High Court of Judicature at Allahabad
Case Law Search
Smt. Bhagwati Devi v. C.I.T. - INCOME TAX REFERENCE No. 26 of 1982  RD-AH 659 (26 August 2004)
I.T.R. No. 26 of 1982
I.T.R. No. 219 of 1983
Smt.Bhagwani Devi, Bareilly .............................Applicant
The Commissioner of Income Tax , Lucknow ..........Respondents
Hon'ble R.K.Agrawal, J.
Hon'ble K.N.Ojha, J.
( Delivered by R.K.Agrawal, J)
In both these references the Income Tax Appellate Tribunal, Delhi has referred the following questions of law under section 256 (1) of the Income Tax Act, hereinafter referred to as the Act, for opinion to this Court.
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest credited to the account of the minors in the books of the firm was includible in the total income of the assessee as per section 64(i)(iii) ?"
The reference relate to the assessment year 1976-77 and 1977-78.
There is a firm called M/s Bansi Dhar Brij Mohan, Marwari Gunj, Bareilly. There are three partners in this firm namely Sarvashri Bansi Dhar, Brij Mohan and Subhash Chandra. This firm was reconstituted vide partnership deed dated 22.2.1971. At the time of reconstitution, three minors Sarvashri Krishan Kumar, Satish Kumar and Manoj Kumar were admitted to the benefits of partnership in the firm. Krishan Kumar and Satish Kumar are minor sons of the assessee.
Shri Krishan Kumar maintained an account with the aforesaid firm. The account in the year under reference started with an opening balance of Rs. 1,39,094/-. Besides certain credit and debit entries, it was also credited with the interest of Rs. 5,348/- and profit of Rs. 7,689/- falling to his share in the firm. The closing balance stood at Rs. 1,51,746/-. Similarly, Satish Chander also maintained an account with the firm. This started with an old balance of Rs. 1,43,321/-. There were certain credits and debits in this account also besides credits for interest of Rs. 5,593/- and profit of Rs. 7,689/-. The Income Tax Officer acting u/s 64(1)(iii), Income Tax Act, 1961, as substituted by the Taxation Laws (Amendment) Act 1975 w.e.f. 1.4.1976 included in the assessment of the assessee not only the shares falling to the above minors in the firm of Bansi DharBrij Mohan but also the interest credited to their respective accounts. He rejected the assessee's contention that the interest did not fall under the above section.
In the appeal filed before the Appellate Assistant Commissioner, the Appellate Assistant Commissioner has held that the interest credited to the account of the minor could not be included in the assessment of the assessee under section 64 (i)(iii) of the Act.
Feeling aggrieved by the order of the Appellate Assistant Commissioner the assessee preferred an appeal before the Tribunal. The Tribunal after considering the contention of the parties concluded that the accounts of the minors represented their capitals invested by them in the firm and there was no escape from the conclusion that the interest in those accounts was also income arising directly or indirectly from the admission of the minors to the benefits of the partnership in the firm. The Tribunal, therefore, held that the interest credited to the accounts of the minors could legally be included in the assessment of the assessee. Consequently the Tribunal had allowed both the appeals.
We have heard Shri Vikram Gulati, learned counsel for the applicant and Shri A.N.Mahajan,learned counsel for the revenue.
Learned counsel for the applicant submitted that since there was no obligation on the minors to contribute any capital in the partnership deed dated 22.2.1971, the interest could not said to have been arisen to the minor from their admission to the benefits of the partnership in the aforesaid firm. He relied upon the following decision :-
1. Commissioner of Income Tax vs. Smt.Triveni Devi, (1971) 81 ITR 511 (Alld).
2. C.I.T. Vs. S.V.Naste 1979 (119) ITR 130 (Bombay)
Shri A.N.Mahajan, learned counsel for the Revenue, however, submitted that in view of the amendment made in Section 64(i)(iii) of the Act by Taxation Laws Amendment act, 1975 w.e.f. 1st April, 1976 which is applicable for the assessment years in question namely 1976-77 and 1977-78 the income which arises directly or indirectly to a minor who has been admitted to the benefits of the partnership firm is liable to be included. He relied upon the following decisions :
1. Pushpa Devi Vs. C.I.T. (1993) 203 ITR 42 Alld.
2. C.I.T. Vs. Shri Ram Ratan (1996) 217 ITR 692 Alld.
3. C.I.T. VS. Smt. Savitri Devi (1977) 227 639 Alld.
4. C.I.T. VS. Subhash Chand, Farrukhabad (I.T.R. No.217/83 decided on 3.8.2004 by this Court).
Having heard the learned counsel for the parties we find that the Tribunal after examining the copies of the accounts of the minors in the firm of Bansidhar Brij Mohan had come to the conclusion that it is clear that the accounts were old and have been carried forward from time to time . In the previous years also there were debit and credit to their accounts besides credits for the interest and the profits arising to the minors from their admission to the benefits of the partnership in the firm and/or relate in the nature of capitals. After considering Clause 5 and 6 of the partnership deed it had concluded that even though there is no obligation on the part of the minors to contribute any capital in the firm but at the same time there is also no bar on them and any account which stand to their credits or debit, they shall be entitled to the interest at the rate of 8 Annas per month on their respective balance in the books of partnership. The decision of the Bombay High Court in the case of S.V.Naste had been distinguished on the ground that in the said case it was found as a fact that the money invested by the minors was not in any way related to their admission to the benefits of the partnership. In the case of Smt.Triveni Devi , this Court has held that the interest paid to the assessee minors sons by the firm could not be included in the assessment of the year under section 64 (ii) of the Act as no connection had been established by the authorities between the partnership and the income of the minors and it had been found that the money brought in by the minors was not in the nature of capitals. In the present case as already mentioned hereinbefore the Tribunal has found as a fact that the money brought in by the minors was in the nature of capital.
Section 64(1)(iii) of the Act is reproduced below :
"64. Income of individual to include income of spouse, minor child, etc.
(ii) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly---
(i) ... ... ...
(ii) ... ... ...
(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm;"
This Court in the case of Subhash Chandra (supra) has held as follows :
"The income earned on the deposits made by a minor in the firm would also be covered under the phrase ''such income as arise directly or indirectly'. This Court in the case of Puspa Devi (Supra) has held that the income arising to minor sons of the assessee as a result of admission to the benefits of a partnership firm is liable to be included in the total income of the assessee under Section 64(1)(iii) of the Act. Similar view has been taken by this Court in the case of Commissioner of Income Tax Vs. Sri Ram Ratan (1996) 217 ITR 692 and Commissioner of Income Tax vs. Smt. Savitri Devi (1997) 227 ITR 639."
We are in respectful agreement with the view taken by the Court in the aforementioned cases and therefore hold that the Tribunal was justified in holding that the interest credited to the accounts of the minor in the books of the firm was includible in the total income of the assessee as per Section 64 (1) (iii) of the Act.
In view of the foregoing discussion, we answer the question of law referred to us in the affirmative i.e. in favour of the revenue and against the assessee. However, the parties shall bear their own costs.
Double Click on any word for its dictionary meaning or to get reference material on it.