Minor's partnership-linked interest was taxable in the father's income where the capital stood in the firm and earned interest.

Interest earned by a minor child on amounts credited as capital in a partnership firm was treated as income arising from admission to the benefits of partnership, because section 16(3)(a)(ii) applies where there is a direct or indirect nexus between that admission and the receipt of income. Actual capital contribution in the firm was not converted into a mere loan or deposit merely because there was no contractual obligation to maintain it. Interest on accumulated profits similarly retained the required connection with the partnership arrangement and was includible in the father's total income.

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Issues: Whether interest earned by a minor son on the amount standing to his credit in the partnership firm, after a partial partition and admission to the benefits of partnership, was includible in the assessee-father's total income under section 16(3)(a)(ii) of the Indian Income-tax Act, 1922.

Analysis: Section 16(3)(a)(ii) requires inclusion of a minor child's income where it arises directly or indirectly from admission to the benefits of partnership in a firm in which the individual is a partner. The decisive test is the existence of a nexus between the admission to partnership benefits and the receipt of income. Where a minor contributes capital to the firm and earns interest on that capital, the interest is treated as arising from the admission, because the capital is part of the partnership arrangement. The fact that there was no contractual compulsion to maintain capital does not convert an actual capital contribution into a mere loan or deposit. The amount credited in the minor's capital account was found to be capital standing in the firm, and the resulting interest therefore retained the necessary connection with the minor's admission to the partnership benefits. The same principle applied to interest on accumulated profits allowed to earn interest.

Conclusion: The interest earned by the minor son on the capital amount and on accumulated profits was includible in the assessee-father's total income under section 16(3)(a)(ii) of the Indian Income-tax Act, 1922.

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