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TMI Blog2002 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... nil Jivanlal Kinariwala Trust and the income arising therefrom belongs to the said trust by overriding title? (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,141 being the profits referable to 50 per cent. out of the assessee's right, title and interest of ten per cent. in the partnership firm of Kinariwala R.J.K. Industries is not the real income of the assessee, but of Sunil Jivanlal Kinariwala Trust and as such assessable only in the hands of the trust? (3) Whether, on the facts and in the circumstances of the case, fifty per cent. out of the assessee's ten per cent. share in the firm of Kinariwala R.J.K. Industries has been validly assigned to Sunil Jivanlal Kinariwala Trust under the deed of trust dated December, 27, 1973, and whether the income arising therefrom belongs to the said trust by way of overriding title?" The facts which gave rise to these questions may be noticed here. The assessee, a partner in the partnership firm, known as "Kinariwala R.J.K. Industries", Ahmedabad, (for short, "the firm") was having a ten per cent. share therein. On December 27, 1973, he created a trust named "Sunil Jivanlal Kinariwala Trust" by a deed of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal. That is how the appeal came to be filed and is before us. Mr. Preetesh Kapur, learned counsel appearing for the Revenue, contended that having regard to the terms of the settlement, what was assigned was the right to receive profits to the extent of fifty per cent. of the share of the assessee; there was, therefore, no overriding title in. the trust so as to divert the income at source and the High Court erred in treating the assignment as resulting in diversion of the income. The question of application of section 60 of the Act was urged as an alternative contention and was not seriously pursued. Mr. U.U. Lalit, learned counsel appearing for the respondent-assessee, on the other hand, argued that under section 29(1) of the Indian Partnership Act, 1932, the trust became entitled to receive fifty per cent. share of the assessee's income from the firm by assignment under the settlement deed and, therefore, the trust was getting the income by virtue of the overriding title and the High Court had correctly answered the questions. Further, it was conceded by learned counsel for the parties that questions Nos. 1 and 3 overlap and they need to be reframed. By order of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding title. In Raja Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC), under a compromise decree of maintenance obtained by the step-mother of the assessee, a charge was created on the properties in his hand. The Law Lords of the Privy Council, reversing the judgment of the Calcutta High Court, held that the amount of maintenance recovered by the step-mother was not a case of application of the income of the assessee. In contrast, in P.C. Mullick's case [1938] 6 ITR 206 (PC) under a will, certain payments had to be made to the beneficiaries by the executors and the trustees (assessees) from the property of the testator. It was held by the Privy Council that such payments could only be out of the income received by the assessees from the property, therefore, such payments were assessable to income-tax in the hands of the assessees and there was no diversion of income at source. Whereas in the former case, the step-mother of the assessee acquired the right to get the maintenance by virtue of the charge created by the decree of the court on the properties of the assessee even before he could lay his hands on the income from the properties, but in the latter case, the obligation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting aside the judgment of the High Court, this court held: "In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another's income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC) and rather falls within the rule stated by the judicial Committee in P.C. Mullick's case [1938] 6 ITR 206." We may notice a few decisions as instances of application of the principle of diversion of income by overriding title. In K.A. Ramachar v. CIT [1961] 42 ITR 25 (SC), the assessee was a partner in a firm. He executed three deeds of settlement in favour of his wife, a married daughter and a minor daughter, assigning to each of them one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, nor would creation of charge in favour of the college make any difference. Now, we shall advert to the cases relied upon by the High Court. In Bagyalakshmi and Co.'s case [1965] 55 ITR 660 (SC), two members of the Hindu undivided family together held ten annas share in a firm. On a partition in the family, the share of the said members was divided among various members of the family. Thereafter, a fresh partnership deed was executed in which the said two persons were, however, shown as having the same proportion of share in the firm. They claimed that they were liable to pay tax only on the respective shares shown in the partnership deed. That contention was upheld by the Tribunal. Thereafter, the Commissioner cancelled the registration of the partnership firm under the Act on the ground that it did not specify the correct shares of the said two persons in the partnership. It was held by this court that the firm was entitled to be registered and that the shares given to the said two persons in the partnership deed were correct according to the terms of the deed, although they would be answerable to the divided members of the family in respect of profits pertaining to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for income-tax purposes." It is apt to notice that there is a clear distinction between a case where a partner of a firm assigns his share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership. Whereas in the former case, in view of section 29(1) of the Indian Partnership Act, the assignee gets no right or interest in the main partnership, except, of course, to receive that part of the profits of the firm referable to the assignment and to the assets in the event of dissolution of the firm in the latter case, the sub-partnership acquires a special interest in the main partnership. The case on hand cannot be treated as one of a sub-partnership, though in view Of section 29(1) of the Indian Partnership Act, the trust, as an assignee, becomes entitled to receive the assigned share in the profits from the firm not as a sub-partner because no sub-partnership came into existence but as an assignee of the share of income of the assignor-partner. In this view of the matter, it is unnecessary to consider the alternative contention based on section 60 of the Act. For the aforementioned reasons, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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