Partnership profits accrued to the partner first, so later payment to relatives was taxable income in his hands.

Partnership profits first accrued to the partner and were then directed under settlement deeds to be paid to his wife and daughters, so the income remained taxable in his hands. The amounts were credited to the partner's account before transfer, showing that he had a right to the profits under partnership law and merely authorised payment to the beneficiaries as a valid discharge to the firm. As the arrangement did not create a diversion by an overriding title before accrual, the settled sums formed part of the assessee's total income. The proviso relating to transfers to spouse or children did not alter this result.

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Issues: Whether the profits settled by the assessee on his wife and two daughters were includible in his total income for tax purposes.

Analysis: The settlement deeds showed that the partnership profits were first payable to the assessee and were then directed to be paid to the beneficiaries. Under partnership law, the partner alone was entitled to the profits, and the arrangement merely authorised payment to the wife and daughters as a valid discharge to the firm. The amounts were first credited to the assessee's account and only thereafter transferred under his directions. On that footing, the income had accrued to the assessee before any payment to the beneficiaries, and there was no diversion by an overriding title. The proviso relating to transfers to spouse or children did not assist the assessee.

Conclusion: The settled amounts were part of the assessee's taxable income and were rightly included in his assessment.

Ratio Decidendi: Where partnership profits first accrue to a partner and are thereafter applied under settlement deeds for payment to relatives, the income is taxable in the partner's hands because there is no diversion by an overriding title before accrual.

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