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TMI Blog1987 (3) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... ere filed by the legal representative, Shri P. K. Agrawala. However, same set of facts concerns all the assessment years in question. For the assessment year 1970-71, however, there are two assessments one in the status of individual before the death of Shri Banwarilal Agrawala and the other in the status of Hindu undivided family after the death of Shri Banwarilal Agrawala. The assessee derived commission from East Bhagatdih Colliery Co. (P.) Ltd. from leasing out coal-bearing lands and coal mines along with the machinery, furniture, assets etc. The commission was received by virtue of an agreement dated July 12, 1965. In the above agreement between the assessee and M/s. East Bhagatdih Colliery Co. (P.) Ltd., the stipulation was that the company had to pay Rs. 1.50 per tonne as commission on coal despatch. It was also clearly stipulated in the agreement that 0.50 paise per tonne was to go to the assessee and Re. 1 per tonne was to be paid to Shri Hardeo Das Memorial Trust, The above trust was a private trust created by a document dated January 9, 1964, by the assessee and the other members of his family. Thus, according to the assessee, 1/3rd of the income received was to go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner deleted 2/3rds of the commission income from the hands the assessee. The Department thereafter went in further appeal before the Tribunal. The Tribunal upheld the order of the Appellate Assistant Commissioner and held that only 1/3rd of the commission income was assessable in the hands of the assessee which was actually received by him. The Tribunal further found that it was nobody's case that the income, in fact, had come to the assessee before being passed on to the trust and in view of the relevant clauses in the agreement (dated July 12, 1965), the trust was not to receive income from the assessee but from the company which was managing the colliery. The Tribunal, interpreting the relevant clauses in the agreement, also found that an overriding title for the 2/3rds of the commission income was created in favour of the trust. Thus the Tribunal upheld the order of the Appellate Assistant Commissioner. The Tribunal having held as above, the references are at the instance of the Revenue under section 256(1) of the Income-tax Act (hereinafter referred to as " the Act "). The learned senior standing counsel for the Department has contended that commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery Company Private Limited (marked as annexure " E " to the statement of case). ".. ...... (3) That the ownership of and the right, title and interest of the amalgamated unit will continue to rest as at present, namely, in the first party in respect of the coal-bearing lands described in the first and second schedules hereunder....... (16) the second party during the period of the agreement shall pay as profit as follows. To the first party (Shri Banwarilal Agarwala) at the rate of 50 paise per tonne of coal on all coal raised from schedule 'A' and schedule 'B' coal lands mentioned below (b) Hardeodas Memorial Trust, 14, Bentinck Street, Calcutta at the rate of Re. 1 (Rupee one) only per tonne of coal on all coal raised from schedule 'A' and schedule 'B' coal lands mentioned below ...... ..." The respective learned counsel for the parties have placed before us the order of the Appellate Assistant Commissioner and also that of the Tribunal. It is unfortunate that neither the Appellate Assistant Commissioner nor the Tribunal looked into the provisions of section 60 of the Act. A bare reading of section 60 of the Act makes it clear that in cases where by virtue of a transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the application of the assessee's income and not assignment of any sum out of the revenue before it had become the income of the assessee. The matter then went to the Supreme Court. Before I state as to what the Supreme Court held, it is pertinent to quote the material portion of the instrument of that case [1961] 41 ITR 624 (at pages 625 and 626): " This Deed Witnesseth that for effecting the said desire and in consideration of the natural love and affection of the Settlor for the Beneficiary, the Settlor as the beneficial owner assigns unto the Beneficiary the right, title and interest to every dividend and sum of money which may be declared or become due and payable on account of or in respect of the said shares (not being the price or value thereof) and further hereby covenants with the Beneficiary to hand over and/or endorse over to the Beneficiary any dividend warrant or any other document of title to such dividend or sum of money as aforesaid and to instruct the said company to pay any such dividend or such sum of money to the Beneficiary to hold the same unto the Beneficiary absolutely during the term of her natural life. And it is hereby agreed and declared that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's account and one-fourth thereof was transferred to the accounts of each of the three beneficiaries. The assessee claimed that for the assessment year in question, those amounts could not be included in his total income for purposes of assessment to income-tax. The assessee contended before the Income-tax Officer that the amount payable to his wife and two daughters never became his income, being diverted by an overriding title, and hence that amount could not be included in his total income for purposes of assessment, as it was excluded by reason of the third proviso to section 16(1)(c) of the Indian Income-tax Act, 1922. The assessee's contentions were not accepted by the Income-tax Officer and his appeals to the Appellate Assistant Commissioner and the Tribunal also failed. The matter then went before the High Court and the question referred for the High Court's opinion was as follows (at page 26): " Whether the inclusion in the assessee's total income of the profits settled by him on his wife and two daughters is justified in law ? " The High Court answered the question in the affirmative. However, on a certificate granted by the High Court, the matter went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1961] 41 ITR 624. In my opinion, the facts of this case also are at par with the facts of the instant case and the ratio decided in this case as well fully supports the submission advanced by learned counsel for the Department. On the other hand, learned counsel for the assessee, in support of his submissions as mentioned in paragraph 10 above, relied upon Supreme Court case in the case of Murlidhar Himatsingka v. CIT [1966] 62 ITR 323. On the facts of that case, the Supreme Court held that there was an overriding obligation and the income of M in firm A did not remain his income in spite of the sub-partnership. In this case M, who was a partner in a registered firm (firm A), entered into a sub-partnership (firm B) with his two sons and a grandson. One of the clauses of the deed of sub-partnership (firm B) provided that the profits and losses of M in the registered firm (firm A) shall belong to the sub-partnership (firm B) and shall be borne and divided in accordance with the shares specified therein, but that the capital with the assets and liabilities would belong to M exclusively. The sub-partnership was also registered. For the assessment years in question, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case, it would appear that there was sub-partnership which too was a registered one. A sub-partner has definite enforceable rights to claim share in the profits accrued to or received by the partner in the original partnership firm. Thus, this case is clearly distinguishable on facts and does not support the submission advanced by learned counsel for the assessee on the facts of the instant case. Learned counsel for the assessee then relied upon the case of CIT v Crawford Bayley Co. [1977] 106 ITR 884 (Bom). In this case, the assessee firm was governed from April 1, 1957, by a partnership deed dated March 14, 1957. One of the partners, N, died on May 27, 1958. Thereafter a new partnership deed was executed on April 16, 1959, to take effect from April 1, 1959. A partner, L, died on July 16, 1959. A supplementary deed was executed on April 29, 1960. Under the provisions of the partnership deeds of 1957 and 1959, the widows of N and L were given some payments monthly. The payments thus made were claimed as deductions by the assessee-firm in the assessments for the assessment years 1959-60 to 1963-64. The Income-tax Officer rejected the claim holding that the widows were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by adopting appropriate legal proceedings. The payments had to be made by reason of an overriding title. Further, no question of allowing an expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, or the corresponding provisions of the Income-tax Act, 1961, arises in the present case, because deduction is claimed not as an expenditure under the exception but it is, claimed by way of payment in respect of items which are obligations in the cestui que trust and such payments are required to be made before the income even accrued to the assessee. Since a deduction is permissible under section 10(1) of the Act, the question whether it is permissible under section 10(2)(xv) did not arise for consideration. Therefore, the payments made to the widows of the deceased partner were to be excluded from the assessments in the respective years. Thus, on the facts in this case, it would appear that it was the firm's obligation to pay the money to the widows of N and L and it also appears that the entire interest was transferred to the trust, whereas, in the instant case, there is no transfer of the entire interest. Thus, the facts are clearly distinguishable. Secondly, I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing no transfer of assets from which the income arose, the entire commission income, on general principles, will be regarded as the income of the assessee (transferor) and the entire commission income will be assessed in the hands of the assessee (transferor), even though it was applied in a particular manner under the legal obligation. I further hold, on a fair and comprehensive reading of the stipulations of the agreement (annexure " E " to the statement of case) that, in the facts of the instant case, it was not a case of diversion of any sum of money before it had become the income of the assessee. Admittedly (as fairly conceded by learned counsel for the assessee), the commercial assets from which the income arose were not transferred to the trust. In the facts of the instant case, as already discussed above, what was transferred was only the income to the trust and, in that view of the matter, I hold that the provisions of section 60 of the Act were applicable to the instant case and hence the entire commission amount had, therefore, to be included in the assessee's total income. For the aforesaid reasons I, therefore, hold that, in the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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