Irrevocable assignment of future partnership receipts defeats taxation in partner's hands; section 60 and discontinuance rules do not apply.

An irrevocable assignment of a retired partner's yet-unaccrued right to receive partnership receipts to a trust was treated as a valid diversion of income by overriding title, because the assessee retained no asset or interest in the source of income when the right arose. On that basis, section 60 did not apply, since it concerns cases where the transferor retains the underlying asset. Section 176(4) also had no application because the facts did not show discontinuance of the profession, but only assignment of the right to receive amounts after retirement. The amounts were therefore not assessable as the assessee's income.

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Issues: (i) Whether the amount payable by the firm to the retired partner was includible in his hands under section 60 of the Income-tax Act, 1961 after its irrevocable settlement in trust before the year-end accrual; (ii) Whether section 176(4) of the Income-tax Act, 1961 applied to tax the amount in the assessee's hands.

Issue (i): Whether the amount payable by the firm to the retired partner was includible in his hands under section 60 of the Income-tax Act, 1961 after its irrevocable settlement in trust before the year-end accrual.

Analysis: The right to receive the firm's share of professional fees arose only at the end of the accounting year, and the assessee had executed an irrevocable settlement before that right accrued. The settlement transferred the entire right to receive the amounts to the trust and left no asset or interest with the assessee in the firm. On these facts, the arrangement amounted to a valid assignment of an actionable claim and a diversion of income by overriding title, so section 60, which applies where the transferor retains the asset from which income arises, did not apply.

Conclusion: The amount was not taxable in the assessee's hands under section 60 and the finding was in favour of the assessee.

Issue (ii): Whether section 176(4) of the Income-tax Act, 1961 applied to tax the amount in the assessee's hands.

Analysis: Section 176(4) applies where a profession is discontinued. The assessee had not discontinued the profession in the relevant sense and the factual setting was one of assignment of the right to receive amounts after retirement, not cessation of the profession attracting that provision.

Conclusion: Section 176(4) had no application and the finding was in favour of the assessee.

Final Conclusion: The amounts assigned to the trust before accrual could not be assessed as the assessee's income, and the reference was answered for the assessee on both questions.

Ratio Decidendi: An irrevocable assignment of a retired partner's yet-unaccrued right to receive partnership receipts, where the transferor retains no asset or interest in the source, constitutes a diversion by overriding title and is outside section 60; section 176(4) applies only to discontinuance of the profession.

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