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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 ..... 93-94 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 1-4-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by which time the assessee-company expected to build its own goodwill in the city of Kolhapur. In consideration of the restrictive covenants, the assessee-company agreed to pay to the three doctors as under: "(a) To M/s. Kolhapur Diagnostic Center- I. Rs. 1.50 lakhs for transfer of tenancy rights of the premises situated 615 Shahupuri, 2nd lane, Kolhapur. II. Rs. 40,000 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 restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the services rendered by them the doctors were paid salaries as under: A.Y. Dr. Mehta Dr. Karnawat Dr. Patankar Rs. Rs. Rs. 1991-92 1,17,600 1,17,600 1,17,600 1992-93 1,09,200 1,09,200 1,09,200 1993-94 1,39,000 1,39,000 1,39,000 8. Also in respect of the restrictive covenant vide agreement dated 1-4-1990 the doctors received payments as mentioned in paragraph 4 above. And then after 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creating a charge on the assessee's resources it was not application of the assessee's income but rather the allocation of a sum out of his revenue before it becomes income. A diversion of income by an overriding title need not necessarily be by a decree of court or by statutory or customary law, but may be under the provisions of a Will, or agreement, or deed, e.g., a deed of sale or gift or partnership or sub-partnership or partition of joint family property member. 12. It was held 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. In other words, to be an overriding charge the obligation must be attached to the source of the income. 16. We now proceed to apply the above principles to the present case. The assessee-company having three doctors as its directors had taken over the professional activities carried on by them. The company had entered a restrictive covenant with the doctors vide agreement dated 1-4-1990. The consideration paid by the assessee-company to the doctors in respect of the restrictive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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