TMI Blog2004 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... w of section 37 of the Indian Partnership Act, 1932, they were entitled for the said amount. It created an overriding title. Thus, the said amount had rightly been allowed by the Tribunal. - - - - - Dated:- 31-8-2004 - Judge(s) : R. K. AGRAWAL., K. N. OJHA. JUDGMENT The judgment of the court was delivered by R. K. Agrawal J.- The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion to this court: "Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the assessee is entitled to claim a deduction of Rs. 62,865 is legally correct?" Briefly stated, the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1976-77 as the respondent was following the mercantile system of accounting. Against the assessment order, the respondent preferred an appeal before the Commissioner of Income-tax (Appeals). He did not accept the reasoning of the Income-tax Officer for disallowing the respondent's claim for deduction of Rs. 62,865. He did not agree with the Income-tax Officer that the "payment made to a retiring partner over and above his capital is an admissible deduction in the hands of the firm". As such, he was of the opinion that the payment made to Smt. Savitri Devi and Jai Kishan Sharma, was not an allowable deduction either under section 28 or section 37 of the Act. Accordingly, he dismissed the appeal. Being aggrieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, 1975, in any case, the respondent was not entitled to claim deduction of the entire amount of Rs. 62,865 in the year under consideration. The payments cannot be said to be for using of the share of partnership asset of Smt. Savitri Devi and Shri Jai Kishan Sharma because after their separation from the firm, the asset ceased to belong to them and they merely wanted proportionate profit being paid to them uptil May 31, 1975. Sri Upadhaya, learned counsel for the respondent, has, however, submitted that as the asset of the erstwhile firm was being used, the respondent was liable to make good the proportionate profits to the heirs of the deceased partner, which was an overriding title and, therefore, was allowable as deduction. He referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his share of the property of the firm or to interest at 6 per cent. per annum on the amount of his share in the property of the firm. Thus, after the death of Jiwat Ram Sharma and the retirement notice given by the heirs of Jiwat Ram Sharma, the plots which were already with the existing firm, they had a right to share the profits in respect of the plots which the existing firm had. The profits have been assessed at Rs. 62,865 on the basis of the valuation. The apex court in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367, 374 (SC) has set out the classic statement of the true principle of diversion of income as follows: "Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of an antecedent and independent title in the former (such as, for example, the rights of dependants to maintenance or of coparceners on partition, or rights under a statutory provision, or an obligation imposed by a third party and the like), it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. On the other hand, where the obligation is self-imposed or gratuitous (as here), it is only a case of an application of income." In the case of CIT v. Sunil J. Kinariwala [2003] 259 ITR 10 the apex court, after referring to the decisions of the Privy Council in the cases of Raja Bejoy Singh Dudhuria v. CIT [1933] 1 ITR 135 and P. C. Mullick v. CIT [1938] 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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