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Smt. Nripendrakumari Bhandari Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 95 of 1968 (Reference No. 26 of 1968)
Judge
Reported in[1976]105ITR158(Mad)
ActsIncome Tax Act, 1961 - Sections 2(23), 60, 64 and 67(1); Income Tax Act, 1922 - Sections 16(3)
AppellantSmt. Nripendrakumari Bhandari
RespondentCommissioner of Income-tax
Appellant AdvocateV. Ramachandran, Adv.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredBhogilal Laherchand v. Commissioner of Income
Excerpt:
direct taxation - inclusion - section 64 of income tax act, 1961 - on reconstitution of firm assessee included minor sons to benefits of partnership - income-tax officer (ito) included share of income received by minor sons to benefits of partnership in assessment of assessee for assessment year 1962-63 - assessee challenged impugned inclusion - whether tribunal right in law in holding that provisions of section 64 (ii) applicable to assessee irrespective of point that partnership was formed before commencement of act - whenever income arises directly or indirectly from admission of minor to benefits of partnership, section 64 comes into operation irrespective of fact whether admission of minor was before or after commencement of act of 1961 - question referred to court answered in.....1. the assessee is a partner in the firm of m/s. premier credit corporation, carrying on business as financiers. the firm was constituted under a deed of partnership dated april 1, 1959, with effect from that date. the assessee's two minor sons, sunil kumar and ashok kumar, were also admitted to the benefits of the partnership even at the time of its constitution. clause 4 of the partnership deed provided for contribution of capital of rs. 1,22,500 by the partners in fixed sums including the two aforesaid minors, who had to contribute capital of rs. 26,250 each. the partnership deed also provided that such capital shall not carry any interest, but any amount in excess of the capital contributed or any amount of profits or accretion thereof left in the firm, shall be treated as loan to the.....
Judgment:

1. The assessee is a partner in the firm of M/s. Premier Credit Corporation, carrying on business as financiers. The firm was constituted under a deed of partnership dated April 1, 1959, with effect from that date. The assessee's two minor sons, Sunil Kumar and Ashok Kumar, were also admitted to the benefits of the partnership even at the time of its constitution. Clause 4 of the partnership deed provided for contribution of capital of Rs. 1,22,500 by the partners in fixed sums including the two aforesaid minors, who had to contribute capital of Rs. 26,250 each. The partnership deed also provided that such capital shall not carry any interest, but any amount in excess of the capital contributed or any amount of profits or accretion thereof left in the firm, shall be treated as loan to the firm by the respective partners and it shall carry interest at the rate of 7 1/2 per cent. per annum.

2. For the assessment year 1962-63, the Income-tax Officer included in the assessment of the assessee the share income received by her two minor sons admitted to the benefits of the partnership invoking the provisions of Section 64(ii) of the Income-tax Act, 1961. The sums so included in her assessment were as under :

Share of profitsInterestTotalRs.Rs.Rs.

Sunil Kumar7,4804,20511,685Ashok Kumar7,4803,74411,224

3. The assessee appealed to the Appellate Assistant Commissioner contending that since the partnership had come into existence in 1959 prior to the commencement of the Income-tax Act, 1961, and the minors had been admitted to the benefits of the partnership even when the firm was constituted, Section 64(ii) of the Act of 1961 had no application in her case and that the interpretation placed by the Supreme Court in Commissioner of Income-tax v. Sodra Devi : [1957]32ITR615(SC) on the corresponding provision in Section 16(3)(a)(ii) of the Indian Income-tax Act, 1922, to the effect that the expression 'individual' does not include the female of the species should continue to apply to a firm which had come into existence prior to the commencement of the Act of 1961. Alternatively, it was contended by the assessee that the interest portion of the income of the two minors received from the partnership should not be included in the assessment of the assessee, as such interest has been received from the firm in respect of the loans advanced by the minors and that such income cannot be said to arise directly or indirectly from the admission of the minors to the benefits of the partnership. Both the above contentions were rejected by the Appellate Assistant Commissioner.

4. The same contentions were reiterated by the assessee in a further appeal before the Income-tax Appellate Tribunal. On the first contention the Tribunal held against the assessee on the ground that Section 64 contemplates transactions without reference to the point of time at which the partnership was formed or when the minors were admitted to the benefits of the partnership, that for purpose of application of that section it is immaterial whether the partnership was formed before or after the commencement of the Act and that the provision covers income arising from transactions effected even prior to its insertion. On the second contention the Tribunal, however, upheld the assessee's claim that the accumulation in the capital accounts of the two minor sons in excess of the capital fixed under Clause 4 of the partnership deed became converted into a loan, and that the interest thereon was not includible in her assessment under Section 64(ii) of the Act as it did not arise from the original investment of capital gifted by the assessee to the minor sons. For this view the Tribunal relied on the decision of the Supreme Court in S. Srinivasan v. Commissioner of income-tax : [1967]63ITR273(SC) The Tribunal accordingly deleted the interest income of the minors from the assessment of the assessee.

5. Both the department and the assessee sought references to this court and the following two questions have been referred, the first one at the instance of the assessee and the second at the instance of the department.

'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of Section 64(ii) of the Income-tax Act, 1961, are applicable to the assessee irrespective of the point that the partnership was formed before the commencement of the Act?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the sums of Rs. 4,205 and Rs. 3,744 being interest received by the minors, Sunil Kumar and Ashok Kumar, respectively, from the firm of M/s. Premier Credit Corporation, are not inciudible in the total income of the assessee under Section 64(ii) of the Income-tax Act, 1961?'

6. With reference to the first question set out above, the assessee's case is that a proper interpretation of Section 64 of the Act would indicate that it would apply only to cases wherein the minors have been admitted to the benefits of the partnership after the coming into force of the Income-tax Act of 1961. The assessee presumably wants to take advantage of the decision of the Supreme Court in Commissioner of Income-tax v. Sodra Devi : [1957]32ITR615(SC) In that case Section 16(3)(a)(ii) of the Income-tax Act of 1922 came up for consideration and the Supreme Court held that the intention of the legislature in enacting Section 16(3) was only to include the income derived by a wife or a minor child in the computation of the total income of the husband or the father, as the case may be, for the purpose of assessment, that the words 'any individual' occurring in Section 16(3) are restricted in their connotation to mean, only the male of the species, and do not include the female of the species and, therefore, in computing the total income of a mother the income of her minor child arising from the admission of the minor to the benefits of the partnership in a firm of which the mother is a partner cannot be included under Section 16(3)(a)(ii). It is contended by the assessee's learned counsel that the assessee's minor sons have been admitted to the benefits of the partnership while the Income-tax Act of 1922 was in force. Section 64 of the new Act cannot be invoked in respect of the partnership in question and that Section 64 of the new Act has to be taken to be prospective, applicable only to the firms in which minors have been admitted to the benefits of the partnership after the new Act came into force. The assessee's learned counsel compares Section 60 with Section 64(ii) and submits that while Section 60 contemplates a transfer effected both before and after the commencement of the Act, Section 64(ii) does not specifically contemplate the admission of the minor to the benefits of the partnership which had taken place before the commencement of the Act and that, therefore, Section 64 should be taken to be only prospective. In other words what is contended is that, while Section 60 takes in all transfers either before or after the commencement of the Act, Section 64(ii) could stand attracted only if the admission of the minor to the benefits of the partnership is after the commencement of the new Act. We are of the view that there is no merit in this contention. It is true there is difference in phraseology used in Section 60 and Section 64. But that is due to the fact that the object of the two provisions is different. Section 60 comes in when income alone is transferred by an act of transfer without actual transfer of the assets. To make the legislative intention clear that whenever a transfer of income alone has taken place the income arising during the assessment year has to be charged to income-tax as the income of the transferor, the section is made applicable whether the transfer is made before or after the Act. But Section 64 contemplates no such transfer of income, but makes the income of the spouse or the minor child as the income of the individual, and for the application of Section 64 one has to merely see whether the income has arisen directly or indirectly from the membership of the spouse in a firm or from the admission of the minor to the benefits of the partnership in which such individual is a partner. Therefore, whenever income arises directly or indirectly from the admission of the minor to the benefits of the partnership, Section 64 comes into operation irrespective of the fact whether the admission of the minor to the benefits of the partnership was before or after the commencement of the 1961 Act. In such an event Section 64 operates only prospectively and not retrospectively as contended by the assessee. Normally, accrual of income takes place year by year and we have to see only at what time the income accrues. Once it is found that the income has accrued after the commencement of the new Act then Section 64 by its own force operates.

7. So far as the scope of Section 64 is concerned, it is not restricted in its scope and it applies to either of the spouses unlike Section 16(3) which applied only to a husband or father. In Smt. Priti Lata Sctmanta v. Commissioner of Income-tax : [1971]79ITR18(All) the Allahabad High Court, while construing Section 64(ii), held that the income derived by a 'minor child because of his admission to the benefits of the partnership firm in which his mother also is a partner can be added to her income while computing her total income and that the word 'individual' used in Section 64(i) cannot be restricted in its meaning to mean only to a male of the species and that the decision of the Supreme Court in Commissioner of Income-tax v. Sodra Devi : [1957]32ITR615(SC) interpreting the provisions of Section 16 of the 1922 Act, cannot govern the interpretation of Section 64 of the 1961 Act. We have to, therefore, answer question No. 1 in the affirmative and against the assessee.

8. The second question relates to the inclusion of the interest incomereceived by the minors from the firm in the total income of the assessee.The reasoning of the Tribunal for holding that the minor's interest incomeis not includible in the income of the assessee is that Clause 4 of thepartnership deed provides that whatever excess remained over the capitalshould be treated as a loan to the firm and that interest is payable on suchaccumulations which are treated as loans did not arise from the admissionof the minors to the benefits of the partnership. The question is whetherthe interest income in question has arisen directly or indirectly to the minors from their admission to the benefits of the partnership in which admittedly the assessee is a partner. According to the revenue as the interest has been received admittedly on the basis of Clause 4 of the partnership deed, it should be taken to arise directly or indirectly from the admission of the minors to the benefits of the partnership. But, according to the assessee, even though the interest has been paid to the minors on the basis of Clause 4 of the partnership deed, the receipt of interest has nothing to do with their admission to the benefits of the partnership, and that such interest would have been paid to the minors as creditors irrespective of their having been admitted to the benefits of the partnership.

9. Many authorities dealing with the interpretation of Section 64(ii) of the 1961 Act or the corresponding provision in Section 16(3) of the 1922 Act were cited at the Bar. In Bhogilal Laherchand v. Commissioner of Income tax : [1954]25ITR523(Bom) the assessee started a partnership business with his major son and admitted to the benefits of the said partnership his two minor sons. The minors' share of profit as also the interest received by them on deposits standing to their credit in the firm were included in the income of the father under Section 16(3)(a)(ii). The partnership deed did not cast any obligation upon the minors to maintain any deposits in the firm or upon the firm to keep any deposits made by the minors. The partnership deed provided that interest at a particular rate should be paid by the firm if there are any deposits or monies standing to the credit of the minors. The Bombay High Court took the view that the interest earned by the minors on the amounts standing to their credit in the firm could not be included in the total income of the assessee under Section 16(3)(a)(ii) of the 1922 Act. The court also expressed that the legislature has made a distinction between the share of profits of a minor for the purpose of assessing him to tax with regard to such 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. Chagla C.J., speaking for the Bench, said:

'It is clear that the minors earned interest primarily and substantially by reason of the fact that they deposited moneys in the firm. It is not by reason of the fact that they were partners, nor was it by reason of the fact that they were obliged under the partnership deed to make the deposits, that this interest was earned. Therefore, this income arose to the minors not from their admission to the benefits of the partnership, but the income arose because the minors chose to keep moneys in the partnership firm. They could have earned interest on their deposits without being partners, they could have earned interest on their deposits by keeping the deposits in any other firm, and really apart from the fixing of the rate of interest there is no connection whatsoever between the minors being admitted to the benefits 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......Section 16(3) deals with notional or artificial income and it makes an assessee pay tax on income which in fact is not his own, but which is notionally made to be his income, and, therefore, Section 16(3) must be very strictly construed, and it is only if a particular income comes within the strict ambit of Section 16(3) that the assessee can be made liable to pay tax on that income.'

10. Chouthmal Kejriwal v. Commissioner of Income-tax was a case where interest was paid to the minor admitted to the benefits of the partnership on the capital supplied by him and the Assam High Court held that any income accruing to the minor as interest on his capital is an indirect result of his being admitted to the benefits of the partnership and is, therefore, to be included in the total income of his father under Section 16(3)(a)(ii) of the 1922 Act. The reasoning of the court is that if the minor gets interest on the capital supplied by him, the supply of capital cannot be due to anything else except his admission to the benefits of the partnership and that but for such admission the question of supplying capital would not arise at all. The learned judges in that case, however, pointed out that in the case of deposits which the minors were under no obligation to make, it could not be said that the deposit which earned interest was due to the fact of his admission to the benefits of the partnership, that if it was optional for a minor to make a deposit, it cannot be said that the deposit was necessarily made as a result of his being admitted to the partnership and that, therefore, any interest accruing on such a deposit cannot be said to arise directly or indirectly from the admission of the minor to the benefits of the partnership.

11. In 5. Srinivasan v. Commissioner of Income-tax : [1963]50ITR160(Mad) the assessee was a partner in a firm in which his two minor sons were admitted to the benefits of the partnership. Under a clause in the partnership deed any member or person admitted to the benefits of partnership was entitled to receive interest at 9 per cent. per annum on any sum advanced as loan by him to the firm for meeting the expenses of its management. The interest amounts payable under the said clause were credited in the relevant accounting year to the wife and to the two minor sons in the account books of the firm on the accumulation of their shares of the profit. A Bench of this court held that the interest so credited to the wife and the two minor sons arose directly from the membership of the wife in the firm and the admission of the minor sons to the benefits of the partnership and that, therefore, the interest credited to them had to be included in the total income of the assessee under Section 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922. Considering the matter from the first principles and without reference to any authority, the learned judges felt that the right to receive the interest was the consequence of the membership of the wife in the firm or the admission of the minors to the benefits of the partnership, that Section 13(d) of the Partnership Act having provided that a partner or a person admitted to the benefits of the partnership is entitled to receive interest on the balance outstanding to his credit, the right to get interest directly arose from the membership or the admission of the minors to the benefits of the firm and that wherever the right to receive interest flows from the contractual relationship created between the parties by the partnership document, it can be said to flow directly from the membership of the wife in the one case or the admission of the minors to the benefits of the partnership in the other case. Referring to the Bombay decision in Bkogilal Laherchand v. Commissioner of Income-tax : [1954]25ITR523(Bom) referred to above, the learned judges expressed their disagreement with the reasoning in that case. In S. Srinivasan v. Commissioner of Income-tax : [1967]63ITR273(SC) which was an appeal from the decision of this court in S. Srinivasan v. Commissioner of Income-tax : [1963]50ITR160(Mad) the Supreme Court held that the interest received by the wife and the minor sons on the accumulated profits arising from the firm itself should be taken as arising indirectly from the membership of the wife, or the admission of the minors to the benefits of the partnership and, therefore, assessable in the hands of the father who is a partner of the firm. The Supreme Court pointed out the distinction between the cases where interest is earned on a deposit or loan and cases where interest is earned on the accumulated profits arising from the firm itself. Dealing with that question with reference to the facts of that case, the court said:

'The facts and circumstances indicate that the wife and the minor 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 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. They did not get converted into deposits or loans. They still remained accumulations belonging to a partner or persons admitted to the benefits of the partnership and allowed to be used by the firm. The interest also appears to have been allowed by the firm simply because these funds belonged either to a partner or to the minors who had been admitted to the benefits of the partnership. It is thus clear that the interest at least indirectly arose and accrued to the wife and the minor sons because of their capacity mentioned in Section 16(3)(a)(i) and (ii) in the Income-tax Act.'

12. As is clear from the above passage, the Supreme Court had upheld the inclusion of the interest income of the minors in the father's income on the basis that the interest has been paid on the accumulated profits as such without converting it as a loan or deposit. The correctness of the proposition laid down by this court that if, the right to get interest has arisen under the terms of the partnership deed or under the law of partnership such interest income could be taken to arise from the admission of the minor to the benefits of the partnership, has not, however, been considered by their Lordships of the Supreme Court.

13. In P.A.P. Chidambara Nadar v. Commissioner of Income-tax : [1970]77ITR84(Mad) a Division Bench of this court, to which one of us was a party, held that the interest income received by the minors admitted to the benefits of a partnership on deposits made by them with the firm in addition to their capital contribution cannot properly be included in the income of the father under Section 16(3)(a)(ii) of the 1922 Act. In that case it was found that the deposits by the minors had been made independent of their interest in the partnership and, therefore, interest paid on such a deposit was held not includible in the income of the father.

14. In Kaladhar Prasad Chaturvedi v. Commissioner of Income-tax : [1971]82ITR713(All) a Hindu family business was converted into a partnership. The assessee and his major son were the partners. Three minor sons were admitted to the benefits of the partnership. A sum of Rs. 19,966 was credited to each of the minors in the accounts of the firm and the partnership deed provided that the money credited in the names of the partners was to be deemed to be the capital of the business and the money credited in the names of the minors was to be treated as their deposits with the firm and that on such capital or deposit interest at 6 per cent. per annum was payable by the firm. The question in that case was whether the interest paid to the minors on such deposits could be included in the father's income. The Tribunal had taken the view that such interest income could properly be included in the income of the assessee for the reason that the amounts allotted to the minors on partition formed part of the capital of the family business and its nature continued to be the same even after it was utilised in the partnership business. The Allahabad High Court, on reference, held that whether the amount standing in the name of a minor admitted to the benefits of a firm is to be treated as capital contributed by him or as deposit or advance depends primarily upon the intention with which it was introduced in the business, that the partnership deed unequivocally provided that money credited in the names of the minors shall be deemed to be their deposits in the firm and that, therefore, it was clear that the amount standing to the credit of each individual minor was introduced in the firm as deposit and not as their capital contribution and hence the interest paid to the minors on the deposits standing to their credit is not includible in the income of the father.

15. On a due consideration of the various principles laid down in the above decisions the true legal position appears to us to be this: Wherever there is a connection between the admission of the minor to the benefits of the partnership and the realisation of income by him by way of interest, the same can be included in the income of the parent, whether the said connection is direct or indirect. The fact that payment of interest has been provided under the terms of the partnership deed does not ipso facto establish such a connection if the payment could be enforced otherwise under the general law applicable to a debtor and creditor. If under the terms of the partnership deed the minor is bound to make a deposit and the firm is not free to receive deposits from others, the interest paid on such deposit to a minor will be taken to have a connection with his admission to the benefits of the partnership, but in the case where the firm is free to receive deposits from anyone and the minor makes a deposit though not obliged to make such deposit, the interest on such a deposit will have no connection with his admission to the benefits of the partnership. The interest paid on accumulations of the minor's share of profits arises only out of his having been admitted to the benefits of the partnership. If under the terms of the partnership deed the firm is under an obligation to accept deposits from the minor admitted to the benefits of the partnership and pay interest thereon, the interest can be taken to have arisen as a result of such admission. But where the minor is not obliged to deposit or the firm is not obliged to receive and keep the deposit on condition of its paying interest thereon, then any interest paid on deposits made by a minor cannot be taken to have a direct or indirect connection with his being admitted to the benefits of the partnership.

16. We are, therefore, of the view that the submission of the learned counsel for the revenue that wherever interest has been paid to the minoradmitted to the benefits of the partnership in pursuance of a term in the partnership deed such interest income has to be included in the income of the parent if he is a partner of the firm cannot be accepted without further qualification. It is true that S. Srinivasan v. Commissioner of Income-tax : [1963]50ITR160(Mad) took that fact as establishing a connection between the interest income and the admission of the minors to the benefits of the partnership. But we may easily comprehend cases where the interest is paid to a partner or a minor admitted to the benefits of the partnership not in pursuance of a term in the agreement of partnership but as an amount payable to them under the law of partnership. It cannot be said in such a case that the interest income received by the partner or a minor admitted to the benefits of the partnership is without reference to their connection with the firm. Similarly, there may be cases in which interest is paid to a partner or a person admitted to the benefits of the partnership under the terms of the agreement of partnership but without reference to his connection with the partnership. Take for instance a case where a partner or a minor admitted to the benefits of the partnership specifically advances a loan to the firm which is permitted to take loan for the purpose of its business from whomsoever. It cannot be said that the payment of interest in such a case has any specific connection with the membership or the admission to the benefits of the partnership. The question whether interest income arose directly or indirectly from the admission Of the minor to the benefits of the partnership has to be decided with reference to various circumstances such as the character of the amount on which the interest has been paid by the firm, the terms of the partnership deed, the intention of the parties and the capacity in which the amount is received by the minor. We are not inclined to agree with the learned counsel for the assessee that it is only the interest paid on capital contributed by the partner that will have to be taken to have a connection with the admission of the minor to the benefits of the partnership, and all other kinds of interest payments cannot be said to have a connection either directly or indirectly with such admission. The proper test to adopt in our view is to find out whether the interest has been paid to the minor because of his admission to the benefits of the partnership.

17. The learned counsel for the revenue would, however, rely on the decision of the Supreme Court in N. Satyanathan v. K. Subramanyan : [1955]2SCR83 in support of his stand that even if the interest is payable to the minor otherwise, once it is provided in the partnership agreement, the terms of the agreement govern the rights of parties and, therefore, the payment of interest should be taken to have a connection with the admission of the minor to the benefits of the partnership. In that case a bus operator entered into an agreement with the Central Government for transit conveyance of all postal articles and mail bags for a certain period in a particular route, and during the subsistence of that contract the operator stood for election to the House of the People. The question was whether he was disqualified for election under Section 7(d) of the Representation of the People Act, 1951, It was contended by the operator that the agreement was in pursuance of a pre-existing obligation imposed by Rule 160-B of the Madras Motor Vehicles Rules which has been made under the authority of Section 48(d) of the Motor Vehicles Act and that, therefore, he should be deemed to have carried the mails, etc., in performance of a statutory obligation and not in pursuance of the agreement. The Supreme Court expressed the view that the agreement being based, on mutual promises, the operator to carry mail bags, etc., and the postal department to pay him suitable remuneration, the services rendered should be taken to be in pursuance of the agreement and therefore, the operator should be taken to have an interest in a contract for the performance of a service undertaken by the Government. We do not get any support from the above decision for the question at issue before us. The existence of a provision for payment of interest in the partnership deed to a minor admitted to the benefits of the partnership, cannot be said to be conclusive on the question as to whether there is any nexus between the payment made by the firm to the minor and his admission to the benefits of the partnership. As already said there may be cases of payment outside the terms of the partnership deed but none the less those payments may have connection with the admission of the minor to the benefits of the partnership. At the same time there may be cases of payments made in pursuance of the terms of the partnership deed but none the less it may not have connection with the admission of the minor to the benefits of the partnership.

18. The learned counsel for the revenue then put forward a somewhat novel contention. According to him, Section 2(23) defines 'partner' as including p. minor admitted to the benefits of the partnership. Therefore, by the application of Section 67(1)(b) any interest paid to a minor admitted to the benefits of the partnership should be taken to be his share income from the firm and that, therefore, any interest received by the minor will have to be brought in as the father's income under Section 64(ii). But we are of the view that Section 67 deals with the computation of the partner's share in the income of the firm and the extended definition of 'income' under, Section 67(1)(b) cannot be applied to the interpretation of Section 64. Section 67(1)(b) treats any interest received by a partner as part of his share in the income of the firm for the purpose of computation of the partner's share in the firm's income, But Section 64(ii) is intended to treat the income of the minor in certain circumstances as the income of the parent,and the extended notion of 'income' contemplated under Section 67(1)(b) cannot be imported into Section 64. Similar convention has been considered and. rejected by the Bombay High Court in Bhogilal Laherchand v. Commissioner of Income-tax : [1954]25ITR523(Bom) in these words :

'The legislature has advisedly used a different expression and that expression is 'the income which arises to the minor directly or indirectly from his admission to the benefits of the partnership', and 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 sort'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 on an income which is not his, an income which is that of his minor son and which the legislature for good reasons has not considered to be the artificial or notional income of the father.'

19. With respect, we agree with the above reasoning and hold that the extended definition of income in Section 67(1)(b) cannot be imported into Section 64(ii) and that Section 64(ii) should be construed on its own terms.

20. In this case the interest has been paid, to the two minors on the basis of Clause 4 of the partnership deed on the amounts standing to their credit in excess of the capital contributed or on profit accumulations. It does not appear that the firm was in the habit of taking loan or deposit from outsiders for purposes of its business. Under Clause 4, the firm whether it requires funds or not, is under an obligation to retain the minors' moneys and pay interest thereon at the stipulated rate. The firm is under no such, obligation to third parties. Further, there is absolutely no evidence in the case that the firm was in the habit of taking loans or deposits from outsiders at the rate of 7 1/2 per cent. interest which is the rate of interest that was paid to the minors. Under Section 13(d) of the Partnership Act a partner making for the purpose of the business any payment or advance beyond the amount of capital he has agreed to subscribe is entitled to interest thereon at the rate of six per cent. per annum, It cannot, therefore, be said that the minors have a right under the common law to receive the interest at 7 1/2 per cent. on the amounts in their credit and, therefore, the payment of interest at 7 1/2 per cent. can only be taken to have been made to the minors by virtue of their having been admitted to the benefitsof the partnership. We have to, therefore, disagree with the decision of the Tribunal on this point. This question is also answered in the negative and against the assessee. The revenue will have its costs. Counsel's fee Rs. 250.


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