Diversion of income

The company has no locus standi to divert the salary income of an employee. Merely becoause the payment is made directly to the parents or any body else ( why not wife/children then??), does not divert the income.The only principle of Income diversion recognised by IT law is that of diversion by overriding title and this can never happen in any income where personal services are involved. ( i.e salary prof fees etc). The reason is that the income is earned by the emloyee on account of his emplyment with the employer and method/place/person of payment is irrelevant. Even if not paid it is still taxable as due in the hands of the employee.

Diversion by overriding title would mean that the ownership of the income will part hands even before it reaches the person who earns it. For Eg. Father wills a property to son, with condition that 20% of income from that property must be paid to mother in her life time. Here The right to earn the income from property itself is conditional upon the 20% diversion. Therefore 20% will be taxed in hands of mother and 80% in hands of son. Hope it is clear