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TMI Blog1986 (7) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal was right in holding that interest earned by a minor on his capital investment in the firm to the benefits of which he has been admitted, could not be clubbed along with the share income and taxed in the hands of the parent under section 64(1)(iii) of the Income-tax Act, 1961 ? " The facts giving rise to these cases, as set out in the statement of the case, briefly, are as follows: The assessee is a partner in a firm known as M/s Nirmal Paper Mart, Ratlam. Her minor children are admitted to the benefits of the partnership in a number of firms. Certain funds were invested in these firms on behalf of the minors as their capital and the firms paid interest to the minors on the capital so invested. The assessee's contention before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered as Miscellaneous Civil Case No.. 326 of 1984 (CIT v. Nirmala Devi [1987] 166 ITR 258) while the reference in respect of the assessment year 1977-78 has been registered as Miscellaneous Civil Case No. 344 of 1984. Learned counsel for the Revenue contended that the Tribunal erred in holding that the question of source of investment of capital by minor was not relevant in determining the question as to whether the amount of interest could be taxed in the hands of the assessee. In reply, it was contended on behalf of the assessee that the source of investment was the decisive factor for determining whether the income in question was or was not includible in the total income of the assessee. Before we proceed to appreciate the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firms ?" Now, the answer to the aforesaid question turns on clause (iii) of subsection (1) of section 64 of the Act, which reads as under : " 64. Income of individual to include income of spouse, minor child, etc.-(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly-... (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm." The aforesaid provision is clear enough. It says that in computing the total income of an individual, the income of a minor arising directly or indirectly "from the admission of the minor to the benefits of partnership in a firm " shall be included in the total income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership firm, then the interest paid to him on the loan or deposit amount has no connection whatsoever with the fact of his admission to the benefits of the partnership. The minor child could have made the deposit or advanced the loan and earned interest thereon even if he had not been admitted to the benefits of the partnership firm." We respectfully agree with the aforesaid observations. Learned counsel for the assessee contended that under the terms of partnership, the minor admitted to the benefits of the partnership was not under any obligation to contribute any capital. But as observed in CIT v. Badrilal Bholaram [1968] 70 ITR 831 (MP), the amount contributed by a partner as capital does not become an advance merely because unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take into account the import of the language used in section 64(1)(iii) of the Act. That language is clear and whatever might have been the object of introducing that clause, the clause does not leave any room for doubt that it has been made obligatory that if the income arising to a minor child from a partnership firm is referable to the fact of admission of that child to the benefits of the said partnership firm, then such income is includible in the total income of the assessee. The question of source of investment in the firm by the minor is not relevant or decisive for making the income of the minor includible in the total income of the assessee. In the instant case, what is invested in the firms on behalf of the minors is capital and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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