Balabhadra Seetharatanam vs Commissioner of Income Tax

Upendralal Waghray, J.—This is a reference u/s 256(1) of the Income Tax Act at the instance of the assessee and the following question is referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the interest income of Rs. 3,418 accrued on the capital account of the minor, Sri B. Srinivasa Rao, is includible in the hands of the assessee u/s 64(1) of the Income Tax Act, 1961 ?"

The assessment year in question is 1976-77 during which the minor son of the assessee was admitted to the benefits of a partnership firm. The controversy is whether the interest income of Rs. 3,418 on the capital of the minor is liable to be included in the taxable income of the assessee under the provisions of section 64(1)(iii) as it stood then, which, so far as it is relevant reads as follows :

"64. Income of individual to include income of spouse, minor child, etc. - (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."

The order of the Income Tax Officer including the said income was confirmed in appeal and also on further appeal by the Tribunal.

According to learned counsel for the assessee, after the amendment of section 64(1) in 1975 (w.e.f. 1-4-1976), the action of the authorities in following the decisions under the earlier provisions is not correct. He has sought to distinguish the decision in AKULA VENKATASUBBAIAH Vs. COMMISSIONER OF Income Tax., . Further, as the terms of the partnership do not oblige any partner to make a contribution towards capital account of the minor cannot be included in the assessee''s income. The amount of the minor in the capital account should be treated as deposit.

We are unable to see any material difference by the 1975 amendment (w.e.f. 1-4-1976) on this question. The income which arises directly or indirectly to a minor child of the assessee from its admission to the benefits of a firm is liable to be included in the assessee''s income. In fact, the 1975 amendment (w.e.f. 1-4-1976) has made the effect of the clause wider in scope. The Tribunal has, on a consideration of the material, found that there is no evidence to prove that the amount contributed by the minor to the firm was by way of loan or deposit. It also drew an inference from the circumstances that only because of such contribution of capital, the minor was admitted to the benefits of the partnership and the income arouse because of his being admitted to the benefits of the partnership. The findings cannot be said to be unjustified. In view of the findings, the Tribunal was right in including the said income.

The question referred is, therefore answered in the affirmative, i.e., against the assessee and in favour of the Revenue. No costs.