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TMI Blog2005 (8) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer in assessment years 1993-94 and 1994-95 respectively and confirmed by the CIT(A). 3. The assessee-company was deriving income from a diagnostic center having facilities of C.T. Scan, Ultrasound and X-ray. The assessee made a claim for deduction of Rs. 5,36,254 on account of professional charges paid to three directors who were also directors of the assessee-company as under: Name Period Amount (Rs.) Dr. S.M. Karnawat (M.D) 1-4-90 to 31-3-91 78,846.20 Dr. C.P. Mehta -do- 78,846.20 Dr. K.B. Patankar -do- 78,846.20 ----------- Sub-total 2,36,538.60 Dr. S.M. Karnawat 1-4-91 to 31-3-92 99,898.28 Dr. C.P. Mehta -do- 99,898.28 Dr. K.B. Patankar -do- 99,898.28 ----------- Sub-total 2,99,694.45 Total 5,36,233.85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the cost of furniture fittings electrical connections, etc. III. Rs. 10,000 for user of telephone bearing No. 28601 which is presently standing in the name of Dr. C.P Mehta. The company was free to get the same transferred in its own name and at its own cost. (b) The company was to pay the following amounts to the three doctors in consideration of the restrictive covenants undertaken by them: (i) Dr. C.P. Mehta Rs. 5 lakhs (ii) Dr. S.M. Karnawat Rs. 3 lakhs (iii) Dr. K.B. Patankar Rs. 1 lakh" 5. The assessee-company entered into another agreement with the three doctors on 31-7-1991. In terms of this agreement, the assessee-company agreed to pay to each one of the three doctors, at the rate of 1.66 per cent of the total collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than one year yet another agreement was entered into on 31-7-1991. In terms of this agreement each one of them are to be paid by the assessee-company at the rate of 1.66 per cent of the total collections in respect of C.T. scan, ultrasound and X-ray with effect from 1-4-1990 and for a duration of 25 years and in the event of death or insolvency of anyone of them the same payment shall be made to their legal heirs. The terms of the agreement dated 31-7-1991 leave no doubt in our mind that the impugned payment does not qualify the conditions mentioned in section 37(1) of the Act. The CIT(A) has rightly observed that there is no connection between the impugned payments and the services rendered and that this expenditure could not be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Supreme Court in the case of Provat Kumar Mitter v. CIT [1961] 41 ITR 624 that the fundamental principle is that an application of income is an allocation of one's own income after it accrues or has arisen, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee, and it is received by him only for the benefit of the person who is entitled to the income under an overriding charge or title. 13. In the case of Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1, it was explained by the Supreme Court that what has to be seen is the nature of obligation by reason of which the income becomes payable to a person other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e covenants is mentioned in paragraph 4 above. The doctors are directors of the assessee-company and are paid salary as per the details mentioned in paragraph 7 above. It was after more than a year on 31-7-1991 that another agreement was entered into between the assessee-company and the three doctors providing for the impugned payment to them at the rate of 1.66 per cent of the total collection of C.T. Scan, Ultrasound and X-ray to each one of the three doctors for a period of 25 years with effect from 1-4-1990. In view of these facts and the legal position enunciated in the above paragraphs, it cannot be said that the obligation to make the impugned payments to the doctors as per the agreement dated 31-7-1991 represented an obligation whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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