COMMISSIONER OF INCOME TAX Vs. S SUBBA REDDY

JUDGEMENT

(1.) This reference pertains to the assessment year 1977-78.

(2.) The assessee was the karta of a Hindu undivided family consisting of himself, his minor son, Jagadiswara Reddy, and his wife, Seetharavamma and two minor unmarried daughters. This Hindu undivided family, through its karta, was having interest in two partnership firms. In both the partnership firms, the family was getting 12% as interest on the capital invested. On 1/09/1974, there was a partition and the capital in the two firms was divided between the two coparceners, i.e., between the father and the minor son. In the firm of M/s. A. Rami Reddy & Co, the familys partnership share was 6/64ths. Upon the division, each of the coparceners was allotted 3/64ths share. Similarly, in the case of another firm, M/s. Sri Lakshmiprasanna Sugar Factory, the family had 10% share and, on the division, each of the coparceners got 5% share. The two firms, in which the capital was standing in the name of the karta, refused to make necessary entries in their books giving effect to the division made in the family of Subba Reddy to the benefits of the partner-ships.

(3.) According to the partition arrangement, it was decided that the partnership shares would continue to stand in the name of the karta and that the shares should thenceforward be enjoyed by both the divided coparceners as equal tenants. Since the capital of Rs. 2,82,919 was standing in the name of the karta, he should pay his son, his share capital of Rs. 1,41,660 with interest at the rate of 12% per annum and the interest that was paid to the account of the karta by the two firms would be received by him. This agreement was reduced to writing on 15/09/1964. According to the arrangement, there was also another amount of Rs. 1,09,497 which the father owed to the son.