Sub-partnership valid where partner shares profits without altering the main firm's constitution, supporting registration of the sub-firm.

A partner may lawfully agree to share profits from the principal firm with another person without making that person a partner in the main firm; that arrangement is a sub-partnership operating only between the parties to it and leaving the constitution of the head-firm unchanged. The general definition of partnership and the rights of a transferee of a partner's interest did not prevent recognition of such an arrangement. On that basis, the sub-firm was treated as valid in law and entitled to registration under Section 26A of the Income-tax Act, 1922.

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Issues: Whether a sub-partnership could validly exist between a partner in a head-firm and another individual in respect of the partner's share in the principal firm so as to entitle the sub-firm to registration under Section 26A of the Income-tax Act, 1922.

Analysis: A partner may agree to share the profits derived by him from the principal firm with a stranger without making that stranger a partner in the original firm. Such an arrangement constitutes a sub-partnership, which operates only between the parties to it and does not alter the constitution of the main firm. The objection based on the general definition of partnership and the rights of a transferee of a partner's interest did not defeat the claim for registration of the sub-firm.

Conclusion: The sub-partnership was valid in law and the firm was entitled to registration under Section 26A of the Income-tax Act, 1922.

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