TaxTMI 
TaxTMI 
2005 (8) TMI 334
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....,33,771 made by the Assessing Officer in assessment years 1993-94 and 1994-95 respectively and confirmed by the CIT(A). 3. The assessee-company was deriving income from a diagnostic center having facilities of C.T. Scan, Ultrasound and X-ray. The assessee made a claim for deduction of Rs. 5,36,254 on account of professional charges paid to three directors who were also directors of the assessee-company as under: Name Period Amount (Rs.) Dr. S.M. Karnawat (M.D) 1-4-90 to 31-3-91 78,846.20 Dr. C.P. Me....
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....p; ----------- Sub-total 2,99,694.45 Total 5,36,233.85 ....
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....to pay to the three doctors as under: "(a) To M/s. Kolhapur Diagnostic Center- I. Rs. 1.50 lakhs for transfer of tenancy rights of the premises situated 615 Shahupuri, 2nd lane, Kolhapur. II. Rs. 40,000 towards the cost of furniture fittings electrical connections, etc. III. Rs. 10,000 for user of telephone bearing No. 28601 which is presently standing in the name of Dr. C.P Mehta. The company was free to get the same transferred in its own name and at its own cost. (b) The company was to pay the following amounts to the three doctors in consideration of the restrictive covenants undertaken by them: (i) Dr. C.P. Mehta Rs. 5 lakhs (ii) Dr. S.M. Karnawat Rs. 3 lakhs (iii)....
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.... Mehta Dr. Karnawat Dr. Patankar Rs. Rs. Rs. 1991-92 1,17,600 1,17,600 1,17,600 1992-93 1,09,200 1,09,200 1,09,200 1993-94 1,39,000 1,39,000 1,39,000 8. Also in respect of the restrictive covenant vide agreement dated 1-4-1990 the doctors received payments as mentioned in parag....
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....y an overriding title is a vexed question in income-tax law. The principles on this point have been laid down by various decisions. 11. In Raja Bejoy Singh Dudhuria's case, the Privy Council (per Macmillan, LJ) held that where an amount had to be paid to the step-mother in pursuance of a decree creating a charge on the assessee's resources it was not application of the assessee's income but rather the allocation of a sum out of his revenue before it becomes income. A diversion of income by an overriding title need not necessarily be by a decree of court or by statutory or customary law, but may be under the provisions of a Will, or agreement, or deed, e.g., a deed of sale or gift or partnership or sub-partnership or partition of joint fa....
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....of some other persons under some antecedent obligation then it is a case of diversion of income by superior title and not application of income. There is a distinction between obligation to spend money in a particular manner attached to an income, and a similar obligation attached to the source of the income. In other words, to be an overriding charge the obligation must be attached to the source of the income. 16. We now proceed to apply the above principles to the present case. The assessee-company having three doctors as its directors had taken over the professional activities carried on by them. The company had entered a restrictive covenant with the doctors vide agreement dated 1-4-1990. The consideration paid by the assessee-compan....