1. The assessee is a partner in a firm called Anjaneya Motor Transport along with his wife and another stranger. His two minor sons, Murali and Mohan, were admitted to the benefits of the partnership even on the date of its constitution on 17th September, 1951. One of the terms of the partnership deed provided that:
'if the firm requires any sum for meeting the expenses for its management and if any of the partners has and is willing to agree to give such amount, he may advance (such amount) as loan. He may receive interest for such sum at the rate of 12 annas per cent. per mensem.'
2. Based on the above provision the interest on accumulated profits was credited for the first time in the previous year ending 30th September, 1956. The amounts standing to the credit of the assessee's wife and his two minor sons as on October 1, 1955, on capital and current accounts were as under:
Capital accountCurrent accountRs.Rs.
Shanbagammal (assessee's wife)75065,662Murali (assessee's minor son)90059,938Mohan ,, ,,75065,662
3. On September 30, 1956, the amounts standing to the credit of the capital accounts of the above persons were transferred to their respective current accounts. With the share income and the interest allowed by the firm for the year ended September 30, 1956, and certain other sums their current accounts stood as under :
4. On October 2, 1956, a fresh partnership was constituted between the assessee, his wife and four others. His three minor sons, Murali, Mohan and Kasturi Rangan, were admitted to the benefits of the partnership. The partnership was to carry on the business hitherto carried on by the earlier partnership constituted under the partnership deed dated September 17, 1951. The credit balances in the accounts of the wife and the two minor sons of the assessee in the earlier partnership accounts were carried over into the accounts of the new partnership. While doing so certain sums had been transferred from their credit balances to their respective capital accounts in the new partnership firm. One of the Clauses in the new deed of partnership dated October 2, 1956, was as follows :
'The above capital will not bear any interest. If there is any credit balance either in the account of the partner or in the accounts of the minors over and above capital contribution, it shall bear interest as decided from time to time and such expenses shall be debited to the profit and loss account.'
5. In the previous year ending September 30, 1956, when the partnership was governed by the deed dated September 17, 1951, the following sums by way of interest were credited to the current account of the wife and the two minor sons in the books of the firm and these interest amounts were included in the assessee's total income by the Income-tax Officer under Section 16(3)(a)(i) and (ii) of the Indian Income-tax Act of 1922. The said inclusion was challenged by the assessee. This court in S. Srinivasan v. Commissioner of Income-tax : 50ITR160(Mad) held that the interest credited 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, therefore, such interest had to be included in the total income of the assessee. The matter was ultimately taken to the Supreme Court and the decision of this court was affirmed by the Supreme Court in S. Srinivasan v. Commissioner of Income-tax : 63ITR273(SC) .
6. In the previous years ending September 30, 1957, September 30, 1958, September 30, 1959, and September 30, 1960, the firm credited by way of interest in the current accounts of the assessee's wife and his two minor sons the following sums :
30-9-1957 Year ended
30-9-1958 Year ended
30-9-1959 Year ended
7. In the assessment for the relevant assessment years, the Income-tax Officer included the following amounts of interest in the concerned assessments of the assessee :
Shanbagammal12,22912,50913,8541,194Murali 8,60910,07111,0231,261Mohan 5,269 5,750 5,737Nil
8. The assessee appealed to the Appellate Assistant Commissioner but without success. The assessee appealed to the Income-tax Appellate Tribunal but again without success. At the instance of the assessee the following three questions have been referred to this court:
'1. Whether interest credited by the firm of M/s. Anjaneya Motor Transport to the current account of the assessec's wife is includible in the assessment of the assessee under Section 16(3)(a)(i) of the Indian Income-tax Act, 1922, for the assessment years 1958-59 to 1961-62 ?
2. Whether the interest credited by the firm of Anjaneya Motor Transport to the currant account of the assessee's minor son, Murali, is includible to the extent of Rs. 8,608, Rs. 10,071, Rs. 11,023 and Rs. 1,261 in the assessment of the assessee under Section 16(3)(a)(ii) of the Indian Income-tax Act, 1922, for the assessment years 1958-59 to 1961-62 ?
3. Whether the interest credited by the firm of Anjaneya Motor Transport to the current account of the assessee's minor son, Mohan, is includible to the extent of Rs. 5,269, Rs. 5,750 and Rs. 5,737 in the assessment of the assessee under Section 16(3)(a)(ii) of the Indian Income-tax Act, 1922, for the assessment years 1958-59, 1959-60 and 1960-61 ?'
9. In the judgment just now rendered by us in T.C. No. 95 of 1968 (Smt. Nripendrakumari Bhandari v. Commissioner of Income-tax : 105ITR158(Mad) ), some of the principles have been discussed regarding the inclusion of the interest income received by the minor in the income of the father under Section 64(ii), In the assessee's own case relating to the earlier year the Supreme Court has held in 5. Srinivasan v. Commissioner of Income-tax : 63ITR273(SC) that the interest income realised on the accumulations of the minor's share of profit is includible in the father's income.
10. The assessee's learned counsel points out that the facts relating to the assessment years in question are different and the principle of the said decision of the Supreme Court cannot be applied to this case and that the Supreme Court not having specifically approved the reasoning of this court in S. Srinivasan v. Commissioner of Income-tax : 50ITR160(Mad) that if the payment of interest is made in pursuance of the terms of the partnership deed then the income should be deemed to have arisen from the admission of the minor to the benefits of the partnership, the payment of interest in the assessment years in question though made in pursuance of a Clause in the partnership deed cannot be taken, merely for that reason to have arisen from the membership of the wife in the firm or from the admission of the minor to the benefits of the partnership. According to the learned counsel, on the date of the constitution of the new partnership on October 2, 1956, the credit balance in the accounts of the wife and the minor sons of the assessee, which was carried over from the accounts of the earlier partnership to the accounts of the new partnership should be taken to be a loan or deposit and the interest paid thereon by the firm should be taken not to arise from the membership of the wife in the firm or the admission of the minors to the benefits of the partnership. Admittedly, the rate of interest payable on their credit balances has to be decided by the firm from time to time and not at the rate referred to in Section 13(d) of the Partnership Act, nor is there any indication in the partnership deed that the rate of interest paid to the wife and the minors is the same as that paid to third parties. Therefore, it cannot be said that the firm paid the interest to the wife and the minors in pursuance of an obligation cast on it under the general law. The payment is only in pursuance of the partnership deed. It is pointed out by the learned counsel for the assessee that the credit balances of the wife and the two minors have been transferred to two heads, capital account and current account, and that, therefore, the interest paid on the amount to the credit of their capital account alone could be taken under Section 64(i) or Section 64(ii) and not the interest amounts paid on the balance in their current accounts. But the learned counsel for the revenue would, however, contend that no distinction could be made between the capital account and the current account and the interest paid on the amounts standing to their credit in both the accounts would come within Section 64(i) and Section 64(ii) as income indirectly arising from the membership of the wife or the admission of the minors to the benefits of the partnership.
11. We are not inclined to agree with the learned counsel for the assessee that the words 'arises directly or indirectly from the membership' or 'arises directly or indirectly from the admission' could only be taken to cover interest income payable on the capital furnished by the wife or the minors and not on other amounts to their credit. This would be clearly against the view taken by the Supreme Court in S. Srinivasan v. Commissioner of Income-tax : 63ITR273(SC) which has laid down that the interest on the amount standing to the credit of the wife and the minors from the accumulations of their share of profits should be taken to have arisen from their connection with the partnership. The main question is whether the amounts at their credit in the current account can be taken to be a loan or deposit. The assessee's learned counsel contends that in view of the clause in the partnership deed providing for interest on their credit balances, it should be taken that it is a loan or deposit. But it is not possible for us to treat the credit balances as loans or deposits made by the wife and the minors. In respect of a loan the borrower must require the amount and he must have the option to return the loan if he so chooses. Same is the position in the case of a deposit. The depositee must have an option either to accept the deposit or to return the same if the monies are no longer required by him. Bat the clause in the partnership deed under which interest has been paid does not give any such option to the firm to return the credit balances and stop payment of interest. The clause imposes an obligation on the firm to retain the moneys and pay interest thereon, whether the moneys are required for the business of the firm or not. Therefore, the retention of the moneys of the wife and the minors by the firm and payment of interest thereon was only in view of their connection with the firm. We are, therefore, of the view that in this case the interest income in question is includible in the total income of the assessee. In this view, all the three questions have to be answered against the assessee. The revenue will have its costs. Counsel's fee Rs. 250.