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TMI Blog1957 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a firm of three partners (husband, wife and son) and that of the Dhulia Mills in the name of two partners (father and son). As from 29th June, 1949, a partition took place in the Hindu undivided family and some of the assets of the family were divided among the various coparceners. An order under section 25(4) was also passed by the Income- tax Officer. The Department accepted that the managing agency business ceased to belong to the Hindu undivided family. The managing agency of the two textile mills was taken over by a partnership consisting of Motilal Manakchand and his son Maganlal styled as Motilal Manekchand Sons. Clause (i) of the deed of dissolution reads as under: (i) That the said Motilal Manekchand and Maganlal Motilal should take up the managing agency of the Pratap Mills Ltd., Amalner, carried on in the name of Motilal Manekchand Co., and the managing agency of New Pratap Mills Ltd., Dhulia, carried on in the name of Motilal Manekchand Sons and be entitled to the Managing agents' remuneration in equal shares and that they should pay to the said Bhagirathibai Motilal annas two and pies eight out of their respective eight annas share in the said two managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No suggestions are offered. Two orders of the Income-tax Officer and two orders of the Appellate Assistant Commissioner and the order passed by the Income- tax Officer under section 25(4) are made part of the case at the special request of the Department. They are annexures E , F , G , H and I . ORDER OF THE TRIBUNAL. The assessee is partner in the firm of Messrs. Motilal Manekchand Sons. We have dealt with firm's appeal where in the firm claimed a deduction out of the managing agency commission earned by the firm. Half of that deduction is claimed in the appellant assessment. The facts have been set out in the order referred to above and need not be reproduced. There is no provision in the Income-tax Act under which any deduction can be allowed against the share income from a firm. This clear case of appropriation of profits. We may again state here that the managing agency commission is a remuneration for services rendered. In the present case the firm rendered the services and earned the remuneration. If the partners had undertaken to part with a part of that remuneration after it had been earned, it is an appropriation of profits. No charge can be created in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g agency commission is credited to her, and it is significant to note that in each schedule the total properties allocated comes to ₹ 13,03,646 and this amount is arrived at after taking into consideration the managing agency commission. After the dissolution of the family the father and son constituted a partnership and acted as the managing agents of these two mills, and the contention was put forward both by the firm and by each individual partner that the managing agency commission received by them and in respect of which they were liable to pay tax was not the full 16 annas received by them but 16 annas less the amount which went to Bhagirathibai. This contention was rejected by the Department and the Tribunal accepted the view of the Department. The assessee had now come before us. Now, the real question that we have to consider is this. What is the real income of each of the two partners, viz., the father Motilal and the son Maganlal? Is his income 8 annas in the managing agency commission of the two mills, or is part of that income diverted so that the real income of the partner is not 8 annas but 8 annas less the amount which is diverted in favour of Bhagirathibai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction should be taken into consideration. Therefore, even though the amount to be paid to Bhagirathibai May not be considered in the assessment of the firm, that would not prevent the two partners from claiming that their real income as partners is not 8 annas share in the managing agency commission but 8 annas less the amount which Bhagirathibai was entitles to receive. See our observations in Shanti Kumar's case [1955] 27 I.T.R. 69, at 79. Turning, therefore, to the question as to whether a partner who is before us on this assessment, viz., Motilal Manekchand, is entitled to relief in respect of the amount which he is liable to pay to Bhagirathibai, the first question that we have to consider is as to the nature of Bhagirathibai's claim against Motilal. It is obvious that Bhagirathibai has an overriding title to 2 annas and 8 pies share in the commission against Motilal. There was some controversy as to whether the provision is the deed of dissolution that Bhagirathibai was entitled to this share out of the 8 annas share managing agency constituted a charge on this commission in favour of Bhagirathibai. We are inclined to accept the submission of Mr. Kolah that it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income. But the whole question before us is, looking to the true nature of the transaction, can it be said that the whole of the managing agency commission ever became the real income of the two partners, and in our opinion the answer must be against the contention of the Advocate-General. Turning to the cases that were cited at the Bar, the first and the leading case is the decision of the Privy Council in Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax, Bengal [1933] 1 I.T.R. 135. In that case the assessee succeeded to the family ancestral estate on the death of his father. After that his step-mother brought a suit for maintenance against him and in that suit a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step-mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee, and the assessee claimed that in computing his income the amount paid by him to the step-mother under the decree should be excluded. The Privy Council agreed with the view of the Chief Justice from whose judgment this appeal had been preferred that the assessee's liability to his step-mother did not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee was the whole income of the immovable property, or the income of the immovable property less the deduction, and they held that the real income, which was liable to tax, was the income subject to the deductions in respect of the charges. And Sir John Beaumont applied that test to the case before him. In a more recent case, Prince Khanderao Gaekwar v. Commissioner of Income-tax [1948] 16 I.T.R. 294 we applied this principle to a voluntary settlement made by two sons in favour of their mother, and the test we laid down was whether the property was subject to a valid and legal charge which could be enforced in a Court of law under which the assessee was bound to pay a certain amount recurring annually. In our opinion, the test would be the same even though there may not be a specific charge so long as there was an obligation upon the assessee to pay which could be enforced in a Court of law. The Advocate-General has relied on another Privy Council case, P.C. Mullick v. Commissioner of Income-tax, Bengal [1938] 6 I.T.R. 206. The case is rather interesting because it correctly brings out the principle underlying the earlier Privy Council case. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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