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TMI Blog1963 (12) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... h to be included in the assessment of their father, L. Ram Narain Garg, under section 16(3)(a)(ii ) of the Income-tax Act ? The assessee is an individual. He has four sons, Krishna Narain, Vishnu Narain, Kailash Narain and Prem Narain. They formed a Hindu undivided family up to March 31, 1946, and the family carried on a certain business. On March 31, 1946, the coparceners separated from one another and the business assets were divided among them, each getting a sum of ₹ 91,000 and odd. On August 1, 1946, the assessee entered into a partnership with his two sons, Krishna Narain and Vishnu Narain, who were majors, and Kailash Narain and Prem Narain who were minors were admitted to the benefits of the partnership. The partnership w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties hereto including the said minors shall be entitled to get and be paid interest at the rate of 6% per annum on all their respective investments and such interest shall be calculated and allowed to the . partners and/or the minors before the profit and loss account is made out and shall be debited to the revenue account. The amount of ₹ 91,000 and odd received by each coparcener, including the two minors, was invested by him in the business. In accordance with the terms of the partnership deed, ₹ 6,727 were credited in the account of each of the two minors during the previous year. The name of each of the two accounts in the ledger is Sri Lekha I.B. Kailash Narain Garh Prem Narain Garh Ka (punji) . The Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the connection is direct or indirect. The words directly or indirectly are used in the provision simply to make the nature of the connection between the receipt of the income and the admission irrelevant; they are used to emphasize that what is relevant is the existence of connection and not its nature. Receipt by a minor admitted to the benefits of a partnership of his share in the profits of the partnership is income directly derived by him from the admission. He would not have received the share if he had not been admitted and the connection between the receipt and the admission is direct, no other fact intervening between them. Receipt of any other income, provided that its source is the fact of his admission, would be indirect inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the money in the partnership as anybody not concerned with it could have done. Had it been found as a matter of fact by the Tribunal that they only invested their money in the partnership by way of a loan, the interest paid to them on the loan could not be said to be in any way connected with the fact of their admission, because there is no connection between the admission and investment by way of a loan (unless the partnership deed forbids raising of loans from outsiders). It cannot be stated as a matter of law that interest paid by a partnership to a minor admitted to its benefits can never be said to be connected even indirectly with the fact of his admission ; it may be or may not be. It is connected with the fact, if the interest pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. Capital contributed by a partner or a person admitted to the benefit of partnership even if voluntary does not stand on the same position as a; deposit. The present case is governed more by Chouthmal Kejriwal v Commissioner of Income-tax [1961] 41 ITR 570 in which the interest paid to a minor admitted to the benefits of a partnership on his capital investment was held to be income derived directly or indirectly by him from the admission. The basis for the decision was that the supply of capital by him was connected with his admission to the benefits of the partnership and the interest earned was an income derived, even if indirectly, from the admission ; if he had not been admitted he could not have contributed to the capital and would n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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