1984 (7) TMI 189 - AT - Income Tax

Summary

Issues:
- Inclusion of interest income under s. 64 on deposits of minor children in firms.
- Interpretation of the decision of the Madras High Court in the case of S. Srinivasan by legal representatives Shanbagammal & Ors. vs. CIT.
- Applicability of s. 64(1)(iii) of the IT Act, 1961 to interest income.
- Comparison of decisions in cases of Smt. Nripendrakumari Bhandari vs. CIT and Smt. P. Saraswathi vs. ITO.
- Consideration of the Supreme Court decision in the case of S. Srinivasan.
- Analysis of the partnership deed provisions regarding interest payments to minor partners.

Analysis:
The appeal before the Appellate Tribunal ITAT Madras-B concerns the inclusion of interest income from deposits of minor children in firms under s. 64 of the IT Act. The assessee contested the inclusion of this interest income, arguing that only share income should be considered under s. 64(1)(iii). The AAC confirmed the inclusion based on the Madras High Court decision in S. Srinivasan case, which interpreted interest income as covered by the provision. The Tribunal noted that while the share income of minors was correctly clubbed with the assessee's income, the dispute centered on interest income. The partnership deed provisions revealed that interest was paid to minors based on their current account balances, not on capital accounts. This arrangement was similar to the case of Smt. Nripendra Kumari Bhandari, where interest income was held includible under s. 64(1)(ii). The Tribunal upheld the AAC's decision, citing the Supreme Court's stance on interest accruing indirectly due to partnership capacity.

The Tribunal considered the arguments presented by both parties, emphasizing the specific provisions in the partnership deed regarding interest payments to minor partners. It noted that the interest was paid on credit balances in the partners' current accounts, not on capital accounts, indicating an obligation of the firm to pay interest on these amounts. The Tribunal drew parallels with previous cases, highlighting the interpretation of interest income in relation to minors admitted to partnership benefits. It referenced the decisions of the Madras High Court and the Supreme Court to support the conclusion that interest income should be included in the total income of the assessee under relevant sections of the Act. Ultimately, the Tribunal dismissed the appeal, affirming the inclusion of interest income from deposits of minor children in the firms as per the legal provisions and precedents cited in the judgment.