Samode Group, comprised of diversified business entities, is having its registered office located at Jaipur with various business verticals located at different places within and outside the country. The Board of directo

Samode Group, comprised of diversified business entities, is having its registered office located at Jaipur with various business verticals located at different places within and outside the country. The Board of directors regularly have meetings with the heads of each of the business verticals, along with group Finance Director, Company Secretary, Director Taxation and other senior managers and consultants, for reviewing the business results of each of the units and to sort out the various issues. A meeting of all these heads was scheduled for 30th August, 2019 to discuss the various matters relating to taxation and to ascertain as to filing of the return of income of the group companies for the A.Y. 2019-20. The matters which were scheduled for discussion in this meeting, as listed were as under: (2) One of the companies of the Samode Group had taken over a running business of a sole-proprietor firm by executing a sale deed. The company taking over the business as per terms of the sale deed is required to make payment of overriding charges of ₹ 1,50,000 per annum to the wife of the sole proprietor, in addition to the sale consideration. It is also specifically mentioned in the sale deed that the amount so to be paid would be a charge on the net profits of the company which had been accepted as an obligation, being a condition of purchase of the business as a going concern. Examine whether payment of overriding charges made by the group company to the wife of the sole-proprietor (whose business was purchased) is in the nature of diversion of income or application of income. Explain in the context of provisions contained under the Act and support your answer with decided case law, if any.