Representative partnership interest dictates income attribution; only the representative's proportionate share was includible, remainder attributable to sub partners.

Whether the assessee's entire receipt from a constituent firm or only his divisible share was taxable was resolved by treating the assessee's capital in the Bareilly firm as held in representation of original partners and governed by a contemporaneous reciprocal profit and loss sharing agreement. The Court applied the principle that where a partner holds an interest as representative of another and there exists an enforceable obligation to share profits and losses, receipts reflect divided entitlement rather than a post earning diversion; accordingly only one third of the Bareilly firm income was includible in the assessee's assessment and the balance was attributable to other partners under the sub partnership arrangement.

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Issues: Whether, in the circumstances stated, the entire share of income of the assessee from the Bareilly firm or only one-third of it was includible in the assessee's assessment under Section 66(1) of the Income-tax Act, 1961.

Analysis: The Court examined the factual matrix showing that the capital credited to the assessee's account in the Bareilly firm originated from the parent Farrukhabad firm and that the assessee entered into a contemporaneous arrangement to share profits and losses with his original partners. The Court applied the legal principle that where a partner holds a partnership interest as representative of another interest-holder and an enforceable obligation exists to share profits and losses with co partners, the partner's receipts are not a post earning diversion but reflect an underlying divided entitlement. The Court also treated the recorded agreement creating reciprocal sharing of profits and losses as creating an overriding obligation which governs the incidence of assessment.

Conclusion: Only one-third of the income from the Bareilly firm was includible in the assessee's assessment; the remainder is attributable to the other partners by virtue of the sub-partnership arrangement.

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