Shri V. D. Dhanwatcy or of any other partner could be
revised at any time if all the partners agreed to do so. It has been
found bv the Appellate Tribunal that the remuneration received
bv Shri V. D. Dhanwatcy was only an increased share of the profit,
oi" the firm paid to
him ;1s representing the Hindu
undivided
familY. and therefore :he whole of the payment made to Shri V. D.
Dhanwatcy, l"i;., the share in the profits of the firm and his individual remuneration "as tax;1blc as in.come Gf the Hindu undivided family.
It is manifest that Shri V. D. Dhanwatey was
made a partner due to the contributions made by the joint family
funds to the entire share capital of the firm.
In other words,
it was the utilisation of the joint family funds which enabled Shri
V. D, Dhanwatey to become a partner in the partnership ousincs:;.
In our opinion, the remuneration paid to Shri V. D. Dhanwatey
was directly related to investments fron1 the assets of the Hindu
joint family in the partnership business. In other words, ther~ was
a real and suflicient connection between the investment from the
Hindu joint family funds into the partnership business and the re1nuneration paid to Shri V, D. Dhanwatey under cl. (16) of the
deed of partnership.
It follows therefore that the remuneration
of Shn V'.' D: Db:in;.l"atey was not earned without detriment to the
Hindu joint family rtlrrds • .;i,nd the case falls directly within the
principle laid down by this~ourt in The C.!.T., Wcrt Bengal v.
Ka/u Babu Lal Clw11d(1) and in
Math11ra Prasad v.
C.l.T ..
U.P.(').
It was finally contended on behalf of the appelfant ;iiat the
Appeilate Tribunal had found that Shri V. D. Dhanwatey h~d
earned the remuneration without any detriment to the family funds
and the finding of the Appellate Tribunal on this point was a finding on a question of pure fact and the High Court could not, in
a reference under s. 66 ( 1 ) of the Income-tax Act, 1922, question
the correctness or the validity of that finding.
We are unable to
:iccept the argument put forward on behalf of the appenant. It
is true that the jurisdiction conferred on the High Court by s.
66( l) of the Income-tax Act is limitc<l to entertaining references
Of"I questions of Jaw. In the present case. however, the conclusion
rcJched hy the Tribunal is not a conclusion ori a question of pure
fact hut it is a conclusion on a mixed question of Jaw and fact.
Jn other words, though the conclusion of the Tribunal is no doubt
based upon primary cvidcntiary facts, its ultimate form is deter111incd by the application of the relevant legal principle of Hindu
Law which has been discussed in the course of this judgment. In
d~;ding with findings on questions of mixeu law ~nd fact the High
(I) 11960] I S.C.R.320.
12) 60 l.T.R. 428.
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75
Court must no doubt accept the findings of the Tribunal on the
primary questions of fact; but it is OJ?<!n to the High Court. to
ex.amine whether the Tribunal had apphed Jhe relevant legal pnnciples correctly or not in reaching its final conclusio~; _and 1_n that
sense. the scope of enquiry and the ex.tent. of the 1unsd1~t10n of
the High Court in dealing with such pomts is. the same as m deal~
ing with pure points of law.
For example, m G. Venkataswanu
Naidu & Co. v. C.l.T. (') it was pointed out by this Court that
where the question is whether a transaction is in the nature of
trade. everi if the conclusion of the Tribunal about the character
of the transaction is treated as a conclusion on a question of fact,
in arriving at its final conclusion on facts proved, the Tribunal has
necessariiy to address itself to the legal requirements ass~ciated
with the concept of trade or business.
The final conclus10n of
the Tribunal can, therefore, be challenged on the ground that the
relevant legal principles have been mis-applied by the Tribunal in
reaching its decision on ·the point; and such a challenge is open
under s. 66 ( 1) because it is a challenge on a ground of law.
For the reasons expressed we hold that the High Court rightly
answered the question of law against the assessee and these appeals.
must be dismissed with costs--one set. IJf. hearing fees.·
Hegde, J.
I regret that it has not been possible for me
to
agree with the majority decision.
E
The question for decision in these appeals is "whether on the
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facts and circumstances of the case, the. sum of Rs. 18,000 was
rightly included in the total income of the assessee family for the
assessment years 1954-55 and 1955-56."
fhe facts as found by the tribu"nal are these : The assessee is
a Hindu undivided family of which Shri V. D. Dhanwatey (who
will be hereinafter referred to as Dhanwatey) is the karta. He is
one of the partners in a firm engaged in lithography and printing
bu.siness.
The .partnership came into existence in August 1939.
But that very business was being carried on by Dhanwatey's
family before its partition in 1939. After partition in the bigger
family, several members of the quondam family formed a partnership and that partnership took over the business in question.
Dhanwatey was attending to that business ever since 1930 and
he was being remunerated for the same.
Dhanwatey joined the
firm as one of its partners but his share of the capital was subscribed by his joint family.
Under the deed of partnership he was
designated as the general manager and his remuneration was fixed
at Rs. 1,500 per month. The Hi~h Court found that he was gettmg the same remuneration even before the partnership came foto
existence.
(I) 35 l.T.R. S9'.
76
SUPREME COURT REPORTS
[1968] 2 S.C.R.
The relevant findings of the tribunal are found in paragraph
5 of it~ 0rder. It reads as follows :-
.. Even after the partition and the formation of the
firm Shri Y. D. Dhanwatey was get!ing a salary for
managing the said business.
These facts are not dis~
puted by the <lepartmcnt.
We think.