S.K. Mal Lodha, J.
1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as 'the Tribunal'), has referred the following questions for our opinion :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm constituted as M/s Alisher Contractors is not liable to pay any tax on its income ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the levy of tax on the sub-partnership is tantamount to double taxation ?'
2. The assessee (non-petitioner) is a registered firm. The assessment year in question is 1973-74. It filed its return declaring an income of Rs. 35,140. Alisher and Bhanwar Singh took excise contract of country liquor for Bhadra for the period May 1, 1972, to March 31, 1973. Alisher had not sufficient finances and as such he entered into a sub-partnership agreement with one Shafi Mohd., contractor. The partnership agreementdated October 12, 1972, has been submitted as annexure A. Relevant portion of that agreement reads as under :
'...Whereas both the partners of the main firm, viz., Shri Alisher, the first party, and Shri Bhanwar Singh, were to arrange finances for the business of the main firm and whereas the first party has little finances of its own and approached the second party for his share of finances for the business of the main firm and whereas the second party agreed to finance the first party to enable him to finance the main firm to the extent of his share on the condition that the first party shall give to the second party 50% of his share of profit in the main firm in lieu of his making available, necessary finance and whereas in view of this mutual benefits, the parties have agreed to enter into sub-partnership in relation to 50% share of the first party in the said main firm.'
3. Clauses 3 and 5 of the partnership deed dated October 12, 1972, are as under :
'(3) That the subject-matter of sub-partnership shall be 50% share in the partnership firm, M/s. Bhanwar Singh Alisher, constituted under the partnership deed dated 12th October, 1972, falling to the share of Alisher.
(5) That the 50% share of Alisher in the profit and loss of the business of the firm, M/s Bhanwar Singh Alisher, country liquor contractors, Bhadra, shall be equally divided amongst the said parties.'
4. It is thus clear that Alisher had no finance and, therefore, he entered into a sub-partnership agreement with Shafi Mohd., contractor. Shan Mohd., contractor, was to provide necessary finances for and on behalf of Alisher and in consideration thereof, Shafi Mohd. was to be paid by Alisher 50% of the share of profit in the main firm. It is not in dispute that Shafi Mohd. provided finance to the extent of Rs. 92,000. The Income-tax Officer by his order dated June 28, 1975, found that it was a case of sub-partnership between Alisher and Shafi Mohd. Regarding the share of Alisher in the firm, M/s. Bhanwar Singh Alisher, Bhadra, he computed the total income as under :
Rs.Share income as per order of firm, M/s. Bhanwar Singh Alisher, Bhadra34,057Less Firm tax1,577
5. In appeal, it was submitted on behalf of the assessee, that it was a case of double taxation on the assessees, for, he is not liable to pay tax on the amount on which he had already paid the tax.
6. The Appellate Assistant Commissioner, vide his order dated March 8, 1976, observed as under :
'Apparently, when the income of the original firm has been taxed, the share will be taxed in the hands of the partner and not again in the hands of the sub-partnership. Taxing the share of the original firm in the hands of the sub-partnership will be double taxation. Accordingly, the tax levied on this sub-partnership firm is not justified. The Income-tax Officer can only tax the share income which is 50% each in the case of the sub-partnership. Accordingly, the tax levied by the Income-tax Officer on this sub-partnership is deleted.'
7. Further appeal was taken by the Commissioner of Income-tax before the Tribunal. It dismissed the appeal. It will be pertinent to excerpt the following from the order of the Tribunal dated April 27, 1977 :
'As such he entered into sub-partnership with Shri Shaffi Mohd. Shri Shaffi Mohd. provided finances on behalf of Shri Alisher for running the business of the main firm. As a result of the sub-partnership, the share of profit which was received by Shri Shaffi Mohd. (sic) from this fact, it is clear that this sub-partnership entered into between Shri Alisher and Shri Shaffi Mohd. helped the main firm in carrying on its business. Shri Alisher has already paid tax according to his share. If Alisher sub-divided his profit with Shaffi Mohd., in my opinion, he will not be required to pay further tax. If Alisher is further required to pay the tax, it would be double taxation on the same income. Thus, in my opinion, the finding of the learned Appellate Assistant Commissioner is quite correct.'
8. The Commissioner submitted an application under Section 256(1) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short 'the Act '). The Tribunal allowed the application and referred the aforesaid questions.
9. We have heard Mr. B.R. Arora, for the Revenue, and despite service of notice, nobody has appeared on behalf of the assessee.
10. We have reproduced the relevant portion of the partnership agreement dated October 12, 1972, which clearly shows that there was a sub-partnership between Alisher and Shafi Mohd. in respect of the share of Alisher in the main firm, Bhanwar Singh Alisher, Bhadra.
11. There is no dispute before us and in fact before the income-tax authorities, it was not contested that it was a case of sub-partnership between Alisher and Shafi Mohd.
12. Lindley on the Law of Partnership, 12th edition, page 99, has stated as under :
'A sub-partnership is, as it were, a partnership within a partnership ; it presupposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitutes a partnershipbetween the parties to the agreement. If, therefore, several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constihtte what is called a sub-partnership, that is to say, it makes the parties to it partners inter se ; but it in no way affects the other members of the principal firm.' (Emphasis* added).
13. Before we proceed further, we consider it proper to state that in regard to taxation of the income of a sub-partnership, the Bombay High Court observed in Situldas Tirathdas v. CIT : 33ITR390(Bom) that it is not essential that there should be a charge, but it is quite sufficient if there is legally an enforceable claim. Sital Das' case : 33ITR390(Bom) was reversed in CIT v. Sitaldas Tirathdas : 41ITR367(SC) and it was held that the true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. The Supreme Court observed as under (at p. 374) :
'There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied.'
14. In Ratilal B. Daftari v. CIT : 36ITR18(Bom) , the question regarding Section 23(5)(a) of the Indian Income-tax Act, 1922 ('the old Act') arose, which has now been replaced by Section 182 of the Act. In that case, there was a registered partnership firm consisting of sixteen partners. The partners were to share the profit or loss in proportion to the capital contributed by each partner. The share of the assessee, who was a partner and had contributed Rs. 25,000 out of the capital of the partnership of Rs. 3,45,000, was determined at Rs. 14,661 in accordance with the provisions of Section 23(5)(a) of the old Act. A contention was raised that the whole of the sum of Rs. 14,661 did not belong to him but only 2/5ths of that amount, viz., Rs. 5,864. He relied upon an agreement between himself and four others entered into on the same date on which the deed of the registered partnership was executed. The agreement pro-vided that five parties who had contributed diverse sums amounting to Rs. 25,000 were to share the profits or losses in proportion to their individual contribution and also mentioned that the terms and conditions mentioned in the registered partnership were to be applicable and binding on them. The Division Bench consisting of S.T. Desai and K.T. Desai JJ. held that even in the case of assessment of a partner of a registered firm, what was to be considered was not the income allocated to his share by employing the machinery of Section 23(5)(a) but his real income ; and that real income was what remained after deducting the amounts which might be said to have been diverted and never constituted his real income and such amounts would have to be excluded to ascertain his real income, for, ultimately, it was his real income which alone could be taxed and not any artificial or notional income that he may be said to have earned ; and that, therefore, in that case, only two-fifths of the sum of Rs. 14,661, viz., Rs. 5,864, could be assessed in the hands of the assessee as his share in the profits of the registered firm and not the entire sum of Rs. 14,661. Seth Motilal Mtanekchand v. CIT : 31ITR735(Bom) was applied.
15. Before the Supreme Court in Murlidhar Himatsingka v. CIT : 62ITR323(SC) , a somewhat similar question relating to a sub-partnership arose. We consider it necessary to notice the facts of that case. M, who was a partner in a registered firm (Firm A), entered into a sub-partnership (Firm B) with his two sons and a grandson from December 21, 1949. Clause 5 of the deed of sub-partnership (Firm B) provided that the profits and losses of M in the registered firm (Firm A) shall belong to the sub-partnership (Firm B) and shall be borne and divided in accordance with the shares specified therein, but that the capital with its assets and liabilities would belong to M exclusively. The sub-partnership was also registered. M's share in (Firm A) was sought to be assessed in the individual assessment of M. It was, amongst others, held that there was an overriding obligation and the income of M in Firm A did not remain his income in spite of the sub-partnership and, therefore, M's share of income from Firm A had to be included in the assessment of Firm B and not in M's personal assessment. So far as Section 23(5)(a) of the old Act was concerned, it was held that there was nothing in this section of the old Act which prevented the income from Firm A being treated as the income of Firm B and Section 23(5)(a) being applied again. We are tempted to quote the following observations of their Lordships of the Supreme Court made in the aforesaid case : 62ITR323(SC) :
'A sub-partner has definite enforceable rights to claim a share in the profits accrued to or received by the partner in the original partnership. When a sub-partnership is entered into, the partner changes hischaracter vis-a-vis the sub-partners and the income-tax authorities, although other partners in the original partnership are not affected by the changes that may have taken place.
In the case of a sub-partnership, the sub-partnership creates a superior title and diverts the income from the main firm before it becomes the income of partner. In other words, the partner in the main firm receives the income not only on his behalf but on behalf of the partners of the sub-partnership.'
16. Here, it may be stated that after noticing Kaniram Hazarimull v. CIT : 27ITR294(Cal) and Dhanwatay v. CIT : 32ITR682(Bom) , their Lordships of the Supreme Court observed as under  62 ITR 333 :
'The object of Section 23(5)(a) is not to assess the firm itself but to apportion the income among the various partners. After the income has been apportioned, the Income-tax Officer has to find whether it is the partner who is assessable or whether the income should be taken to be the real income of some other person. If it is the real income of another firm, it is that firm which is liable to be assessed under Section 23(5)(a) of the Act.'
17. To a great extent, the observations made in Ratilal B. Daftari's case : 36ITR18(Bom) were approved in Murlidhar Himatsingka's case : 62ITR323(SC) .
18. The principles laid down in Murlidhar Himatsingka''s case : 62ITR323(SC) afford a useful guidance for answering the aforesaid two questions and they are fully attracted to the case on hand.
19. As stated above, the sub-partnership was entered into between Alisher and Shafi Mohd. with the object of helping the main firm, Bhanwar Singh Alisher, Bhadra, in carrying on its business of the contract relating to the sale of country liquor. The sub-partnership was for the purpose of enabling Alisher to supply finances in proportion to his share in the main partnership. Shafi Mohd. was to finance Alisher and in lieu thereof, he was to be paid 50% of the share of Alisher in the main partnership. His profit was to be equally divided between Alisher and Shafi Mohd. In respect of the profit which came to the share of Alisher from his main partnership, there was an overriding obligation on the part of Alisher. In these circumstances, Section 182 of the Act is applicable.
20. For the reasons aforesaid, in our opinion, the Tribunal was not right in holding that the assessee-firm is not liable to pay any tax on its income. Question No. 1 referred to us has to be answered in the negative.
21. So far as question No. 2 is concerned, it need not detain us long, for, in view of the answer to question No. 1 given by us hereinabove, itnecessarily follows that there is no double taxation so far as charging of tax on the sub-partnership is concerned. This question is also answered in the negative.
22. The result is that both the questions referral to us are answered in the negative, i.e., in favour of the Revenue and against the assessee.
23. There will be no order as to costs of this reference.
24. Let the answers be returned in accordance, with the provisions of Section 260(1) of the Act.