Taxability of minors' partnership interest turns on whether credited sums were capital contributions or later treated as deposits.

Interest credited to minors' partnership accounts was taxably linked to admission to the benefits of the firm where the original amounts represented capital brought into the partnership on partition; the causal connection with that admission made the interest includible in the assessee's income. A later partnership deed, however, treated money belonging to minors brought into or retained in the firm as deposits carrying interest. Interest referable to sums covered by that later arrangement was not treated as arising merely from admission to partnership benefits, so taxability depended on apportionment between the original capital contribution and the later deposited or retained sums.

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Issues: (i) Whether interest credited to the minor sons' accounts on amounts originally brought from the joint family capital was includible in the assessee's total income as income arising from their admission to the benefits of the partnership. (ii) Whether interest credited on the accumulated balances in the minors' accounts after the later partnership deed, which treated moneys belonging to minors brought into or retained in the firm as deposits, was includible in the assessee's total income.

Issue (i): Whether interest credited to the minor sons' accounts on amounts originally brought from the joint family capital was includible in the assessee's total income as income arising from their admission to the benefits of the partnership.

Analysis: The relevant provisions required inclusion of a minor child's income where it arose directly or indirectly from admission to the benefits of a partnership in which the assessee was a partner. On the facts, the joint family business capital had been divided on partition and the minors' shares were credited into their partnership accounts as part of the opening capital structure. The partnership deed did not oblige the minors to contribute capital, but it did not prohibit capital being brought in on their behalf, and the deed's clauses, read with the surrounding circumstances, showed that the initial credits were treated as capital investment in the partnership. The interest credited on those sums therefore had the requisite connection with the minors' admission to the benefits of the firm.

Conclusion: The interest on the initial credits was includible in the assessee's total income and the answer is in favour of the Revenue.

Issue (ii): Whether interest credited on the accumulated balances in the minors' accounts after the later partnership deed, which treated moneys belonging to minors brought into or retained in the firm as deposits, was includible in the assessee's total income.

Analysis: The later deed expressly provided that money belonging to a minor admitted to the benefits of the partnership, if brought into or retained in the partnership, would be treated as a deposit and would carry interest. That arrangement brought the case within the exception recognised where accumulated funds are specifically converted into deposits or similar arrangements and therefore do not retain the character of income arising merely from admission to the benefits of the partnership. However, the clause operated only prospectively and did not cover the original capital contribution already standing to the minors' credit before that deed. Accordingly, the later interest had to be split between the portion referable to post-deed retained sums and the portion referable to the original contribution.

Conclusion: The interest attributable to sums brought into or retained in the firm after the later deed was not includible, while the interest attributable to the original contribution remained includible, resulting in a partial answer in favour of both sides.

Final Conclusion: The first reference was answered for the Revenue, and in the second reference the interest had to be apportioned, with taxability upheld for the portion linked to the original capital and excluded for the later retained or deposited sums.

Ratio Decidendi: Where minors admitted to the benefits of a partnership have amounts credited to their accounts as capital investment, interest on those amounts is income arising from such admission and is includible; but where a later specific arrangement treats minors' monies brought into or retained in the firm as deposits, interest on such later amounts does not retain that taxable causal connection.

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