RAMSON BROS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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G.K. Israni, Judicial Member -
(1.) THESE three appeals by the assessee are directed against the consolidated order of the learned CIT(A) dated 13-7-1989 in relation to the assessment years 1984-85, 1985-86 and 1986-87.
(2.) The common issues raised in the three appeals read as under:
(1) On the facts and in the circumstances of the case, the ITO was not justified in treating the income in the form of bank interest on joint F.Ds. of partners as the income of the appellant-firm in spite of the fact the interest was included in the income of the partners.
(2) The learned CIT(A) was not justified in rejecting the various Tribunal rulings involving the same point as in the instant case.
(3) The interest on the F.Ds. standing jointly in the name of the partners may not be treated as income of the appellant firm.
Certain fixed deposits were purchased with the cash of the firm in the name of the two partners of the firm. These partners were holding equal shares in the profits of the firm and also had equal interest in the fixed deposit and also shared interest equally. The fixed deposits appeared as an asset in the balance sheet of the firm. There were no drawings or debit entries in the partners' personal accounts for making the fixed deposit. The adjustment by way of drawing in the partner's capital account was made subsequent to the years under consideration. The interest which was received on the fixed deposit was not included in the income of the firm. They were separately credited to the partners' accounts and were offered for taxation in the partners' income. The Assessing Officer considered the explanation filed by the assessee and came to the conclusion that the interest on the fixed deposit should be taxed as the income of the firm. The observations made by the Assessing Officer read as under:
The explanation offered by the assessee-firm is not acceptable. The partnership firm does not have any legal personalities. As such, it is incapable of holding any assets or properties in its own name. The assets/properties will on paper stand in the names of the partners, but in effect they would belong to the firm. In the present case, it is seen from the records that the firm's funds were used to acquire these fixed deposit receipts and that the fixed deposits were appearing as assets in the firm's balance sheets. The normal presumption would, therefore, be that the fixed deposits belonged to the firm and that the interest thereon constitute income of the firm. The fact that the partners had shown interest on these fixed deposits in their return is no bar, in assessing the interest income on the fixed deposits appearing in the balance sheet of the firm is considered taxable in the case of the firm.
(3.) THE learned CIT(A) has upheld the finding of the Assessing Officer. He has observed that the firm held property in the name of its partners and there were no debits in the capital accounts of the partners and, therefore, it could not be said that the money was withdrawn by the partners and the deposits were made by them. THE deposit was out of the cash balance in the books of the firm and, therefore, the deposits remained the asset of the firm. In support of his view, the learned CIT(A) has also relied upon the decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300.;
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