MOTILAL MANEKCHAND Vs. COMMISSIONER OF INCOME TAX BOMBAY

JUDGEMENT

(1.) THERE was a Joint family consisting of Moti-' lal Manekchand and his son Maganlal. Motilal, Maganlal and Motilal's wife Bhagirathibai werf appointed managing agents of the Pratap Mills at-Amalner, and the lather and son were appointed managing agents of the New Pratap Mills at Dhulia. It is common ground that the managing agency belonged to the joint and undivided Hindu family. This Hindu family was partitioned on the 1st July 1948 and a document was drawn up on the 29th June 1949 to give effect to that partition. There are three Schedules to this deed of dissolution allocating joint family properties to the three parties who were entitled to equal shares on the partition of the joint Hindu family viz. , the father Motilal, the son. Maganlal, and the wife or the mother Bhargirathibai. There was a provision with regard to the managing agency commission and the provision was that Motilal end Manganlal were entitled to equal shares in this managing agency commission of the two Mills, but they both undertook to pay to Bhagirathibai 2 an as and 8 pies share each out of their respective 8 annas share, and when we turn to the three Schedules we and that in Schedules dealing with the father's and the son's property what is credited to them is 8 annas share of the managing agency commission of both the Mills less 2 annas and" 8 pies, and when we turn to the Schedule dealing with Bhagirathibai's properties we and that the 2 annas and 8 pies share in each of the managing agency commission is credited to her and it is sufficient to note that in each Schedule the total properties allocated comes to Rs. 13. 03. 646/- and this amount is arrived at after taking into consideration the managing agency, commission. After the dissolution of line family the father and son constituted a partnership and acted as the managing agents of these two Mills, and the contention was put forward both by the firm and by each individual partner that the 'managing agency commission received by them and in respect of which, they were liable to pay tax was not the full 16 annas received by them, but 36 annas less the amount which went to Bhagirathibai. This contention was rejected by the Department and the Tribunal accented the view of the Department. The assessee has now come before-us.

(2.) NOW, the real question that we have to consider is this. What is the real income of each of the two partners, viz. . the father Motilal and the son Maganlal? Is his income 8 annas in the managing agency commission of the two Mills, or is part of that income diverted so that the real income of the partner is not 8 punas but 8 annas less the amount which is diverted in favour of Bhagirathibai? Now, it is necessary to remove one or two misunderstandings that might have been caused by certain contentions put forward by the assessee before the Tribunal. In the first place, this is not- a case where a claim is made in respect of any deduction under the provisions of the Income-tax Act. If such a claim had been put forward, then we would have to consider the various sections of the Act in order to determine whether the deduction is justified. But it is clear position in law, as we shall presently rout out, that even though an assesses, may not be allowed to claim a particular amount as a deduction falling within the provisions of the Act, he would be entitled to urge that his real income should be considered and if a certain amount is to be deducted in order to ascertain his real income, such a "deduction would have to be made notwithstanding that the Income-tax Act made no provision for such a deduction. In all cases of tax, what has tot to be considered is what is the income of the assessee, and when that question arises what has not to be considered is the real income and not any artificial income, and for the purpose of ascertaining that real income every part of that income which may seem to be his income, if in fact it is not his income, if that part has been diverted and never constituted his real income, has got to be excluded. The other misunderstanding that was caused was by the claim made by the partnership that in the assessment of the partnership which is a registered firm this deduction should be allowed. Now the partnership which constitutes the managing agency did not enter into any agreement with Bnaglrathibai. The deed of dissolution to which attention has 'been drawn was between the three members of the joint family and it was as individuals that they were partitioning the joint family property, and therefore the Tribunal was right when it took the view that as far as the partnership was concerned it could not contend that its income as managing agents was in any way diverted by a certain amount having to be paid to Bhagirathibai. But we have held that even though a registered firm may not be entitled to claim a deduction when We come to the assessment of the partners constituting that firm, it would be open to a partner to contend that 'in order to determine his real income quae the share which he has received from the firm, any legitimate deduction should be taken into consideration. Therefore, even though the amount to be paid to Bhagirathitbai may not be considered in the assessment of the firm, that would not prevent the two partners 'from claiming that their real income as partners is not 8 annas share" in the managing agency commission but 8 annas less the amount which Bhagirathibai was entitled to receive. See our observations in Shanti Kumar Narottam Morarji v. Commr. of Income-tax Bombay City. 1955-27 ITR 69 at p. 79 (S) AIR 1955 Bom 234 at p 237) (A ).

(3.) TURNING, therefore, to the question as to whether a partner who is before us on this assessment, viz. , Motilal Manekchand, is entitled to relief in respect of the amount which he is liable to pay to Bhagirathibai, the first question that we have to consider is as to the nature of Bhagirathibai's claim against Motilal. It is obvious that Bhagirathibai has an overriding title to 2 annas and 8 pies share in the commission against Motilal. There was some controversy as to whether the provision in the deed of dissolution that Bhsgi-rathibai was entitled to this share out of the 8 annas share of the managing agency constituted a charge on this commission in favour of Bhagi-rathibsi. We are Inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion it is unnecessary to decide this question because this question" can only have relevance and significance if we were considering a claim made for deduction under Section 9 (1) (iv) of the Income-tax Act where a claim is made In respect of immoveable property where the immoveable propertv is charged or mortgaged to pay a certain amount. It is sufficient for the purpose of thic referpence if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount.