Kantawala, C.J:— This reference relates to the question whether the amounts of share of managing agency commission for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61, respectively, are liable to be assessed in the hands of the assessee as his income. The share of managing agency commission was receivable under an agreement dated February 26, 1951, entered into between the assessee and his brother on the one hand and Messrs. Forbes Forbes Campbell & Co. Ltd. (hereinafter referred to as “the managing agency company”). The managing agency company was the managing agent of Simplex Mills Co. Ltd. (hereinafter referred to as “the mills company”) since 1935. The assessee and his brother, B.R Damani, acquired numerous shares in the mills company but the mills company refused to have the transfers registered in its books, with the result that certain disputes arose between the mills company and the managing agency company on the one hand and the assessee and his brother on the other. These disputes were ultimately settled in accordance with the terms of the deed of agreement entered into between the assessee as representing himself and his brother, B.R Damani, on the one hand and the managing agency company on the other. The agreement is dated February 26, 1951. A detailed analysis of the rights and obligations under this agreement will be considered a little later. Clause 6 and clause 9 of this agreement deal with the rights of the assessee and his brother, B.R Damani, to receive their shares in the commission as therein provided. Under clause 6 out of the managing agency commission received by the managing agency company 7 ½% was receivable by the assessee and the other 7 ½% was receivable by his brother, B.R Damani. Up to and including the assessment year 1956-57, the assessee's 7 ½% share in the managing agency commission was assessed in his hands. On October 20, 1955, the assessee executed a deed of gift transferring his right to receive the share in the managing agency commission to his two married daughters, Kamlabai Bagri and Sushilabai Somani. The deed of gift was executed out of natural love and affection. After the deed of gift was executed a copy thereof was sent by the assessee to the managing agency company along with the letter dated October 25, 1955.

2. The deed of gift was to be effective for the first time in the previous year for the assessment year 1957-58. The assessee claimed before the Income-tax Officer that with effect from the assessment year 1957-58, the managing agency commission was not assessable in his hands, but this claim was not accepted by the income-tax authorities holding that this was a case of application of income and not diversion of income by overriding title. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and it was also confirmed in further appeal by the Tribunal. The Tribunal primarily took the view that so long as the agreement dated February 26, 1951, subsisted, income must first accrue to the assessee before the donees under the gift deed could claim it. The donees would have no claim against the managing agency company unless the assessee had first earned the income. According to the Tribunal the donees had not been substituted for the assessee in the agreement, only the managing agency company has been informed that they may make out two separate cheques in favour of the assessee's daughters for the amount of the commission. According to the Tribunal the effect of this deed of gift read along with the letter was that the managing agency company can accept in token of discharge of their debt due to the assessee, the stamped receipt given by the donees as nominees of the assessee.

3. On these facts a common question of law for assessment years mentioned therein has been referred to us for determination under section 66(1) as under:

“Whether, on the facts and in the circumstances of the case, the share of managing agency commission of Rs. 40,398, Rs. 7,900, Rs. 6,218 and Rs. 1,875 for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61, respectively, is liable to be assessed in the assessee's hands as his income?”

4. On behalf of the assessee, Mr. Kolah urged that under the agreement dated February 26, 1951, entered into with the managing agency company the assessee had a right to receive 7 ½% of the commission earned by the managing agency company; that a right to receive such commission was a benefit of contract which can be assigned; that by executing the deed of gift and giving intimation thereof to the managing agency company there was a clear diversion of source of income before income accrued or arose to the assessee and he submitted that when such is the case such income can never be assessed in the hands of the assessee. In support of this contention he incidentally stated that if after the deed of gift was executed by the assessee in favour of his two daughters and an intimation of such deed of gift was given to the managing agency company, the assessee were to file a suit against the managing agency company for his 7 ½% share in the commission, such a suit would fail on the ground that the assessee has no cause of action thereto. On the other hand, Mr. Joshi on behalf of the revenue contended that the share of 7½% in the managing agency commission accrued as income to the assessee but it was thereafter applied by him in consonance with the provisions of the deed of gift dated October 20, 1955. His submission was that there is a clear distinction between obligation to spend money in a particular manner attaching to income and a similar obligation attaching to a source of income; that every income that accrues or arises is liable to be taxed regardless of the destination or disposal; that no treatment meted out to income after it has accrued or arisen affects liability to tax; that in the present case the source of income is a contract with the managing agency company dated February 26, 1951, and under the terms thereof the income is earned by the assessee and his brother by reason of their carrying out the several obligations contained in that instrument; that the assessee has not abrogated or assigned the source of income which is a contract in this case and the income which accrues under the contract is his own income. According to his submission since the income that accrues is that of the assessee the case is one of application of income of the assessee after it has accrued or arisen and not one of diversion of the source of income.

5. Our attention has been invited to several authorities, but in our opinion before dealing with any of the said authorities the well-settled test laid down by the Supreme Court and other courts in similar circumstances should first be laid down. In Commissioner of Income-tax v. Sitaldas Tiralhdas, [1961] 41 ITR 367, 374 (SC), Hidayatullah J., who delivered the judgment of the court, has laid down the true test in the following words:

“In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.”

6. In Commissioner of Income-tax v. Imperial Chemical Industries (India) (P.) Ltd., [1969] 74 ITR 17 (SC) the Supreme Court has laid down that an obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. An obligation to apply income which has accrued or arisen or has been received amounts merely to the apportionment of income and the income so applied is not deductible. The true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted in truth never reached the assessee as his income.

7. We do not intend to multiply authorities but it will be useful to refer to the decision of the Allahabad High Court wherein certain principles are clearly enunciated. That is the case of M.K Brothers Private Ltd. v. Commissioner of Income-tax, [1967] 63 ITR 28, 36, 37, 39 (All). It is there laid down that:

“Every income has a source, whether it is a property or a business or a contract. There is a distinction between an obligation to spend money in a particular manner attaching to an income and a similar obligation attaching to the source of an income. Suppose a property is charged with an encumbrance, the income from it must be spent first in discharging the encumbrance. This is an instance of the sourse of an income being subject to an obligation. If the obligation is on the receiver of the income and not on the source of it, the legal effect of it is quite different. In the former case, the income that is subject to the obligation is diverted at the source and, therefore, not deemed to have accrued or arisen. In the latter case, the income has accrued or arisen but has to be applied in a particular manner. In the former case, the income is not to be included at all in the taxable income; in the latter case, it is. Where a property is subject to the charge of maintenance of a certain person, a portion of the income from it that has to be spent on maintaining the person is not deemed to be the income of the parson on whom devolves the property…… This is the difference between diversion of income and application of income; in the former case there is no income at all in the hands of the recipient and in the latter case there is…… When a person is obliged to spend something out of certain income on a specified object, there are two ways in which the spending on the object can be achieved: (1) his receiving the income and himself spending it on the object; (2) the payer's retaining the income and spending it himself on the object. In one case there is actual receipt but not in the other case…… the liability to pay tax does not depend upon actual receipt. Even if it is actually received, it may not be liable, as for example when the doctrine of diversion applies. Even though it is not actually received, it is liable if it has accrued or arisen, unless the doctrine of diversion applies. If the doctrine of application applies, it makes no difference whether it is actually received or is retained by the payer for the application. If the income has to be paid to the person from whom it is received, the payer's retaining it in adjustment of his claim is as good as his paying it and then taking it back from him.”

8. The conclusions arising from the various cases considered in that judgment have been summarised at pages 41 and 42 of [1967] 63 ITR 28 (All) as under:

“In accordance with the law stated above the following have been held to be income accrued or arisen:

(1) annual payment received by an assessee under a guarantee, though it was to be applied in paying interest on capital furnished by the assessee: Nizam's Guaranteed State Railway Co., [1890] 2 TC 584 (QB);

(2) full salary received by an assessee, though part of it was not actually received and was retained by his employer for being credited to a compulsory deposit fund: Bell's case, [1903] 4 TC 522 (CA);

(3) a sum credited by an employer to the account of the assessee-employee under the provident fund scheme, though no part of it was payable to the assessee so long as he continues in service and he could not raise money on it: Smyth's case, [1904] 5 TC 36 (KB);

(4) income from dividends on shares purchased by an assessee through a loan taken from a creditor and handed over to it with an obligation to adjust it towards the payment of interest on the loan and part of the principal loaned: Paterson's case, [1924] 9 TC 163 (KB);

(5) income from property, though it was paid as maintenance allowance to dependants under a decree of court (without the maintenance being a charge upon the property yielding the income): Sitaldas Tirathdas' case, [1961] 41 ITR 367 (SC);

(6) income received by an assessee from property bequeathed to him by its previous owner with a direction to spend for obtaining probate of the will and on his shradh ceremony expenses: P.C Mullick v. Commissioner of Income-tax, [1938] 6 ITR 206 (PC);

(7) royalty due from a lessee, though the lessee was to retain and apply it towards adjustment of the debt due to him from the assessee: Commissioner of Income-tax v. Manager of Katras Encumbered Estate, [1934] 2 ITR 100 (Pat) [FB];

(8) Profit arising out of a partnership assigned for a certain term to relations under a deed of settlement: K.A Ramachar v. Commissioner of Income-tax, [1961] 42 ITR 25 (SC); and

(9) dividend assigned by the holder of the shares to his wife for the future, while the shares remained in the assessee's name: Provat Kumar Mitter v. Commissioner Of Income Tax, West Bengal , [1961] 41 ITR 624 (SC).”

9. And the following have been held not to be income accrued or arisen:

“(1) income received from property charged under a court's decree with maintenance allowance to a dependant and spent on the maintenance: Raja Bejoy Singh Dudhuria's case, [1933] 1 ITR 135 (PC) and Commissioner of Income-tax v. D.R Naik, [1939] 1 ITR 362 (Bom);

(2) income from trust property which under the trust deed was to be spent on the maintenance of the assessee and his wife: Commissioner of Income-tax v. Manilal Dhanji, [1962] 44 ITR 876 (SC);

(3) part of income from a partnership which under an agreement was to be paid to those contributing towards the investment of the assessee: Ratilal B. Daftari's case, [1959] 36 ITR 18 (Bom);

(4) a part of the commission given up under a contract before it accrued: Harivallabhadas Kalidas & Co.'s case, [1960] 39 ITR 1 (SC) and Shoorji Vallabhdas & Co.'s case, [1962] 46 ITR 144 (SC); and

(5) amount credited by the assessee under the licence towards a certain fund for the purpose of returning it to the consumers: Poona Electric Supply Co. Ltd.'s case, [1965] 57 ITR 521 (SC).”

10. Under the Act the words “accrues”, “arises” and “is received” are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning. The words “accrue” and “arise” also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. “Accruing” is synonymous with “arising” in the sense of springing as a natural growth or result. The three expressions “accrues”, “arises” and “is received” having been used in the section, strictly speaking “accrues” should not be taken as synonymous with “arises” but in the distinct sense of growing up by way of addition or increase or as an accession or advantage, while the word “arises” means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable.

11. It is necessary to refer to the terms of the agreement dated February 26, 1951, that was arrived at between the assessee representing himself and his brother and the managing agency company. This agreement contains reciprocal promises and obligations on both the sides, some of which were to be performed soon after the agreement was entered into while some of them were to continue during the entire duration for which the agreement was to subsist between the parties. By clauses 1 and 2 of this agreement the managing agency company undertook to obtain approval of the directors of the mills company for registration of certain shares of that company acquired by the assessee and his brother. Under clause 3 the assessee was to give the managing agency company irrevocable proxies or powers-of-attorney in respect of certain shares of the mills company already registered in his name. Similarly, he was to procure from his brother similar proxies or power-of-attorney in respect of shares registered in the name of his brother. These proxies or powers-of-attorney were to remain irrevocable for a period of four months to enable the managing agency company to put through the terms of the agreement. By clause 4 of the agreement the managing agency company agreed to procure the appointment by the board of directors of the mills company of the said Damani and his friend, J.R Motishaw, as two of the directors of the mills company. For this purpose the managing agency company was to arrange for one of the existing seven directors of the mills company to retire from the board of directors of that company. It further provided that so long as the sole selling agency of the mills company was held by the assessee or his nominees the assessee was not to exercise his voting power in the mills company so as to increase the maximum number of directors of the mills company from eight to any larger number. Under this clause the assessee as well as his brother were to support the election or appointment of not less than four directors of the mills company selected by the managing agency company. Clause 5 of the agreement provides for the appointment of the assessee or his nominee or nominees as the selling agents of the mills company for such period commencing from June 1, 1951, and upon such terms and conditions as may be determined. Clause 6 of the agreement dealt with the rights of the assessee and his brother or their nominees to receive 15% of the managing agency commission and the material part thereof is as under:

“6. The managing agency company shall pay to the said Damani and/or his nominee or nominees an amount equal to 15 per cent of the commission in respect of the period subsequent to the 14th day of February, 1951, whether such commission be paid under the existing managing agency agreement or under the new managing agency agreement to be executed in favour of the managing agency company by the mills company according to the provisions of clause 8 hereof. Such amount shall be paid by the managing agency company to the said Damani and/or his nominee or nominees without deduction of any income-tax or other taxes whatsoever. The said Damani and/or his nominee or nominees shall pay to the income-tax authorities such income-tax or other taxes as may be assessable on him or his nominee or nominees personally in respect of the 15 per cent of the commission payable to him or them by the managing agency company as aforesaid…”

12. Clauses 7 and 8 of this agreement provided for the appointment of the managing agency company as managing agents for a period of twenty years from April 1, 1951. By clause 9 Damani agreed to support and to do his best to procure his friends to support the managing agency company in obtaining from the mills company a new managing agency agreement for a period of twenty years as mentioned therein and for maintaining the same for the full period thereof. Further, the assessee was to retain in his own name or in the name of his nominee or nominees at least 7,000 shares in the capital of the mills company and to use the voting power in respect of such shares in favour of the managing agency company for the purpose of maintaining the new managing agency for a period of twenty years. The provisions of this clause were to be fulfilled only so long as the assessee and/or his nominees held the selling agency of the mills company. Clause 10 dealt with the apportionment of any compensation or damages that may be received by the managing agency company from the mills company for termination of the managing agency agreement or if otherwise they cease to be the managing agents before the expiry of the stipulated period.

13. If the provisions of this agreement governed the rights of the parties, then, undoubtedly, in view of the clear provisions of clause 6, 7 ½% of the managing agency commission that was received by the assessee out of the commission earned by the managing agency company was assessable as the income of the assessee as that income not only accrued and arose to the assessee but was also received by him, In fact initially up to and including the assessment year 1956-57, such share in the managing agency commission was actually assessed in the hands of the assessee. However, on October 20, 1955, a deed of gift was executed by the assessee in favour of his two married daughters, Kamlabai Bagri and Sushilabai Somani. The recitals in this deed of gift summarised the right to receive 7 ½% of commission by the assessee as a donor under the agreement with the managing agency company. It also further recited that out of natural love and affection for the two married daughters he was desirous of making an absolute gift of his half share, right, title and interest in the said amount equal to 15 per cent of the managing agency commission payable every year by the mills company to the managing agency company. The operative part of the deed of gift is, inter alia, as under:

“Now this indenture witnesseth that in consideration of the premises and of natural love and affection which the donor bears towards his said two daughters the donees above named and for diverse other good causes and considerations him thereunto moving he the donor doth hereby transfer, assign and assure unto the donees by way of absolute gifts in equal share all that his half share, right, title and interest in the said amount equal to fifteen per cent of the said managing agency commission payable every year by the mills company to the agency company and which shall hereafter be payable by the mills company to the agency company to the intent that the half share, right, title and interest of the donor in the said amount equal to fifteen per cent of the said managing agency commission payable every year by the mills company to the agency company and which shall hereafter be payable by the mills company to the agency company shall henceforward remain vested in and be held by the donees in equal shares absolutely to the entire exclusion of the donor or of any benefit to him by con tract or otherwise……”

(The underlining* is ours)

14. Soon after this deed of gift was executed by the assessee in favour of his married daughters, by a letter dated October 25, 1955, the assessee informed the managing agency company about the execution of the deed of gift and actually forwarded the original thereof together with a copy for the record of the managing agency company. By this letter the managing agency company was requested thereafter to make out two separate cheques in respect of the two half equal shares payable to his two daughters out of the managing agency commission payable to him.

15. It is the effect of this deed of gift that we have to consider in the present case. Is the effect of the deed of gift to transfer the source of income to the married daughters before income has accrued or arisen to the assessee in a particular year or has it the effect on income first arising or accruing to the assessee and thereafter applied or transferred by him to his married daughters? On a plain reading of the operative part of the deed of gift, it appears to be the former. The operative part makes it clear that from and after the execution of the deed of gift the right to receive 7 ½% share in the managing agency company commission was vested forever in the married daughters in equal shares absolutely and it further provided that such vesting was to the entire exclusion of the right of the assessee or of any benefit to him by contract or otherwise. The right of the assessee to receive 7 ½% share in the managing agency commission is nothing else but an actionable claim. As defined in section 3 of the Transfer of Property Act, “actionable claim”, inter alia, means a claim to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such beneficial interest be existent, accruing, conditional or contingent. It was urged that as onerous responsibilities were cast by the agreement dated February 26, 1951, upon the assessee and his brother and as some of these obligations were to continue during the entire duration of the subsistence of that agreement, such benefit of a right to receive commission from the manging agency company cannot be regarded as an actionable claim and cannot be assigned because it was burdened with obligations. It is not possible to accept this contention. It is undoubtedly true that the burden of a contract cannot be assigned without the consent of the other party to the contract but so far as the benefit of a contract is concerned it can normally be assigned unless the obligations thereunder are of a personal character. The terms of the agreement dated February 26, 1951, are very clear. Unless the obligations cast upon Damani brothers are carried out by them and complied with, no right to a share in the managing agency commission will ever accrue to them or anybody else. Right to such commission is only dependent upon Damani brothers complying with their obligations under this agreement. Once these obligations are complied with, the managing agency company is under an obligation to pay the share in the managing agency commission as stipulated therein. Such a claim was clearly an actionable claim and was capable of being assigned in the manner prescribed by section 130 of the Transfer of Property Act. It is not disputed in the present case that each one of the conditions laid down under section 130 had been fulfilled. If that is so, then upon Damani brothers performing their obligations under the agreement dated February 26, 1951, having regard to the provisions of the gift deed the share in the managing agency commission will only accrue to the married daughters and not to the assessee as donor at any time. The effect of such a deed of gift is to transfer the source of income itself before the income either accrues or arises. In fact, after the deed of gift was executed and intimation thereof was given by the assessee to the managing agency company, the assessee will have no cause of action to institute any suit to recover any share in such commission. In case such a suit is filed it is liable to be dismissed for want of cause of action. As the source of income is really transferred to the married daughters before the income has accrued in any of the accounting years, such income cannot be regarded as the income of the assessee for any of the assessment years with which we are concerned. It is not possible to accept the contention on behalf of the revenue that this is a case where income has accrued to the assessee and later on applied by him by making a gift in favour of the married daughters.

16. As the effect of the deed of gift is quite clear, it is unnecessary to refer to each one of the cases that have been cited before us. Suffice it for the present case if reference is made to the cases on which reliance is placed by Mr. Joshi on behalf of the revenue. Reference was made by him to a decision of the Privy Council in Raja Bejoy Singh Dudhuria v. Commissioner of Incme-tax, [1933] 1 ITR 135 (PC). This was a case where by a consent decree a charge was created upon the income of the property by way of maintenance in favour of the step-mother. The facts of the case show that the assessee succeeded to the family ancestral estate on the death of his father. Subsequently, his step-mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step-mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee. In computing his income, the assessee claimed that the amounts paid by him to the step-mother under the decree should be excluded. Their Lordships of the Privy Council, inter alia, held that the sums paid by the assessee to his step-mother were not “income” of the assessee at all. 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 had directed it to his step-mother: to that extent what he received for her was not his income. It was not a case of the application by the appellant of part of his income in a particular way; it was rather the allocation of a sum out of his revenue before it became income in his hands.

17. Reference was also made by Mr. Joshi to the decision of their Lordships of the Privy Council in P.C Mullick v. Commissioner of Income-tax, [1938] 6 ITR 206 (PC). The question that arose in this case was whether the amounts paid for shradh of the testator and for costs of taking out probate of his will were deductible from the assessable income. In this case the testator had died and by his will he appointed the appellants his executors. He directed them to pay Rs. 10,000 out of the income of his property on the occasion of his addya shradh for expenses in connection therewith to the person who was entitled to perform the shradh. He had also directed them to pay out of the income of his property the costs of taking out probate of his will. During the year of account the executors had paid Rs. 5,537 for expenses in connection with the addya shradh and a sum of Rs. 1,25,000 for probate duty. Affirming the decision of the Calcutta High Court, their Lordships held that the payments made for the shradh expenses and the costs of probate could not be excluded in computing the chargeable income. These were payments made out of the income of the estate coming to the hands of the appellants as executors and in pursuance of an obligation imposed by the testator. It was not a case in which a portion of the income was by an overriding title diverted from the person who would otherwise have received it as in Bejoy Singh Dudhuria's case, [1933] 1 ITR 135 (PC), but it was a case in which the executors having received the whole income applied a portion of it in a particular way.

18. Reference was made to two decisions of the Supreme Court both reported in [1961] 41 ITR. The first was the case of Commissioner of Income-tax v. Sitaldas Tirathdas, [1961] 41 ITR 367 (SC). The question which arose in this case was whether the assessee was entitled to deduct from his income the amounts paid by him as maintenance to his wife and children under a decree passed by a court with consent of the parties in a suit. By a consent decree no charge was created on any property of the assessee. It was held that this was a case in which the wife and children of the assessee, who continued to be members of his family, received a portion of the assessee's income after he had received it as his own, and was, therefore, one of application of a portion of the income to discharge an obligation and not one in which by an overriding charge the assessee became only a collector of another's income. The assessee was not, therefore, entitled to the deduction claimed by him. The test has been laid down by Hidayatullah J. in the case referred to above and if regard be had to the deed of gift there is no doubt that the present is a case in which 7½% of the managing agency commission sought to be taxed in the hands of the assessee never reached him as his income. As after the execution of the deed of gift the right to receive the income was vested in the married daughters, there was no question of application of the income by the assessee after it accrued or arose to him. The income was diverted before it ever reached the assessee at any time and, therefore, as we have indicated earlier, it was not assessable in his hands. The other case referred to in this volume is the case of Provat Kumar Mitter v. Commissioner Of Income Tax, West Bengal , [1961] 41 ITR 624 (SC). The assessee in this case was the registered holder of 500 ordinary shares in a limited company. By a deed of settlement he assigned to his wife the right, title and interest to all dividends and sums of money which might be declared or which may be due and payable in respect of those shares for the term of her natural life and covenanted to deliver and endorse over to her any dividend warrant or other document of title to such dividends or sums of money and instructed the company to pay such dividends and sums of money to her. It was held that the deed of assignment was, in its true nature, only a contract by the assessee to transfer, or make over, to his wife in future all dividends that may be declared in respect of the shares. As a company can pay dividend only to the registered holder of the shares, the income continued to accrue to the assessee and was assessable in the hands of the assessee as his income, even though it was ultimately payable to his wife under the terms of the deed. It was clearly a case of application of income after it had accrued and not a case of diversion of any sum of money before it had become the income of the assessee. It may be noted that the shares in respect of which the dividends were transferred to the wife were never transferred to the wife and they continued to be in the name of the assessee.

19. Reference was then made by Mr. Joshi to a decision of the Supreme Court in K.A Ramachar v. Commissioner of Income-tax, [1961] 42 ITR 25 (SC). The question that arose for consideration was whether the share of profit that arose to the settlor and which was settled by a deed of settlement in favour of his wife and children should be included in the settlor's total income. The assessee who was a partner in a firm executed three irrevocable deeds of settlement on September 22, 1947, in favour of his wife, a married daughter and a minor daughter, assigning to each of them one-fourth of his share of the profits in the firm payable to him during a period of eight years from the date of the settlement to be enjoyed by them absolutely and exclusively. They were also entitled directly to receive and collect from the firm their share under the settlements. In the account books of the firm the profits due to the assessee were credited to the asses-see's account and one-fourth thereof was transferred to the accounts of each of the three beneficiaries. The assessee claimed that those amounts could not be included in his total income for purposes of assessment to income-tax. The Supreme Court held that on the facts the tenor of the deeds of settlement showed that the profits were first to accrue to the assessee and were then applied for payment to the beneficiaries. It was pointed out that under the law of partnership it was the partner and the partner alone who was entitled to the profits. A stranger, even if he were an assignee, did not have and could not have any direct claim to the profits. By the deeds in question, the assignee 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 income. The dispositions in law and in fact were portions of the assessee's income after it had accrued to him and tax was payable by him at the point of accrual. The amounts had, therefore, to be included in the assessee's total income. An examination of the deeds of settlement showed 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. Undoubtedly, by the deeds a right was created in favour of the disponees to get the amounts direct from the firm, of which he was a partner, but the tenor of the documents showed that the profits were first to accrue to him and were then applied for payments to the disponees. A contention in this case was urged on behalf of the assessee that what was assigned in favour of the wife and children was an actionable claim, but that contention was rejected by the Supreme Court as such a contention was not in accordance with the law of partnership nor with the tenor of the documents and the facts found. Thus, each one of the cases relied upon on behalf of the revenue is distinguishable on facts and they do not afford any assistance for deciding the matter in question. Actually, upon the test laid down in those cases, at no point of time income ever accrued to the assessee after execution of the deed of gift.

20. We may lastly refer to the case relied upon by Mr. Kolah on behalf of the assessee. This was the case of Murlidhar Himatsingka v. Commissioner of Income-tax, [1966] 62 ITR 323 (SC). The question that arose for consideration in this case was whether the share of a partner in respect of which a sub-partnership was created can be included in the assessment of the partner himself. M, who was a partner in a registered firm (firm A) entered into a sub-partnership (firm B) with his two sons and a grandson from December 21, 1949. Clause 5 of the deed of sub-partnership (firm B) provided that the profits and losses of M in the registered firm (firm A) shall belong to the sub-partnership (firm B) and shall be borne and divided in accordance with the shares specified therein, but that the capital with its assets and liabilities would belong to M exclusively. The sub-partnership was also registered. For the assessment years 1952-53, 1953-54 and 1955-56, M's share in firm A was sought to be assessed in his individual assessment. The Supreme Court held that as M's share in the losses in the registered firm, A, was also to be shared, the right to receive profits and pay losses became an asset of the sub-partnership firm, B; that there was an overriding obligation in this case and the income of M in firm A did not remain his income in spite of the sub-partnership; that, accordingly, M's share of income from firm, A, had to be included in the assessment of firm, B, and not in M's personal assessment. It was held that in the case of a sub-partnership the sub-partnership creates a superior title and diverts the income from the main firm before it becomes the income of a partner. In other words, the partner in the main firm receives the income not only on his behalf but on behalf of the partners of the sub-partnership. The facts in the present case are much stronger than those in Murlidhar's case, [1966] 62 ITR 323 (SC). In Murlidhar's case, [1966] 62 ITR 323 (SC), the sub-partners were to share the profits and losses which came to the share of M, while in the present case after the execution of the deed of gift no part of the managing agency commission was to ever accrue or arise to the assessee. In fact once the deed of gift was executed the right to share in the managing agency commission became absolutely vested in the married daughters to the total and entire exclusion of the assessee. That being the position, in our opinion, after the deed of gift the amounts receivable towards the 7 ½% share in the managing agency commission cannot be included in the income of the assessee.

21. Accordingly, our answer to the question referred is in the negative. The revenue shall pay the costs of the assessee.

22. Question answered in the negative.