TMI Blog1995 (8) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it could not be included in the assessee's income under section 64(1)(iii) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in confirming the Appellate Assistant Commissioner's action in holding that the interest earned by the minors be bifurcated in two parts, (i) on initial deposits, and (ii) on accumulated profits and that the interest falling in the first category was to be excluded from the income of the father whereas the income falling in the second category was to be included in the income of the father? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paise each per rupee from the partnership profits. They were not responsible for the losses. Clause 14 of the partnership deed provided that the partners shall he allowed an interest of 12 per cent. per annum on their investment with the firm. The firm as aforesaid was constituted with effect from January 1, 1967. The minors invested certain amounts in the firm at the time of the constitution of the firm. They also invested certain amounts later. All such amounts were credited to the accounts of the minors with the said firm. Interest allowed on the investments and the profits accrued to the minors in terms of the partnership agreement were also credited to those accounts. In the assessment of their father, Shri Ram Ratan, for the year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make investments for earning interest and as many other persons were giving loans to the firm to the benefits of which they were admitted, they also gave loans. That these were contributions of capital and that they were not by way of deposits simpliciter as affirmed by them has to be proved by the Department. The Department has tried to discharge this onus by pointing out that profits accruing and arising to the minors from the business of the firm have been credited to these accounts. This fact alone, in our opinion, is not enough to convert the deposits into capital. May be that the firm should have kept two accounts separate but simply because the two have not been kept separate, it cannot be said that the fact of credit of the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these accumulated profits remaining in the hands of the firm cannot, on any principle, be equated with deposits made or loans advanced. The profits accumulated to the credit of the wife and the minor sons, because they did not draw their share of profits when distribution of profits took place, and allowed those profits to remain with the firm ; but there is no suggestion at all 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of which the minors permitted the use by the firm, because they were their accumulated profits arising from the firm itself and because of their interest in the firm as persons admitted to the benefits of the partnership. In CIT v. Smt. Nirmala Devi [1987] 166 ITR 253 (MP), it was held by the Madhya Pradesh High Court that the Income-tax Appellate Tribunal was not justified in holding that if there was independent investment of capital by the minors, interest on such capital would not be liable to tax in the hands of the assessee. On behalf of the assessee-respondent, reliance is placed on a judgment of the Gauhati High Court in CIT v. B. P. Sikaria [1992] 195 ITR 836 in which the finding of the Tribunal was that the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there would be in respect of the other creditors nor was there any material to show that the interest credited to the accounts of the minors was not in terms of the partnership deed and was in pursuance of any independent contract. The burden to prove that the interest in question or any part thereof was not directly or indirectly related to the admission of the minors to the benefits of the partnership lay on the assessee as held by the Supreme Court in the case of S. Srinivasan [1967] 63 ITR 273, and this burden was not discharged by the assessee by leading any evidence whatsoever. The mere fact that the firm had raised loans from others as well and had paid interest to them at the same rate was of no consequence. We, therefore, hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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