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Sri Anand Swarup Agrawal v. cit - INCOME TAX REFERENCE No. 239 of 1984 [2004] RD-AH 1209 (26 October 2004)


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Court No.37

I.T.R. No.239 of 1984

Shri anand Swarup Agarwal v. The Commissioner of Income Tax,  Lucknow

Hon'ble R.K.Agrawal, J.

Hon'ble Prakash Krishna, J.

The Income Tax Appellate Tribunal, New Delhi referred the following question of law under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this Court:

"Whether on the facts and in the  circumstances of the  case, interest income of the minor son Vishal Swarup from the firm was includible in the hands of the assessee under section 64(1)(iii) of the Income-tax Act, 1961?"

Briefly stated the facts giving rise to the present Reference are as follows :-

The applicant is an individual.  He was deriving income from shares in certain firms and his minor son Vishal Swarup was deriving income from the admission to the benefits of partnership in M/s. Swarup Agro Machinery Manufacturing Co. The minor son was also receiving interest from the above firm.  While making the assessment the Income-tax Officer included the minor's share in the above firm and also interest received by him from the above firm. The Appellate Assistant Commissioner had upheld the order of the Income-tax Officer.  Further the appeal filed by the applicant before the Tribunal has failed.

We have heard Sri Shambhu Chopra, learned counsel for the Revenue.

Learned counsel for the Revenue submitted that the Tribunal has found as a matter of fact that the business was of motor vehicle financing and other financing business and that the credit in the account of the firm had come along with the benefits of the partnership in 1973.  Clauses (5) and (6) of the partnership deed provide that the credit balance shall be entitled to interest and the interest to be allowed shall be deducted before determining the net profit or loss which is to be distributed amongst the partners.  In view of these  circumstances and the provisions of the partnership deed, the Tribunal had held that the income from interest was arising to the minor from his admission to the benefits of partnership and there was nexus between the income and the admission to the benefits of partnership.  It may be mentioned here that under Section 64(1)(iii) of the Act all the income which arises directly or indirectly to a minor or the admission to the benefits of the partnership firm is liable to be included in the hands of either parent.  In the present case as the Tribunal has found that the interest income earned by the minor was as a result of his admission to the benefits of the partnership and there was clear nexus between the income and the admission to the benefits of partnership, the Tribunal was justified in upholding the order passed by the Income-tax Officer.

In view of the foregoing discussion, we answer the question referred to us in the affirmative i.e. in favour of the Revenue and against the assessee.  However, there shall be no order as to costs.




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