TaxTMI 
TaxTMI 
1954 (3) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the case are very simple. The assessee (assessed in the status of an individual) is a partner in the firm of Messrs. Bhogilal Laherchand. Mahesh Bhogilal and Arvind Bhogilal, the minor sons of the assessee, were admitted to the benefits of partnership of the firm. A copy of the deed of partnership dated 14th April, 1943, is annexure ' A ' and forms part of the case. In the relevant year of account, namely S. Y. 2005, in the books of the firm Mahesh Bhogilal and Arvind Bhogilal were each credited with interest of Rs. 43,210 on the moneys standing to their credit in the books of the firm. These moneys belonged to them. Each of them was further entitled to a share of Rs. 1,04,077 in the profits of the firm. The Income-tax Officer ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ives are entitled to exemption under Section 15 of the Act ? N. A. Palkhivala, for the assessee. G. N. Joshi with K. T. Desai, for the Commissioner. JUDGMENT CHAGLA, C. J.-The question that arises on this reference is a very simple one and not capable of much elaboration. The assessee started a partnership business along with his major son and he admitted to the benefit of this partnership his two minor sons. In the assessment year 1950-51 the share of the profit of each of the minors came to Rs. 1,05,077 and this amount was included in the income of the assessee under the provisions of Section 16(3)(a)(ii). Each of the minors also received interest in the sum of Rs. 43,210 on deposits which stood to their credit in the firm, and the que....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nors. Therefore it is optional on both sides, on the side of the depositor and on the side of the depositee, whether to have deposits or not. All that clause 3 does is to fix the rate of interest and it casts an obligation upon the firm to pay interest at the rate of 6 per cent. if there are any deposits or any moneys standing to the credit of the minor. Mr. Joshi has relied on clause 6 for the purpose of contending that although the minors may withdraw their moneys there is an obligation upon the firm to keep the moneys. Now, clause 6 provides for the making up of accounts and it goes on to provide that the profits coming to the share of each partner shall be credited to his account with the partnership. Mr. Joshi reads this expression ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is no connection whatsoever between the minors being admitted to the benefit of the partnership and their earning interest on the deposits which they have made or on the moneys that stand to their credit. The position undoubtedly would have been different if there was any obligation upon the minors to make deposits or, on the other hand, if the partnership firm was under an obligation to keep the moneys of the minors, whether they needed them or not. It is then pointed out by Mr. Joshi that the interest is payable out of the gross profits of the business. Now, this provision, if anything, is to the prejudice of the minors. They have no right to receive interest unless there are gross profits. It is true that the interest is cumulative,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income comes within the strict ambit of Section 16(3) that the assessee can be made liable to pay tax on that income. To summarise the argument of Mr. Joshi, what he contends is that under the Income-tax Act the definition of a " partner " includes a minor admitted to the benefits of a partnership and that under the scheme of the Income-tax Act when you assess the profits of a partner you include in his share of profits any salary, interest, commission or other remuneration payable to him, and therefore Mr. Joshi says that when you are considering Section 16(3) you must construe sub-section (a)(ii) to mean that the share of a minor in the partnership, the share as understood by the Income-tax Act bearing the extended meaning, should be inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd to say that this expression means the same thing as the extended meaning of a share is to put forward an argument which is untenable by any canon of construction. There is good reason why the Legislature has made a distinction between the share of a minor for the purpose of assessing him to tax with regard to his profits, and the benefits which the minor receives from his admission to a partnership, which benefits are to be taxed not in his assessment but in the assessment of his father. The Legislature did not intend that a father should be made to pay tax upon his son's income beyond the limited extent provided in Section 16(3), and the whole attempt of Mr. Joshi is to extend the scope of Section 16(3) by making the father pay tax ....