ORDER
J. Kathuria, Accountant Member
1. This appeal by the Revenue relates to assessment year 1982-83. The only effective ground is against the exclusion from the assessee’s taxable income of share derived by the assessee from M/s Munjal Sales Corporation, Ludhiana and diverted by overriding title to M/s Thakur Devi Investments Pvt. Ltd.
2. For assessment year 1982-83, the asseessee declared total income of Rs. 3,24,634 in her return filed on 28-8-1982. In the computation of total income for assessment year 1982-83, the assessee declared income from M/s Munjal Sales Corporation in which she had share of 8.33 per cent. On 6-2-1982, the assessee gifted 36 per cent of her right, title and interest in Munjal Sales Corporation and its assets including her capital and right to share profits and losses to M/s Thakur Devi Investments Pvt. Ltd., Ludhiana. In effect the component of gift worked out to 3 per cent of the right, title, interest including share of profit and loss in the firm. A copy of the declaration of gift is available at page 2 of the assessee’s first compilation. The said gift was accepted by the donee as per copy of the resolution of their Board dated 6-2-1982. The other partners of M/s Munjal Sales Corporation had given their consent to the proposed gift in favour of M/s Thakur Devi Investments Pvt. Ltd. vide their confirmation dated 14-1-1982, a copy of which is available at page 1 of the assessee’s first compilation.
3. The assessee filed a gift-tax return declaring taxable gift at Rs. 33,380. This consisted of:
(a) 36 per cent in the capital as on
6-2-1982 which came to Rs. 21,812
(b) Value of 3 per cent share in goodwill
of the firm M/s Munjal Sales Corpor-
ation (3 per cent of Rs. 5,52,733) Rs. 16,572
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Rs. 38,384
Less basic exemption : Rs. 5,000
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Taxable gift : Rs. 33,380
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The Gift-tax Officer, however, computed the taxable gift at Rs. 95,301 vide order dated 21-12-1984. While the gifted capital was taken at Rs. 21,812 as shown by the assessee, the 3 per cent in the profit and loss of M/s Munjal Sales Corporation was, however, calculated at Rs. 78,489 as against the figure of Rs. 16,572 shown by the assessee. In the computation of total income annexed to the return for assessment year 1982-83, the assessee claimed that 36 per cent of her right, title and interest in M/s Munjal Sales Corporation was assessable not in her hands but in the hands of M/s Thakur Devi Investments Pvt. Ltd., Ludhiana. The Assessing Officer, however, rejected this contention of the assessee and assessed the entire share income from M/s Munjal Sales Corporation in the assessee’s hands.
4. The learned CIT(A), after a detailed discussion, accepted the contention of the assessee and held that since corpus had already been gifted by the donor and the gift had been accepted by the department, and Section 60 of the Income-tax Act was not applicable, the share income which had been gifted by the assessee to M/s Thakur Devi Investments Pvt. Ltd. was not includible in the hands of the assessee by virtue of an overriding title.
5. The learned D. R. relied on the Tribunal’s decision in the case of Mrs. Sudershan Kumari in IT Appeal No. 6 (Chd.) of 1988, dated 9-9-1992 for assessment year 1982-83. In that case also, there was a diversion by an overriding title and the Tribunal decided the issue against the assessee. It was submitted that the Chandigarh Bench of the Tribunal had decided similar matters against the assessee and in favour of the department and that is why the decision in the case of Mrs. Sudershan Kumari was against the assessee. Relying on the Patna High Court decision in the case of CIT v. Banwari Lal Agarwala [1987] 167 ITR 321, it was submitted that where there was diversion by overriding title and a part of the commission was paid to the trust and the trust was not a party to the agreement between the assessee and the colliery, the commission paid to the trust was not diverted by overriding title.
6. Shri Subhash Aggarwal, the learned counsel for the assessee, on the other hand, contended that the Tribunal’s decision in the case of Mrs. Sudershan Kumari (supra) went against the assessee because the Counsel of the assessee conceded that the matter had to be decided against the assessee. It was pointed out at that time, the matter had not been properly appreciated by the learned Counsel for the assessee himself and that is why a concession was made before the Tribunal. It was, however, submitted that there was no bar to the matter being agitated in the present appeal and hence the Tribunal’s decision in the case of Mrs. Sudershan Kumari (supra) which was based on the assessee’s concession, should not prejudice the view of the Tribunal one way or the other.
7. Starting with the case law cited by the learned D. R., the learned Counsel for the assessee submitted that the facts in the case of Banwari Lal Agarwala (supra) were distinguishable. It was pointed out that there was an agreement between the assessee and the colliery to transfer a part of the commission to a trust but the trust was not a party to that agreement. Moreover, the commercial assets from which the income arose had not been transferred to the trust and hence the provisions of Section 60 of the Income-tax Act were applicable. It was further submitted that so far as the facts of the present case were concerned, the trust to whom the share income had been gifted was a party to the agreement and the commercial assets from which the income arose, namely, the capital had also been transferred.
8. The learned Counsel for the assessee placed reliance on the Gujarat High Court decision in the case of Smt. Chanchalben S. Patel v. CIT. In that case, the facts were these : The assessee had 50 per cent share in the firm. 40 per cent share was gifted to the relatives. There was a stipulation in the gift deed to the effect that share so transferred to the donees was thereafter to be regarded as their separate and independent properties to which the assessee will have no right, title or interest of any kind. It was further stipulated that in case the other partners would not agree to admission of donees as partners, each of them had to be considered as proprietor and co-owner to the extent of respective share in the amount of profit and loss coming to the share of donor. On these facts, it was held that the assessee had completely divested herself of every right, title and interest in the gifted share and her character as partner had also changed, and an overriding title had been created in favour of the donees even though the assessee continued as partner and even though 50 per cent share was credited in her name.
9. It was submitted that the facts of the above case fully supported the case of the assessee. It was also submitted that Section 29 of the Indian Partnership Act did not stand in the way of the assessee. It was pointed out that that section was enacted for a particular purpose which was not to allow a person to whom a partner’s interest had been transferred by an overriding title to interfere in the conduct of the business or to require accounts or to inspect the books of account but entitles the transferee only to receive the share of profit of the transferring partner and the transferee was bound to accept the account of profits agreed to by the partners. It was vehemently argued that according to Section 29 of the Indian Partnership Act, the partners continued to run the partnership firm and with a view to avoiding any confusion friction, the transferees had no substantial say in the matter of running of the business of the firm. According to the learned Counsel for the assessee, this section did not interfere with the claim of the assessee.
10. Reliance was also placed on the Gujarat High Court decision in the case of CIT v. Nandiniben Narottamdas [1983] 140 ITR 16 for the proposition that where the assets giving rise to income were transferred to the beneficiaries of the trust, the share income from the firm stood diverted to the trust by the overriding title even before it reached the assessee. Reliance was placed on another decision of the Gujarat High Court in the case of CIT v. Smt. Nandiniben Narottamdas [1993] 201 ITR 893. In that case, the assessee had made a gift of her shares in the two firms in favour of the beneficiaries of a trust. The asset giving rise to income was transferred to the beneficiaries of the trust within the meaning of Section 60 of the Income-tax Act, 1961. On these facts, it was held that the share income from the firms stood diverted to the trust by overriding title even before it reached the assessee and such income could not be assessed in her hands.
11. Relying on the Punjab and Haryana High Court decision in the case of CIT v. Narinder Kumar [1989] 177 ITR 515, it was submitted that where a karta of a HUF consisting of himself, wife and minor son was partner in two firms and there was partial partition of the HUF and shares in two firms were divided equally between the karta, wife and minor son, the share of income of wife and minor son from the firms received by the karta after partial partition of the HUF were held to have been diverted by overriding title. Reliance was also placed on another decision of the Punjab and Haryana High Court in CIT v. Varinder Kumar [1989] 180 ITR 180 for the proposition that where the assessee was a partner in a firm as karta of the HUF and there was partial partition in the HUF, the share in the firm stood divided amongst the assessee, his wife and children by virtue of an overriding title created in favour of wife and children in respect of income from the firm.
12. Reliance was also placed on the Allahabad High Court decision in the case of CIT v. Raja Ram Jaiswal [1992] 195 ITR 834. In that case, certain amounts were advanced to the assessee under an agreement. The assessee invested those amounts in the firm in which he was a partner. A specified share of income from the said firm was paid to the lenders. It was held that the agreements between the assessee and the lenders were practically in the nature of sub-partnership and hence the payments in question constituted a case of diversion of income by an overriding title.
13. In reply, the learned D.R. submitted that some of the cases relied on by the learned Counsel for the assessee were of sub-partnership which was not the issue at hand and hence those cases were not applicable to the present case.
14. We have carefully considered the rival submissions as also the facts on record. We have gone through the gift deed, the confirmation of the partners consenting to the transfer of a portion of the share income and other relevant details. It is clear that the assessee has transferred not only the right, title and interest in the future profits of the firm but also the corpus or the capital from which profit is earned. The provisions of Section 60 of the Income-tax Act, 1961 are therefore, not applicable in the instant case. Since the gift is a valid gift and has been accepted as such by the department, there is a diversion of title by virtue of which the share income has been diverted to M/s Thakur Devi Investments Pvt. Ltd. Though on paper the assessee continues to be a full-fledged partner yet by virtue of overriding title created in favour of M/s Thakur Devi Investments Pvt. Ltd. she is divested of the share which has been gifted by her. Section 29 of the Indian Partnership Act does not come in the way of the assessee’s claim either. That section is meant to restrict the rights of a person in whose favour the partner may have transferred a part of the share income. The case law cited by the learned Counsel for the assessee also supports the case of the assessee. The facts in the case cited by the learned D.R. are clearly distinguishable as rightly pointed out by Shri Subhash Aggarwal. Simply because in the case of Mrs. Sudershan Kumari (supra) where the matter was decided against the assessee on a concession from the learned Counsel for the assessee, the matter cannot be decided against the assessee in the present case. Looking to the entire facts and circumstances of the case, we are of the considered opinion that the learned CIT(A) had correctly directed the Assessing Officer to exclude the share income attributable to 36% of the assessee’s right, title and interest of her share income in M/s Munjal Sales Corporation. We hold and direct accordingly.
15. In the result, the appeal is dismissed.