TMI Blog1968 (10) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... n that of Messrs. H. G. Gupta and Sons are : " (3) Whether, the amount of Rs. 55,664 has been properly included in the assessment of the firm ? (4) Whether, in view of the observations of the Appellate Assistant Commissioner, the order of the Tribunal amounts to an enhancement of the income of the firm ? The facts giving rise to the reference may now be stated. The two assessees are firstly, Hans Raj Gupta, and secondly, the registered firm, Messrs. H. G. Gupta and Sons (hereafter referred to as the assessee-firm). The assessee-firm was a registered firm constituted under an instrument of partnership dated 30th March, 1954. The said firm had three partners, namely, Hans Raj Gupta, Des Raj Gupta and Shiv Raj Gupta, their shares in the profits being 2/3rd, 1/6th and 1/6th respectively. On August 4, 1955, Hans Raj Gupta entered into another partnership under the name and style of Messrs. D. S Bawa and Company with four other persons. The said firm was brought into being for executing certain contracts at Indian Industries Fair held in New Delhi in the year 1955. Hans Raj Gupta's share in the said firm was 5 as. 6 ps. in the rupee. In the relevant assessment year the profit of Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a reservation that : " If, however, this income is ultimately held by the appellate authorities to belong to L. Hans Raj Gupta then the Income-tax Officer should give the consequential relief to the assessee-firm by excluding the income from the total income of the firm. " Against the orders of the Appellate Assistant Commissioner both Hans Raj Gupta and the assessee-firm filed appeals before the Tribunal. It was contended before the Tribunal on behalf ot Hans Raj Gupta that, in view of the overriding title created by clause 12 of the instrument of partnership, the income of Rs. 55,664 was assessable in the hands of the assessee-firm and not of Hans Raj Gupta. On behalf of the assessee-firm it was, inter alia, argued that in case it be held that the amount represented the income of Hans Raj Gupta, consequential relief may be granted by excluding Rs. 55,664 included in the assessment of the assessee-firm, since the same amount had been assessed twice. In the case of Hans Raj Gupta the Tribunal decided that it was a case of application of income by Hans Raj Gupta and there was no overriding title making it the income of the assessee-firm. Regarding the appeal of the assessee-fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy remuneration in equal shares but each one of them shall pay to the wife of one of the members 2 annas 8 pies out of his half share in the managing agency. The said two members constituted themselves into a registered firm and continued to act as the managing agents. The argument of the partners in the managing agency firm was that in determining their real income as partners the amount paid by them to a member's wife was excepted on the ground that a portion of the managing agency commission payable to the two partners was diverted to a member's wife before it became the income of the partners. The ratio of the decision is that in ascertaining the income of an assessee his real income should be determined and every part of that income, which may ostensibly seem to be the income of the assessee but is, in fact, not his income by reason of its diversion, should be excluded. It was observed : " It is sufficient for the purpose of this reference if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount. " The matter has been cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 Murlidhar Himatsingka v. Commissioner of Income-tax Murlidhar Himatsingka was carrying on business in shellac, jute, hessain, etc., under the name and style of " Fatehchand Murlidhar ". He was also a partner in a registered firm " Messrs. Basantlal Ghanshyamdas ", having 2 annas 8 pies share. An instrument of partnership was entered into by Murlidhar Himatsingka and his two sons and a grandson and clause 5 of the deed provided that the profits and losses of Murlidhar Himatsingka as a partner in the firm, Messrs. Basantlal Ghanshyamdas, shall belong to the new partnership and shall be divided and borne by the parties in accordance with the shares specified in the deed but the capital with its assets and liabilities will belong exclusively to Murlidhar Himatsingka. The very same question arose before their Lordships of the Supreme Court and it was held that there was an overriding obligation and the income of Murlidhar Himatsingka from the old firm did not remain his income but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 12 of the instrument of partnership, Hans Raj Gupta had clearly agreed that in case he starts any business without the written consent of other parties to the partnership deed, the profits earned in such business shall belong to the said firm. In other words, as soon as he entered into a business in violation of clause 12, the income earned thereafter was not his but belonged to the assessee-firm. In my opinion, therefore, an overriding title was created and the income could not have been taxed in the hands of Hans Raj Gupta. The answer to the first question must therefore, be in the affirmative and in favour of the assessee. Mr. Kirpal, the learned counsel for the revenue, strongly pressed on us to call for a further statement from the Tribunal as to whether or not Hans Raj Gupta started the new venture without the written consent of his other partners. He referred us to a letter dated 20th December, 1960, recited in the assessment order of the Income-tax Officer, the relevant part of which reads : " No written consent was ever obtained, and in view of this provision the profits were handed over to the firm. As a matter of fact, the share was held by me as a representative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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