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Bipinchandra Navnitlal Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1984)9ITD520(Ahd.)
AppellantBipinchandra Navnitlal
Respondentincome-tax Officer
Excerpt:
.....of provisions of section 64(1)(iii) of the income-tax act, 1961 ('the act') in respect of interest income earned by the minors.2. the assessee is an individual. the assessment year is 1976-77 and the relevant previous year ended on 31-3-1976.3. the assessee's two minor sons, udayan and viren, were admitted to the benefits of partnership of two firms, namely mukund & bros, and ambica cut piece store. his minor daughter chhaya was admitted to the benefits of partnership of mukund & bros.4. in his return of income the assessee had shown the share of profit of the minors from the aforesaid firms in view of the provisions of section 64(1)(iii). it may be motioned that the minors were also given interest on the capital standing in their names which the assessee had not shown in his.....
Judgment:
1. The only point involved in this appeal pertains to the applicability of provisions of Section 64(1)(iii) of the Income-tax Act, 1961 ('the Act') in respect of interest income earned by the minors.

2. The assessee is an individual. The assessment year is 1976-77 and the relevant previous year ended on 31-3-1976.

3. The assessee's two minor sons, Udayan and Viren, were admitted to the benefits of partnership of two firms, namely Mukund & Bros, and Ambica Cut Piece Store. His minor daughter Chhaya was admitted to the benefits of partnership of Mukund & Bros.

4. In his return of income the assessee had shown the share of profit of the minors from the aforesaid firms in view of the provisions of Section 64(1)(iii). It may be motioned that the minors were also given interest on the capital standing in their names which the assessee had not shown in his return on the ground that provisions of that section are not attracted. The income-tax authorities, however, negatived the assessee's stand and came to the conclusion that even in respect of the interest earned by the minors the provisions of Section 64(1)(iii) are attracted.

5. Being aggrieved by the order of the AAC, the assessee has come up in appeal before the Tribunal. The learned Counsel for the assessee vehemently argued that the income-tax authorities were not justified in including the interest earned by the minors in the total income of the assessee by invoking the provisions of Section 64(1)(iii). In this connection he placed before us copies of the accounts of the minors in the said two firms at well as deeds of partnership of the said two firms with a view to impress upon us that the capital standing in the names of the minors were nothing but deposits to which the provisions of that section are not applicable. He also submitted that since the minors were not required to bring in capital as a condition to be admitted to the benefits of partnership, the income-tax authorities were not justified in holding that even in respect of interest earned by them the provisions of Section 64(1)(iii) are attracted. He also placed before us a copy of the order of the Tribunal in the case of Virchand Dalichand [IT Appeal No. 1389 (Ahd.) of 1979, dated 7-1-1981] wherein similar contentions raised were accepted by the Tribunal. He therefore, urged that interest income earned by the minors from the said two firms which was included in the total income of the assessee should be deleted. In support of his submissions the learned Counsel for the assessee relied on the decision in the cases of S. Srinivasan v. CIT [1967] 63 ITR 273 (SC) and CIT v. Smt. Triveni Devi [1971] 81 ITR 511 (All.). The learned representative for the department, on the other hand, strongly relied on the orders of the income-tax authorities and justified their action. He also invited our attention to the copies of the accounts of the minors with a view to impress upon us that the income-tax authorities have rightly included the interest income of the minors in the total income of the assessee.

6. We have carefully considered the rival submissions of the parties and we do not find any merits in the stand taken on behalf of the assessee. The relevant provisions of the Act applicable in the instant case read as under : 64(1). In computing the total income of any individual, there shall be included all such income as arises directly or indirectly--** ** ** (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm ; On the plain reading of the aforesaid provisions, we have no doubt in our mind that all and any income earned by the minor from a firm in which he has been admitted to the benefits of partnership would be includible in the total income of his parent(s). It appears to us that in number of cases the assessees are taking a stand that as far as the interest earned by the minors is concerned, the provisions of Section 64(1)(iii) arc not attracted. However, they have failed to notice the amendment brought in Clause (iii) of Sub-section (1) of Section 64 with effect from 1-4-1976. Prior to the amendment the assessees were taking a stand which was accepted by the High Courts that if a minor is not bringing in any capital but has a deposit simpliciter in a firm in which he was admitted to the benefits of partnership, the interest earned thereon could not be clubbed with the income of his parent(s) if his parent(s) is also a partner in the said firm. However, with effect from 1-4-1976 Clause (iii) has been substituted as mentioned above which clearly shows that any income earned by the minor from a firm in which he has been admitted to the benefits of partnership would be includible in the hands of his parent(s) irrespective of the fact that such parent(s) is also a partner of the said firm or not. According to us, after the amendment made with effect from 1-4-1976 the provisions of Clause (iii) would be applicable irrespective of whether the assessee's minor children are allowed a share in the firm without any contribution on their part to the capital or assets of the firm or whether they bring their own capital or become members of the firm in their own right. Again, in our view, the provisions of Clause (iii) are absolute and unqualified in terms and not subject to any exception or restrictions. In this view of the matter we have no hesitation in upholding the action of the income-tax authorities in including the interest earned by the minors in the total income of the assessee by invoking provisions of Section 64(1)(iii).


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