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- Inclusion of interest income of minor sons in the hands of the assessee under section 64 of the Income-tax Act, 1961. Analysis: The judgment by the Appellate Tribunal ITAT Hyderabad-A dealt with the assessment years 1977-78 and 1978-79 concerning the inclusion of interest income derived by minor sons of the assessee in the hands of the assessee under section 64 of the Income-tax Act, 1961. The Income Tax Officer (ITO) had clubbed the interest amounts in the hands of the assessee, invoking section 64. The assessee contended before the AAC that while profits earned by the minors are includible under section 64, the interest allowed to them should not be. The AAC, however, held that the interest was earned on accumulated profits kept in the firm, arising from the admission of minors to the benefits of partnership. The Tribunal analyzed the partnership deed and found that minors were required to contribute capital, as per clause 5 of the deed, and the interest was payable to them on their capital contribution. The Tribunal distinguished a previous case and held that the interest income arose directly to the minors due to their membership or admission to the benefits of the firm, leading to the dismissal of the appeals. The Tribunal examined the partnership deed, which clearly outlined the obligations of the minors admitted to the benefits of partnership. It noted that the minors were to contribute capital as per the terms of the deed, contrary to the argument that they were not obliged to invest any amounts for the firm's operations. The Tribunal emphasized the distinction between 'parties' and 'partners' in the deed, highlighting that minors were included in the term 'parties' and were required to supply capital as per clause 5. Referring to a previous case, the Tribunal clarified that the minors' capital contribution led to the interest income, and there was no evidence of an agreement to convert profits into loans. Citing a Supreme Court decision, the Tribunal concluded that the interest income accrued to the minors due to their membership or admission to the benefits of the firm, dismissing the appeals. In conclusion, the Tribunal held that the interest income of the minor sons was includible in the hands of the assessee under section 64(1)(iii) of the Income-tax Act, 1961. The judgment extensively analyzed the partnership deed, capital contributions, and the nature of interest payments to minors, ultimately affirming the decision to include the interest income in the assessee's assessment. The dismissal of the appeals was based on the direct link between the interest income and the minors' membership or admission to the benefits of the partnership, as outlined in the partnership deed and supported by legal precedents.
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