COMMISSIONER OF INCOME TAX vs. SUNIL J. KINARIWALA

CIVIL APPEAL No. 1899/2002Supreme Court2002 INSC 52810 December 2002Bench: 2 JudgesAuthor: S.S.M. QUADRI, K.G. BALAKRISHNAN B11 pages
AI SummaryAllowed

What were the facts?

The assessee, a partner in a firm with a 10% share, created a trust and assigned 50% of his share income to it. The assessee claimed this as a diversion of income at source, not includible in his total income. The Income Tax Officer disagreed, viewing it as an application of income. The Appellate Authority reversed the ITO's order. The Income Tax Appellate Tribunal then referred questions to the High Court. The High Court ruled in favour of the assessee, holding the income belonged to the trust by overriding title. The Revenue appealed this decision to the Supreme Court. The assessment year in question is 1974-75.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, holding that the income assigned by the assessee to the Trust was an application of income, not a diversion by overriding title. The Court distinguished between a partner assigning their share and constituting a sub-partnership. In the former case, as per Section 29(1) of the Indian Partnership Act, the assignee gets no right or interest in the main partnership, except to receive profits. The Trust, as an assignee, was entitled to receive the assigned share of profits but not as a sub-partner, as no sub-partnership was formed. Therefore, the assigned share of income had to be included in the total income of the assessee. The questions were answered in favour of the Revenue and against the assessee. The Court deemed it unnecessary to consider the alternative contention based on Section 60 of the Act.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, 50% of the assessee's 10% share in the partnership firm, Messrs. Kinariwala R.J.K. Industries, belongs to the Sunil Jivanlal Kinariwala Trust by overriding title and is assessable only in the hands of the Trust? (Question of law and fact, concerning the nature of the assignment and its tax implications). Assessee's contention: The Trust was entitled to receive the share of the assessee's income under the settlement deed, thereby acquiring it by virtue of an overriding title. Revenue's contention: The assessee assigned the right to receive part of his profits, not creating an overriding title in the Trust to divert income at source. Therefore, such income should be included in the assessee's total income.

Which sections of the Income-tax Act were involved?

Section 60,Section 256(2),Section 29(1)

AI-generated summary — verify with the full judgment below

A B c !J 2 F G H COMMISSIONER OF INCOME TAX v. SUNIL J. KINARIWALA DECEMBER I 0, 2002 [SYED SHAH MOHAMMED QUADRI AND K.G. BALAKRISHNAN, JJ.] Income Tax Act, 1961; Sections 60 and 256(2): Assessee, a partner in a firm assigned part of his share income to a Trust-Tribunal held the income so assigned to Trust would be included in the total income of the assessee for the purpose qf assessment-High Court reversing the same-On appeal held, since Trust receives share of income of the assigner partner as assignee and not as a sub-partner it is a case of application of income by the assessee and not diversion qf income by. over riding title-Such share of income of assessee of the firm could be included in total income for the purpose of assessment-!ndia11 Partnership Act-Section 29(1).

Assessee-appellant, a partner in a firm, created a Trust and assigned part of his share/income to Trust and claimed it as diversion of income at source, thus not included in his total income for the purpose of assessment.

Income Tax Officer rejected the claim considering it a case of application of income and not diversion of income at source. Appellate Authority reversed the orde

The order continues below.

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