1981 (1) TMI 111 - AT - Income Tax

Summary

Issues:
Assessment under s. 64(iii) of the Income Tax Act for the year 1976-77 regarding the admission of minor sons to partnership firms and inclusion of interest earned by minors on their capital in the total income of the assessee.

Analysis:
The case involved the assessment of an individual assessee for the year 1976-77, where the Income Tax Officer (ITO) added amounts under s. 64(iii) of the Income Tax Act related to the admission of the assessee's minor sons to three different partnership firms. The ITO initially included only the determined shares of the minors but later rectified the assessment to also include the interest earned by the minors on their capital with the firms. This rectification increased the total income added under s. 64(iii) to Rs. 63,990. The assessee objected to this rectification, particularly regarding the inclusion of interest earned by minors, before the Appellate Assistant Commissioner (AAC).

The AAC upheld the ITO's decision, relying on legal precedents such as the Supreme Court case of S. Srinivasan vs. CIT and judgments from the Punjab & Haryana High Court and the Allahabad High Court. The AAC concluded that s. 64(iii) of the Act allowed for the aggregation of interest earned by minors on their capital with the firm to the total income of the assessee. The assessee then appealed to the Tribunal, arguing that s. 64(iii) only covered share income and not interest earned on accumulated capital balances.

The Tribunal considered the arguments presented and analyzed the facts of the case. It agreed with the AAC's interpretation, stating that s. 64(iii) was broad enough to include interest earned by minors on their accumulated capital balance in the assessee's total income. The Tribunal referenced the Supreme Court's decision in S. Srinivasan vs. CIT, which established that interest on accumulated profits of minors could be considered income arising indirectly from their admission to partnership benefits. The Tribunal also noted the distinction between interest earned on deposits or loans and interest earned on accumulated capital balances. Ultimately, the Tribunal upheld the AAC's decision, dismissing the appeal by the assessee.

In conclusion, the Tribunal affirmed that the interest earned by the assessee's minor sons on their capital in the partnership firms was rightly included in the assessee's total income under s. 64(iii) of the Income Tax Act for the year 1976-77.