K. A. RAMACHAR AND ANOTHER versus COMMLSSIONER OF INCOME TAX, MADRAS

Citation: [1961] 3 S.C.R. 380 · Decided: 10-01-1961 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Dismissed

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Judgment (excerpt)

380 
SUPREME COURT REPOl{TS 
[1961] 
I96I 
structure. Under these circumstances it would be 
Th F . -t-N 1. 
1 erroneous not to treat the amount of ''Undivided 
e 
trs 
a sona 0 
fi , 
f 
. 
f 
d 
City Bank 
~ ro ts as a part o the cap1tal un . 
v. 
In our opinion therefore the amount designated as 
1"he Commissioner "Undivided Profits " is a part of the reserves and has 
0~ In~ome~~~, to be taken into account when computing the capital 
om ay uy 
and reserves within R. 2(1) of Schedule II of the Act. 
Kapur J. 
The question which was referred by the Tribunal 
should have been decided in the affirmative and in 
favour of the appellant and the amount should have 
been added to the capital as allowed by R. 2( 1) for the 
Chargeable Accounting Periods. In the result the 
appeal is allowed. The appellant will have its costs 
in this Court and in the High Court. 
january IO. 
Appeal allowed. 
K. A. RA~IACHAR AND ANOTHER 
v. 
COM~llSSIONER OF INCOME TAX, 1\:!ADRAS. 
(J. L. 1\.APUH., M. HTDAYATULLAH and J. C. SHAH, JJ.) 
I ncome-tax~Assessee assigning portion of his profits of part-
nership firm to his wife m•d daughters--Such profits, if can be includ-
ed in the assessee's total income for purposes of assessment~ Income-
tax ActJ 1922 (II of I922), S. I6(I)(c). 
One Rangachari, a partner of a partnership firm, assigned by 
means of a deed of settlement a fourth share of the profits of the 
firm each to his wife, a married adult daughter and a minor 
daughter for 8 years with the right to receive the said share of 
profits absolutely and exclusively from the firm. 
The question 
which arose before the High Court on a reference under s. 66(1) 
of the Income-tax Act was " \Vhether the inclusion in the 
assessee's total income of the profits settled by him on his wife 
and two daughters is justifiec.l in law?'' The assessee H.angachari 
relying on the rule laid down by the Privy Council in Bijoy 
Singh Dudhuria's case claimed that the amounts payable to his 
wife and two daughters never became his income, being diverted 
by an overriding title and that those amounts could not be 
included in his total income for the purposes of assessment being 
excluded by reason of the third provi~o to s. r6(1)(c) of the 
Incorne~tax Act. The High Court held that the third proviso 
was not attracted and that the income had accrued to the assessee 
in the first instance, and had then been applied for payments 
under the deeds. On appeal with a certificate of the High Court : 
Held, that the answer given by the High Court was co:rect. 
. 
~ 
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I 
3 S.C.H. 
SUPRE~IE COUR'l' ltEPOHTS 
a~n 
An examination of the deeds of settlement showed that the 
196I 
disponer had stated that from the profits " payable to him " 
certain amounts in specified shares were to be paid to his wife 1\. A. Ramacha" 
and two daughters. ~ o doubt, the assessee in those deeds created 
v. 
a right in favour of the disponees to get the amounts direct from Commissioner of 
the firm, of which he was a partner. The tenor of the document Tncom~~tax,Mad,as 
showed that the profits 'Yere first to accrue to him and were then 
applied for payments to the dispon<.:es. 
Under the law of partnership, it i.s the partner and the 
partner alone 'vho is entitled to the profits. 
A stranger, even if 
he were an assignee, has not anrl cannot have a direct claim to 
the profits. By the deeds in question, the assessee merely allow-
ed a payment to his wife and daughters to constitute a valid 
discharge in favour of the firm, but 'vhat was paid was, in law, a 
portion of his prof1ts or, in other words, his income. 
The rule in Bijoy Singh's case was not applicable to this case, 
and in view of the decision of this court in Sitaldas Tirathdas's case 
it cannot be said that the profits were diverted by an overriding 
title before they accrued to the assessee. 
Provat Kumar Mitter v. Commissioner of Income-tax, ll'est 
Bengal lrg6r] 3 S.C.R. 37· 
Tulsidas Kilachand v. The Commissioner of Income-tax [rg6r] 
3 S.C. R. 351. 
The Commissioner of Income-tax, Bombay v. Sitaldas Tirathdas 
[1961] 2 S.C. R. 634, applied. 
Bijoy Singh Dudhuria v. Commissioner of Income-tax, Benp,al 
[1933J r I.T.R. 135, held inapplicable. 
CIYJL APPELLATE JURISDICTIO~: Civil Appeals 
Nos. 142 and 143 of 1960. 
Appeals from the judgment and order dated 
July 21, 1955, of the Madras High Court in C.R. No. 32 
of 1952. 
G. S. Pathak and Naunit Lal, for the appellants. 
K. N. Rajagopal Sastri and D. Gupta for 

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