DARAB RUTTONSHAW SHROFF Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee before us is Darab Ruttonshaw Shroff. His father Ruttonshaw was carrying on business as wine merchant under the name and style of Shroff and Co. From the commencement of Samvat Year 2002 (assessment year 1947 -48) he took his two sons, Darab and Boman, as partners in the business and the shares of the father and the two sons were 9 annas, 4 annas and 3 annas respectively in the income of the business. A deed of partnership was executed on the 17th of December, 1945, the relevant provision of which, for the purposes of this reference, is that the goodwill of the business belonged exclusively to the father. This partnership continued till the 20th of August, 1948, which date falls in the assessment year 1949 -50 when Boman retired, leaving Ruttonshaw and Darab as the two partners with shares of 10 and 6 annas respectively. A partnership deed was executed on the 6th of October, 1948, and the relevant provisions of the partnership deed ar : 'Clause 11 : The goodwill of the firm shall always be the property of the said Ruttonshaw Dhunjibhoy Shroff.' 'Clause 12 : On the death of Ruttonshaw Dhunjibhoy Shroff his nominee or nominees appointed by him in writing signed by him and attested by one witness shall be admitted as partner or partners as the case may be taking his share in such proportion as may be mentioned by him and on such nominee or nominees executing an agreement and executing all necessary writings evidencing the continuation of the partnership and agreeing to observe, perform and fulfil all terms conditions and obligations of the partnership the person or persons so agreeing shall be entitled to the share of the deceased in profits and income and also the assets of the partnership including goodwill in the shares appointed by the nomination writing and shall also be liable for the share in losses of the deceased partner.......'

(2.) THIS partnership was for a definite period ending with Samvat Year 2005, that is, the 21st of October, 1949, and thereafter at will; but, in fact, the partnership continued until the death of Ruttonshaw, which took place on the 12th of November, 1952. On the 25th October, 1948, Ruttonshaw had made a will and in that will the relevant clauses for our present purpose are clauses 6 and 7, which are as follow : '6. At present I am doing business in foreign wine, and general business wherein my son Darab is my partner. The said business is run in two shops (1) at 307, Corner Grant Road in wholesale foreign spirits, wines and beer and general merchandise in the name and style of Shroff and Company, and (2) at York House, Colaba, for the retail sale of foreign spirits, wines and beer in bottles, in the name and style of Shroff and Company. The shares in the net profits of myself and Darab in the said firm of Shroff and Company are in the ratio of 1 :6. As agreed between me and my partner, Darab, from and after my death my wife, Dinbai, during her lifetime shall receive one -fourth in the net profits of the said firm and the remaining three fourths of the net profits shall belong to my son, Darab. From and after Dinbai's death my son, Darab, shall be entitled to the entire profits of the said firm. 'The goodwill of the firm which belongs to me shall belong fully to my son, Darab; and my wife, Dinbai, or anyone else shall not have any share in the same.' '7. In case the said business of Shroff and Company is for any reason stopped or goes out of the hands of my son Darab and my wife, then I direct that my son Darab shall pay Rs. 20,000 absolutely to my wife Dinbai if she is then alive.'

(3.) NOW , Mr. Kolah for the assessee has contended that this amount of Rs. 5,877 never formed part of the income of the assessee at all; but it was diverted out of that income by an overriding title, and, therefore, it is not liable to be included in the profits of Shroff and Company which are taxable in the hands of the assessee. Although Mr. Kolah referred to a number of decided cases on this question, the ratio applicable to a case of this nature was laid down by their Lordships of the Privy Council in Raja Bejoy Singh Dudhuria v. Commissioner of Income -tax, Bengal, and that ratio, which has been adopted by a number of subsequent decisions of different High Courts in India, may shortly be stated to be that if part of an income is diverted by an overriding title to someone other than the assessee, it never reaches the assessee as income, and, therefore, it cannot be taxed in his hand. Lord Macmillan, who delivered the judgment of their Lordships of the Privy Council at page 138, in a passage which has been oft -quoted in subsequent Indian decisions, state : 'When the Act by section 3 subjects to charge 'all income' of an individual, it is what reaches the individual as income which it is intended to charge. In the present case the decree of the Court by charging the appellant's whole resources with a specific payment to his step -mother has to that extent diverted his income from him and has directed it to his step -mother; to that extent what he receives for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands.'