1984 (7) TMI 134 - AT - Income Tax

Summary

Issues:
1. Whether the addition of interest on Fixed Deposit receipts held by partners individually should have been added to the firm's income.
2. Whether the interest on Fixed Deposit receipts obtained by partners individually should be considered as income of the firm.

Analysis:
1. The appeal raised the issue of whether the addition of interest on Fixed Deposit receipts held by partners individually should be included in the firm's income. The assessee contended that since the partners held the Fixed Deposit receipts individually, the firm should not be liable for the interest income. The relevant assessment year was 1979-80, and the partners had individual opening and closing credit balances in their accounts. The interest on the Fixed Deposit receipts was added to the firm's income by the Income Tax Officer (ITO), which was affirmed by the Appellate Authority Commissioner (AAC).

2. The AAC upheld the ITO's decision, stating that since the Fixed Deposit receipts were reflected in the firm's balance sheet and considered firm property, the interest income should be chargeable to the firm. The counsel for the assessee argued that the partners' capital accounts showed higher credit balances than the Fixed Deposit amounts, and the interest received was reflected in the partners' individual accounts. The counsel relied on a previous decision to support the argument that the Fixed Deposit receipts were held individually by the partners and not by the firm.

3. The Departmental Representative contended that the inclusion of Fixed Deposit receipts in the firm's balance sheet made the interest income attributable to the firm, regardless of whether they were held by individual partners. A case citation was provided to support this argument and distinguish it from the previous decision referenced by the assessee's counsel. The Tribunal, after considering the submissions, found that the facts of the case aligned with the previous decision regarding the treatment of Fixed Deposit receipts.

4. The Tribunal noted that the Fixed Deposit receipts were obtained in the names of individual partners, maintained separately in the bank, and the interest was reflected in the partners' accounts. The partners' accounts suffixed with 'FD' appeared on the firm's balance sheet, indicating the amounts related to Fixed Deposit receipts. The Tribunal rejected the Departmental Representative's argument based on a different case's facts and ruled in favor of the assessee, allowing the appeal based on the precedent set in a similar case involving the treatment of Fixed Deposit receipts held by partners individually.