9911796707
Advanced Search 
TMI Blog2019 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings, it was noticed that the assessee-firm had debited a sum of Rs. 19,45,455, towards the sum paid to the legal heirs of one of the deceased partners, Shri K.L.Kulathu. The Assessing Officer while completing the assessment u/s 143(3) of the I.T.Act (order dated 19.12.2012) held that the above said payment is a diversion of income. Further, the A.O. held that payment cannot be stated to be for the purpose of business of the assessee-firm and added back to the total income a sum of Rs. 19,45,455. 4. Aggrieved by the assessment order, the assessee preferred appeal to the first appellate authority. The CIT(A) confirmed the disallowance made by the Assessing Officer. The CIT(A) held that the case laws relied on by the assesseefirm is distinguishable on facts since in those cases the payments were made to the ex-partners and not to the legal heirs of the deceased partners. Further, the learned CIT(A) by relying on clause 24 of the partnership deed dated 31.12.2007 was of the view that there was no necessity of payment of Rs. 19,45,455 to legal heirs of the deceased partners. It was further concluded by the learned CIT(A) that the payment of Rs. 19,45,455 to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that the Partnership Deed provides for payment prior to paying tax on the gross earning. In the absence of both the above, the payment made to the legal heirs of the deceased partner cannot be said as paid within the permissible limit of the Act. In the backdrop, I find no infirmity in the decision the Assessing Officer has taken to disallow the wrong claim of deduction made and accordingly, the same is confirmed. As a result, the appeal filed on this ground stands dismissed." 5. Aggrieved by the order of the CIT(A), the assessee preferred appeal to the Tribunal raising the following grounds:- 1. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in not accepting the claim of the appellant that the expenditure for a sum of Rs. 19,45,455/- paid to the legal heirs of one of the deceased partner Shri. K L Kulathu in terms of the partnership deed is an allowable deduction. 2. The learned Commissioner of Income Tax (Appeals) should have appreciated the fact that the deduction claimed for the payment made to legal heirs of one of the deceased partner in terms of partnership deed, is a diversion of income to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of financial year 2009-10 relevant to assessment year 2010-11 and the amount so paid was claimed as a revenue expenditure. Assessing Officer disallowed the claim even while observing that it was a diversion of income. CIT (A) overlooked the relevant clauses of the partnership deed. He failed to appreciate the similarity of the facts of the case with that obtaining in the case laws quoted during hearing. CIT(A) also ought to have appreciated that it is a case of diversion of income with overriding charge and not an application of income. The said payment being diversion of income by overriding title was hence an allowable expenditure in computing the assessable profits of the firm for the relevant assessment year. It is an expenditure laid out wholly & exclusively for the purpose of profession & hence allowable as a revenue expenditure. In support of our submissions, copies of relevant decisions of Mumbai bench and Bombay High Court recent decision are enclosed. In particular, in the absence of further appeal by the revenue, it is to be presumed that the decision of Bombay High Court in (2016) 133 DTR 257 has attained finality. Thus it is humbly prayed that the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be entitled to a pension of Rs. 3000/- (Rupees Three thousand only) per month from the firm for a period of three years from the date of death of the deceased partner." 8.1 The CIT(A) only considered clause 24 of the above said partnership deed and came to the conclusion that a sum of Rs. 19,45,455 was not the correct working. According to us, the CIT(A) has overlooked the relevant clause, viz., clause 23 of the partnership deed dated 31.12.2007. 8.2 The assessee had claimed the above said payment as diversion of income by way of overriding title. The true test of overriding title as laid down by various Courts is to know whether the amount sought to be deducted never reached the assessee as his income. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by nature of the obligation cannot be said to be a part of the income of the assessee. Whereby by the obligation the income is diverted before it reaches the assessee, 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. The payment conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to apply the income in a particular way before being received by the assessee or its accrual, the same results in the diversion of income. On the other hand, where the obligation to apply income is undertaken after being received or accrued to the assessee, it will be the case of application of money and will be liable to be taxed in hands of assessee. The underlying test, therefore, is whether the income in question ever reaches to the assessee. 8.4 In the instant case, the effect of creation of the overriding of income is achieved by clause 23 of the partnership deed dated 31.12.2007. In identical factual situation, the Mumbai Tribunal in the case of ACIT v. Deloitte Haskins & Sells [(2018) 196 TTJ (Mumbai) 355] had held that the payment made by a firm to the ex-partners and spouses / legal heirs of the deceased partners would be paid part of the income of the assessee-firm for the services rendered by them. Hence, it was concluded by the Mumbai Bench of the Tribunal that it was a case of diversion of income by way of overriding title. Similar view was taken by the Mumbai Tribunal in the cases of A.F.Ferguson & Co. v. ACIT [ITA No.663/Mum/2010 - order dated 10.08.2011] and R. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
