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Issues:
1. Interpretation of section 64(1)(iii) of the Income-tax Act, 1961. 2. Inclusion of minor's income in the total income of the parent. 3. Taxability of interest on accumulated profits of a minor in the parent's income. Issue 1: Interpretation of section 64(1)(iii) of the Income-tax Act, 1961: The High Court analyzed the questions referred by the Income-tax Appellate Tribunal regarding the application of section 64(1)(iii) of the Income-tax Act, 1961. The Tribunal had to determine if the section was correctly applied to the case of the assessee. The court noted a significant change in the provision post-amendment by the Taxation Laws (Amendment) Act, 1975. It clarified that any income arising to a minor child from being admitted to the benefits of partnership in a firm is now includible in the total income of the parent, irrespective of whether the parent is a partner in the firm. The court affirmed the Tribunal's interpretation, stating that the income becomes includible upon the minor's admission to partnership benefits, regardless of the parent's partnership status. Issue 2: Inclusion of minor's income in the total income of the parent: The factual background involved the minor son of the assessee being admitted to the benefits of partnership in a firm, resulting in income inclusion. The Income-tax Officer included the minor's share of profit in the assessee's assessment, leading to a dispute. The Appellate Assistant Commissioner and the Tribunal upheld the inclusion based on section 64(1)(iii) of the Act. The court emphasized that the minor's income from partnership benefits must be included in the parent's total income, as clarified by the amended provision. The court ruled in favor of the Revenue, affirming the Tribunal's decision to include the minor's income in the assessee's assessment. Issue 3: Taxability of interest on accumulated profits of a minor in the parent's income: Regarding the interest on accumulated profits of the minor remaining with the firm, the court addressed the question raised by the Revenue. Citing previous judgments, the court differentiated cases where income arises directly from the partnership deed versus independent contracts. It was concluded that interest on accumulated profits of the minor in the firm should be included in the parent's total income. The court disagreed with the Tribunal's decision on this aspect, ruling in favor of the Revenue. The judgment highlighted the distinction between income derived from partnership agreements and independent contracts, emphasizing the taxability of interest in the parent's income.
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