- (1.) THE assessee, Shri Rukmanand Kedia, was a partner of a firm, Messers. Nathu Ram Harakh Chand. His son, Vishnu Kumar, a minor, was admitted to the benefits of partnership in the firm. Assessment proceedings for the year 1960 -61 were taken against the assessee as an a sum of Rs. 13,188 received by the son from the firm. This amount included a sum of Rs. 5,791 credited to the account of the son by way of interest. The Appellate Assistant Commissioner, upon appeal by the assessee, excluded the amount of interest from the income of the assessee. The Income Tax Appellate Tribunal endorsed the view taken by the Appellate Assistant Commissioner. It found that the sum of Rs. 5,791 represented interest earned by the son on the capital contributed by him. At the instance of the Commissioner of Income Tax, the Tribunal has referred the following question to this court for its opinion : "Whether the sum of Rs. 5,791 being interest earned by the minor son of the assessee on the capital subscribed by him in the firm in which the assessee is also a partner, is liable to be included in the total income of the assessee under Sec. 16(3)(a)(ii) ?"
(2.) THE provisions of Sec. 16(3)(a)(ii) are as follows : "16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included : (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly... (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner;..."
(3.) IT is clear that any income of a minor child of an assessee which can be attributed to the admission of the minor to the benefits of partnership in a firm of which the assessee is a partner must be included in the total income of that assessee. The income must arise by reason of the admission of the minor to the benefits of the partnership and the income may arise directly or indirectly from such admission. The legal position has been closely analysed by a Bench of this court, of which one of us was a member in L. Ram Narain Garg v/s. Commissioner of Income Tax and it has been held that where interest accrues upon capital introduced in the partnership firm by a minor admitted to the benefits of partnership, such interest is income which has arisen from the admission of the minor to the benefits of partnership. The decision in L. Ram Narain Garg's case was noticed with approval by the Supreme Court in S. Srinivasan v/s. Commissioner of Income Tax. In our opinion, there can be no dispute that the Income Tax Officer was plainly right in including the sum of Rs. 5,791 in the total income of the assessee. The partnership in the instant case was governed by a partnership deed executed on November 8, 1954. Paragraph 4 of that deed recites that the partners by mutual agreement had admitted Vishnu Kumar to the benefit of partnership. And paragraph 5 states that interest at 6 per cent. will be paid by the firm on the capital outstanding to the credit of the partners accounts. The interest credited to the account of the son was in respect of the capital contributed by him. The capital was introduced by him by reason of his being admitted to the benefits of partnership, and the interest accruing thereon must be held to arise from his admission to such benefits.;