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Issues: Inclusion of interest credited to the current accounts of the assessee's wife and minor sons in the assessment of the assessee under section 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922 for the assessment years 1958-59 to 1961-62.
Analysis: The judgment pertains to the inclusion of interest credited to the current accounts of the assessee's wife and minor sons in the assessment of the assessee under the Indian Income-tax Act, 1922 for specific assessment years. The partnership deed contained provisions for interest on amounts advanced by partners for firm expenses. Initially, interest on accumulated profits was credited in 1956. The partnership was reconstituted in 1956, admitting the minor sons to its benefits, with a clause stating that the capital would not bear interest, but any credit balance beyond capital would bear interest. Interest was credited to the current accounts of the wife and minor sons in subsequent years, which the Income-tax Officer included in the assessee's total income under section 16(3)(a)(i) and (ii) of the Act. The assessee contended that the interest should not be included, arguing that the interest paid did not directly arise from the membership of the wife or the admission of the minors to the partnership. The counsel emphasized that the interest was paid as per the partnership deed and not as an obligation under general law. The assessee's counsel further argued that interest should only be considered on the capital account and not on the current account balances of the wife and minors. However, the revenue's counsel contended that interest on all amounts to their credit should be included as income indirectly arising from the membership or admission of the minors to the partnership. The court disagreed with the assessee's arguments, citing a Supreme Court decision that interest on amounts from the accumulations of profits should be considered to have arisen from their connection with the partnership. The court analyzed whether the credit balances could be treated as loans or deposits, ultimately concluding that the interest income was includible in the total income of the assessee. Therefore, all three questions raised by the assessee were answered against them, and the revenue was awarded costs. This judgment clarifies the treatment of interest credited to the current accounts of partners in a partnership for income tax assessment purposes, emphasizing the connection between the interest income and the partnership relationship.
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