High Court: Income diverted to Nitin Mohan, not assessable for Savita Mohan.

The High Court held that the payment to Nitin Mohan constituted a diversion of income by an overriding title before reaching the assessee, Smt. Savita Mohan. As such, the income was not assessable in her hands under section 23 of the Income Tax Act, 1961, and no deduction could be claimed under section 24(1)(iv). The court concluded that there was no legal partnership and that the income was diverted to Nitin Mohan before becoming part of the assessee's income.

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Issues Involved:
1. Diversion of income before it became the income of the assessee.
2. Assessability of property income u/s 23 of the I.T. Act, 1961.
3. Allowability of payment as an annual charge u/s 24(1)(iv) of the I.T. Act, 1961.

Summary:

Issue 1: Diversion of Income
The primary question was whether the payment of half share of income from property at Jhandewalan to Nitin Mohan under an agreement dated November 5, 1964, constituted a diversion of income before it reached the assessee, Smt. Savita Mohan. The Tribunal held that no legal partnership existed and that the income was merely applied by the assessee after it accrued to her. However, the High Court disagreed, stating that the agreement created an overriding charge in favor of Nitin Mohan, entitling him to 50% of the net rental income before it reached the assessee. The court concluded that this was a case of diversion of income by an overriding title, and thus, the income did not constitute the assessee's income.

Issue 2: Assessability of Property Income
Given the finding on the first issue, the court held that 50% of the rental income was diverted to Nitin Mohan before it reached the assessee. Therefore, this portion of the rental income never constituted part of the assessee's income and could not be assessed in her hands u/s 23 of the I.T. Act, 1961.

Issue 3: Annual Charge u/s 24(1)(iv)
Since half of the rental income was already diverted to Nitin Mohan before it became the income of the assessee, the question of claiming any deduction in respect thereof u/s 24(1)(iv) did not arise. The agreement did not create any "annual charge" on the property within the meaning of s. 27(iv), and thus, no deduction could be claimed on that basis.

Conclusion:
The Tribunal was not justified in its findings. The High Court held that the payment to Nitin Mohan was a case of diversion of income by an overriding title before it reached the assessee, and thus, it did not constitute her income. Consequently, the income could not be assessed in her hands u/s 23, and no deduction could be claimed u/s 24(1)(iv).

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