1968 (10) TMI 30 - HC - Income Tax

Court rules partnership deed overrides individual income inclusion

The court held that clause 12 of the partnership deed created an overriding title in favor of Messrs. H. G. Gupta and Sons, excluding the income of Rs. ... Diversion by overriding title - assessment of the firm Issues Involved:1. Whether there was an overriding title in favor of Messrs. H. G. Gupta and Sons due to clause 12 of the partnership deed.2. Whether the sum of Rs. 55,664 could be claimed as a permissible deduction under section 10(2) of the Indian Income-tax Act, 1922.3. Whether the amount of Rs. 55,664 was properly included in the assessment of the firm.4. Whether the order of the Tribunal amounted to an enhancement of the income of the firm.Issue 1: Overriding Title in Favor of Messrs. H. G. Gupta and SonsThe primary question was whether clause 12 of the partnership deed created an overriding title in favor of Messrs. H. G. Gupta and Sons, thereby excluding the sum of Rs. 55,664 from Shri Hans Raj Gupta's total income. Clause 12 stated that profits earned from any new business started without the written consent of all partners would belong to the firm. The court considered various precedents, including Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax, where it was held that income diverted by an overriding title before it became the income of the assessee was not taxable in their hands. Applying this principle, the court concluded that clause 12 created an overriding title in favor of the assessee-firm, meaning the income of Rs. 55,664 should not be taxed in the hands of Hans Raj Gupta. Thus, the answer to the first question was in the affirmative and in favor of the assessee.Issue 2: Permissible Deduction Under Section 10(2) of the Indian Income-tax Act, 1922Given the court's conclusion on the first issue that the income of Rs. 55,664 was not taxable in the hands of Hans Raj Gupta due to the overriding title, the second question regarding permissible deduction under section 10(2) did not arise. Therefore, the court did not address this issue further.Issue 3: Inclusion of Rs. 55,664 in the Assessment of the FirmThe third issue was whether the amount of Rs. 55,664 was properly included in the assessment of the firm. Since the court held that the income was diverted to the firm by an overriding title, it was correctly included in the firm's assessment. Thus, the court answered the third question in the affirmative, confirming that the income was properly included in the firm's assessment.Issue 4: Enhancement of the Income of the FirmThe fourth issue concerned whether the Tribunal's order amounted to an enhancement of the firm's income. Given the court's resolution of the first and third issues, the fourth question did not arise. Therefore, the court did not address this issue further.Conclusion:The court concluded that clause 12 of the partnership deed created an overriding title in favor of Messrs. H. G. Gupta and Sons, thereby excluding the income of Rs. 55,664 from Hans Raj Gupta's total income and properly including it in the firm's assessment. The second and fourth questions did not arise based on these conclusions. The court answered the relevant questions accordingly, with no order as to costs.