Per Shri T.N.C. Rangarajan, Judicial Member - These appeals by the revenue are directed against the orders of the Commissioner (Appeals) deleting the disallowance made under section 40(b) of the Income-tax Act, 1961 (‘the Act’) in respect of the firm and also deleting the corresponding additions made in the hands of the partners.

2. The admitted facts are as follows: The firm called ‘Mangalore Ganesh Beedi Works’ was constituted with 13 partners Of them, five partners, namely, Shri M. Ananda Rao, Shri M. Vishwanatha Rao, Shri M. Suresh Rao, Shri M. Janardhana Rao and Shri M. Vinoda Rao, had withdrawn the funds lying in the capital account of the firm which were not earning any interest and advanced the same to their respective wives, minor children and joint families at a nominal interest of 1 per cent per annum. Thereafter the same funds wore deposited with the firm by the wives, minor children and joint families, and the firm has paid interest to them at the rate of 15 per cent per annum.

3. The contention of the revenue was (a) that a loan transaction is a transfer within the meaning of section 64(1)(vii) of the Act so that the income accruing therefrom was to be taken as the income of the partner himself, (b) that under section 64(2) the income accruing to the joint family should be deemed to have accrued to the partner, (c) in the alternative, the loan was not a transfer at all so that the income accruing to the wives, minor children and joint families should be deemed to be the income of the partners under section 64(1),/60 of the Act, and (d) consequently, section 40(b) applied to the facts of the case and the income which accrued or should be, deemed to have accrued to the partner should be added to the income of the partner and, consequently, should be disallowed in computing the total income of the firm.

4. We find that these contentions had been raised in the case of one of the partners Shri M. Anandarao for the assessment years 1969-70 and 1970-71 and when the matter came up before the Tribunal in IT Appeal Nos. 415 and 416 (Bang.) of 1971-72, the Tribunal by its order dated 1-8-1972 rejected all these contentions. Although we allowed the revenue to argue the case elaborately, we are not persuaded to differ from the decision of the Tribunal cited above. It is also pertinent to note that that order has become final since the revenue had not challenged it by way of a reference. Since the partners had advanced the money in consideration of the payment of interest of 1 per cent there is obviously no transfer without consideration in respect of which section 64 could apply. Similarly, there is no transfer of the income alone within the meaning of section 60, because the interest of 15 per cent which accrued to the wives, minor children and joint families could not have been transferred by the partners as it did not exist at the time of the granting of the loan and there could be a transfer only of an existing property and not a future property. Hence, we are convinced that apart from the reasons given in the order of the Tribunal, the contentions of the revenue for applying the provisions of sections 64 and 60 are untenable.

5. In the alternative, it was contended by the revenue that at least in respect of granting of a loan by the individual partner to his minor children and his joint family where there were no other adult coparceners, the transaction was itself non est in law, because a loan envisages a contract between two persons, and in the situation where there were no such two persons existing, there could not be such a contract and, hence, the alleged loan itself was invalid in law. Reliance was placed on the decision of the Delhi High Court in the case of CIT v. Mridu Hari Dalmia [1982] 133 ITR 550. Reliance was also placed on the observations in Salmond’s Jurisprudence, Twelfth edn., p. 304, paragraph 65 to the effect that a man having two or more capacities does not have the power to enter into a legal tran