9911796707
TMI Blog1986 (11) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership concern under the name and style of M/s Sama Agencies, Kakinada, dealing in Agency lines, general business and contracts in accordance with the terms and conditions of Partnership Deed dt. 2nd Aug., 1965. Consequently, upon the partial partition in the family which took place in the family of one of the partners, Shri Sama Sreerama Krishna, the present deed of partnership (1st March, 1973) is executed incorporating the changes agreed upon mutually. 2. Para No. 3 of this Partnership Deed is important, and hence it is extracted here-under: "Sri Sama Venkata Bhaskar (10 years) (2) Shri Sama Satyanarayana Murthy (7 years) (2) Shri Sama Venkata Satyanarayana Murthy (3 years) minor sons of Shri Sama Sreeramakrishna have been allotted capital in this firm in their family partition and hence these three persons are admitted as partners for the benefits of the partnership only. The minors are not liable to any losses." Para No. 7 states that "the capital outstanding to the credit of the partners shall carry interest at 15 per cent per annum and debit balance shall be charged interest at 15 per cent per annum". The Partnership Deed relating to M/s Krishna Steels, Kakinada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Brought forward from1-4-1976 1,1837.58 Add: . Interest at the rate of 1.25 for the period from1-4-1976 to 31-3-1977 (on Rs. 11,837.58) 1,889.10 Share profit at the rate of 0.19 as per accounts 1,780.54 Total balance available as on 31-3-1977 15,507.22 . The khatas of the other two minors also are the same figures, we do not feel it necessary to extract. Therefore, it can be seen that for asst. yr. 1977-78, the total outstanding amounts standing in the capital account of cash of the minors was Rs. 15,507.22, out of which Rs. 1,780.54 represents interest in the case of each of the minors. The capital accounts were furnished for asst. yr. 1973-74, during the relevant previous year of which the partial partition between the father and sons took place and it can be seen that for asst. yr. 1973-74, the interest was credited to the accumulated balance as per the stipulation of the relevant Partnership Deed. For instance in asst. yr. 1973-74 an amount of Rs. 116.93, for asst. yr. 1974-75 an amount of Rs. 1,414.55 and for asst. yr. 1975-76 an amount of Rs. 903.30 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contended that he has got a strong case and under no circumstances they can be included in the hands of the mother of the minors. It is contended that there was no necessity to keep any particular amount as capital for the minors in each of the two firms, in which they were admitted to the benefit of the partnership. Further, there was a clear stipulation that the credit balances of the capital account which carry interest at 15 per cent in both the Partnership Deeds. When there was such an understanding even at the time of formation of the partnership, the said understanding should be deemed to be continuing amongst partners even after earning share income and because of the said understanding the minors' share income was allowed to remain in their capital accounts, and, therefore, the minors should be deemed to be the creditors of the firm and the interest credited to their accounts cannot be said to have been earned because of their being allowed the benefits of partnership. Even though they were not allowed to such benefit of partnership, the minors would have earned interest by depositing their share income derived in any other commercial establishment, just like any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate credit accounts opened in the name of each of the minors in the account books of the two firms which are under review. He also wanted us to bear in mind that the share of profit, the initial capital, as well as the interest accrued on the outstanding credit balances in the capital account were all credited into one account. He contended that the argument that there was no necessity for the minors to contribute any capital whatsoever being admitted to the benefits of the partnership is against record, and, therefore to be rejected. For this purpose he invited our attention to the recital of the Partnership Deeds to which a reference was already made in prior portion of this order. He also contended that the argument to treat the accumulated share profit as a loan or an advance made to the firm must be subsequent to the earning of such share of profit and agreement amongst the partners to treat the accumulated profits as an advance or a loan to the firm even before such share of profit was earned by the minors was of no avail. 4. In support of his arguments, he invited our attention to the Supreme Court decision in S. Srinivasan's case. Our attention is particularly draw to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the ratio above laid down by the Hon'ble Supreme Court in (1979) 13 CTR (Mad) 308 : (1979) 119 ITR 123 (Mad). There the question directly referred to the Madras High Court was whether interest can be included in the hands of the assessee under s. 64 (1)(ii). At page 129, the Madras High Court while commenting upon the portion of the Supreme Court decision cited by us above held as follows: "The principle of the Supreme Court decision is that in cases where there was a subsequent arrangement between the partners or the persons who are competent to enter into any arrangement on behalf of the minors and the firm, so to pay interest by conversion of the amount into deposit or loan, then the position would be different.....As envisaged by the Supreme Court the agreement must be subsequent to the crediting of the share of the profits. In the present case, the treatment of the accumulated profit as a loan is almost simultaneous with its credit. Therefore, there is no scope or basis for any subsequent agreement in relation to it. The exception contemplated by the Supreme Court in the passage at page 276, in cases of subsequent agreement, would not, therefore, apply to this case. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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