Interest on partnership-retained family balances was taxable as income linked to the assessee's partnership relationship.

Interest credited by a firm on balances standing in the wife's and minor sons' current accounts was treated as part of the assessee's taxable income because the amounts were retained under the partnership deed and were not true loans or deposits. The firm had no real option to return the sums and stop interest, so the credits remained connected with the partnership relationship. Applying the earlier Supreme Court principle that income arising from accumulations linked to the wife's or minors' association with the firm falls within the deeming provision, the interest was held includible in the assessee's total income.

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Issues: Whether the interest credited by the firm to the current accounts of the assessee's wife and minor sons, out of balances carried over and maintained under the partnership deed, was includible in the assessee's total income under section 16(3)(a)(i) and section 16(3)(a)(ii) of the Indian Income-tax Act, 1922.

Analysis: The interest was not treated as arising from an independent loan or deposit. The balances standing to the credit of the wife and the minors remained with the firm under a contractual clause which obliged the firm to retain the money and pay interest thereon. There was no real option in favour of the firm to return the amounts and stop interest, and the funds continued to retain their character as amounts connected with the partnership relationship. The earlier Supreme Court ruling on the assessee's own case had already held that interest on accumulations of the wife's and minors' share of profits is income arising from their connection with the firm, and the same principle applied to the amounts credited in the later years.

Conclusion: The interest credited to the wife and the minor sons was includible in the assessee's total income, and the answer to the referred question was against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, and the disputed interest was held assessable in the hands of the assessee.

Ratio Decidendi: Interest credited on amounts retained in a firm pursuant to the partnership arrangement, where the amounts remain connected with the wife's membership or the minors' admission to the benefits of partnership and are not true loans or deposits, is income arising indirectly from that relationship and is includible in the assessee's income.

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