JUDGMENT
Arijit Pasayat, C.J.
1. In these two references, one each at the instance of the assessed and another at the instance of the Revenue, under Section 256(1) of the Income-tax Act, 1961 (in short, “the Act”), the following questions have been referred by the Income-tax Appellate Tribunal, Delhi Bench (in short, “the Tribunal”), for the opinion of this court:
“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that interest on the two amounts of Rs. 95,000 and Rs. 96,001 lying in the accounts of the two minors, Shri Roop Kishore and Shri Satish Chand Rastogi, respectively, in the partnership firm of Satish Chand Trilok Chand was not includible in the hands of the assessed under Section 64(1)(iii) of the Act of 1961 for the assessment year 1976-77 ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in sustaining the inclusion of the interest in the hands of the assessed on the balance amount of Rs. 53,237 in the account of Shri Satish Chand Rastogi with the said partnership firm of Harish Chand Trilok Chand under Section 64(1)(iii) of the Act of 1961 for the assessment year 1976-77 ?”
The dispute relates to the assessment year 1976-77.
2. The factual position is almost undisputed and is as follows :
For the assessment year in question, the previous year ended on July 11, 1975. In the return of income, the assessed included the share income of her
two minor sons, Roop Kishore and Satish Chand, from the partnership firm, Harish Chand Trilok Chand, amounting to Rs. 7,038 each. The assessed also filed a copy of the assessment order of the said firm according to which the income of the two minor sons was determined as under :
Name of partner
Profit
Interest
Total
Roop Kishore
7,140
23,578
30,718
Satish Chand
7,140
23,256
30,436
The assessed’s stand before the Income-tax Officer was that since the minors were only admitted to the benefits of partnership on a capital of Rs. 5,000 each, only the share income and interest attributable to the capital contributed by the two minors could be assessable in the hands of the assessed under Section 64(1)(iii) of the Act. It was also contended that the amount over and above the stipulated capital was entirely independent and was either a loan or credit balance in the current account and no part of the interest relatable to loan or current account could be included in the income of the assessed under Section 64(1)(iii) of the Act. The Income-tax Officer rejected the contention and held that Section 64(1)(iii) covered both the situations projected by the assessed. He, therefore, included the entire interest income in the hands of the assessed. The matter was carried in appeal before the Commissioner of Income-tax (Appeals). The said authority held that the assessed was required to submit a copy of the accounts of her two minor sons from the books of account of the firm and from the details available, it was clear that the two minors had a single capital account for each of them in the firm and they had no loan or deposit account in their names in the said firm and the details of the accounts of the two minors showed that the credits in their account from July 12, 1972, onwards related to interest and profits received by them from the aforesaid firm, to the benefits of which they had been admitted. Accordingly, the additions made by the Income-tax Officer were upheld. The assessed preferred an appeal before the Tribunal taking various grounds. The Tribunal came to hold that the interest amounts credited to the accounts of the two minors on July 11, 1975, the interest relating to the deposit amount of Rs. 95,000 relating to the deposit of Roop Kishore and Rs. 96,001 in the case of Satish Chand was to be excluded. The two amounts transferred from their accounts to the firm of Harish Chand Trilok Chand would constitute either loans advanced by them or deposits made by them. The same could not be treated as additional capital because it was not required to be done in terms of the deed of partnership. Further, it was noted that had these amounts continued to be with Jogdhian Trilok Chand it would have earned interest which would not attract Section 64(1)(iii) of the Act. However, the position was different in respect of the opening credit balance in the accounts of the two minors as on June 22, 1974. The accumulation of capital, profit and interest remaining with the firm is different from the deposits made and the loans advanced.
3. Accordingly, the Tribunal held that the interest on the balance amount of Rs. 83,287 and Rs. 84,444 was rightly included in the hands of the assessed under Section 64(1)(iii) of the Act. The assessed’s appeal was partly allowed.
4. Both the assessed and the Revenue made requests for reference of the questions which have been referred for the opinion of this court. The first question is at the instance of the Revenue and the second question is at the instance of the assessed.
5. We have heard learned counsel for the parties. According to learned counsel for the assessed, within the scope of Section 64(1)(iii) interest on the balance amount was not to be included. According to learned counsel for the Revenue, interest on the sums by way of deposit clearly falls within Section 64(1)(iii). Therefore, the Tribunal was not correct in its view.
6. The scope of Section 64(1)(iii) came to be considered by this court in Radhey Shyam Dalmia v. CIT [1992] 195 ITR 667. The apex court had the occasion to deal with the ambit of Section 64(1)(iii) in S. Srinivasan v. CIT [1967] 63 ITR 273. A bare reading of the provision makes it clear that any interest which is received on accumulated profits would be relatable to the minors admitted to the benefits of the partnership. It is only if by an independent volition on the part of the minors or their guardians the accumulated profits are imparted with the character of a deposit or a loan and interest is earned thereon, that such an income would escape from being assessed in the hands of the father or mother as the case may be. If any income arises to the minor as a result or in consequence of the partnership, whether it be in the form of a share of profit, commission, fee or even interest, the same would be assessable in the hands of the father or the mother, as the case may be, but if there is an independent agreement de hors the partnership agreement, whereby a loan is advanced by a minor to the partnership concern in which he has been admitted to the benefits of the partnership, then that interest would not be liable to income-tax in the hands of the father or mother as the case may be. To put it differently, there has to be a nexus between the income of the minor, and his admission to the benefits of the partnership.
7. The above being the position, both the questions are answered in affirmative, the first one in favor of the assessed and the second one in favor of the Revenue. References are disposed of.