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2019 (3) TMI 332 - AT - Income TaxDiversion of income by way of overriding title - right to receive the money - sum paid by the assessee-firm to the legal heirs of the deceased partners - legal heirs of the deceased partner was paid a sum as per the terms mentioned in clauses 23 and 24 of the partnership deed dated 31.12.2007 - not for purpose of business of the assessee-firm and added back - HELD THAT:- Diversion of income at source can take place either under a legal compulsion or under a contractual obligation or else under a statutory provision. In the case of CIT v. Smt.Kamlabai Juthalal [1975 (7) TMI 25 - BOMBAY HIGH COURT] it was held that where obligation is undertaken by the assessee to apply the income in a particular way before being received by the assessee or its accrual, the same results in the diversion of income. On the other hand, where the obligation to apply income is undertaken after being received or accrued to the assessee, it will be the case of application of money and will be liable to be taxed in hands of assessee. The underlying test, therefore, is whether the income in question ever reaches to the assessee. In the instant case, the effect of creation of the overriding of income is achieved by clause 23 of the partnership deed dated 31.12.2007. In identical factual situation, the Mumbai Tribunal in the case of ACIT v. Deloitte Haskins & Sells [2018 (5) TMI 418 - ITAT MUMBAI] had held that the payment made by a firm to the ex-partners and spouses / legal heirs of the deceased partners would be paid part of the income of the assessee-firm for the services rendered by them. The Mumbai High Court in case of CIT v. Kanga & Co. [2016 (2) TMI 573 - BOMBAY HIGH COURT] had confirmed the Tribunal order, wherein the Tribunal held that payment by firm relatable to retired / deceased partner’s would tantamount to diversion of income by overriding title. Therefore,amount of should be allowed as deduction in the case of the assessee-firm - Decided in favour of assessee.
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