1984 (12) TMI 21

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...., the family was getting 12% as interest on the capital invested. On September 1, 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 family's 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 benefi....

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.... and disallowed the rest. The reason given by the Income-tax Officer was that, out of the interest received by the assessee, 50% should go to the son in the same manner as the profit was divided. It may be mentioned in this context that, so far as the profit given to the assessee's son in accordance with the partition arrangement, there was no dispute since, even according to the Income-tax Officer, there was an overriding title in respect of the share income received by the assessee from the two firms. For the assessment year 1977-78, i.e., the year with which we are concerned, the assessee paid interest of Rs. 12,026 to his divided son on his running account while the assessee received interest of Rs. 22,074 from the two firms. In this....

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....he interest received from the two firms not only for himself but also for the benefit of his son. The Tribunal further held that there is an overriding title not only in respect of share of profit but also in respect of interest received by the father and that the assessee was obliged to part with half of the interest which he receives from the two partnership firms. Alternatively, the Tribunal held that interest can be allowed under section 37. It also relied upon decision of this court in CIT v. Smt. Janaki Bai [1973] 87 ITR 645. The Tribunal, however, rejected the assessee's claim of interest at 12% on the amount standing to the credit of the son in the books of the assessee, since the assessee has not been able to establish that he w....