1987 (10) TMI 26 - HC - Income Tax

Whether partnership firm's books can be treated as partner's books for Section 68 - held inapplicable; assessee succeeds

Dominant issue: Whether books of a partnership firm can be treated as the individual partner's books for the purpose of section 68 (income from ... Addition u/s 68 - Income From Undisclosed Sources - treatment of a cash credit entry in the books of a partnership firm - Whether, the Tribunal was right in law in holding that the books of account of the firm in which the assessee is a partner should be considered to be the assessee's own books of account in terms of section 68 of the Income-tax Act, 1961, and thereby confirming the addition found to have been credited in the account of the assessee in the books of the firm ? - HELD THAT:- It is not in dispute that in case the books of account of the partnership firm are not to be treated as those of the individual partner, then the amount which represents alleged undisclosed income, could not be brought to tax along with the income of the assessee for the assessment year 1963-64, because in that case, the provisions of section 69 of the Income-tax Act shall be applicable. Perusal of section 68 of the Income-tax Act would show that in relation to the expression ' books ', the emphasis is on the word ' assessee '. Admittedly, the assessee maintained no books of account. The cash credit entry of which the sum in question forms part, was found in the books the account of the partnership firm which in its own right is an assessee. The books of account of the partnership firm herein cannot be considered as those of the individual assessee herein and, therefore, section 68 of the Income-tax Act would not be attracted to the present case. Thus, we answer the question in the negative, i.e., in favour of the assessee and against the Revenue and dispose of the reference accordingly. Issues: Whether the books of account of a partnership firm in which an individual is a partner must be treated as the books of that individual assessee for the purposes of Section 68 of the Income-tax Act, 1961 (thereby allowing a cash credit found in the firm's books to be taxed as the partner's income) or whether Section 68 would not apply where the assessee maintains no books and the entry appears only in the firm's books.Analysis: The question turns on the statutory wording and scope of Section 68 contrasted with Section 69 of the Income-tax Act, 1961. Section 68 applies where a sum is found credited in the books of an assessee; the statutory emphasis is on the books being those of the assessee himself. Here the assessee maintained no books of account and the cash credit entry was recorded only in the partnership firm's books. A partnership firm is a separate assessable entity distinct from its individual partners, and where the relevant entry appears solely in the firm's accounts the statutory requirements of Section 68 are not satisfied for the individual partner. The factual finding that the firm maintained the books and the partner had no separate books means the taxable consequence, if any, must be considered under the regime applicable to unexplained investments or firm entries (Section 69) rather than by treating the firm's books as the partner's books under Section 68.Conclusion: The books of the partnership firm are not to be treated as the books of the individual partner for the purposes of Section 68. Section 68 does not apply to the cash credit found only in the firm's books; the question is decided in favour of the assessee and against the Revenue.