1989 (1) TMI 112 - HC - Income Tax

Summary

Issues:
Inclusion of interest amounts received by minors in the income of the assessee under section 64(1)(iii) of the Income-tax Act for the assessment year 1976-77.

Analysis:
The case involved a question regarding the inclusion of interest amounts received by minors in the income of the assessee under section 64(1)(iii) of the Income-tax Act for the assessment year 1976-77. The minors, Master Sanjay Kumar and Master Manoj Kumar, were admitted to the benefits of a partnership firm where their father, the assessee, was a partner. The income tax officer included the share income of the minors in the father's assessment, which also included interest amounts. The Appellate Assistant Commissioner upheld the inclusion of interest amounts, stating that the minors' contributions were in the nature of capital based on the partnership deed. However, the Tribunal members had differing opinions on whether the interest amounts should be included in the assessee's income.

The third Member of the Tribunal agreed with the Accountant Member that the minors' contributions and accumulated profits were not obligations to contribute capital but rather deposits. The Tribunal considered whether the interest amounts paid to the minors were connected to their admission to the partnership benefits. The partnership deed indicated that the minors contributed Rs. 10,000 each and were paid interest at 7.5%, suggesting a capital contribution. The Tribunal emphasized that the minors were admitted to the partnership for a reason, likely due to their contributions. The Tribunal also referenced the definition of a partner in the Income-tax Act, which includes a minor, supporting the connection between the minors' contributions and their admission to the partnership.

Regarding the accumulated profits, the Tribunal distinguished the case from a previous Supreme Court decision and concluded that the accumulated profits were not deposits or loans but were connected to the minors' status as members admitted to the partnership benefits. The Tribunal highlighted that the accumulated profits were allowed to be used by the firm, further supporting the connection to the partnership. Ultimately, the Tribunal ruled in favor of the Revenue, stating that the interest amounts received by the minors should be included in the assessee's income for the assessment year 1976-77.