COMMISSIONER OF INCOME -TAX v. MOHINIDEVI MOHUNTA
[Citation -1987-LL-0129-3]

Citation 1987-LL-0129-3
Appellant Name COMMISSIONER OF INCOME -TAX
Respondent Name MOHINIDEVI MOHUNTA
Court ITAT
Relevant Act Income-tax
Date of Order 29/01/1987
Assessment Year 1974-75
Judgment View Judgment
Keyword Tags hindu undivided family • hindu succession act • diversion of income • overriding charge • partial partition • overriding title • registered firm • sub-partnership • capital account • credit balance • share income • karta
Bot Summary: The deed recited that on account of the demise of the assessee's husband, the original firm stood dissolved and his share in the partnership devolved upon his legal heirs, namely, the assessee and her three sons and daughter. Clause 6 of the partnership deed stated that the capital requirements of the firm would be met by the assessee and the said Geetadevi and that the credit balance in the capital account of the assessee's late husband which had devolved upon his legal heirs would be the capital of the assessee. Having regard to section 8 of the Hindu succession Act, the Tribunal found that the minor sons had a right to claim their part of the share income received from the firm by the assessee and that the assessee was representing their interest in the firm. Mr. Jetly submitted that the two minor sons of the assessee would have no claim to any part of the assessee's share in the income of the firm and that their only claim in this behalf lay against the assessee. The share income in the firm accrued to the assessee and was thereafter applied in discharge of her obligation towards her two minor sons. If, on the terms of the memoranda of partition, the assessee, by virtue of the fact that he was allowed to continue in the two partnership firms, was to receive the share in the profits of those firms and there was an express agreement which provided that he would receive that share for and on behalf of the erstwhile members of the joint family, who had title to a part of that income in the proportion which was specified in the memorandum of agreement, the entire share income clearly did not belong to him. In these circumstances, this court held that the share income of the assessee in the profits of the partnership firms was subject to an overriding title in favour of the other members of the Hindu undivided family and could not be taxed in the assessee's hands: Applying the principle in the instant case, the assessee's minor sons have Applying the principle in the instant case, the assessee's minor sons have a title to the share income received by the assessee from the firm having regard to the provisions of section 8 of the Hindu Succession Act.


JUDGMENT JUDGMENT judgment of court was delivered by S. P. BHARUCHA J.-This reference at instance of Revenue raises following question: " Whether, on facts and in circumstances of case, share income of assessee from firm, M/s. K. G. Mohunta and Bros., was not income of assessee alone but was to be shared by three persons, namely, assessee and her two minor sons? " We are concerned with assessment year 1974-75. assessee's late husband was partner in firm called M/s. K. G. Mohunta and Bros. When he died, he left assessee, three sons and daughter. assessee was made partner of reconstituted firm under deed dated October 29, 1970, with Geetadevi Mohunta and Rajmohan Mohunta as other partners. deed recited that on account of demise of assessee's husband, original firm stood dissolved and his share in partnership devolved upon his legal heirs, namely, assessee and her three sons and daughter. Clause 6 of partnership deed stated that capital requirements of firm would be met by assessee and said Geetadevi and that credit balance in capital account of assessee's late husband which had devolved upon his legal heirs would be capital of assessee. Upon assessee's eldest son attaining majority, he became partner of firm. assessee's daughter got married and relinquished her entitlement, inter alia, to her share in firm by accepting sum of Rs. 20,000. For assessment year in question, assessee filed return showing as her share in income of firm only 1/3rd of what was received by her. She claimed that there was overriding title created in favour of her two minor sons and that she could be taxed only on her real income from firm. Income-tax Officer did not accept argument and assessed entire share income from firm in hands of assessee. On appeal, Appellate Assistant Commissioner held that there was diversion of income by overriding title. taxing authorities appealed to Income-tax Appellate Tribunal. Tribunal, after setting out facts, found that position was that assessee and her two minor children were to enjoy share income from newly constituted firm. Having regard to section 8 of Hindu succession Act, Tribunal found that minor sons had right to claim their part of share income received from firm by assessee and that assessee was representing their interest in firm. income that came to assessee from firm was, therefore, not her income alone but that of assessee and her two minor sons. Tribunal accordingly dismissed appeal filed from order of Appellate Assistant Commissioner. Mr. Jetly, learned counsel for Revenue, has drawn our attention to judgments of Supreme Court in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 and in K. 4. Ramachar v. CIT [1961] 42 ITR 25. In former judgment, it was held that where by reason of obligation income was diverted before it reached assessee, there was case for deduction. In latter, it was held that under law of partnership it was only partner who was entitled to profits and dispositions under obligation incurred by partner were of income after it accrued to him and, hence, entire income had to be assessed as part of his total income. These judgments were considered in judgment of Supreme Court in Murlidhar Himatsingka v. CIT [1966] 62 ITR 323. In that case, partner in registered firm entered into sub-partnership with outsiders to firm. deed of sub-partnership provided that profits and losses of partner in firm would belong to subpartnership and would be divided and borne in accordance with shares specified therein, but that capital with its assets and liabilities would belong exclusively to partner. Supreme Court noted that position was that as far as partner was concerned, after subpartnership he could not treat income as his own. sub-partner had definite enforceable rights to claim share in profits accrued to or received by partner. sub-partnership created superior title and diverted income before it became income of partner. In other words, Supreme Court said, partner in firm received income not only on his own behalf but on behalf of sub-partnership. Upon this basis, Supreme Court set aside judgment of High Court and observed that High Court had been in error in holding that there was no question of overriding obligation in case and that income remained income of partner in spite of sub-partnership created by him. Mr. Jetly submitted that two minor sons of assessee would have no claim to any part of assessee's share in income of firm and that their only claim in this behalf lay against assessee. In his submission, therefore, there was no creation of overriding title. share income in firm accrued to assessee and was thereafter applied in discharge of her obligation towards her two minor sons. We find ourselves unable to accept submission now that we have seen judgment in Murlidhar Himatsingka's case [1966] 62 ITR 323 (SC). There does not, in principle, appear to be any distinction between facts thereof and facts before us, for, it is very important to note that Supreme Court did not decide on basis that there was something special about sub-partnership or that, by reason of sub-partnership, sub- partners obtained right to make claim to partners income upon partnership. Murlidhar Himatsingka's case [1966] 62 ITR 323 (SC) would appear to have been decided upon basis that partner, by reason of deed of sub-partnership, was obliged to split income he received from firm with his sub-partners and this created superior title and diverted income before it became income of partner. In instant case, there is no explicit agreement to split income with minor sons but there is obligation in law conferred upon assessee by section 8 of Hindu Succession Act. We may also with advantage refer to judgment of this court in CIT v. M. D. Kanoria [1982] 137 ITR 137. assessee in that case was karta of Hindu undivided family consisting of himself, his wife and two minor sons. He had invested funds of Hindu undivided family in certain firms and was partner in them on behalf of family. There was partial partition of assets of family invested in firms and memoranda attached to partition deeds contained agreements between its members that assessee was to remain partner in firms, but profits failing to share of assessee were to be profits of members in their own respective individual right and interest in proportion stated. There were further agreements recorded in memoranda that share in profits of firm was to be received by assessee for and on behalf of members of Hindu undivided family. It was held that memoranda of partition expressly divided capital standing in name of karta among members of joint family with result that though capital stood in assessee's name in firms' account books, it was severally owned by erstwhile members of joint family in definite shares with further agreement that assessee was to receive profits for and on behalf of contracting parties severally. After considering various judgments, this court observed that crucial question which had to be determined was whether income was to be treated as diversion by overriding charge or as its application. test was not whether assessee collected income. test was whose income it was. If, on terms of memoranda of partition, assessee, by virtue of fact that he was allowed to continue in two partnership firms, was to receive share in profits of those firms and there was express agreement which provided that he would receive that share for and on behalf of erstwhile members of joint family, who had title to part of that income in proportion which was specified in memorandum of agreement, entire share income clearly did not belong to him. assessee had, no doubt, obligation to pay part of income. That obligation, when performed, was not in nature of application of income. That was obligation which flowed from terms of memoranda of partition by with title to part of income had already accrued in favour of other members of joint family. In these circumstances, this court held that share income of assessee in profits of partnership firms was subject to overriding title in favour of other members of Hindu undivided family and could not be taxed in assessee's hands: Applying principle in instant case, assessee's minor sons have Applying principle in instant case, assessee's minor sons have title to share income received by assessee from firm having regard to provisions of section 8 of Hindu Succession Act. assessee had, therefore, obligation to pay to them part of share income. That obligation, when performed was, in words of this court in Kanoria's case [1982] 137 ITR 137 (Bom), " not in nature of application of income ". That was obligation arising upon overriding title in favour of minor sons. Based upon judgment of Supreme Court in Murlidhar Himatsingka's case [1966] 62 ITR 323 and of this court in Kanoria's case [1982] 137 ITR 137 (Born) we answer question in affirmative and in favour of assessee. No order as to costs. *** COMMISSIONER OF INCOME -TAX v. MOHINIDEVI MOHUNTA
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