G RAMCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a firm of two partners and was constituted under deed dated April 14, 1968, with effect from April 1, 1968. Each of the partners contributed Rs. 50, 000 towards capital. THE business of the firm was money-lending and acting as brokers for arranging financial transactions. During the course of the accounting year relevant to the assessment year 1977-78, a sum of Rs. 2, 00, 000 was withdrawn from the firm and the amount was deposited with the Indian Overseas Bank as fixed deposits repayable after the expiry of 63 months. Out of the amount so withdrawn, a sum of Rs. 1, 00, 000 each was deposited in the names of the two partners and the amount payable on maturity in respect of each of the deposits was Rs. 1, 67, 333. On July 21, 1977, the assessee filed a return disclosing an income of Rs. 14, 818 without including Rs. 14, 620 being the interest that had accrued on the fixed deposits in the names of the partners. Along with the return, the assessee filed a balance-sheet in which Rs. 2, 14, 620 was shown as the amount lying in fixed deposits with the Indian Overseas Bank as one of the items of assets of the firm. On the liabilities side, Rs. 1, 00, 000 under capital account and credit balance of Rs. 23, 363.63 and Rs. 20, 468.36 in the accounts of the two partners were shown.

(2.) THE Income-tax Officer took the view that the sum of Rs. 14, 620, being the accrued interest on the fixed deposits, was the income of the assessee-firm and subjected it to tax treatment. However, on appeal, the Appellate Assistant Commissioner accepted the contention of the assessee that the amount withdrawn by the partners did not belong to the firm as such, but belonged to them in their individual capacities and hence the interest that had accrued thereon was not liable to be included as the income of the assessee-firm. Accordingly, he directed the deletion of Rs. 14, 620. On further appeal to the Tribunal, it was found that no contemporaneous entries on the date of the withdrawal of the amount had been made to substantiate the stand of the assessee that there is no debit either in the current account or capital account of the partners in respect of a sum of Rs. 1, 00, 000 each and that a new account was opened styled as asset account and that was debited with Rs. 2, 00, 000 representing the amounts invested in fixed deposits with the Indian Overseas Bank. According to the Tribunal, the intention reflected by the balance-sheet filed along with the return was that the assessee-firm had treated the investment in fixed deposits as its own assets and, therefore, the interest of Rs. 14, 620 was rightly assessed to tax. In that view, allowing the appeal, the Tribunal restored the order of the Income-tax Officer.