Income of a minor from partnership interest is attributable to the parent when connected to the minor's admission to benefits.

Interest credited to minors admitted to the benefits of a partnership is treated as income arising indirectly from that admission when the payments derive from capital invested (or loans treated as investments) by the minors; the critical test is whether the receipt is connected, directly or indirectly, with admission to partnership benefits. Characterisation of the minors' payments as capital contribution or loan is a question of fact, and factual findings that the amounts were capital investments determine that the interest is includible in the father's total income under the applicable tax attribution rule.

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Issues: Whether interest credited to minors who were admitted to the benefits of a partnership is to be included in the father's income under section 16(3)(a)(ii) of the Income-tax Act, 1961.

Analysis: Section 16(3)(a)(ii) operates to include in an individual's total income so much of a minor child's income as arises directly or indirectly from the minor's admission to the benefits of a partnership of which the individual is a partner. The relevant inquiry is whether the receipt of the income has a connection, direct or indirect, with the fact of admission; the words "directly or indirectly" make the nature of the connection irrelevant. Interest paid to a minor is connected with admission if it is paid on capital invested by the minor (or on a loan advanced by the minor where the partnership could accept loans only from partners or persons admitted to its benefits). Whether the amount paid by the minor was a capital contribution or a loan is a question of fact. A tribunal's finding of fact that the minors' payments were investments of capital binds the court.

Conclusion: The interest credited to the minors on the amounts found to be capital investment is income arising indirectly from their admission to the benefits of the partnership and is includible in the father's assessment under Section 16(3)(a)(ii) of the Income-tax Act, 1961.

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