TMI Blog1976 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... s ? " The question relates to the assessment years 1959-60 to 1963-64, the relevant previous years being the financial years preceding the assessment years. From April 1, 1957, the constitution of the firm of Messrs. Crawford Bayley Co. (the assessee) was governed by a partnership deed dated March 14, 1957 (which in the question is referred to as annexure " A "). Under this deed of partnership one of the partners of the firm was Mr. V. R. Nath. He died on May 27, 1958. After his death a new deed of partnership was executed on April 16, 1959, and it was to take effect from April 1, 1959. This deed of partnership is referred to as annexure " B " in the question. Mr. D. T. Lawrie who was a partner of this firm died on July 16, 1959. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct as in that clause provided. " " 34. In the event of the death of an active partner or a sleeping partner leaving a widow the continuing active partners shall during her life (or until the firm is wound up as provided in clause 39) make to such widow a monthly payment equivalent to Rs. 50 for each year of her husband's service as a partner prior to his death, or his becoming a sleeping partner, whichever be the earlier, but subject to a maximum payment of Rs. 1,000 per month and under deduction of any income-tax payment by the widow in respect of such monthly payment. Provided that in the event of there being three or more widows entitled to receive payments under this clause the aggregate amount payable to all of them shall be limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments could not be allowed as expenditure laid out for the purpose of the assessee's business. In a further appeal by the assessee-firm before the Appellate Tribunal it was urged on behalf of the assessee that payments made to Mrs. Nath and Mrs. Lawrie represented amounts that were diverted from the firm's coffers by an overriding title and that as the legal representatives of Mr. Nath and Mr. Lawrie did not receive anything towards the goodwill of the firm the payments to Mrs. Nath and Mrs. Lawrie should be looked upon as the rent of goodwill so as to be allowable as business expenditure. On the other hand, it was contended on behalf of the revenue that the payments made to Mrs. Nath and Mrs. Lawrie constituted application of income afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment and it was for these reasons that the contention on behalf of the assessee-firm was accepted by the Tribunal. It is from this order of the Tribunal that the above question is referred for our determination. Mr. Joshi on behalf of the revenue made the following submissions. Firstly, he submitted that in respect of payments to Mrs. Nath and/or to Mrs. Lawrie there was no diversion by overriding title ; that in respect of such payments, no charge was created on any of the properties of the assessee-firm. Secondly, he submitted that in respect of payments to Mrs. Nath and Mrs. Lawrie, the case was one of application of income after it accrued to the assessee-firm and when such is the case the amounts paid to the widows cannot be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. If regard be had to the relevant provisions of the partnership deeds, annexures " A ", " B " and " C ", it is quite apparent that this is not a case of application of income after it accrued due to the assessee, but it is clearly a case of diversion of income by an overriding title in respect of payment. Under these partnership deeds the assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be made even though no profits whatsoever may have been made. This provision shows that it is an obligation in the nature of trust. Ordinarily, it is true that a person who is not a party to the contract cannot enforce it, but there are several well recognised exceptions to this rule. One of the well recognised exceptions is a cestui que trust. In a cestui que trust even though a person may not be a party to a contract he can enforce his right under contract by adopting appropriate legal proceedings. Such is the case so far as the rights of a widow of a deceased partner under these partnership deeds are concerned. Such payments have to be made by reason of an overriding title and there is no question of income being applied by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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