1. There was a Joint family consisting of Moti-' lal Manekchand and his son Maganlal. Motilal, Maganlal and Motilal's wife Bhagirathibai werf appointed managing agents of the Pratap Mills at-Amalner, and the lather and son were appointed managing agents of the New Pratap Mills at Dhulia. It is common ground that the managing agency belonged to the joint and undivided Hindu family. This Hindu family was partitioned on the 1st July 1948 and a document was drawn up on the 29th June 1949 to give effect to that partition. There are three Schedules to this deed of dissolution allocating joint family properties to the three parties who were entitled to equal shares on the partition of the joint Hindu family viz., the father Motilal, the son. Maganlal, and the wife or the mother Bhargirathibai. There was a provision with regard to the managing agency commission and the provision was that Motilal end Manganlal were entitled to equal shares in this managing agency commission of the two Mills, but they both undertook to pay to Bhagirathibai 2 an as and 8 pies share each out of their respective 8 annas share, and when we turn to the three Schedules we and that in Schedules dealing with the father's and the son's property what is credited to them is 8 annas share of the managing agency commission of both the Mills less 2 annas and' 8 pies, and when we turn to the Schedule dealing with Bhagirathibai's properties we and that the 2 annas and 8 pies share in each of the managing agency commission is credited to her and it is sufficient to note that in each Schedule the total properties allocated comes to Rs. 13.03.646/- and this amount is arrived at after taking into consideration the managing agency, commission. After the dissolution of line family the father and son constituted a partnership and acted as the managing agents of these two Mills, and the contention was put forward both by the firm and by each individual partner that the 'managing agency commission received by them and in respect of which, they were liable to pay tax was not the full 16 annas received by them, but 36 annas less the amount which went to Bhagirathibai. This contention was rejected by the Department and the Tribunal accented the view of the Department. The assessee has now come before-us.
2. Now, the real question that we have to consider is this. What is the real income of each of the two partners, viz.. the father Motilal and the son Maganlal? Is his income 8 annas in the managing agency commission of the two Mills, or is part of that income diverted so that the real income of the partner is not 8 punas but 8 annas less the amount which is diverted in favour of Bhagirathibai? Now, it is necessary to remove one or two misunderstandings that might have been caused by certain contentions put forward by the assessee before the Tribunal. In the first place, this is not- a case where a claim is made in respect of any deduction under the provisions of the Income-tax Act. If such a claim had been put forward, then we would have to consider the various sections of the Act in order to determine whether the deduction is justified. But it is clear position in law, as we shall presently rout out, that even though an assesses, may not be allowed to claim a particular amount as a deduction falling within the provisions of the Act, he would be entitled to urge that his real income should beconsidered and if a certain amount is to be deducted in order to ascertain his real income, such a 'deduction would have to be made notwithstanding that the Income-tax Act made no provision for such a deduction. In all cases of tax, what has tot to be considered is what is the income of the assessee, and when that question arises what has not to be considered is the real income and not any artificial income, and for the purpose of ascertaining that real income every part of that income which may seem to be his income, if in fact it is not his income, if that part has been diverted and never constituted his real income, has got to be excluded. The other misunderstanding that was caused was by the claim made by the partnership that in the assessment of the partnership which is a registered firm this deduction should be allowed. Now the partnershipwhich constitutes the managing agency did not enter into any agreement with Bnaglrathibai. The deed of dissolution to which attention has 'been drawn was between the three members of the joint family and it was as individuals that they were partitioning the joint family property, and therefore the Tribunal was right when it took the view that as far as the partnership was concerned it could not contend that its income as managing agents was in any way diverted by a certain amount having to be paid to Bhagirathibai. But we have held that even though a registered firm may not be entitled to claim a deduction when We come to the assessment of the partners constituting that firm, it would be open to a partner to contend that 'in order to determine his real income quae the share which he has received from the firm, any legitimate deduction should be taken into consideration. Therefore, even though the amount to be paid to Bhagirathitbai may not be considered in the assessment of the firm, that would not prevent the two partners 'from claiming that their real income as partners is not 8 annas share' in the managing agency commission but 8 annas less the amount which Bhagirathibai was entitled to receive. See our observations in Shanti Kumar Narottam Morarji v. Commr. of Income-tax Bombay City : AIR1955Bom234 .
3. Turning, therefore, to the question as to whether a partner who is before us on this assessment, viz., Motilal Manekchand, is entitled to relief in respect of the amount which he is liable to pay to Bhagirathibai, the first question that we have to consider is as to the nature of Bhagirathibai's claim against Motilal. It is obvious that Bhagirathibai has an overriding title to 2 annas and 8 pies share in the commission against Motilal. There was some controversy as to whether the provision in the deed of dissolution that Bhsgi-rathibai was entitled to this share out of the 8 annas share of the managing agency constituted a charge on this commission in favour of Bhagi-rathibsi. We are Inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion it is unnecessary to decide this question because this question' can only have relevance and significance if we were considering a claim made for deduction under Section 9(1)(iv) of the Income-tax Act where a claim is made In respect of immoveable property where the immoveable propertv is charged or mortgaged to pay a certain amount. It is sufficient for the purpose of thic referpence if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and8 pies share and that the partner was under a legal obligation to pay that amount.
4. Now, it is necessary to consider what was the real nature of the transaction that took place when the parties divided and distributed the joint family property and are up the document of the 29th June 1949. What they were dividing and distributing were the assets of the joint family and all the income received by the joint family, and there cannot be the slightest doubt that under this deed of dissolution what the parties agreed to was that only a portion of the managing agency commission should be the income of the two male parties Motilal and Maganlal and that a portion of the commission should also be the income of Bhsgirathibai. If that is the true nature of the transaction, then it is clear that the income of the joint family property, to the extent that it was represented by the managing agency commission, was divided between the three members of the joint family, the father, the son and the wife. Therefore, when we ask ourselves the question as to what is the real income of the two partners, the clear answer to that question must be in view of this deed of dissolution that the real income is not 8 annas each in the managing 'agency commission but 8 annas less 2 annas and 8 pies and that the balance of the managing agency commission is the income of Bhagirathibai and not the income of the father and the son. The Advocate General has emphasised the fact that what was sought to be done was the application or allocation- of the income of the partners after they had received the income and after the managing agency commission had become their income. It is true that if this managing agency commission constitutes the income of the partners, then the Taxing Department is not concerned with how the partners apply or allocate this income. But the whole question before Us is, looking to the true nature of the transaction, can it be said that the whole Of the managing agency commission ever became the real Income of the two partners, and in our opinion the answer must be against the contention of the Advocate General.
5. Turning to the cases that were cited at the Bar, the first and the leading case is the decision of the Privy Council in Raja Bejoy Singh Budhuria v. Commissioner of Income-tax, Bengal , In that case the assessee succeeded to the family ancestral estate on the death of his father. After that his step-mother brought a suit for maintenance against him and in that suit a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his stepmother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee, and the assessee claimed that in computing is income the amount paid by him to the-step-mother under the decree? should be excluded. The Privy Council agreed with the view of the Chief Justice from whose Judgment this appeal had been preferred that the assessee's liability to his step-mother did not fall within any of the exemptions or allowances pet out in the Income-tax Act. But what the Privy Council points out is that the sums paid by the appellant to his step-mother were not income of the appellant at all and they say:
'In the present case the decree of the court by charging the appellant's whole resources with a specific payment to his step-mother had to that extent diverted his income from him and haddirected it to his step-mother; to that extent what he received for her was not his income. It is not a case of the application by the appellant of part of ms income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands.'
This passage can be applied to the facts of this case, if we were to substitute in place of the consent decree the deed of dissolution. As in the case before the Privy Council it was the consent decree which had diverted the income from the son to his step-mother, in this ease it is the deed of dissolution that has diverted the income from the assessee to his wife Bhagirathlbai, and to the extent that this income has been diverted the assessee has merely received the amount for her and it is never Become his income.
6. This case came to be considered by a Division Bench of this Court consisting of Sir John Beaumont and Mr. Justice Wadia in Commissioner of Income-tax Bombay v D.R. Naik (1939) 7 ITR 362: (AIR 1939 Bom 362 (C). In that case the income of the assessee from an im-moveable property was subject to certain payments which he had to make under a decree of the Court to widows of a joint family and payments were claimed by the assessee not to constitute his income, and the Commissioner rejected the claim on the ground that they were not deductions which fell within Section 9 of the Act, and Sir John Beaumont states at p. 368 (of ITR): (at p. 363 of AIR):
'But in my opinion, the answer to the learned Commissioner's view is to be found in the decision of the Privy Council in Bejoy Singh Dvidhuria v. Commr. of Income-tax, Calcutta (B). Their Lordships, there, were dealing with a very similar csr;e, in which the assessee's income, deri-vaiile in part from immoveable property, was subject to charge in favour of a widow, and their Lordships held that although those charges could not be deducted under Section 9, the question really was whether the income of the assessee was the whole income to the immoveable properly, or the income of the immoveable property real the deduction, and they held that the real income, which was liable to tax, was the income subject to the deductions in respect of the charges.'
And Sir John Beaumont applied that test to the case before him.
7. In a more recent case, Prince Khanderao Gaekwar v. Commissioner of Income-tax : 16ITR294(Bom) (D), we applied this principle to a voluntary settlement made toy two sons in favour of their mother, and the test we laid down was whether the property was subject to a valid and legal charge which could be enforced in a Court of law under which the as-pessee was bound to pay a certain amount recurring annually. In our opinion, the test would be the same even though there may not be a specific charge so long as there was an obligation upon the assessee to pay which could be enforced in a Court of law.
8. The Advocate General has relied on another Privy Council case. P.C. Mnllick v. Corn-niissionpr'of Income-tax, Bengal (1938)6 ITR 206: (ATR 1938 PC 118; (E) The case is rather interesting because it correctly brings out the principle underlying the earlier Privy Council case. In this case a testator had directed his executorsto pay Rs. 10,000/- out of the income of his (SIC)party on the occasion of his addya sradh for (SIC penses in connection therewith to the person (SIC)was entitled to perform the sradh and the exe-cutor claimed this sum Of Rs. 10,000/- as anamount which he was bound to pay under thedirection of the testator and contended that this'sum of Rs. 10.000/- never constituted the real in-come and therefore was not liable to tax and the'.Privy Council dismissed this claim in one sen- 'tence saying:
'It is simply a case in which the executors having received the whole income of the estate apply a portion in a particular way pursuant to the directions of their testator, in whose shoes they stand.'
They also point out that the position might have ;been different if the residuary legatee was makingthis claim, but inasmuch as the executors who-represented the estate of the testator made the' (SIC) claim, it was obvious that the claim was under -able inasmuch as what had been paid had been.paid out of the estate under the direction in,the testator himself.
9. In our opinion, therefore, the sum (SIC) by the assessee partner to Bhagirathibai did not form part of his income and therefore his incomeshould be refused 'to that extent,
10. The question that has been referred to ,us docs not clearly bring out the contention whichhas been put forward by Mr. Kolah before us. Wewill therefore reframe the question to read:
'Whether on the facts and in the circum-stances of the case, the amount paid by the as sessee partner to Bhagirathibai is to be' deducted before ascertaining his taxable income?' and the answer to that Question as framed will be in the affirmative.
11. The Commissioner to pay the costs. Answer in affirmative.