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TMI Blog1978 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had 12 annas share, Kumar Chitra Kumar Pal had 3 annas share and Raja Bahadur Kamakhya Narain Singh 1 anna share. This firm was constituted under an indenture dated the 1st March, 1954, which was to continue for 20 years. The partners were to contribute capital in proportion to their shares. Clause (5) of the indenture of partnership reads thus : " If any partner shall with the consent of the majority of the partners bring in additional working capital to that required of him under the last preceding clause the same shall be considered as a debt due to him from the partners and shall bear interest at the rate of six per cent. per annum payable yearly." The assessee, in respect of her income was assessed by the ITO, Hazaribagh. For the aforesaid assessment year for which the relevant accounting period ended on the 31st March, 1956, the assessee filed a return showing a loss of Rs. 1,08,600. The ITO noticed that a sum of Rs. 11,19,396 was advanced by the assessee to M/s. Ramgarh Industries Coal Co. on which the assessee did not charge interest. Accordingly, the ITO calculated interest on that amount at 8 per cent. which came to a figure of Rs. 51,834 and included the same u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest receivable by the assessee from the firm was excluded from the assessment of the assessee. It held that it was not open to the ITO, Hazaribagh, to determine separately the alleged-amount of interest receivable by the assessee from the firm in which she was a partner. The department not being satisfied with the order of the Tribunal got the present reference made. I have already given above the question of law referred to this court for its opinion. It appears that this tax case was listed for hearing before a Bench constituted of the Chief justice and B. D. Singh J. The said Bench by an order dated 22nd April, 1968, called for a further statement of the case under sub-s. (4) of s. 66 of the Act directing the Tribunal to give a further opportunity to the parties to adduce additional evidence, if so desired, and hear them before submitting the supplementary statement of the case. The Division Bench was of the opinion that the question as formulated could not be answered on the finding arrived at by the Tribunal. It found that the Tribunal had not decided the question of facts as to whether the assessee's method of accounting was mercantile or cash basis. The Tribunal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful consideration of the deed of release and other circumstances, as to whether any interest had in fact accrued to the assessee or was received by the assessee during the relevant year. This may, to some extent, depend on what the Tribunal will consider to be the proper method of accounting of the assessee i.e., whether it was mercantile or cash basis. It is only after the Tribunal first gives the answer to this question that the subsequent legal question as to whether the Income-tax Officer, Hazaribagh, had jurisdiction to include the amount in the income of the assessee without awaiting a report from the Income-tax Officer, Calcutta, would arise for consideration. I am, therefore, of the opinion that sub-section (4) of section 66 of the Act should be applied, and the case should be sent back to the Appellate Tribunal with a direction to decide, firstly, what was the method of accounting adopted by the assessee and, secondly, whether any income by way of interest either accrued to, or was received by, the assessee during the relevant year bearing in mind the deed of release dated the 31st March, 1956. The Tribunal may give the parties a further opportunity to adduce additional ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 9 of the previous judgment of this court, and found that the supplementary statement of facts did not give all necessary particulars for determining the question as to whether the ITO, Hazaribagh, had jurisdiction to assess the amount alleged to have been earned by the assessee as interest on the loan advanced by her in her income for the year 1956-57. Thereafter, a second supplementary statement was sent to this court by the Appellate Tribunal, Patna. In para. 7 of this statement : " In view of the above provisions and particularly in the light of section 16(1)(b) of the Indian Income-tax Act, 1922, it has been held by the Tribunal that the amount of interest, if any, would enter into the determination of the total income of the firm and calculation of assessee's share therefrom. If the Income-tax Officer, assessing M/s. Ramgarh Industries Coal Co. had allocated the amount of interest to the assessee while allocating the profits of the firm to the various partners, the same could be included by the Income-tax Officer assessing the assessee in respect of the share of income from the above firm. The law does not provide for the inclusion of any income from interest receivabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the assessee on mercantile basis. It appears that this method which was adopted by the ITO was not challenged either before the AAC or before the Tribunal. Therefore, according to this method, chargeability of the amount to tax would be determined on its accrual. The Tribunal in a supplementary statement dated March 28, 1970, after elaborate discussion, has come to a finding that the interest accrued to the assessee as the assessee had acquired a right to receive that income and it was acknowledged as such and treating it to be a debt due, a relinquishment deed was executed. It has been pointed out in that statement that as per cls. 5 and 18 of the partnership deed a statement of account as on March 31, 1956, was prepared and the excess capital contributed was worked out and the interest calculated came to Rs. 42,594-15-7. It has also been pointed out that one of the partners of the firm wrote a letter to the assessee on that very day pointing out that the financial position of the firm was in jeopardy and the firm was not earning any profit and, therefore, requesting the assessee to relinquish her claim in the aforesaid interest. A reply was given by the assessee on that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is payable to him/her by the firm in respect of the previous year increased or decreased respectively by his/her share in the balance of profit or loss of the firm after deducting the interest payable to him/her in respect of the previous year. It is the admitted fact that the firm has been assessed and the total income has been determined by the ITO, Calcutta, at a loss of Rs. 3,966 by order dated February 22, 1960. This assessment has been made by the ITO, Calcutta, in pursuance of the provisions of s. 64 of the Act. It is not disputed that the assessee has been assessed in the previous years and her total income has been determined in the past every year by the ITO, Hazaribagh, and not by the ITO, Calcutta. The provision for assessment of the firm has been laid down in s. 23 of the Act. Sub-sec. (6) makes a provision for notifying to the firm by an order in writing the amount of the total income on which the determination has been based and the apportionment thereof between the partners, if the unregistered firm is assessed as a registered firm. Thus, s. 6 is not relevant in the present case. I have already pointed out above that the total income of the assessee as a partner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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