COMMISSIONER OF INCOME TAX Vs. WOODLANDS CO

JUDGEMENT

(1.) THE question of law referred for the opinion of this court is : 'Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,400 formed part of the assessee's income ?'

(2.) THE assessee in this case is a firm of partners. The partners in question are the partners of two different firms. One of the partnerships consisted of five partners, namely, the existing four partners and their late father, B. Munivenkatappa. The other partnership consisted of the afore -mentioned B. Munivenkatappa and his four sons. In this case we are concerned with the former partnership. The said Munivenkatappa died on October 17, 1960. Prior to that, by means of his will date May 14, 1958, he bequeathed his share in the second partnership referred to earlier to his four sons who were the remaining in partners in that firm, subject to the condition that they should pay to his daughter, Sharadamma, every month a sum of Rs. 200 during her lifetime. After the death of Munivenkatappa, his four sons, who are partners of the firm, entered into a fresh deed of partnership on October 18, 1960. Clause 5 of the partnership deed provides :

(3.) THE true principle which should guide us in deciding matters like the one before us has been laid down by the Supreme Court in Commissioner of Income -tax v. Sitaldas Tirathdas. Therein, it is laid down that the true test for the application of the rule of diversion of income by an overriding charge is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where, by the obligation, 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 preacher the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can rely be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied.