2019 (2) TMI 1283

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..... . The respondent assessee is a Partnership Firm engaged in providing legal services. During the course of scrutiny of the assessed return for the assessment year 2007- 2008, the Assessing Officer objected to the claimant for deduction of a sum of Rs. 3.68 Crores which was paid by the assessee firm to its retired partner. The assessee pointed out that the payment was made in terms of clause 23.5 contained in partnership agreement. By further elaborating the stand before the Assessing Officer, the assessee pointed out that the amount was paid by way of compensation to the outgoing partner towards the appreciation in the value of the immovable properties held by the assessee firm to the extent of his share of the partnership and also for the w .....

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..... n case of Commissioner of Income-tax v. Mulla and Mulla and Craigie, Blunt and Caroe reported in 190 ITR 198 the concept of diversion of income at source by overriding title was discussed at length under somewhat similar circumstances. The Court made the following observations:-   "In the present case, the assessee-firm was under a legal obligation in terms of the deed of partnership dated September, 1, 1967, and the clauses in the two subsequent partnership deeds to pay out standing fees for the work done up to and during the period when the deceased partners were partners. This was also an instance of the source of income being subject to an obligation. We are in agreement with the Calcutta decision and hold that the amounts so pai .....

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..... not raise any substantial question of law." 6. It is not necessary to refer to long line of decisions of this Court and other High Courts taking a similar view in the similar circumstances. Only to summarize, undisputed facts are that the partnership firm envisaged payment to a outgoing partner on the basis that the partner would have rendered service during his tenure as a partner of the firm but could not enjoy the fruits thereof on account of the fact that the work having remained incomplete, the concerned client had not been billed for the work already done. In similar circumstances, the courts have held that payment to the partner would amount to diversion of income at source by overriding title. No substantial question of law arises .....

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