Appeals Nos 142 and 143 of 1960
Appeals from the judgment and order dated July 21 1955 of the Madras High Court in CR No 32 of 1952
G section Pathak and Naunit Lal for the appellants
K N Rajagopal Sastri and D Gupta for the respondent
January 10
The Judgment of the Court was delivered by HIDAYATULLAH J
These are two appeals by the legal representatives of one A R Rangachari who died during the pendency in the High Court at Madras of proceedings in a reference under section 661 of the Income tax Act made by the Income tax Appellate Tribunal Madras Bench
The following question was referred to the High Court for its decision 382  Whether the inclusion in the assessee s total income of the profits settled by him on his wife and two daughters is justified in law   The High Court answered the question in the affirmative
The appeals have been filed with a certificate granted by the High court
Rangachari was one of five partners of a firm Messrs Chari and Ram and held a six anna share in the profits and loss of the partnership
On September 22 1947 he executed three deeds of settlement which are marked Exts
A A 1 and A 2 in favour of his wife a married adult daughter and a minor daughter
To each of them he assigned a fourth share of the profits of the firm payable to him but not the losses for a period of 8 years vesting the right in them to receive the said share of profits absolutely and exclusively and declaring the settlements to be irrevocable during the above period
It is not necessary to refer to the three documents because the terms are the same
A few clauses of the deed exhibit A may be quoted
After recitals which included the following  Whereas the Settlor has settled upon his minor daughter Srimathi Meera Bai one fourth of his share of profits payable to him from the firm for a period of eight years And whereas out of natural love and affection the Settlor is desirous of conferring upon the Beneficiary a similar portion of his share of profits from the firm  the deed goes on to say  Now this Indenture witnesseth as follows 1 The
Settlor hereby assigns unto the Beneficiary all the rights of the Settlor in respect of one fourth of his share of profits in the firm but not the losses payable to him during a period of eight years commencing from the date hereof to be taken and enjoyed by the Beneficiary in absolute and exclusive right
2 The
Settlor shall not have any manner of right or interest in the said one fourth share hereby settled and the right to receive from the firm one fourth of 383 the Settlor s share during the said period of eight years shall exclusively vest in the Beneficiary
3 The
Beneficiary shall be entitled directly to receive and collect from the firm the share of profits hereby transferred for the said period of eight years    8
This settlement shall be irrevocable
 For the assessment year 1947 48 corresponding to a previous year ending on April 13 1947 the profits due to Rangachari amounted to Rs 86491 13 0
This amount was credited to the account of Rangachari and Rs 21622 15 3 being one fourth thereof were transferred to the accounts of each of the three disponees
In the same way the profits of the previous year ending April 13 1948 were disposed of
The assessee claimed that these amounts could not be included in his total income for purposes of assessment being excluded by reason of the third proviso to section 161c of the Income tax Act
He also contended that the amount payable to his wife and two daughters never became his income being diverted by an overriding title and that the case was governed by the rule laid down by the Privy Council in Bijoy Singh Dudhuria vs Commissioner of Income tax Bengal 1
The assessee s contentions were not accepted by the Income tax Officer and his appeals to the Appellate Assistant Commissioner and the Tribunal also failed
In so far as the assessment year 1947 48 was concerned the Income tax Officer held that the income had already accrued to the assessee because the deeds were executed five months after the close of the account year
He also held that the transfer to the minor daughter fell within section 163 as there was no adequate consideration for the transfer
With regard to the wife and married daughter he held that section 161c was not applicable because what had been transferred was income first accruing to the assessee while section 161c contemplated income which accrued to a person to whom the transfer was made
The same reasons except the first were given for rejecting the 1 384 assessee s contentions in respect of the other assessment year
It is not necessary to refer in detail to the decisions of the Appellate Assistant Commissioner the Tribunal and the High Court
The High Court in an elaborate judgment pointed out that section 161c did not apply to these proceedings and that the third proviso was therefore not attracted
It also held that the income had accrued to the assessee in the first instance and had then been applied for payments under the deeds
This Court has recently decided three cases which have a direct bearing in this connection
In Provat Kumar Mitter vs Commissioner of Income tax West Bengal 1 the assessee had executed a deed of trust under which dividends from certain shares which continued to be his assets were transferred to his wife
It was held that the case did not fall within section 161c and that the rule in Bijoy Singh Dudhuria s case 2 also did not apply
In Tulsidas Kilachand vs The Commissioner of Income tax Bombay1 the husband had created a trust of the shares constituting himself as the trustee to pay to the wife dividends from those shares for a period of seven years
It was held that the case was not governed by section 161c but by section 163b
In The Commissioner of Income tax Bombay vs Sitaldas Tirathdas 4 the rule laid down by the Privy Council in Bijoy Singh Dudhuria s case was considered along with the case of the Privy Council in P C Mullick vs Commissioner of Income tax Bengal 5 and it was pointed out that the rule in Bijoy Singh Dudhuria s case 2 applied only to those cases where it could be said that by an overriding title the income was diverted in such a way as never to become the income of the assessee
These three cases in our opinion afford a complete answer to the contentions of the appellants
An examination of the deeds of settlement shows that the disponer had stated that from the profits  payable to him  certain amounts in specified shares were to be paid to his wife and two daughters
No 1  3  2 4   5 385 doubt the assessee in those deeds created a right in favour of the disponees to get the amounts direct from the firm of which he was a partner
The tenor of the documents shows that the profits were first to accrue to him and were then applied for payments to the disponees
Learned counsel for the appellants contended that what had been assigned was an actionable claim to wit the right to profits and therefore the profits were diverted before they accrued to the disponer
This in our opinion is neither in accord ance with the law of partnership nor with the facts as we have found on the record
Under the law of partnership it is the partner and the partner alone who is entitled to the profits
Astranger even if he were an assignee has not and cannot have a direct claim to the profits
By the deeds in question the assessee merely allowed a payment to his wife and daughters to constitute a valid discharge in favour of the firm but what was paid was in law a portion of his profits or in other words his income
A glance at the account books of the firm Messrs Chari and Ram clearly shows that the amounts were first credited in the Khata of Rangachari and then under his directions were transferred from his Khata to those of his wife and daughters
The dispositions therefore were in law and in fact portions of the income of Rangachari after the income had accrued to him and tax was payable by him at the point of accrual
In view of the decision of this Court in Sitaldas Pirathdas s case 1 it cannot be said that the profits were diverted by an overriding title before they accrued to Rangachari and the rule in Bijoy Singh Dudhuria s case 2 cannot be called in aid
For the above reasons we are in entire agreement with the High Court in the answer given and dismiss these appeals with costs
Appeals dismissed


Summary:
M who had gone to Pakistan in 1947 sold his property in the State of Madras to the appellant on August II 1949
At that time there was no legislation with respect to evacuee property in Madras
On August 23 1949 the Administration of Evacuee Property Chief Commissioners Provinces Ordinance 1949 XII of 1949 was extended to Madras
The appellant made an application for the confirmation of the sale
Subsequently M was declared an evacuee and the property as evacuee property
It was found that M had entered into the transaction with the object of evading the evacuee law which it was apprehended would be extended to Madras
Consequently confirmation of the sale was refused under section 404a of the Administration of Evacuaee 449 Property Act 950 on the ground that the transaction had not been entered into in good faith
The appellant contended that there was no lack of good faith on the part of M as he could not be said to have acted dishonestly when at the time of the sale no evacuee law had been applied to Madras and that an intention to avoid a future law could not be said to be dishonest
Held that the vendor had not entered into the transaction in  good faith  and the confirmation of the sale was rightly refused under section 404a of the Act
Having regard to the aim and object of the emergency legislation a deliberate intention to defeat the apprehended evacuee law motivating a sale amounted to want of  good faith 
If the vendor sold his property not for any necessity or any other legitimate purpose but solely with the object of converting it into cash and removing it to Pakistan he intended to defeat the provisions of the evacuee law which he knew was to be extended to Madras soon and he acted dishonestly within the meaning of section 404a