Overriding title to widow payments excludes partnership receipts from assessable income under an enforceable deed obligation.

A partnership deed that obliges the firm to pay fixed monthly sums to the widow of a deceased partner can divert those receipts at source, so the amounts never become the firm's own income. Because the obligation is absolute, enforceable, and not contingent on profits, the payments are treated as diverted by an overriding title rather than income first accruing to the firm and then being applied by it. The issue is therefore one of income computation, not a deduction for business expenditure. On these facts, the widows' payments were excluded from the firm's assessable income.

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Issues: Whether the payments made to the widows of deceased partners were liable to be excluded from the assessee-firm's assessments on the footing that the amounts never formed part of the firm's income because they were diverted by an overriding title.

Analysis: The partnership deeds provided for the firm's continuance notwithstanding death or retirement of a partner, for succession of the continuing partners to the business, property and goodwill, and for an absolute obligation to pay the prescribed monthly sums to the widow of a deceased partner. The liability was not dependent on profits and was enforceable as an obligation in the nature of trust. On these terms, the amounts payable to the widows were not income that first accrued to the assessee and was then applied by it; rather, they were diverted at source by an overriding obligation. The claim was therefore not one for deduction as business expenditure under the relevant exception but one going to the computation of the firm's income itself.

Conclusion: The payments were to be excluded from the assessee-firm's assessable income; the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: Where a partnership deed creates an absolute and enforceable obligation to pay a third party out of the firm's receipts before the income can be treated as the firm's own, the amount is diverted by overriding title and does not constitute assessable income of the firm.

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