Law:

Section:

Section 64 of the Income-tax Act, 1961 (Corresponding to section 16(3)(a) of the Indian Income-tax Act, 1922) - Transfer of assets - For benefit of spouse or minor child - Assessment year 1958-59 - After partial partition of HUF, business of HUF was carried on by a firm constituted by assessee and his major son and, his minor sons were admitted to benefits of partnership - Tribunal found that minors had contributed capital to firm and had earned interest on account of being admitted to benefits of partnership - Whether share income earned by minor sons of assessee from said firm was liable to be included in total income of assessee under section 16(3)(a)(ii) of 1922 Act - Held, yes FACTS After partial partition of business of Hindu undivided family, the assessee/(father) and, his major son formed a partnership in respect of said business and the business assets were agreed to be retained in the partnership as capital. Three minor sons of the assessee were admitted to the benefits of partnership. As per partnership deed, the capital subscribed by the partners was to carry interest at the rate of 6 per cent per annum. By virtue of section 16(3)(a)( ii), the Income-tax Officer included in the assessment of the assessee for the assessment year 1958-59, the share incomes of the minor sons including the interest which was credited to their respective capital accounts in the firm's account books. On appeal, the Appellate Assistant Commissioner deleted the interest income from assessment. On cross appeals, the Tribunal reversed the order of the Appellate Assistant Commissioner and restored the order of Income-tax Officer. On reference: HELD The Tribunal came to the conclusion that the minors had contributed capital to the firm and had earned interest on account of being admitted to the benefits of the partnership. In that view of the matter and following the decision of Assam High Court in Chowthmal Kejriwal v. CIT [1961] 41 ITR 570, the share income of the minors was rightly included in the income assessed in the hands of the assessee under section 16(3)(a )(ii). Note : The decision was in favour of the revenue. CASE REFERRED TO Bhogilal Laherchand v. CIT [1954] 25…

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