Decided on December 09,1982



George Cheriyan, Accountant Member - (1.) THIS appeal by the assessee relates to the assessment year 1978-79. In making the assessment of the assessee, an individual, the ITO included the interest received by four of his minor daughters, who were admitted to the benefits of partnership in a firm styled, Kottayam Printers & Publishers, in which the other partners were V.I. Joseph, maternal uncle of the appellant, K.I. Baby, brother of the appellant, and Miss Susy Joseph, daughter of V.I. Joseph. The interest paid to each of the minor children by the firm, which was included, is as under: INTEREST Name of the minor Current account Capital account Loan account Total Rs. Rs. Rs. Rs. Kum. Reeba John 1,331 900 720 2,951 Kum. Marina John 1,331 900 720 2,951 Kum. Susan John 1,331 900 720 2,951 Kum. Reena John 1,332 900 720 2,952 According to the ITO all that was required to be established was proximity of the admission to the benefits of partnership and the income derived therefrom. He held that there was a direct and close affinity and, therefore, the amount in question had to be included.
(2.) In appeal, the AAC referred to the decision of the Bombay High Court in CIT v. Chandanmal Kasturchand [1978] 112 ITR 296, relied on behalf of the assessee. He, however, referred to clause 7 of the partnerships deed which reads as under : "7. Each partner and the minors admitted to the benefits of the partnership shall be entitled to draw out of the partnership business any sum or sums of money not exceeding Rs. 500 per month for his or her own use, such sums to be duly accounted for on each succeeding settlement of accounts and division of profits of the partnership and any excess of the drawings found on such settlement shall he refunded." The AAC stated that the minors were entitled to draw only Rs. 500 per month and, therefore, the parties could not withdraw their accumulated profits and invest it anywhereelse and they were compelled to retain the accumulated profits in the firm itself and, hence, there was a proximity between the admission of the minors to the benefits of partnership and the receipt of interest. Therefore, according to the AAC, the provisions of Section 64(1)(iii) of the Income-tax Act, 1961 ('the Act'), were applicable and he dismissed the appeal. Before us, the assessee submitted that clause 7 of the partnership-deed dated 15-6-1970, which we have set out already, only enabled each of partner, including the minors, to draw out an amount not exceeding Rs. 500 per month irrespective of the fact whether there was a profit or not and this clause placed no restriction in withdrawing the profits when they accrued. He also placed reliance on the decisions of the Bombay High Court in the case of Chandanmal Kasturchand (supra) and CIT v. S.V. Nashte [1979] 119 ITR 130. According to him, there was no warrant for making any addition of the interest in the present case under the provisions of Section 64(1)(iii).
(3.) THE learned departmental representative relied on the commentary in relation to the provisions of Section 64(1)(iii) in Chaturvedi and Pithisaria's Income-tax Law, Third Edition, Vol. 2 at pp. 1845 and 1846, where there is a full narration of the case law for supporting aggregation. He also submitted that the minors were required to contribute capital in terms of clause 4 of the partnership-deed and since this was one of the conditions for admission to the benefits of partnership, at least so far as the interest relating to capital was concerned, the same was rightly added under the provisions of Section 64(1)(iii).;

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