DIVAN,J. - (1.) THIS reference has been made by the Tribunal at the instance of the CIT under the provisions of the IT Act, 1961 (hereinafter referred to as the Act). The question referred to us is as follows : "Whether, on the facts and in the circumstances of the case, the interest income of Rs. 5,002 earned by the minor son of the assessee on the amount standing to his credit in the firm of M/s Central Watch Co. was includible in the assessment of the assessee under S. 64(ii) of the IT Act, 1961 ?"
(2.) THIS reference arises under the following circumstances : The assessee is an individual. The relevant assessment year is 1962 63, the previous year being S.Y. 2017, i.e., October 21, 1960, to November 8, 1961. The assessee is a partner in a partnership firm called M/s Central Watch Co. which carries on business in Ahmedabad. Prior to November 14, 1958, a business in the name of Central Watch Co. was being conducted by an HUF and the assessee was the Karta of that HUF. On November 14, 1958, the joint family consisted of the assessee himself, his wife, Sulochana, his major son, Suresh, and his minor son, Hemendra. On November 14, 1958, there was a partial partition of the business amongst the assessee and other members of the HUF. The family itself continued to be joint with reference to the other assets belonging to the family. A sum of Rs. 2,15,902 stood to the credit of the assessee in his capacity as the Karta of the HUF so far as the books of the business were concerned. Out of this amount, an amount of Rs. 2 lakhs was divided between the assessee, his wife, Sulochana, and his two sons. Out of this amount of Rs. 2 lakhs, an amount of Rs. 57,500 was allotted to Sulochana and the balance was divided between the assessee and his two sons, each of these three individuals getting Rs. 47,500. On November 15, 1958, the assessee and his major son, Suresh, started a partnership firm to carry on the same business in the same name and style. The minor son, Hemendra, was admitted to the benefits of the partnership. The capital which formerly belonged to the HUF, was divided amongst the various members and it continued to be invested in the business of the firm. That is the finding available on the record of this case and that finding of the AAC had not been disputed by either side before us. It, therefore, follows that the amount of Rs. 57,500 which was allotted to Sulochana, also continued with the partnership firm, though Sulochna herself did not joint the firm as a partner; and the amount of Rs. 47,500 which was allotted to the assessee and his two sons each also remained in the business of the firm. It may also be pointed out that the amount of Rs. 2 lakhs, which was thus divided amongst the four members of the family, was not available with the business in cash but was represented by the assets of the business. It is clear that so far as the present judgment is concerned, no different arises because of the fact that this was assets and not cash. On November 15, 1958, a partnership deed was executed and it was agreed between the parties that the business should be deemed to have started w.e.f. November 12, 1958, that being the first day of Kartak Sud, S.Y. 2015, i.e., commencement of S.Y. 2015. Under cl. 6 of the partnership deed interest at 6 per cent p.a. was be paid on the amount, if any, standing to the credit of the partners. Over and above the amount of interest which was credited in the account of minor Hemendra in respect of the amount of Rs. 47,500 standing in his credit in his account, his share in the profits of the firm was also credited in his account; and it appears from what has been found by the Tribunal and the taxation authorities that the profits accumulated in his account and in the relevant assessment year, i.e., asst. year 1962 63 previous year being S.Y. 2017, an amount of Rs. 14,055 was credited in the account of Hemendra as his share of the profit and another sum of Rs. 5,002 was credited to Hemendra's account as interest at 6per cent p.a. on the amount standing to his credit. There is no dispute between the assessee and the Department that the profit of Rs. 14,055 should be included in the income of the assessee for the purpose of asst. year 1962 63 but the question in whether the amount of Rs. 5,002 credited to the account of the minor as interest should also be included in the total income of the assessee for the purpose of assessment. The liability to assessment of this income arises under S. 64, clause (ii), of the Act and that section is in these terms : "64. In computing the total income of any individual, there shall be included all such income as arises directly or indirectly ........... (ii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner;..............." It may be mentioned that S. 64(ii) of the Act is in identical terms with S. 16(3)(a)(ii) of the IT Act, 1922; and, therefore, the decisions interpreting S. 16(3)(a)(ii) of 1922 Act have a direct bearing on the interpretation of S. 64(ii) of the Act.
(3.) IT was urged before us in the instant case on behalf of the assessee that the Tribunal has found in favour of the assessee and has found as a matter of fact that the amount of Rs. 47,500 belonging to the minor was brought in the partnership as a deposit on behalf of the minor; and it was, therefore, urged that this finding of fact by the Tribunal should not be interfered with by the High Court. It was in terms held by Tribunal that the amount standing to the credit of Hemendra represented his advance to the firm. Now, it is true that, if a finding of fact is reached by the Tribunal on the facts of a particular case, that finding must be challenged by the taxation authority, if they want the High Court to arrive at a different conclusion. In the instant case, there has been no such challenge by the Department to this particular finding of the Tribunal but at the same time it must be borne in mind that when the Tribunal records a finding that a particular amount was advanced by a particular individual to a partnership firm, or on the other hand in another case, that it was given by way of capital contribution of the particular partnership firm, such finding is as mixed finding of law and fact because legal concepts have to be considered and applied for deciding whether a particular amount was paid by way of deposit or advance or, on the other hand, as a capital contribution. This particular finding in the instant case that the amount standing to the credit of Hemendra represented his advance to the firm, is, therefore, a finding on a mixed question of law and fact and though it has not been specifically challenged by the Department, it is open to us to examine the question for ourselves and find out whether, in view of the correct legal principles applicable to the facts and circumstance of this case, it was in fact an advance or not.;