TMI Blog1990 (2) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... rm. The profits were being credited every year in the accounts of the minor and interest on the amount outstanding is being credited in accordance with clause 7 of the partnership deed dated April 1, 1972, and in accordance with clause 7 of the subsequent deed dated July 17, 1975. The interest credited to the minors' accounts was not included in the assessee's hands up to and including the assessment year 1975-76. But, for the first time in the assessment year 1976-77, the interest credited to the accounts of the minors has been clubbed in the hands of the assessee by relying on section 64(1)(iii). Evidently, this has been done because of the amendment to the law brought about with effect from January 1, 1976. The Appellate Assistant Commissioner agreed with the Income-tax Officer. Counsel for the assessee contended that, in view of the fact that there was no condition to contribute capital for being admitted to the benefits of the partnership, the amounts standing in the accounts of the minors must be treated as loan or deposit on which interest was being credited every year in accordance with clause 7. It was, therefore, contended that the minor derived interest not on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir advances. There was, therefore, no nexus between payment of interest and their admission to the benefits of partnership. In the opinion of the Tribunal, therefore, section 64(1)(iii) in such circumstances had no application. It may be mentioned that the decision of the Supreme Court came up for consideration before the Madras High Court in the case of Addl. CIT v. Misrimul Sowcar [1979] 119 ITR 123 as well as by the Bombay High Court in the case of CIT v. Chandanmal Kasturchand [1978] 112 ITR 296. The Jaipur Bench of the Tribunal also supported the view taken by the Tribunal. The clubbing of interest in respect of minors' account in the hands of the assessee was, therefore, vacated." The argument advanced on behalf of the assessee is that the income that the minors derived in the case on account of interest being credited in the books of the firm in the names of the minors could not be treated as income arising directly or indirectly "from the admission of the minors to the benefits of partnership in the firm". It has been argued that any person can deposit any money and earn interest on such deposit. If a minor allows his share of profits in a firm to remain in the firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship as follows: "1. That the business of the partnership (hereinafter also referred to as "the firm") shall be continued to be carried on under the name and style of 'Balaji Enterprises' and/or such other name or names as the partners may from time to time agree upon. 2. That, after formation of the partnership, the partners have agreed to admit Master Anshuman Kanoria and Miss Divita Kanoria to the benefits of partnership with no obligation on the minors to suffer the losses of the firm. Sri Santosh Kumar Kanoria, father and natural guardian of the minors, has given his consent and approval to the admission of the minors to the benefits of partnership. 3. That the partnership has commenced on and from the 17th day of July, one thousand nine hundred and seventy-five and shall continue until determined by the partners by mutual consent.... 6(i) That the profits of the firm shall be divided between the parties and the said minors in the following manner: The party of the first part 40% The party of the second part 20% Master Anshuman Kanoria, minor, admitted to benefits of the partnership 25% Miss Divita Kanoria, minor, admitted to benefits of the partnership 15% 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. . . (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm." "The benefits of partnership in a firm" will not only be the right to get the share, of the profits of the firm but will also include other benefits which a minor may enjoy from his being admitted to the firm. The income by way of interest received by the minor was by virtue of a specific clause in the partnership, The minor as well as other partners were entitled to get interest on their accounts in the firm. This is a specific provision in the partnership deed and because the minors were admitted to the benefits of the partnership firm they were given this interest on their accounts. Another point has to be noted in this context. Any income which arises indirectly to a minor by virtue of admission to the benefits of the partnership firm will also attract the provisions of section 64(1)(iii). I shall now deal with the cases that were relied upon by the Tribunal. In the case of Addl. CIT v. Misrimul Sowcar [1979] 119 ITR 123, the Madras High Court examined the scope of section 64(iii) of the Incometax Act, 1961, as it stood before its amendment by sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partnership of the minor sons. The Supreme Court held (at p. 276) : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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