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TMI Blog1928 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Chettiar and A.R.S.S.P. Subramanian Chettiar entered into a partnership according to the terms of which the former contributed ₹ 15,750 as his % share of the capital and the latter contributed ₹ 5,250 being J share of the capital, the initial capital agreed being ₹ 21,000 and they were to share the profit and loss in the ratio of 3 to 1. The document also contemplates that, if necessary, further sums may be contributed by either party towards the additional capital of the business and that interest should be charged on it. The Commissioner has found that the senior partner advanced a sum of ₹ 4,01,251 as additional capital in parts at various times and that the junior contributed comparatively a very small sum. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership can be borrowed only from outsiders, in other words, though capital may be borrowed from outsiders, capital cannot be borrowed from a partner. He cited no authority for this proposition. The sub-clause itself does not contain any limitation as to the person from whom capital is to be borrowed. Once it is conceded that a partner can lend money just like any other third person it is difficult to see why he cannot lend capital also. Whether the money lent is capital or a mere loan really depends on the use to which it is put and not on the person from whom it was borrowed. If it is used for purposes similar to those for which initial capital is used, then it is capital in the hands of the partners by reason of the use which it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r relies but for which there is really no authority. Wherever a sum is borrowed and it is afterwards used for capital expenditure it is not open to the Commissioner to find that it is not borrowed capital as there is no such principle of law as is contended before us on behalf of the Commissioner. It is also said that there is a finding that the initial capital was nominal and from the beginning additional capital was intended. Here again there is no dispute about the facts. The initial capital consisting of two amounts which the parties were bound to contribute is known. So far as additional or surplus capital is concerned no partner is bound to advance any particular sum. All that the deed provides is that if a partner chooses to advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the scheme of the Act showed that wherever profits are earned, they were intended to be wholly assessed and the construction we are placing on this clause is inconsistent with the scheme of the Act. There is no such general scheme in the Act. In this respect the law in India seems to be different from that in England and the English cases mentioned by the learned vakil for the Commissioner have really no bearing on the construction of the Indian Act and need not be referred to. It is hardly necessary to observe-that, when interest is deducted from the earnings under this clause by the partnership as its expenditure, it is really profit earned by the individual partner who takes the interest and it will be added to his income in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the partnership to him in the year of assessment must be deducted in computing the profits or gains of the partnership within the meaning of Section 10(2)(iii). 7. Costs ₹ 500 will be paid by the Commissioner of Income Tax to the assessees. 8. The above judgment represents the joint view of Ramesam, J., and myself and was drafted by him after full discussion between us. 9. Referred Case No. 22 of 1926. - This is governed by our opinion in the other case. 10. Costs ₹ 100 will be paid by the Commissioner of Income Tax to the assessees. Wallace, J. I agree with the statement of law applicable to this case as expounded by my learned brothers, the case being one where, on the facts found, there was a genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal from its partners. This proposition would be quite correct if by 'capital' is meant the sum which a partner contributes under the agreement of partnership for the purpose of commencing or carrying on the business and which is intended to be risked by him in the business. That is the true sense of the word 'capital' and so far as the contribution made by a partner relates only to capital so understood, he is not a creditor of the firm. He has no right to sue the firm for the recovery of such contributions or advances and he can only get back his capital on the dissolution of the firm out of any surplus assets which may remain after meeting all its liabilities. But in the clause we have to construe, the word 'capital&# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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