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TMI Blog2019 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, is whether the income in question ever reaches to the assessee. 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 (5) TMI 418 - ITAT MUMBAI] 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. The Mumbai High Court in case of CIT v. Kanga & Co. [2016 (2) TMI 573 - BOMBAY HIGH COURT] had confirmed the Tribunal order, wherein the Tribunal held that payment by firm relatable to retired / deceased partner’s would tantamount to diversion of income by overriding title. Therefore,amount of should be allowed as deduction in the case of the assessee-firm - Decided in favour of assessee. - ITA No.90/Coch/2018 - - - Dated:- 1-3-2019 - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Sri. T.V.Hariharan For the Respondent : Smt.A.S.Bindhu, Sr.DR ORDER PER GEORGE GEORGE K, JM This appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are on partners who retired but not on legal heirs as in the case of the assessee. Hence, the reliance is totally misplaced. The other argument of the assessee that the legal heirs were paid as per the Partnership Deed. If this is what the fact then clause 24 of the Partnership Deed only is applicable to the assessee as per which the legal heirs are entitled only for a sum of ₹ 3,000/- per month for a period of 3 years from the date of death of the deceased partner. As per this clause, the assessee may claim a sum of ₹ 36,000/- only for the year under consideration and this is subject to the maximum period of 3 years and the partner dies during his continuation as a partner in the firm. This apart, whatever the payment the assessee claimed to have made to the legal heirs of the deceased partner, the same should necessarily be paid in accordance with the provisions of section 37 of the Act. As per section 37, the amount which is to be debited to the profit loss account should have been incurred wholly and exclusively for the purpose of business and towards earning of income during the course of business carried out during the year under consideration. The amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u upon his death was strictly in conformity with the Partnership Deed. He ought to have appreciated that clause 24 is not applicable to the issue in question. 4. The learned CIT (A), Thiruvanathapuram erred in mixing the payment to late Sri. K.L.Kulathu with the tax payment. Both were unrelated. Tax payment should not decide the eligibility of our otherwise legal valid claim. 5. Even after endorsing the view of Assessing Officer that it was diversion of income still the learned CIT (A), Thiruvanathapuram upheld the disallowance which is not justified. 6. The appellant, with all humbleness, reserves its right to make addition, alteration, modification and or withdrawal of any of its grounds at the time of the hearing. Whereof it is prayed that the order of the learned Commissioner of Income Tax (Appeals) be modified in the manner mentioned above and justice be rendered by deleting the addition of ₹ 19,45,455/ - made on assessment. 6. The learned AR has filed a paper book containing 58 pages, inter alia, enclosing the case laws relied, two partnership deed dated 31.12.2001 and deed dated 20.01.2010. The learned AR has also filed details of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment wherein the sum of ₹ 19,45,455 paid by the assessee-firm to the legal heirs of the deceased partners is an allowable deduction? The legal heirs of the deceased partner was paid a sum of ₹ 19,45,455 as per the terms mentioned in clauses 23 and 24 of the partnership deed dated 31.12.2007. The detailed working of the claim is enclosed at page 37 of the paper book filed by the assessee. Clauses 23 and 24 of the partnership deed dated 31.12.2007 reads as follows:- 23. Any partner may retire from the firm, after giving three months notice in writing to the other partners in which case he shall be entitled to all moneys standing to his credit in his capital and current accounts including his share of profit or loss upto the date of retirement less any amounts due by him to the firm but such retiring partner shall not be entitled to any share on account of the goodwill of the firm which shall absolutely belong to the continuing partners only. Provided however, that if a partner retires or dies after attaining the age of sixty five, he or his legal heirs shall also be entitled for a lump sum payment as retiring benefit equal to two years share of his net earnings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Mulla Mulla Craigie Blunt Careo [(1991) 191 ITR 198 (Bom.)] , the Hon ble Bombay High Court held that the assessee firm was under a legal obligation to pay to the legal heirs the share of the deceased partners in the income of the firm for work done by the firm upto the date of death of the partners. It was held by the Hon ble Bombay High Court that the amount was paid by the assessee firm to the legal heirs of the deceased partners could not be assessed as income of the firm. It was concluded by the Hon ble High Court that the amount so paid to the legal heirs of the late deceased was under legal obligation and the amount never was received by the assessee-firm as its income but was diverted at source. The Hon ble Bombay High Court relied on the following judicial pronouncements in reaching the above conclusion :- (i) CIT v. G.Basu Co. (1990) 182 ITR 472 (Cal.); (ii) V.N.N.Devarajulu Chetty Co. v. CIT (1950) 18 ITR 357 (Mad); and (iii) CIT v. Crawford Bayley Co. (1977) 106 ITR 844 (Bom.) 8.3 Thus, in case of diversion of income by overriding title the obligation is imposed on the source while in case of application of income, the obligation is on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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