P. N. KRISHNA IYER vs. COMMISSIONER OF INCOME-TAX, KERALA

CIVIL APPEAL No. 1997/1966Supreme Court[1969] 1 S.C.R. 94303 September 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER P. N. KRISHNA IYER8 pages
AI SummaryDismissed

What were the facts?

The assessee, P. N. Krishna Iyer, initially established a motor transport business. Following a partition of joint family property, this business, along with other assets, became his share. The Hindu undivided family (HUF) consisting of the assessee and his sons transferred the motor transport business to a private limited company, P. S. N. Motors (Private) Ltd. The assessee, as Karta of the HUF, purchased shares in the company with family funds and was appointed Governing Director for life, receiving a salary and commission. Shares allotted to him in lieu of services were also treated as belonging to the HUF. For assessment year 1954-55, the Income-tax Officer initially assessed certain income as the appellant's individual income. The Appellate Assistant Commissioner modified this, directing some income to be included in the HUF's assessment. The Commissioner of Income-tax, under Section 33B of the Indian Income-tax Act, 1922, revised the Income-tax Officer's order to include the assessee's remuneration from the company in the HUF's total income. The Tribunal reversed the Commissioner's order, but the High Court upheld the Commissioner's view.

What did the Supreme Court hold?

The Supreme Court held as follows: 1. Regarding the Commissioner's power under Section 33B: The Court found no ground to hold that the Commissioner had attempted to revise the Appellate Assistant Commissioner's order. The modifications made by the Income-tax Officer were consequential to the Appellate Assistant Commissioner's directions to avoid double assessment. The assessment of the appellant as an individual had become final, but this did not bar the Commissioner's power under Section 33B to revise the order concerning the HUF, which had not been appealed from. The Commissioner had the power to revise the Income-tax Officer's order that had not been appealed. 2. Regarding the character of the income: The Court held that income received by a member of an HUF from a firm or company where HUF funds are invested is taxable as HUF income if it is earned by detriment to or with the aid of family funds, even if partially traceable to personal exertion. Otherwise, it is taxable as the member's separate income. In this case, the shares qualifying the assessee for membership were purchased with joint family funds, and shares allotted for services were also treated as belonging to the HUF. The entire capital assets of the company originated from the joint family. The income was primarily earned by utilizing joint family assets or funds. The involvement of personal service or skill did not alter the character of the income. The High Court's conclusion that the income was the appellant's individual income was not vitiated by error. The question of whether income belonged to the HUF or an individual was a mixed question of law and fact, open to challenge on the misapplication of principles.

What were the issues?

1. Whether the Commissioner of Income-tax had the power under Section 33B of the Indian Income-tax Act, 1922, to revise the order of the Income-tax Officer after it had been appealed to the Appellate Assistant Commissioner, or to revise an order made pursuant to the Appellate Assistant Commissioner's directions. - Assessee's contention: The Commissioner lacked the power to revise an order that had been appealed or was a consequential modification. - Revenue's contention: Not recorded. 2. Whether the salary, commission, and 'sitting fee' received by the appellant from the company constituted his individual income or the income of the Hindu Undivided Family. - Assessee's contention: The income was earned through his sole exertions, services, sacrifices, and experience, and was not attributable to the family's capital contribution. This was a finding of fact binding on the High Court. - Revenue's contention: The income was earned by utilizing the HUF's assets and funds, and therefore was taxable as HUF income. Relied on principles from V. D. Dhanwatey, M. D. Dhanwatey, and S. RM. CT. PL. Palainappa Chettiar cases.

Which sections of the Income-tax Act were involved?

Section 33B,Section 3

AI-generated summary — verify with the full judgment below

A P. N. KRISHNA IYER v. COMMISSIONER OF INCOME-TAX, KERALA September 3, 1968 943 • B [J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] c D E F G H Indian Income-tax Act, 1922, s. 3 and s. 33B-Hindu undivided family business taken over by company~Karta appointed . Governing Director-Salary, Commissioner 'sitting fee' of Governing Director whe- ther assessable in hands of Hindu undivided family-Principles for dtcid- ing--Commissioner's powers under. s. 33B-Scope of.

The appellant, on partition of joint family property between himself and his brothers, got as his share the family's motor transport business which had been established by his efforts, along with 'the workshop, stores, agency, cinema companies etc.'

The Hindu undivided family c~nsisting of the appellant and his sons tran·sferred the motor transpo'rt busmes~ to a private limited company; the company credited the account of the family in its books with the value of the asscls of the business taken over by it.

With family money !he appellant purchased 100 shares. of the company and was appointed-according to tne terms of the Articles of ASsociation-as its Governing Director for hfe. at a salar

The order continues below.

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