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1. Inclusion of interest earned by minors in the hands of the assessee under s. 64(iii) of the Act. Detailed Analysis: Issue 1: Inclusion of interest earned by minors in the hands of the assessee under s. 64(iii) of the Act. The appeal pertained to the assessment year 1976-77 where the assessee, an individual, derived income from a partnership firm in which the minor sons and daughters were admitted to the benefits of partnership. The dispute arose concerning the inclusion of interest income earned by the minors on their deposits with the firms in the hands of the assessee. The Income Tax Officer (ITO) added the interest income to the share of profit allocated to each minor, which was contested by the assessee before the Appellate Assistant Commissioner of Income Tax (AAC) and subsequently in appeal. The crux of the matter was the applicability of s. 64(iii) of the Act, which the authorities contended was relevant in this case. Upon careful consideration, the Tribunal analyzed precedents, including the decision in the case of Bhogilal Laherchand, where it was held that interest earned by minors on amounts in the firm could not be included in the total income of the assessee. The Tribunal emphasized the strict construction of s. 16(3) and its similarity to s. 64(iii) of the Act of 1961. Additionally, a recent decision by the Bombay High Court in the case of S.V. Nashte was cited, which reiterated that interest received on loans advanced by a minor out of their own funds to a partnership firm should not be considered income arising from the admission of the minor to the benefits of the partnership. Based on the legal principles established in the aforementioned cases, the Tribunal concluded that the interest income credited to the minors' accounts should not be included in the assessee's income under s. 64(iii) of the Act. Consequently, the addition of interest income in the hands of the assessee was deemed unjustified, and the said addition was deleted. As a result, the appeal was allowed in favor of the assessee. In summary, the judgment clarified the distinction between the share of profit and benefits received by minors in a partnership, emphasizing that interest earned by minors on their funds in a partnership firm should not be considered income arising from their admission to the partnership benefits. The decision relied on established legal principles and precedents to rule in favor of the assessee, highlighting the strict interpretation of relevant tax provisions in determining the inclusion of interest income in the hands of the assessee.
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