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TMI Blog1983 (1) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership firm called Jagdishrai Nareshkumar, Maharajgunj, Hyderabad. We are concerned with the inclusion of Rs. 5,168, which is the interest derived by each of the three minor sons of the assessee from Jagdishrai Nareshkumar in the hands of the assessee for the assessment year 1977-78. As far as the assessment year 1978-79 is concerned Vijay Kumar and Vinod Kumar said to have derived income of Rs. 5,977 each from Jagdishrai Nareshkumar. The ITO clubbed these interest amounts in the hands of the assessee invoking the provisions of section 64 of the Income-tax Act, 1961 ('the Act'). During the course of enquiry conducted by the ITO for the assessment year 1978-79 it was claimed that the interest income cannot be said to have been derived b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on account of profit which arises on account of their admission to the benefits of partnership. The assessee relied upon the order dated 20-3-1981 passed in IT Appeal No. 107 (Hyd.) of 1980 for the assessment year 1976-77 dated 20-3-1981-Smt. Ajodhyabai v. ITO. The AAC held that the said decision instead of helping the case of the appellant supports the stands taken by the ITO. Ultimately, he confirmed the addition and dismissed the appeal. In the appeal for the assessment year 1979-79 he followed his appellate order for 1977-78 dated 25-11-1981 and dismissed the appeal. As against the above said two impugned orders passed by the AAC for 1977-78 and 1978-79, the present appeals were brought to this Tribunal and the matters thus stand for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three major partners in different proportions. A reading of the partnership deed discloses that clear distinction is maintained between 'parties' and 'partners'. The word 'parties' used in the partnership deed denotes both the major and minor partners. The word 'partners' used in the deed denotes only the major partners and not minor partners. For instance, the distinction is found when we compare clauses 5 and 7 which are as follows : "5. Capital as and when needed may either be supplied by the parties or it may be borrowed from outside either from banks or other private parties. Interest at the rate of 12 per cent per annum shall be allowed to the parties on their capital." "7. Banking account or accounts shall be opened and maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm under the names of the partners herein are not the amounts required by the partnership firm. It is also clearly stated in clause 5 of the partnership deed that interest at 12 per cent per annum should be allowed to the minors admitted to the benefits of the partnership who are described as 'Parties' in the partnership deed on their capital. In view of clause 5 of the partnership deed and in view of clear distinction having been drawn between the word 'parties' and 'partners' in the partnership deed, the true connotation of which was explained by us above, we are unable to accept the contention of the assessee that under the partnership deed it is not obligatory on the part of the minors to invest any amounts whatsoever for the runnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -78 would lead us to conclude that interest payments were made to the minors on the capital contribution made by them and such interest income arises directly to the minor children of the assessee from the admission of those minor children to the benefits of partnership in the firm. Further we also hold that the credit balances in the accounts of the firm in the names of minors comprises of share of profit earned over years. It is not the case of the assessee at any stage that there was an agreement with the firm to keep these accumulated profits belonging to the minors as deposits with the firm. No contract with the firm which would convert those accumulations into loans advanced to the firm by those minors was either alleged or proved. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also appears to have been allowed by the firm simply because these funds belonged either to a partner or to the minors who had been admitted to the benefits of the partnership. It is thus clear that the interest at least indirectly arose and accrued to the wife and the minor sons because of their capacity mentioned in section 16(3)(a)(i) and (ii) in the Income-tax Act." (pp. 276-77), directly applies to the facts of the case. From the facts and circumstances of the case we have no hesitation to hold that the minors earned this interest income because of the membership of the firm or because of their admission to the benefits of the firm. We also hold that the minors allowed the use of their profits by the firm without any specific arran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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