There is no specific bar on the HUF employing one of the coparceners as an employee provided that the coparcener is qualified to hold the post. The remuneration paid also should be reasonable and should not exceed what ordinarily would had been paid to outside employee performing the same duties.
The remuneration received by the coparcener is as a result of his personal qualification and work, hence it should be rightly shown as a salary income. Further the same cannot be claimed as income from the HUF where he is a coparcener.
02 June 2009
In Rajkumar Singh Hukumchandji v. Commissioner of Income Tax, M.P. (78 I.T.R. 33) though the question that arose for determination was whether the Managing Director's remuneration received from the company by the Karta of a Hindu Undivided Family was assessable to tax as his individual income or as the income of Hindu Undivided Family, certain subsidiary tests, as also broader principle of general applicability were laid down. They 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;
(2) whether the income received was directly related to any utilization of family assets;
(3) whether the family had suffered any detriment in the process of the family funds; and
(4) whether the income was received with the aid and assistance of the family funds, and
(5)The broader principle is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu Undivided Family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other band it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu Undivided Family". [1066 F-H, 1067 A-D]
(Querist)
