Clubbing of minor's partnership interest income applies when capital contribution and admission to benefits of partnership link the interest to the parent.

Interest credited to minor sons on their capital accounts in a partnership firm was treated as income indirectly derived from their admission to the benefits of the partnership, where the Tribunal found that business assets had been brought into the firm as capital from the earlier Hindu undivided family arrangement and that the minors had contributed capital. On those facts, the clubbing provision in section 16(3)(a)(ii) of the Income-tax Act, 1922 applied, so the interest was includible in the father's total income. The contrary Bombay view was distinguished on its facts, and the Tribunal's finding that the minors had contributed capital was treated as binding.

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Issues: Whether the interest credited to the minor sons on their capital accounts in the partnership firm was liable to be included in the assessee-father's total income under section 16(3)(a)(ii) of the Income-tax Act, 1922.

Analysis: The minors' interest was not treated as a mere return on separate loans or deposits. The factual finding accepted by the Tribunal was that the business assets had been carried into the firm as capital from the erstwhile Hindu undivided family arrangement, and the interest was credited to the minors' capital accounts because they had been admitted to the benefits of the partnership. On those facts, the interest was regarded as income flowing, at least indirectly, from such admission and therefore falling within the statutory clubbing provision. The contrary Bombay view was distinguished on its facts, and the Tribunal's finding that the minors had contributed capital was held to be binding.

Conclusion: The interest of the minor sons was includible in the assessee's total income under section 16(3)(a)(ii) of the Income-tax Act, 1922, and the question was answered in the affirmative against the assessee.

Ratio Decidendi: Where minors admitted to the benefits of a partnership contribute capital to the firm and receive interest on that capital as a result of such admission, the interest is income derived indirectly from the admission and is includible in the parent's income under the clubbing provision.

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