TMI Blog2002 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinafter referred to as " the Act"), for the opinion of the High Court: "(1) Whether, on the facts and in the circumstances of the case, 50 per cent out of the assessee's ten per cent. right, title and interest in the partnership firm of Kinariwala R.J.K. Industries belongs to Sunil Jivanlal Kinariwala Trust and the income arising therefrom belongs to the said trust by overriding title? (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,141 being the profits referable to 50 per cent. out of the assessee's right, title and interest of ten per cent. in the partnership firm of Kinariwala R.J.K. Industries is not the real income of the assessee, but of Sunil Jivanlal Kinariwala Trust and as such assessable only in the hands of the trust? (3) Whether, on the facts and in the circumstances of the case, fifty per cent. out of the assessee's ten per cent. share in the firm of Kinariwala R.J.K. Industries has been validly assigned to Sunil Jivanlal Kinariwala Trust under the deed of trust dated December, 27, 1973, and whether the income arising therefrom belongs to the said trust by way of overriding title?" The facts which gave rise to these questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court, following the said judgment. In some of those cases, special leave petitions were filed but they were dismissed on the ground that the main judgment of the High Court was allowed to become final. Thereafter, the Revenue woke up and challenged the said judgment by filing the present appeal. That is how the appeal came to be filed and is before us. Mr. Preetesh Kapur, learned counsel appearing for the Revenue, contended that having regard to the terms of the settlement, what was assigned was the right to receive profits to the extent of fifty per cent. of the share of the assessee; there was, therefore, no overriding title in. the trust so as to divert the income at source and the High Court erred in treating the assignment as resulting in diversion of the income. The question of application of section 60 of the Act was urged as an alternative contention and was not seriously pursued. Mr. U.U. Lalit, learned counsel appearing for the respondent-assessee, on the other hand, argued that under section 29(1) of the Indian Partnership Act, 1932, the trust became entitled to receive fifty per cent. share of the assessee's income from the firm by assignment under the settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of income by the assessee and not of diversion of income by overriding title. The decisions of the Privy Council in Raja Bejoy Singh Dudhuria v. CIT [1933] 1 ITR 135 and P.C. Mullick v. CIT [1938] 6 ITR 206 together are illustrative of the principle of diversion of income by overriding title. In Raja Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC), under a compromise decree of maintenance obtained by the step-mother of the assessee, a charge was created on the properties in his hand. The Law Lords of the Privy Council, reversing the judgment of the Calcutta High Court, held that the amount of maintenance recovered by the step-mother was not a case of application of the income of the assessee. In contrast, in P.C. Mullick's case [1938] 6 ITR 206 (PC) under a will, certain payments had to be made to the beneficiaries by the executors and the trustees (assessees) from the property of the testator. It was held by the Privy Council that such payments could only be out of the income received by the assessees from the property, therefore, such payments were assessable to income-tax in the hands of the assessees and there was no diversion of income at source. Whereas in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be enforced by a court of law and purporting to apply the principle of Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC), held that in view of the decree of the court, the sums must be taken to have been diverted to the wife and children and never became income in the hands of the assessee. Setting aside the judgment of the High Court, this court held: "In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another's income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC) and rather falls within the rule stated by the judicial Committee in P.C. Mullick's case [1938] 6 ITR 206." We may notice a few decisions as ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h made no difference to its liability to pay tax on the entire rent of rupees twenty one thousand which had accrued to the landlord. The fact that the college was given the right to sue and recover rupees ten thousand directly from the company in case of default, it was observed, did not alter the position, nor would creation of charge in favour of the college make any difference. Now, we shall advert to the cases relied upon by the High Court. In Bagyalakshmi and Co.'s case [1965] 55 ITR 660 (SC), two members of the Hindu undivided family together held ten annas share in a firm. On a partition in the family, the share of the said members was divided among various members of the family. Thereafter, a fresh partnership deed was executed in which the said two persons were, however, shown as having the same proportion of share in the firm. They claimed that they were liable to pay tax only on the respective shares shown in the partnership deed. That contention was upheld by the Tribunal. Thereafter, the Commissioner cancelled the registration of the partnership firm under the Act on the ground that it did not specify the correct shares of the said two persons in the partnership. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of eight years. Further the fact that a sub-partner can have no direct claim to the profits vis-a-vis the other partners of the firm and that it is the partner alone who is entitled to profits vis-a-vis the other partners does not show that the changed character of the partner should not be taken into consideration for income-tax purposes." It is apt to notice that there is a clear distinction between a case where a partner of a firm assigns his share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership. Whereas in the former case, in view of section 29(1) of the Indian Partnership Act, the assignee gets no right or interest in the main partnership, except, of course, to receive that part of the profits of the firm referable to the assignment and to the assets in the event of dissolution of the firm in the latter case, the sub-partnership acquires a special interest in the main partnership. The case on hand cannot be treated as one of a sub-partnership, though in view Of section 29(1) of the Indian Partnership Act, the trust, as an assignee, becomes entitled to receive the assigned share in the profits from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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