1994 (11) TMI 7

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....st created by the assessee was valid in law, that there was diversion of income by overriding title, that this is not a case of application of income and that section 60 is also not attracted to the facts of this case ? " The assessee was a partner in the firm of Venkatesh G. C. Azrenkar and Co., Margao, Goa. On April 1, 1975, the said firm was reconstituted by a fresh deed of partnership with the assessee and his mother as partners therein. The assessee had an 80 per cent. share and his mother had a 20 per cent. share in the profits and losses of the partnership. Seventy-five per cent. of the 80 per cent. share which the assessee had in the profits of the partnership was settled by the assessee in favour of the minor children of the bro....

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....nership-firm did not reach the hands of the assessee and that the beneficiaries under the said trust deed had the first claim over the share of income of the assessee from the partnership firm. The Tribunal set aside the orders of the authorities below and held that the assessee had validly created the trust and that there was diversion of income by overriding title and that it was not a case of application of income. The Tribunal also held that section 60 of the Income-tax Act, 1961, was not attracted. In the facts of the case, admittedly, the assessee was a partner in the said partnership-firm. "Partnership" is the relation between partners who have agreed to share the profits of a business carried on by all or any of them acting for a....

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....essee as his income. It is the nature of the obligation which is the decisive factor. There is 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 after such income reaches the assessee, She same consequence, in law, does not follow. It is the first type of obligation which diverts income by reason of the overriding title and not the second. The second type of obligation is merely an obligation to pay another a portion of one's own incom....