Law:

Section:

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] - Income - Diversion of at source by overriding title or application of income - Assessment years 1957-58 and 1960-61 - Assessee was partner in a firm - By a compromise decree passed by Court as a result of divorce of assessee with his wife, assessee was made liable to pay certain monthly payments to his unmarried daughters - By a tripartite agreement entered into between assessee, partnership-firm and daughters, firm agreed to pay agreed payments out of share of profits payable to assessee - Whether assessee had created charge in favour of his two daughters and there arose an overriding right or title in favour of daughters to get remuneration and profits which to extent of that right or title ceased to be remuneration and or profits of assessee - Held, yes - Whether therefore, assessee was entitled to deduction of amount paid to his daughters from his total income - Held, yes FACTS The assessee was a partner in a firm. The assessee was a married man but some time in 1951 his marriage with his wife came to be dissolved and a divorce was granted to him with other consequential reliefs. As a result of this compromise the assessee made certain provisions for the two unmarried daughters. Under a tripartite entered into between the assessee, his daughters and the firm, the assessee agreed to pay certain monthly amounts to his daughters. The aforesaid payments were agreed to be paid by the firm out of the profits payable to the assessee. For the assessment years 1957-58 and 1960-61, the assessee claimed that the amount paid to his daughter under the terms of the decree and the agreement did not constitute his income at all and was not liable to tax. He claimed that the amount was at source diverted and ceased to be his income, because of the overriding title created in his daughter. The ITO held that, though the payment was legally enforceable against the assessee, the payment of the above sum amounted to nothing more than the discharge of a personal obligation and that there was no provision in the Act to allow expenses of a personal nature. On appeal the AAC…

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