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TMI Blog1976 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ed loans on over drafts from Syndicate Bank of the extent of nearly Rs. 3,23,000 and these borrowals were accounted for in Abids branch. In respect of such borrowals interests were paid to the extent of Rs. 34,091 and such interest payments were claimed as allowable expenditure. The ITO found that two partners Sri Sunder Rao and Sri Babu Rao during the year had overdrawings from the firm to the extent of Rs. 4,94,896 and proposed to disallow the interest charged to profit and loss account because of such overdrawings. The assessee by its letter dt. 15th March, 1974 pointed out that the interest was charged to Abids branch whereas the drawings were made in Secunderabad branch and the interest charged on borrowings cannot be attribute to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame before the AAC he accepted the explanation of the Chartered Accountant of the assessee and deleted the disallowance of interest. According to the AAC the over-all capital position of the firm has to be considered and if so there was a large credit balance to the extent of nearly Rs. 9 lakhs, in the case of other partners. He also took into consideration the fact that the two major partners had to pay income-tax on the proportionate incomes of the minors included in the hands which were debited to the brothers partners account and not to the minors account and if adjustments were made the debit balances would be reduced. As against such finding of the AAC the present appeal is filed. 4. It is contended by the learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts to the extent of nearly Rs. 9 lakhs and if an over-all position is taken for the withdrawals by partners no interest could be disallowed on the actual interest payments, on bank borrowals. It is also further pointed out that in respect of the partner B. Sunder Rao his share income during the year was only Rs. 31,366 but the share income clubbed under s. 64 in his hands was of nearly Rs. 80,000 and he had to pay an over-all tax of Rs. 73,597 and if the tax payments on behalf of minors and the wife had to be debited to their accounts, the drawal by the partners could be much less. In the case of other partner Babu Rao it is pointed out that the share income clubbed under s. 64 was to the extent of Rs. 30,000 and the tax on this is debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts borrowed were for the purpose of business of the family. However, it is seen that the withdrawals by the partners during the year in question amounted to nearly Rs. 3,22,281 and such withdrawals can very well be from the profits of the firm and also from the capital at credit. During the year in question the two major partners withdrew about Rs. 1,29,000 but the over drawings of these two partners during the year of account when the withdrawals in the earlier years are taken into consideration worked out to a debit balance of nearly Rs. 5,01,000. It has to be remembered that the other partners have credit balances to the extent of Rs. 9 lakhs. So if the over all position taken there is a capital of partners in the firm to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to benefit the partners. The debit balances of the two partners were for a period of years and during the year in question the borrowals from Syndicate Bank were also show to be utilised for the payment of sales-tax and other liabilities of the firm. The Revenue has not shown any nexus between the borrowals from the bank and the withdrawals from the partners or that the partners had utilised the borrowals from the bank for their personal purposes. 11. As pointed by the AAC of the income-tax payments by the two major partners in respect of clubbing of interest under s. 64 of the Act was to be debited to and minor s and wife s account then the withdrawals by two partners would be less. If an over-all position is taken the other partners ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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