1971 (12) TMI 41

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..... m of Rs. 8,078, and for the assessment year 1966-67, a sum of Rs. 8,502 were credited to the joint family account and deducted from the income of the firm for each of the years. The Income-tax Officer, holding that in the previous years the interest was being added to the income of the firm as interest paid to a partner, and as there was no change in the position for the two assessment years, added back the interest payments to the income returned as interest paid to the partner. On appeal, the Appellate Assistant Commissioner held that for the years in question the capital account in the books of the firm has been re-designated as the family account and another account was opened in the name of the partner, K. Venkataratnam, to which his s .....

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..... ttained the age of majority and some may at a given time be unborn, the joint family as a unit is incapable of entering into a partnership agreement contemplating the creation of mutual rights of agency among its members. Therefore, it is only one of the members of the joint family, either the karta or any one of them, who can by agreement become a partner of the firm and by the partnership agreement, no other members of the family acquires a right or interest in the partnership. The other members of the family may make a claim against the karta or other coparcener who has become a partner for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be .....

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..... the firm, independent of the capital contributed by K. Venkataratnam as a partner. Therefore, it did not cease to have the characteristics of a capital investment by a partner, the interest on which cannot be allowed to be deducted from the income of the firm under section 40(b) of the Act. By the mere trick of opening two accounts, one in the name of the joint family of K. Venkataratnam and another in the name of K. Venkataratnam as a partner, and transferring the capital investment to the joint family account, it cannot be contended that what was once capital has become now the investment made by the joint family. We, therefore, find that the Income-tax Officer was right in adding the interest on these items to the income of the firm, as .....

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