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TMI Blog1978 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... f which the minors were admitted are as under: ITA No. Name of the minors Firms in which the minors are admitted 1 2 3 2165 (Smt. Banumathy) C. Rajeswari G. Gowri G. Maheswari The National Paper Co., SVKS Uma Ink Varnish Works, Visalakshi workshop, SVKS KCAD Chidambara Nadar Co. 2189 (Smt. Janaki) DCB Balasubramanian DCB Rajalakshmi DCB Vijayalakshmi The National Paper Co., The Coronation Printing Ink Mfg. Co., Sivakasi. 2216 (Smt. Leelavathy) D. Visalakshi D. Gnanagiri Babu The National Paper Co. The Coronation Ink Mfg. Works, KCAD Chidambare Nadar Co. 2233 (Smt. Vasanthi Devi) DC Babu Chidambaram DCR Vijeyan Gnanag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the assessees vehemently contended that the AAC erred in confirming the inclusion of the interests on the accumulated share of profits earned by the minor children from the above firms in the assessments of the assessees. He submitted that the interests on the accumulated share of profits were retained in the above firms and were used for the business of the said firms. He referred to the Cls 7,8 and 9 in the deeds of partnership of the firms of M/s. National Paper Co., Coronation Printing Ink Manufacturing Co., Uma Ink and Varnish Works and KCAD Chidambare Nadar Co. He also referred to Cls 6,7 and 8 in the deeds of partnership of the firms of M/s. Visalakshi Workshop and Gnanagiri Waste Paper Co. On the basis of these cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion of interest on the accumulated share of profits earned by the minors from the above firms. Shri Ramamani, the learned counsel for the assessees, heavily relied upon the ruling of the Bombay High Court reported in 112 ITR 296 in support of his submission that interest on the accumulated profits remained with the firms, to the benefits of which the minors were admitted, and since the partnership deeds provided for payment of interest in respect of such retained accumulated profits, the provisions of s. 64(1)(iii) would not apply. We are unable to agree with this submission of the learned counsel for the assessee, since the decision of the Bombay High Court rested on the various clauses of the relevant deeds of partnership which posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest earned on such deposits or loans can have no relationship with the membership of the firm of the wife or the admission to the benefits of the partnership of the minor sons. It appears to us that these accumulated profits remaining in the hands and the firm cannot, on any principle, be equated with deposits made or loans advanced. The profits accumulated to the credit of the wife and the minor sons, because they did not draw their share of profits when distribution of profits took place, and allowed these profits to remain with the firm; but there is no suggestion at all that, at that stage, either by the wife or the minor sons, or anyone on their behalf, purported to enter into an arrangement with the firm to keep these accumulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s because of their capacity mentioned in s. 16 (3) (a) (i) and (ii) in the IT Act." The Bombay High Courts found that the Supreme Court had carved out an exemption where an arrangement with the firm to keep the accumulated profits as deposits could be made on behalf of the minor children and that if such an arrangement can be said to have been made, the ratio of the decision of the Supreme Court would not apply. The Bombay High Court then referred to Cl 3(a) of the relevant deed of partnership which ran as under: "Interest at the rate of nine per cent per annum shall be paid to each partner on the capital for the time being standing to him credit. It is expressly agreed that if any money belonging to a minor admitted to the benefits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement or understanding among the partners of the various firms to show that the accumulated share of profits were required for the business of the firms and that the said accumulated profits were treated as deposits on which interest was payable. The learned counsel for the assessees pointed out that the firms were borrowing moneys from outside and this indicated that they required money for the business of the firms and that the said accumulated profits were treated as deposits on which interest was payable. The learned counsel for the assessees pointed out that firms were borrowing moneys from outside and this indicated that they required money for the business of the firms and the further fact that the minors did not withdraw the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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