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TMI Blog1971 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. All the three other partners, besides the Hindu undivided family had one-fifth share. The share of the Hindu undivided family was four-fifths. On the 31st of March, 1958, a partial partition was effected amongst the members of the Hindu undivided family. Each of the four members divided the four-fifths in equal shares. The very next day, on 1st of April, 1958, a fresh deed of partnership was executed. The three other partners, Kidarnath and others, along with Gianchand and Kishore Chand, constituted the partnership. The share of Kidarnath and others was one-fifth, of Gian Chand one-fifth and of Kishore Chand one-fifth. The two minor sons of Gian Chand, Vir Vijay and Vaneet Raja, were admitted to the benefit of the partnership and they were entitled to the profits of the partnership to the extent of one-fifth each. As a result of the partial partition the share of each of the two minors was determined at Rs. 55,820.77. Admittedly, this amount remained in credit with the new partnership that came into being on 1st of April, 1958. In the assessment year 1962-63, the total interest on the amount that stood to the credit of the minors in the books of the firm amounted to Rs.12,316. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 64(ii) of the Income-tax Act, 1961. The real question that the Tribunal had to determine was missed by them, namely, in what manner the monies that fell to the share of the minors after partial partition of the Hindu undivided family were dealt with. If those amounts were the consideration for their getting the benefit of the partnership that was constituted on 1st of April, 1958, the amounts would certainly be liable to tax in the hands of the assessee in view of the decision of the Supreme Court in S. Srinivasan v. Commissioner of Income-tax. But, if those amounts were invested by the minors and had nothing to do with their being conferred benefits in the partnership constituted on 1st of April, 1958, the interest earned by those amounts would not be liable to tax in the hands of the assessee. There is no evidence on the record which would disclose the true nature of the transaction and, therefore, it is not possible for us to answer the question referred to us without having elucidation on this aspect of the matter. It is significant that the Tribunal treated part of the interest as having been earned on the investment made by the minors in the capital of the firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord 'accretions' we mean the profits, if any, and interest credited to the account of Shri Vir Vijay which opened with the sum of Rs. 56,963. Similarly, the expression 'accretion' means the profits and interest, if any, credited to the account of Shri Vaneet Raja on the sum of Rs. 55,820.77 appearing on April 1, 1958. And, therefore, the question is whether accretion to capital is itself capital : To sum up : - (1) Vir Vijay : (i) The sum of Rs. 56,693 on April 1, 1958, is the initial capital contribution of Vir Vijay. (ii) The subsequent credits are ' accretions' thereto. (iii) There is no specific or written agreement on behalf of Vir Vijay and the partnership, M/s. Kishan Chand Gian Chand, as to whether they would be in the nature of capital or in the nature of credit-in-account. (iv) They arise from the original capital contribution. It will not be strictly appropriate to call them as voluntary deposits. Similarly, it will not be strictly correct to call them as capital. The word 'accretion' will properly reflect their true nature. (2) Shri Vaneet Raja : (1) The sum of Rs. 55,820.77 on April 1, 1958, is the undisputed capital contribution of Shri Vaneet Raja. (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, at that stage, either the wife or the minor sons, or anyone on their behalf, purported to enter into an arrangement with the firm to keep these accumulated profits as deposits. Similarly, there was no such contract which could convert those accumulations into loans advanced to the firm by these persons. The facts and circumstances indicate that the wife and the minor sons had earned these profits because of their membership of the firm or because of their admission to the 'benefits' of the firm, and having earned these profits in that capacity, they allowed the use of their profits to the firm without any specific arrangement as would naturally have been entered into if these funds had belonged to a stranger. They let the firm use funds of theirs, because they had interest in the profits of the firm. These facts also show that the use of these moneys was allowed to the firm without asking for any interest, and it was only at a later stage that the three partners of the firm decided to give interest on these amounts. When the decision was taken to give interest, the nature of the funds did not change. They did not get converted into deposits or loans. They still remained accum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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