Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Diversion of at source by overriding title - Assessment years 1966-67 to 1969-70 - In terms of partnership deed, on death of partner 'K' his share of good-will would automatically devolve on remaining two partners, in consideration whereof widow of deceased partner would be credited with a fixed sum payable in monthly instalments - On death of 'K', surviving partners while continuing partnership under fresh deed, voluntarily provided for payment of said amount to widow - Accordingly, charge was created on all assets of assessee-firm - Whether said provision for payment of fixed amount in monthly instalment was a disposition of property after death in nature of a conditional bequest and could not be held to be a transaction of sale simpliciter - Held, yes - Whether charge created in subsequent partnership deed could not be said to have created an overriding charge - Held, yes - Whether merely because surviving partners agreed to apply a part of income of partnership for purpose of limited obligation, it could not be held that income of subsequent partnership did not accrue fully in hands of partnership or any part thereof was diverted by an overriding title or that said partnership had become only a collector of said amounts for widow - Held, yes - Whether, therefore, said amounts were not allowable as deduction from total income of assessee - Held, yes FACTS In terms of the original partnership deed, in the event of the death of one of its partners 'K', his share of goodwill would automatically pass to the remaining two partners of the assessee-firm and as consideration therefore, his widow would be credited with a lump sum amount in the firm's account and a monthly payment would be made to her before full payment of the amount. 'K' died and the remaining partners executed a fresh deed of partnership incorporating the said clause and a charge was created on the assets of the firm to ensure due payment of the amount to the widow. For the relevant assessment years, the ITO in computing the assessee's taxable income, held the payments made to the widow to be capital expenditure and disallowed the deduction as…

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