COMMISSIONER OF INCOME TAX Vs. RUPCHAND PRABHUDAS

JUDGEMENT

(1.) THE assessee, Rupchand, is a partner in a partnership firm, M/s. Prabhudas Parasram, and he earns share income from the said firm by virtue of his being a partner. The capital invested in the firm by Rupchand belonged to the HUF of Rupchand and the other members of his family, out of whom, three were his sons, one was his wife and one was his daughter. There was a partition in the HUF of Rupchand, at which the shares of the other members of the family, i.e., his two minor sons and his wife were separated and an amount of Rs. 5,000 was provided by way of provision for marriage and maintenance of the minor daughter. Though the amounts which were received by the family members of Rupchand were retained in the firm, M/s. Prabhudas Parasram, separate entries in respect of their respective amounts came to be made in the account books of the partnership firm. One of the terms of the partition deed, which is annex 'B', is as follows:

(2.) IN the assessment proceedings for the assessment years 1974 -75 and 1975 -76, Rupchand claimed a deduction in respect of interest paid by him to the respective members of the erstwhile HUF from out of his share income from the partnership firm. The ITO, however, held that an agreement to pay interest to the family members as a result of partition cannot hold an overriding title on the share income of Shri Rupchand from M/s. Prabhudas Parasram, as there was no agreement between a firm and the HUF of Shri Rupchand. Thus, holding that there was no overriding title resulting in a diversion of income in favour of the other members of the HUF the entire amount of the share income was treated as the income of the assessee.

(3.) ARISING out of this order of the Tribunal, the following question has been referred to this court at the instance of the revenue under s. 256(1) of the I.T. Act: 'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that there was an overriding title created ?'