1963 (12) TMI 43 - HC - Income Tax

Summary

Issues:
Whether interest credited to minors in their respective accounts is to be included in the assessment of their father under section 16(3)(a)(ii) of the Income-tax Act.

Detailed Analysis:

The case involved a question regarding the inclusion of interest amounts credited to two minors in their father's assessment under section 16(3)(a)(ii) of the Income-tax Act. The minors were admitted to the benefits of a partnership in which their father was a partner. The partnership deed specified that the minors would receive interest on their investments in the partnership. The Income-tax Officer included these interest amounts in the father's income, and the Tribunal upheld this decision, leading to the case being referred to the High Court.

Section 16(3)(a)(ii) of the Income-tax Act states that income arising from the admission of a minor to the benefits of a partnership in which an individual is a partner should be included in the individual's total income for assessment purposes. The crucial question was whether the interest paid to the minors was directly or indirectly derived from their admission to the partnership. The court emphasized that for the provision to apply, there must be a connection between the income received and the admission to the partnership.

The court analyzed the nature of the minors' investments in the partnership. It was established that the minors had invested a substantial amount in the partnership, which was considered as capital investment. The interest paid to them was directly connected to their admission to the partnership as they could contribute to the capital only because of being admitted to its benefits. Therefore, the interest amounts were deemed to be income derived from the admission to the partnership.

The court distinguished this case from previous judgments where interest paid on deposits was not considered connected to the admission to the partnership. In the present case, the interest was earned on capital investments made by the minors, which had a direct link to their admission. The court relied on precedent cases to support its decision, emphasizing the importance of the connection between the income received and the admission to the partnership.

In conclusion, the court answered the question in the affirmative, stating that the interest amounts paid to the minors were to be included in their father's assessment. The court directed the judgment to be sent to the relevant authorities and ordered the assessee to pay the costs of the reference.