Clubbing of minor's partnership interest income extends to interest on accumulated capital balances under the income-tax provision

Interest earned on a minor's capital balance in a partnership firm, where the balance represented accumulated share of profits, was treated as income arising indirectly from admission to the benefits of partnership and was includible in the assessee's total income under section 64(1)(iii). The provision was read broadly to cover not only the minor's share income but also interest generated on such accumulated partnership capital, while interest on a distinct loan or deposit was noted as materially different. The clubbing issue was therefore decided against the assessee.

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Issues: Whether interest earned by minor sons on capital balances standing to their credit in partnership firms, representing accumulated profits, was liable to be clubbed with the assessee's income under section 64(1)(iii) of the Income-tax Act, 1961.

Analysis: The minors had been admitted to the benefits of partnership and their capital balances represented accumulated share of profits. The provision was held to be wide enough to cover not only the share income of the minors but also the interest earned on such accumulated capital balance, since such interest arose indirectly from their admission to the benefits of partnership. Support was taken from the principle that interest on a distinct loan or deposit stands on a different footing from interest on accumulated partnership profits.

Conclusion: The interest on the minors' accumulated capital balance was rightly included in the assessee's total income under section 64(1)(iii), and the issue was decided against the assessee.

Ratio Decidendi: Interest earned on a minor's capital balance consisting of accumulated partnership profits constitutes income arising indirectly from admission to the benefits of partnership and is includible in the assessee's income under the clubbing provision.

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