Membership-derived interest from partnership rights is includible in the assessee's income; constitutional challenge rejected.

Section 16(3)(a)(i) and (ii) challenge on Article 19(1)(f) and (g) is foreclosed by binding precedent, so the constitutional objection fails. Where interest credited to a wife or minor children is payable by virtue of the partnership deed or statutory partnership rights as interest on balances standing to their credit, that interest arises directly or indirectly from their membership or admission to partnership benefits and is therefore includible in the assessee's income under the challenged provisions; both questions are answered against the assessee and the interest is assessable to him.

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Issues: (i) Whether section 16(3)(a)(i) and (ii) of the Income-tax Act, 1922 violates clauses (f) and (g) of Article 19(1) of the Constitution; (ii) Whether interest paid by a firm to the assessee's wife and minor children attributable to past profit accumulations is includible in the assessee's assessment under section 16(3)(a)(i) and (ii).

Issue (i): Whether section 16(3)(a)(i) and (ii) offends Article 19(1)(f) and (g).

Analysis: Reliance on binding authority of the Supreme Court forecloses the constitutional challenge to the specified provisions; the earlier precedent is determinative of the constitutional question.

Conclusion: The constitutional challenge to section 16(3)(a)(i) and (ii) is answered against the assessee.

Issue (ii): Whether interest credited by the firm to the wife and minor children on accumulated profits is income arising directly or indirectly from their membership or admission to the benefits of the partnership and therefore includible under section 16(3)(a)(i) and (ii).

Analysis: The partnership agreement and section 13(d) of the Indian Partnership Act, 1932 recognise a partner's or a person admitted to the benefits of partnership's entitlement to interest on balances standing to their credit. Where the payment of interest is founded upon the partnership relationship or the partnership deed provision granting interest on amounts standing to the credit of members or persons admitted to benefits, the right to and receipt of such interest flows from that membership or admission; this connection renders the interest part of the income arising directly or indirectly from the admission to the partnership.

Conclusion: Interest credited to the wife and minor children on accumulated profits is includible under section 16(3)(a)(i) and (ii); the question is answered against the assessee.

Final Conclusion: Both referred questions are resolved against the assessee; the tax consequence is that the interest in issue is assessable to the assessee under the challenged provisions.

Ratio Decidendi: Where entitlement to interest on balances standing to the credit of a partner or a person admitted to the benefits of a partnership arises from the partnership deed or the statutory rights of partnership, such interest constitutes income arising directly or indirectly from that membership or admission and is includible under section 16(3)(a)(i) and (ii) of the Income-tax Act, 1922.

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