- (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following three questions of law under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act" for the opinion of this court : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the investments made with the firm, M/s. Jahanganj Cold Storage, by the minors, Ajit Kumar and Sujit Kumar, were not on capital account but were mere deposits ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law, in holding that the interest derived by the minors, Ajit Kumar and Jahanganj Cold Storage was not as a result of their admission to the benefits of partnership and that it could not be included in the assessee's income under section 64(1) (iii) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in not upholding that the income derived from admission of the minors, Ajit Kumar and Sujit Kumar to the benefits of the partnership in the firm, M/s. Jahanganj Cold Storage, included the share in the profits of the said firm as well as the interest credited to the account of the aforesaid minors on their investments with the said firm ?"
(2.) The present reference relates to the assessment years 1977-78 and 1978- 79. The respondent-assessee is an individual. He is a partner in M/s. Ratan Cold Storage and M/s. Jahanganj Cold Storage. He has three minor sons, namely, Ajit Kumar, Sujit Kumar and Vaibhav Kumar, who are admitted to the benefits of the partnership in M/s. Jahanganj Cold Storage. Vaibhav Kumar has been admitted to the benefits of partnership in the firm, M/s. Ratan Cold Storage. In both the firms the assessee represents his Hindu undivided family in the capacity of "karta". Since the assessee had no income in the capacity of an individual, he had been regularly filing his returns and was being assessed as a Hindu undivided family. The minors were being assessed separately. For the assessment years in question the assessee filed his return in the status of individual also. For the assessment year 1977-78, the income returned by him was the income earned by the minors, Ajit Kumar and Sujit Kumar, from M/s. Jahanganj Cold Storage and Vaibhav Kumar from M/s. Ratan Cold Storage. Agricultural income was also returned. In Part III of the return the assessee claimed that the income returned did not arise from the admission of the minors to the benefits of partnership and as such it was not liable to be included under section 64 of the Act. For the assessment year 1978-79, the return was filed showing "nil" income. A note was given in the return to the effect that the assessee's minor sons were admitted to the benefits of partnership in two firms, which had been shown in the statement accompanying the return, which should be considered in case section 64 was held to be applicable. The Income-tax Officer completed the assessment for both the years by including the profits and interest paid to the minors.
(3.) Thereupon the assessee came up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the interest received by the minors, attributable to the initial investment made in the firm, was not includible in the assessee's total income under section 64(1)(iii) of the Act.;