Income-tax---

----Total income ---Inclusions---Firm---Assessee partner in firm in which minor child of assessee admitted to benefits of partnership---Minor contributing monies towards capital of firm---Interest received by minor is result of admission of minor to benefits of partnership---Such interest is to be included in total income of assessee (minor's father)---Indian Income Tax Act, 1961, S.64(1)(iii).

Where the assessee was a partner in a firm in which the minor child of the assessee was admitted to the benefits of the partnership and the minor contributed monies towards the capital of the firm:

Held, that the interest received by the minor was the result of the admission of the minor to the benefits of the partnership and such income was liable to be included in the total income of the assessee (minor's father) under section 64(1)(iii) of the Income Tax Act, 1961.

Chouthmal Kejriwal v. CIT (1961) 41 ITR 570 (Assam) fol.

Nripendrakumari Bhandari (Smt.) v. CIT (1976) 105 ITR 158 (Mad.) and S. Srinivasan v. CIT (1967) 63 ITR 273 (SC) ref.

C.V. Rajan for the Commissioner.

P.P.S. Janardhana Raja for M/s. Subbaraya Iyer, Padmanabhan and Ramamani for the Assessee.

JUDGMENT

R. JAYASIMHA BABU, J.---The question referred to us at the instance of the Revenue in respect of the .assessee's assessment for the assessment year 1976-77 is:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest earned by the minor with her own funds lying with the firm in which she was admitted to the benefits of the partnership could not be regarded as income attributable to the benefit, of the partnership includible under section 64(1)(iii) of the Act in hands of the assessee (minor's father)?"

The statement of the case shows that the monies had in fact beer contributed by the minor towards the capital of the firm and the interest received by the minor was on the capital standing to the credit of the minor. The minor had been admitted to the benefits of the partnership which was reconstituted under a deed, dated April 16, 1975, and the preamble to which deed contained a statement that the minor was being admitted in consideration of capital being forthcoming. The partnership deed also provided that the capital standing to the credit of the partners shall carry interest at the rate of 12 percent. per annum. Prior to April 16, 1975, there was another deed of partnership, dated June 30, 1974, which did not require the minor to bring any capital, though the minor had been admitted to the benefits of that partnership. That, however, is not of any relevance for the present purposes. The interest income on which the assessment has been made is the interest received on the capital standing to the credit of the minor, which capital was required to be contributed by the minor in consideration of the minor being admitted to the benefits of the partnership constituted under the deed, dated April 16, 1975.

Section 64(1)(iii) of the Act specifically provides that in computing the total income of any individual, there shall be included all such income, as arises directly or indirectly to a minor child of such individual from the admission of the minor to the benefits of the partnership in a firm. To attract the application of this provision, what is required to be shown is that the minor child of such individual had received a benefit from the firm consequent to the admission of that minor to the benefits of the partnership of that firm. There can be no doubt in this case that the benefit received, viz., the interest- on the capital standing to the credit of the minor, was a benefit derived by the minor as a result of the minor's admission to the benefits of the partnership.

Learned counsel for the assessee, however, contended that the amounts contributed by the minor as the share of the capital of the firm were monies which had been received by way of gifts from persons other than the assessee and, therefore, any interest received on that amount clot be included in the assessable income of the father. The source from which the minor obtained the funds of making capital contribution to the firm in which the minor is admitted to the benefits of the partnership is not of any relevance for the purposes of invoking section 64(1)(iii) of the Act. So long as the benefit derived is the direct consequence of the minor s admission to the benefits of the partnership, such benefit has to be included in the assessment of the parent as provided in section 64 of the Act.

Learned counsel for the Revenue invited our attention to the decision of the Assam High Court in the case of Chouthmal Kejriwal v. CIT (1961) 41 ITR 570; wherein the Court considered a similar question and held that the benefit received by a minor by supplying capital for the partnership firm can only be regarded as a benefit received from the admission to the benefits of the partnership firm, as in the absence of any such. admission to the benefits of the firm, there would be no question of making a contribution to the capital for receiving any interest on such capital contribution. We are entirely in agreement with what has been laid down in that decision.

The Supreme Court in the case of S. Srinivasan v. CIT (1967) 63 ITR 273, considered the question as to whether interest credited to the assessee's minor children in the same firm on the accumulation of past profits was includible in the assessment of the father. The Court held that it was includible on the ground that interest was earned because the minors had permitted the use of the funds by the firm and because of their interest in the firm as persons admitted to the benefits of the partnership.

So long as the benefit received is the result of the admission of the minor to the benefits of the partnership, such benefit has necessarily to be included in the total income of the individual whose minor child 4has been admitted to the benefits of the partnership.

The Tribunal has referred to the judgment of this Court in the case of Nripendrakumari Bhandari (Smt.) v. CIT (1976) 105 ITR 158. That was a case where the minor had made certain deposits though not obliged to do so, and the interest paid on such deposits was held to be benefit which could not be regarded as a direct result of the minor's admission to the benefits of the partnership. In this case; the admission of the minor was in consideration of the capital contributed by the minor, and that decision is not of any assistance to the assessee.

Our answer to the question that has been referred to us, therefore, is in the negative, in favour of the- Revenue and against the assessee. The Revenue shall be entitled to costs in the sum of Rs.500.

M.B.A./4095/FCReference answered.