TaxTMI 
TaxTMI 
2004 (8) TMI 55
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....y stated, the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1977-78. The respondent-assessee is a firm originally consisting of the following partners: 1. Shri Hari Prasad 2. Smt. Urna Devi 3. Shri Jiwat Ram Sharma 4. Shri Jai Kishan Sharma (son of No. 3) 5. Shri Risat Das 6. Shri. Manjoo Jain 7. Shri Shyam Sunder Das 8. Shri Madan Mohan Das As per the terms of the deed, the heirs of the deceased partner were to step into the shoes of the deceased partner. Shri Jiwat Ram Sharma died on May 11, 1975, and the firm closed its accounts up to May 10, 1975. On May 29, 1975, Smt. Savitri Devi and Shri Jai Kishan Sharma, the wife and the son of the late Shri Jiwat Ram Sharma, gave ....
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....y the said order of the Commissioner of Income-tax (Appeals), the respondent preferred a further appeal to the Tribunal. The Tribunal noticed that there were no sales during the period July 1, 1974 to May 10, 1975, and May 11, 1975 to May 31, 1975. The Tribunal also observed that there were some sales during the period June 1, 1975 to June 30, 1975, but the same belonged to remaining partners as Smt. Savitri Devi and Shri Jai Kishan Sharma had already given a notice that their accounts be settled. The Tribunal further observed that the settlement was arrived at on October 4, 1975, in the accounting year relevant to the assessment year under appeal and, therefore, after receiving Rs. 62,865, these two persons executed a release deed. The Tri....
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....rred to section 37 of the Indian Partnership Act, 1932. Having heard learned counsel for the parties, we find that after the death of one of the partners, Jiwat Ram Sharma, his heirs, namely, his widow Smt. Savitri Devi and son Shri Jai Kishan Sharma, did not step into the shoes of Jiwat Ram Sharma as they did not choose to become partners. It may be mentioned here that Shri Jai Kishan Sharma had been held to be not a genuine partner. The widow and Jai Kishan gave retirement notice on May 29, 1975, for settling of accounts from May 11, 1975 to May 31, 1975. The notice period expired on September 1, 1975. A settlement was arrived at between Smt. Savitri Devi and Shri Jai Kishan Sharma on one side and the respondent, on the other side, to pa....
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.... fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation (self-imposed and gratuitous) after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income n....
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....R 206 of the apex court in the cases of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367; K. A. Ramachar v. CIT [1961] 42 ITR 25 (SC); Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 (SC); CIT v. Bagyalakshmi and Co. [1965] 55 ITR 660 (SC) and Murlidhar Himatsingka v. CIT [1966] 62 ITR 323 (SC), has held that if a third person becomes entitled to receive an amount under an obligation of an assessee even before he could make a claim to receive it as his income, there would be a diversion of income by overriding title; but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of inco....