Overriding title and real income claims fail where partition debt payments are only an application of income.

Interest paid on debts and liabilities allotted to an assessee on partial partition of a Hindu undivided family was treated as an application of income, not a diversion of income by overriding title. The assets vested absolutely in the assessees, and the creditors obtained no beneficial interest in either the assets or the income from them. No charge or trust arose under the partition arrangement, award, or decree to divert income before accrual. The real income theory did not justify deduction outside the framework of the Income-tax Act. The claimed deduction therefore failed, and the interest remained taxable in the assessees' hands.

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Issues: Whether interest paid on debts and liabilities allotted to an assessee on partial partition of a Hindu undivided family was deductible or could be excluded from taxable income on the ground of diversion of income by overriding title or on the principle of real income.

Analysis: The assets received on partition vested in the assessees absolutely, and the creditors acquired no beneficial interest in those assets or in the income arising from them. The liabilities allotted to the assessees were personal obligations to pay debts, and the subsequent payment of interest out of the income of the assets was only an application of income after it had accrued. No charge or trust was created in favour of the creditors under the partition arrangement, the award, or the decree, and the position was materially different from cases where income was diverted at source by an antecedent title or a specific charge. Deduction was also not available merely on the basis of the real income theory, because the Income-tax Act governs computation and allows deductions only within its framework.

Conclusion: The claim of diversion of income by overriding title failed, the payment of interest was an application of income, and the assessee was not entitled to deduction on the asserted ground.

Final Conclusion: The assessed interest payments remained taxable income in the hands of the assessees, and the questions referred were answered against them.

Ratio Decidendi: A liability to pay debts, even when arising from partition, pious obligation, or a court-backed arrangement, does not by itself divert income at source; amounts paid from income to discharge such debts are application of income unless a prior charge or antecedent title diverts the income before it accrues to the assessee.

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