1995 (8) TMI 52 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 64(1)(iii) of the Income-tax Act, 1961 regarding interest derived by minors from investments made with a partnership.
2. Bifurcation of interest earned by minors into initial deposits and accumulated profits for tax purposes.
3. Correctness of deleting specific interest amounts from the hands of minors.

Issue 1: Interpretation of section 64(1)(iii) of the Income-tax Act, 1961

The case involved minors admitted to a partnership firm and receiving interest on their investments. The Income-tax Officer included this interest in the father's income under section 64(1)(iii). The Appellate Assistant Commissioner ruled that only interest on initial deposits should be included. The Income-tax Appellate Tribunal upheld this decision, emphasizing that the minors' investments were not obligatory contributions and the interest did not necessarily indicate a capital contribution. The Tribunal cited precedents to support its conclusion that interest on accumulated profits from the partnership should be included in the father's income. The court agreed with the Tribunal, holding that the interest arose from the minors' admission to the partnership benefits and should be included in the father's income under section 64(1)(iii).

Issue 2: Bifurcation of interest earned by minors

The Tribunal also bifurcated the interest earned by the minors into two parts: on initial deposits and on accumulated profits. The Appellate Assistant Commissioner's decision to include only interest on initial deposits was upheld by the Tribunal. The court concurred with this decision, stating that all interest earned by the minors should be excluded from their income since it was taxable in the father's hands. Therefore, the court answered question 2 in the negative, indicating that the entire interest amounts should be excluded from the minors' income.

Issue 3: Deletion of specific interest amounts from minors' income

The Tribunal had deleted specific interest amounts from the minors' income. However, the court held that all interest credited to the minors should be excluded from their income, not just the specific amounts mentioned in the Tribunal's decision. Therefore, the court answered question 3 in accordance with this interpretation.

In conclusion, the court ruled in favor of the Revenue, holding that the interest derived by the minors on their investments with the partnership should be included in the father's income under section 64(1)(iii). The court also directed that all interest amounts credited to the minors should be excluded from their income.