1981 (12) TMI 65 - AT - Income Tax

Summary

Issues:
1. Whether the interest derived by minors on investments made with a firm is assessable in the hands of the mother under section 64(1)(iii) of the Income-tax Act, 1961.

Analysis:
The case involved a departmental appeal where the revenue contended that the interest earned by a minor on investments made with a firm should be assessed in the hands of the mother under section 64(1)(iii) of the Income-tax Act, 1961. The minor son was admitted to the benefits of partnership in a firm, and the share of profits was assessed in the hands of the mother. Additionally, interest earned by the minor on amounts in his personal account was also assessed under section 64(1)(iii). The contention was that if the minor's credit was for the consideration of partnership benefits, the interest would be included in the parent's assessment. However, the appellate authority noted that there was no obligation for the minor to provide capital to the firm, and the interest income might not be liable if the deposit had no relation to the benefits of partnership. The appellate authority held that interest on accumulated profits is includible in the parent's income but excluded a portion of the interest accruing on deposits from the assessment under section 64(1)(iii).

The department appealed the decision, arguing that the interest earned by the minor on the initial capital should be included in the mother's income. The partnership deed indicated that the minor was admitted to the benefits of partnership with a share in profits but no requirement for capital investment. The balance sheet showed investments by partners and the minor, with the minor depositing an initial capital amount. The tribunal found a direct connection between the admission of the minor to partnership benefits and the interest earned on the initial capital. It concluded that the interest on capital investment should be included in the mother's income under section 64(1)(iii), rejecting the argument that no such connection was established. The tribunal allowed the appeal, ruling in favor of including the interest earned on the capital in the mother's income.

In summary, the tribunal decided that the interest derived by a minor on investments made with a firm, specifically on the initial capital introduced by the minor upon admission to the benefits of partnership, should be assessable in the hands of the mother under section 64(1)(iii) of the Income-tax Act, 1961. The decision was based on the direct connection established between the admission of the minor to partnership benefits and the interest earned on the initial capital, leading to the inclusion of the interest in the mother's income.