Cash credit in partnership firm books: firm books not attributable to partner; partner cannot be taxed on those entries.

The note addresses whether cash credit entries in a partnership firm's books constitute income of an individual partner under section 68; it reasons that the statutory reference to "books" is to the assessee's own books and, since the partner maintained no books, the firm's books cannot be deemed the partner's. Consequently, the section relied upon for taxing such cash credits against the partner does not apply, and the treatment of the entries must follow the provisions applicable to the firm as a separate assessee, with taxability determined accordingly.

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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.

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