TMI Blog1987 (8) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... either under section 67(3) or under section 36(1)(iii) of the Income-tax Act, 1961 ? " The assessee and his three minor sons constituted a Hindu joint family. The family held the shares in two partnership firms known as " Rami Reddy Co." and " Sri Laxmi Prasanna Sugar Factory ". On behalf of the family, the karta held the shares in the partnership firms in a representative character. The total investment of the joint family in the two partnership concerns was Rs. 2,25,558 as on August 31, 1974. There was a partition of the joint family assets on August 31, 1974, between the assessee and his three minor sons. The partnership interest in the two firms was divided among the karta and his three minor sons in equal shares in the course of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to them which stood invested in the partnership firms. While completing the assessment, the Income-tax Officer restricted the deduction of interest from out of the assessee's share income to the extent of only Rs. 7,602 on the ground that the assessee had received only that amount of interest from the two partnership firms. The claim for deduction of the balance amount was rejected. It appears that the assessee did not appeal against the disallowance of the balance amount. For the assessment year 1977-78 which is under consideration, the previous year ended on August 31, 1976. The assessee claimed deduction of Rs. 16,834 as interest payable to his three minor sons. The Incometax Officer declined to allow any portion of the claim on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business or profession " in respect of his share in the income of the firm, be deducted from the share. In order that an assessee is entitled to claim deduction under this provision, it is necessary to, show that capital was borrowed by the assessee for the purposes of investment in the firm. Unless this condition is satisfied, the claim for interest is not allowable. In the present case, the finding recorded by the Tribunal is that the capital which was invested earlier in the two firms was withdrawn by the assessee for being utilised in his personal capacity. We may refer to the following finding of the Appellate Assistant Commissioner affirmed by the Tribunal in its order: " It is also noticed that the partnership concerns wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Indeed, the assessment order for the year 1977-78 does not show, that the assessee has any income from his own business (with the exception of a paltry interest of Rs. 423 from money-lending). A claim was also made for the deduction of interest from out of the share income. In that event, the correct provision that is applicable is section 67(3) of the Act which specifically provides for the deduction of interest from out of the share income in respect of the capital borrowed for investment in the partnership firms. It is not the assessee's case that the amount owing to the three minor sons was invested in any business carried on on his own account by the assessee so that the interest payable thereon to the three minor sons could be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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