S SRINIVASAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a partner in a firm called Anjaneya Motor Transport along with his wife and another stranger. His two minor sons, Murali and Mohan, were admitted to the benefits of the partnership even on the date of its constitution on 17th September, 1951. One of the terms of the partnership deed provided that "if the firm requires any sum for meeting the expenses for its management and if any of the partners has and is willing to agree to give such amount, he may advance (such amount) as loan. He may receive interest for such sum at the rate of 12 annas per cent. per mensem." *Based on the above provision the interest on accumulated profits was credited for the first time in the previous year ending 30th September, 1956. THE amounts standing to the credit of the assessee's wife and his two minor sons as on October 1, 1955, on capital and current accounts were as underCapital Currentaccount accountRs. RsShanbagammal (assessee's wife) 750 65, 662Murali (assessee's minor son) 900 59, 938Mohan "".750 65, 662On September 30, 1956, the amounts standing to the credit of the capital accounts of the above persons were transferred to their respective current accounts. With the share income and the interest allowed by the firm for the year ended September 30, 1956, and certain other sums their current accounts stood as underRsShanbagammal 1, 28, 623Murali 1, 31, 808Mohan 1, 27, 446On October 2, 1956, a fresh partnership was constituted between the assessee, his wife and four others. His three minor sons, Murali, Mohan and Kasturi Rangan, were admitted to the benefits of the partnership.

(2.) THE partnership was to carry on the business hitherto carried on by the earlier partnership constituted under the partnership deed dated September 17, 1951. THE credit balances in the accounts of the wife and the two minor sons of the assessee in the earlier partnership accounts were carried over into the accounts of the new partnership. While doing so certain sums had been transferred from their credit balances to their respective capital accounts in the new partnership firm. One of the clauses in the new deed of partnership dated October 2, 1956, was as follows "THE above capital will not bear any interest. If there is any credit balance either in the account of the partner or in the accounts of the minors over and above capital contribution, it shall bear interest as decided from time to time and such expenses shall be debited to the profit and loss account." *In the previous year ending September 30, 1956, when the partnership was governed by the deed dated September 17, 1951, the following sums by way of interest were credited to the current account of the wife and the two minor sons in the books of the firm and these interest amounts were included in the assessee's total income by the Income-tax Officer under section 16(3)(a)(i) and (ii) of the Indian Income-tax Act of 1922. THE said inclusion was challenged by the assessee. This court in S. Srinivasan v. Commissioner of Income-tax held that the interest credited arose directly from the membership of the wife in the firm and the admission of the minor sons to the benefits of the partnership, and, therefore, such interest had to be included in the total income of the assessee.