Sikri, J. - (1.) Two questions were referred to the High Court of Judicature of Assam and Nagaland, under section 66(2) of the Income Tax Act, 1922, by the Income-tax Appellate Tribunal, Calcutta Bench "A" :"(1) Whether, under the facts and circumstances of the case, the share income of the minor son from the three firms is liable to be included in the assessment of the father under section 16(3)(a)(iv) (2) Whether in view of the fact that there was no contribution of any sum in the Galla and Calcutta firms by the minoe son out of the gift money from the father, the share income from those two firms is liable to be included in the assessment of the father under section 16(3)(a)(iv) -
(2.) These questions arose out of the following facts : The respondent, Jwalaprasad Agarwala, hereinafter referred to as "the assessee", was a partner in Messrs. Onkarmal Jwalaprasad. He divided the balance of his capital account as partner in the books of that firm in four equal parts and made a gift of a sum of Rs. 74,721 to each of his four minor sons in July, 1953. During the accounting year relevant to assessment year 1959-60, three of his sons had attained majoprity and the fourth son, Parmeshwar Agarwala, was still a monor. Parmeshwar Agarwala has been admitted to the benefits of the partnership in the three firms : (1) Jwalaprasad Mulchand, Dhubri, (Assam) - hereinafter referred to as "the Dhubri firm", (2) Jwalaprasad Mulchand (Galla Dept.) Dhubri (Assam) - hereinafter referred to as "the Galla firm", and (3) Jwalaprasad Mulchand, Calcutta - hereinafter referred to as :the Calcutta firm." The sum of Rs. 74,721 gifted to the minor was invested in the Dhubri firm. Apparently the partnership deed did not make it a condition precedent that that the partners should contribute any capital although it was provided that the partners could lend money to the firm and would be entitled to interest at 4 1/2%. These three firms made a profit during the relevant year and the minors share came to Rs. 22,476. The Income-tax Officer included this sum in the income of the assessee for the assessment year 1959-60.
(3.) The assessee appealed to the Appellate Assistant Commissioner and contended : (1) that only the interest on the original gift money and not the entire credit balance of Parmeshwar Agarwala with the firms should have been included in the appellants assessment under section 16(3)(a)(iv); and (2) that, in any event, the amount of Rs. 22,476 should have been treated as earned income on which special surcharge could not be levied. The appellate Assistant Commissioner rejected the first contention on the ground that "since the accumulation of share of profits and interest accrued to the appellants son in view of his investment of capital received as gifts from the appellant, I think it will be reasonable to hold it as an asset transfered by the appellant to the son "indirectly". He accepted the second contention but we are not concerned with this point.;