TaxTMI 
TaxTMI 
1989 (5) TMI 23
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....the income of the assessee-father under section 64(1)(iii) of the Income-tax Act, 1961 ?" The facts shortly stated are that the assessee's minor son, Master Rajesh Sogani, was admitted to the benefits of partnership in the firm, Messrs. Anil Kumar Mahendra Kumar. During the year under appeal, the said minor's share in the firm was determined at Rs. 8,599 and interest payable by the firm to the minor on the loans advanced by him was worked out at Rs. 11,480. The Income-tax Officer, while computing the assessee's total income, included both the amounts, i.e., share from firm and the interest under the provisions of section 64 (1) (iii). On appeal, the Appellate Assistant Commissioner confirmed the inclusion of the share income but he exclud....
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....he partnership deed wherein it has been stated that the amounts standing to the credit of the partners shall be regarded as their capital and all further contributions made for the purpose of the firm's business by the partners, including the minor admitted to the benefits of the partnership, shall be deemed as loans to the firm as also the undrawn share of profit and interest lying credited in the partners' accounts including the minor's account shall also be treated as loans which will carry interest at 12% per annum. The Tribunal, after hearing the submissions made before it by both the parties as also considering the cases relied on by them, held that interest payable by the firm on independent loans made by the minor to the firm or on....
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....s business by the partners, including the minor admitted to the benefits of partnership, shall be deemed as loans to the firm as also the undrawn share of profit and interest lying credited in the partners' accounts including the minor's share shall also be considered as loan which-will carry interest at 12% per annum. A similar case came up for consideration before the Madras High Court in Addl. CIT v. Misrimul Sowcar [1979] 119 ITR 123. In that case the relevant clause of the partnership deed provided as follows (at page 125) : "If, at any, time, additional funds be considered by the parties hereto as necessary or expedient for efficiently carrying on or extending the business, the same shall be contributed by the parties hereto or rais....
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....at page 127): "With reference to the taxation of interest payable on the amount to the credit of a minor as capital, it is not in dispute that such interest is liable to be included in the hands of the parent as income arising from the admission of the minor to the benefits, of the partnership. The question arises only with reference to any other amount on which interest is paid. Looking at the provision bereft of authority, it appears to us that the section contemplates the assessment in the hands of the parent, of all income arising to the minor by way of interest, so long as the interest is traceable, to the admission of the minor to the benefits of the partnership, either under the terms of the partnership deed or under a subsequent ag....
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....y other amount provided by the minors on which interest has been paid." We respectfully agree with the views taken by the Madras High Court. The very provision in the partnership deed regarding the accumulated profit is not effective to convert such accumulated profit as a loan or a deposit. The Supreme Court in S. Srinivasan v. CIT [1967] 63 ITR 273 considered this question. The decision in S. Srinivasan v. CIT was also considered by the Madras High Court in Misrimul Sowcar [1979] 119 ITR 123. In S. Srinivasan, [1967] 63 ITR 273, the Supreme Court held: "Learned counsel appearing for the appellant mainly argued before us the second question and urged that though the profits earned from the partnership by the wife and the minor sons of th....
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....sons had earned these profits because of their membership of the firm or because of their admission to the benefits of the firm, and having earned these profits in that capacity, they allowed the use of their profits to the firm without any specific arrangement as would naturally have been entered into if these funds had belonged to a stranger. They let the firm use the funds of theirs, because they had interest in the profits of the firm. The facts also show that the use of these moneys was allowed to the firm without asking for any interest, and it was only at a later stage that the three partners of the firm decided to give interest on these amounts. When the decision was taken to give interest, the nature of the funds did not change. Th....