2004 (8) TMI 27 - HC - Income Tax

High Court Decision: Minors' Firm Income Included in Assessee's Total Income

Commissioner of Income-Tax Versus Subhash Chand.

The High Court ruled in favor of the Revenue, stating that income earned by minors in a firm should be included in the assessee's total income under ... Assessee claimed that the income returned did not arise from the admission of the minors to the benefits of partnership and as such it was not liable to be included u/s 64 – Held that Tribunal was not justified in law in holding that the investments made with the firm, M/s. Jahanganj Cold Storage, by the minors, Ajit Kumar and Sujit Kumar, were not on capital account but were mere deposits - Held that Tribunal was not justified in holding that the interest derived by the minors, Ajit Kumar and Jahanganj Cold Storage was not as a result of their admission to the benefits of partnership and that it could not be included in the assessee's income u/s 64(1)(iii) - Tribunal has committed illegality in holding that the income earned on the deposits made by the two minors in the firm, Jahanganj Cold Storage, was not includible u/s 64(1)(iii) Issues:1. Whether investments made by minors in a firm were on capital account or mere deposits.2. Whether interest derived by minors from the firm could be included in the assessee's income under section 64(1)(iii) of the Income-tax Act, 1961.3. Whether income derived from the admission of minors to the benefits of partnership included profits of the firm and interest credited to minors.Analysis:The case involved the assessment years 1977-78 and 1978-79, where the respondent-assessee, a partner in two firms, had minor sons admitted to the benefits of partnership. The dispute arose when the Income-tax Officer included profits and interest paid to the minors in the assessment. The Appellate Assistant Commissioner ruled that interest from minors' initial investments was not part of the assessee's total income under section 64(1)(iii) of the Act.The Revenue appealed to the Appellate Tribunal, arguing that all income arising to minors from the firm should be included in the assessee's total income. The Tribunal had previously excluded interest on minors' deposits in a similar case for the assessment year 1976-77. The Tribunal dismissed the Revenue's appeal, leading to the current reference.The High Court, after hearing the Revenue's counsel, emphasized that under section 64(1)(iii), any income arising to a minor child from the benefits of a partnership firm must be included in the individual's total income. Referring to past judgments, the court held that income from minors' deposits in a partnership firm falls under the section's purview. Therefore, the Tribunal's decision to exclude such income was deemed incorrect.Consequently, the court answered all questions in favor of the Revenue, stating that the income earned by minors in the firm should be included in the assessee's total income under section 64(1)(iii). The judgment was made without any costs imposed.