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TMI Blog1988 (7) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... t, through the trustee Smt. Saryu had become a partner in a partnership firm and the share of profit allocable to the trust was 33 per cent. Clause 4 of the partnership deed stipulated that the capital required for the partnership would be contributed equally by 4 of the 5 partners and Saryu Mehta was one such partner who had the obligation to contribute to the capital. The clause further stipulated that the capital contributed by Saryu Mehta and another partner Nita Mehta should carry interest at 14 per cent. 2. We are concerned with the accounting year ended 31st December, 1981. The accounting year of the Andhra Pradesh Company i.e., the firm in which the trust is a partner is from 1st of June to 31st of May. At the beginning of the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the business of the firm. Therefore, this amount would not be included under clause (iii). He further submitted that the Commissioner is in error in holding that clause (vii) will be applicable. According to him, clause (vii) also will not apply to the facts of the case. He referred to clause (4) of the partnership deed which contained the stipulation for payment of interest and submitted that this clause is evidence to show that the partnership firm treated the credit balance standing in the name of the trustee as a loan account. He also submitted that in the books of account of the firm, the capital account is treated as a deposit account. He drew strength from the decision of the Bombay High Court in the case of CIT v. Chandanmal Kas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm shall, to the extent such income is for the benefit of the minor child, be deemed to be income arising indirectly to the minor child from the admission of the minor to the benefits of partnership in a firm." Although at the first blush, it would appear that clause (iii) did not include the benefit arising to a minor from a trust where the trustee is a partner in a firm, Explanation 2A puts the point beyond all doubts. This Explanation clearly states that where the minor is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm shall be deemed to be the income arising indirectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both ; and" This clause enables the department to include the income accruing to the minor from assets transferred by the assessee to any other person or association of persons. The crucial point we should note in clause (vii) is that the income proposed to be added should arise from the assets which have been transferred. Now it is beyond debate now that the income arising from such asset should have a direct nexus to the asset. If there is no such direct nexus then any income arising which has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on deposits. It is interest on the balance in the capital account. Therefore, the decision of the Supreme Court in the case of S. Srinivasan v. CIT [1967] 63 ITR 273 would apply. It has been laid down therein that interest accruing on the accumulated profits would be includible. The provisions in clause 4 of the partnership deed really strengthens the department's case. Clause 4 of the deed reads as follows :-- "The capital required for the partnership shall be contributed by the partners 1, 2, 3 and 5 as mutually agreed. The capital contributed by the partners Smt. Saryu P. Mehta and Miss Nita M. Mehta shall carry interest at 14 per cent per annum." It would be seen from the above that the clause provides for payment of interest only t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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