March 22, 1971
1. By its order dated the 10th of December, 1965, the Income-tax Appellate Tribunal, Delhi Bench ' B ', has referred the following question of law for our opinion:
' Whether interest earned by a minor on a sum deposited by him with a firm to the benefits of which he has been admitted and in which his father is a partner, is liable to be included in the income of his father by virtue of Section 64(ii) of the Income-tax Act, 1961 '
2. The facts giving rise to the question may now be stated. In order to appreciate the facts, a short genealogical table would be helpful. Gian Chand has three sons--Kishore Chand, major, Vir Vijay, minor, and Vaneet Raja, minor. The joint Hindu family of the father and sons had a share in the partnership known as Kishanchand Gianchand. The joint family was represented by the karta, Gianchand. The other partners of this firm were Kidarnath, Anant Ram and Randhir Kumar. All the three other partners, besides the Hindu undivided family, had one-fifth share. The share of the Hindu undivided family was four-fifths. On the 31st of March, 1958, a partial partition was effected amongst the members of the Hindu undivided family. Each of the four members divided the four-fifths in equal shares. The very next day, on 1st of April, 1958, a fresh deed of partnership was executed. The three other partners, Kidarnath and others, along with Gianchand and Kishore Chand, constituted the partnership. The share of Kidarnath and others was one-fifth, of Gian Chand one-fifth and of Kishore Chand one-fifth. The two minor sons of Gian Chand, Vir Vijay and Vaneet Raja, were admitted to the benefit of the partnership and they were entitled to the profits of the partnership to the extent of one-fifth each. As a result of the partial partition the share of each of the two;minors was determined at Rs. 55,820.77. Admittedly, this amount remained in credit with the new partnership that came into being on 1st of April, 1958. In the assessment year 1962-63, the total interest on the amount that stood to the credit of the minors in the books of the firm amounted to Rs. 12,316. Rs. 6,698 was the interest which had accrued on the original amount standing to the credit of the minors. Itwas conceded by the assessee that this amount was liable to be taxed under Section 64(ii) of the Act, but a contention was raised that an amount of Rs. 5,618 was not liable to tax in his hands and, to that amount, Section 64(ii) had no application. This contention was rejected by the Income-tax Officer and the entire amount of Rs. 12,316 was included in the income of the assessee, Gian Chand. In the appeal taken to the Appellate Assistant Commissioner by Gian Chand, the contention raised was that the income of the minors by way of interest from the partnership firm could not be included in the income of the appellant. An alternative contention was raised that the interest on accretions in the accounts of the said minors could not be taxed in the hands of the assessee. The Appellate Assistant Commissioner, basing himself on the decision of the Madras High Court in S. Srinivasan v. Commissioner of Income-tax,  50 I.T.R. 160 (Mad.) wherein the Madras High Court had dissented from the decision of the Bombay High Court in Bhogilal Laherchand v. Commissioner of Income-tax,  25 I.T.R. 523 (Bom.) rejected the appeal. The assessee prepared a further appeal to the Income-tax Appellate Tribunal, and the Tribunal, after stating the facts, observed as follows :
'The fact that the minors have not contributed any capital and the fact that the dispute relates to the interest earned on the aforesaid deposits in the accounts of the two minors on partial partition of the assessee-Hindu undivided family is undisputed. It is also an undisputed position that both these amounts represent deposits as distinct from capital. The position is also otherwise abundantly clear from the relevant clause of the partnership deed referred to above. The minors are under no obligation to contribute any capital and there is no evidence to suggest that they contributed any capital as such.'
3. It was assumed, however, that the amount standing to the credit of the minors was either deposited by them with the firm or was advanced by them to the firm. There is no evidence on the record on which this finding can be supported. There is no dispute that if the amount was deposited by the minors with the firm, or was advanced by way of loan to the firm, the interest earned thereon would not be liable to tax in the hands of the asseseee under Section 64(ii) of the Income-tax Act, 1961. The real question that the Tribunal had to determine was missed by them, namely, in what manner the monies that fell to the share of the minors after partial partition of the Hindu undivided family were dealt with. If those amounts were the consideration for their getting the benefit of the partnership that was constituted on 1st of April, 1958, the amounts would certainly be liable to tax in the hands of the assessee in view of the decision of the Supreme Court in S. Srinivasan v. Commissioner of Income-tax,  63 I.T.R. 273;  I S.C.R. 727 (S.C.). But, ifthose amounts were invested by the minors and had nothing to do with their being conferred benefits in the partnership constituted on 1st of April, 1958, the interest earned by those amounts would not be liable to tax in the hands of the assessee. There is no evidence on the record whichwould disclose the true nature of the transaction and, therefore, it is not possible for us to answer the question referred to us without having elucidation on this aspect of the matter. It is significant that the Tribunal treated part of the interest as having been earned on the investment made by the minors in the capital of the firm and part on account of accretions to that capital. It is not clear if the Tribunal was of the view that the accretions were, in fact, the deposits made by the minors and not accretions to the investment of the capital by the minors. This clarification would enable us to answer the question referred to us in a proper manner. The use of the word ' deposit ' in the question is rather unfortunate. In fact, the word ' credit ' should have really replaced the word ' deposit '. For the reasons recorded above, we send back the case to the Tribunal for a better statement of the case in the light of the observations made above. The Tribunal should submit the case back to this court within a period of three months from the date it receives this order.