Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assesses, a partner in a firm, and following mercantile system of accounting, advanced sums of money on interest to firm which was an unregistered firm - She retired from firm during relevant previous year - Under a compromise effected after end of relevant previous year assessee also relinquished her claim to interest accrued during previous year -Whether both for period prior to her retirement and thereafter interest accrued to her an was taxable in her hands despite her having relinquished such interest - Held yes Section 183 of the Income-tax Act, 1961 - Firm - Unregistered firm - Assessment of - Whether assessment of firm and allocation of profits to partners is a prerequisite for assessment of a partner in an unregistered firm - Held, no Facts The assessee was a partner in a firm. She was following the mercantile system of accounting. During the period from 1-4-1957 to 31-3-1958, a sum of Rs. 23,575 was due as interest on loan advanced by her to firm, which had been assessed as unregistered firm. However, during this previous year she had retired from the partnership on 27-6-1957. Further, she had filed a suit for recovery of interest from firm but subsequently under a compromise given up the interest. The assessee claimed before the ITO that the impugned interest could not be taxed as her income as she had given up her claim under the compromise. The stand of the assessee did not find favour with the ITO. The Tribunal held (i) that up to 27-6-1957, i.e., the date of retirement of the assessee, though interest had accrued, it could not be brought to tax in the assessee's hands as no allocation of profit to the partners had taken place, and (ii) that since there was no stipulation for payment of interest on sums advanced by the assessee to the firm after she had retired from the partnership, the assessee had no claim to interest and, therefore, no interest accrued from 27-6-1957 to 31-3-1958. On reference : Held The time relevant for ascertaining whether the said sums of Rs. 23,575 had accrued to the assessee or not was 31-3-1958. Till that date there was no disclaimer or relinquishment by the…

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