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TMI Blog2014 (8) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 2.1 That the Assessing Officer clubbed the income from interest credited to the accounts of two minors Kaushik kumar and Sandeep kumar in the books of the firms under the provisions of Section 64(1)(iii) of the Act [as it stood at the relevant time] for the assessment years 1976-77 to 1978-79. It appears that both the minors Kaushik kumar and Sandeep kumar were admitted to the benefits of the partnership firm in the following three firms either individually or together. 1. Patel Traders 2. K.S. Patel & Co. 3. Shanabhai Jethabhai Patel & Co. The Assessing Officer apart from clubbing the share of the profit which fell to the account of the minors, also clubbed the interest paid to the account of the minors from the deposits with the firms under Section 64(1)(iii) of the Act. According to the Assessing Officer, provision of Section 64(1)(iii) of the Act cover the payments of interest made to minors on their deposits with the firms as the same amounted to income which arose indirectly to the minors within the meaning of the said section. 2.2 On appeal, the first appellate authority upheld the orders of the Assessing Officer for the years under consideration. On further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decision of that Court and therefore, the Hon'ble Supreme Court directed to state the case and to refer the following question to this Court. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the amounts of interest paid to the accounts of the minors from the partnership firm of (1) K.S. Patel & Co. (2) M/s. Patel Traders and (3) M/s. Shanabhai Jethabhai Patel & Co. were not liable to be clubbed under the provisions of Section 64(1)(iii) of the I.T. Act, 1961 with the income of the assessee?" Accordingly, the learned Tribunal has referred the aforesaid question to this Court for its determination. 3. Before considering the question which is referred to this Court, the relevant clauses in the respective partnership deeds of respective partnership firms are required to be referred to and considered. So far as the partnership deed in the case of M/s. Shanabhai Jethabhai Patel & Co. is concerned, the relevant clause would be clause (3), which reads as under: "(3) The required capital for this partnership firm is to be brought by each partner according to his own share in the firm. However, whether to brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the learned CIT(A) came to be dismissed. However, on appeal, the learned Tribunal has held that the deposit on which the interest was paid and/or credited in the account of the minors was in the nature of loan and/or advance/deposit and cannot be treated as capital investment and consequently the learned Tribunal allowed the respective appeals. 3.2 That the learned Tribunal considered the concerned clause in the respective partnership deeds of respective firms individually and came to the conclusion that the amount which was deposited, on which the interest was paid to the minors was by way of loan/deposit/advance and not the capital investment / account. 3.3 Now, so far as the first firm M/s. Kaushik kumar and Sandeep kumar Patel & Co. is concerned, the learned Tribunal observed in para 5 as under: "5. The first firm is stolid Kaushik kumar Suraykant Patel & Co. In this firm there are 4 major partners viz. Sureshbhai (25% share), Prabhudas (12% share), Nathiben (24% share) and Shardaben (20% share). Minor Kaushik kumar has been admitted to the benefits of partnership having 19% share in profit only. This partnership was formed in S.Y. 2022. The partnership deed stipulates v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance is to his account comprise of various amounts received on partial partition, agricultural income, gifts etc. On first day of S.Y.2030 the opening balance stood at Rs. 73,087/and to this account interest as well as share of profit has been credited. As pointed out earlier interest was credited to this account past which was treated as a loan account from very inception there is nothing to infer or show that the amount standing at the credit of minor Kaushik kumar was converted into capital account as his capital contribution. In other words the account continued to be a loan account as it was in the past. 7. Now so far as minor Sandeep kumar who was also admitted to the benefits of the partnership in the firm is concerned he had contributed Rs. 24,000/in S.Y.2029. Before he became the partner in the firm and the amount due to his account as a loan account, the amount received on partial partition from K.S. Patel (HUF) account. In S.Y. 2030 when he was admitted to the benefits of partnership interest and share of profit was credited to this account. The opening balance stood at Rs. 23,926 and the deposit of Rs. 20,000 was made making a total of Rs. 43,926. As compared to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 64(1)(iii) of the Act. 4. Shri K.M. Parikh, learned advocate appearing on behalf of the Revenue has vehemently submitted that as such the observations and the findings arrived at by the learned Tribunal are erroneous and on misinterpretation and/or misreading of the relevant clauses in the partnership deed of the respective partnership firms. 4.1 It is further submitted by Shri Parikh, learned advocate appearing on behalf of the revenue that as such the learned Tribunal has materially erred in treating the amount deposited/lying with the firm on which the interest was paid to the minors as loan account/deposit. It is further submitted by Shri Parikh, learned advocate appearing on behalf of the revenue that so far as the first firm Kaushik kumar and Sandeep kumar Patel & Co. is concerned, the finding recorded by the learned Tribunal is on wrong premise and on the wrong facts. It is submitted that the learned Tribunal has given a finding and arrived at the conclusion by observing that there was no specific provision or obligation on the part of the minor to contribute any capital. It is submitted that the same is factually incorrect and as such contrary to clause (3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minors for their being admitted to the benefits of the partnership firm. It is submitted that clause (3) in the said partnership deed specifically provided that each partner was required to bring the required capital according to his own share in the firm. It is submitted that it includes the minors who were inducted as partners. It is submitted that therefore the finding recorded by the learned Tribunal is of a wrong premise and on misinterpretation and misreading of clause (3) of the partnership deed. 4.3 It is further submitted that even in the case of partnership firm M/s. Patel Traders, the learned Tribunal has also misread and/or misinterpreted the relevant clause i.e. clause (4) of the partnership deed. It is submitted that the learned Tribunal has held in favour of the assessee on considering clause (4) by observing that there is no stipulation in the deed of partnership for contribution for minor Sandeep kumar for being admitted to the benefits of the partnership. It is submitted that as such clause (4) provided that the required capital for partnership was to be brought by mutual understanding. It is submitted that therefore each partner was required to bring the requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Tribunal deserves to be quashed and set aside and the respective assessment orders are required to be restored. Making above submissions it is requested to set aside the impugned judgment and order and answer the question referred to this Court in favour of the revenue and against the assessee. 5. Shri Bhargav Karia, learned advocate appearing on behalf of the assessee has tried to support the impugned order passed by the learned Tribunal and the view taken by the learned Tribunal. It is submitted that now so far as the case of partnership firm M/s. Kaushik kumar and Sandeep kumar Patel & Co. is concerned, the learned Tribunal has rightly observed that as there was no specific provision or obligation on the part of the minor to contribute any capital and therefore, the learned Tribunal has rightly interfered with the amount standing to the credit of the minors when the initial deposit was made should be treated as loan account and as a consequence the learned Tribunal has rightly held that the interest paid on the said account is not hit by provision of section 64(1)(iii) of the Act. 5.1 It is submitted that as such there is no misinterpretation and/or misreading of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by observing on the premise and by observing that as there was no specific provision or obligation on the part of the minor to contribute any capital and therefore, it could be inferred that the amount standing to the credit of the minor on which the interest was paid should be treated as loan account. Therefore, the learned Tribunal has committed error and has misinterpreted and/or misread the relevant clause (3) of the partnership deed. Clause (3) did provide that it was open for the minor to invest the capital in the partnership deed. Under the circumstances, finding arrived at by the learned Tribunal that the said account be treated as loan and/or advance and not the capital is on a wrong premise, which cannot be sustained. As such there was no other material and/or basis for the learned Tribunal to come to the said conclusion. 6.1 Similarly, in the case of other two firms i.e. in the case of Shanabhai Jethabhai Patel & Co. and in the case of Patel Traders, considering clause (3) & (4) of the respective partnership deeds, it specifically provided that each partners were required to bring the capital. Each partner would include the minors also. The learned Tribunal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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