COMMISSIONER OF INCOME TAX Vs. GANESHI LAL

JUDGEMENT

(1.) THESE are two references under Section 66(1) of the Income-tax Act and they can be conveniently dealt with together. The assessee in both these cases is one Sri Ganeshilal in his capacity as an individual. In I.T.R. No. 280 of 1965, the proceedings relate to the assessment year 1957-58, whereas in I.T.R. No. 356 of 1967 they relate to the assessment years 1958-59 and 1959-60.

(2.) THE assessee, Ganeshilal, was karta of a joint Hindu family consisting of himself, his major son, Ram Charan, and a minor son, Ram Gopal. On 21st April, 1956, there was a partition in the family whereby certain assets shown in the books of the family were divided. THE members agreed to divide the immovable properties belonging to the family through arbitration. THE assets divided concerned the family business in cloth and banking. On the following day, i.e., on 22nd April, 1956, L. Ganeshilal, his wife, Kasturi Devi, and their major son, Ram Charan, entered into partnership and started a firm by the name, Messrs. Lalji Mal Tika Ram. THEy also admitted the minor son of L. Ganeshilal, Ram Gopal, to the benefits of the hrm. THE new partnership took over the banking and the cloth business that was being carried on by the joint family. At the time of partition, the family business assets aggregating to Rs. 5,76,390 were equally divided amongst the members of the family, each of them getting Rs. 1,44,097-8-3. In addition, cash amounting to Rs, 33,837-10-0 was also divided amongst the members, each getting Rs. 8,459-2-6. On the commenccment, of the partnership, Lala Ganeshilal introduced a sum of Rs. 1,42,514-9-0, Smt. Kasturi Devi introduced a sum of Rs. 1,44,214-9-0, Ram Charan introduced a sum of Rs. 1,70,683-11-0 and the minor. Ram Gopal, introduced a sum of Rs. 1,44,214-9-0 from out of the assets received by them at the time of partition of the family business. Each of them further introduced a sum of Rs. 8,000 from out of the cash received by them. It was agreed that the three partners and the minor admitted to the benefits of the firm would get interest, not exceeding 6% per annum as the partners may from time to time think proper, on the amount for the time being standing to the credit of the members. Interest was to be allowed whether the partnership made any profits or not and on any sum which for the time being stood to the debit of the partner, the firm was to charge interest at the same rate. THE amounts introduced by the three partners and the minor were brought into the books of the firm on the opening day, i.e., on 22nd April, 1956. During the assessment years in question, amounts by way of interest calculated on the credits outstanding in the names of the partners and the minor were credited in their accounts. THE Income-tax Officer added the interest earned by Smt. Kasturi Devi, the wife, and Ramgopal, the minor son of the assessee in his individual income under the provisions of Section 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922.

(3.) " Whether, on the facts and circumstances of the case, the sums of Rs. 4,838 and Rs. 4,958 being interest earned respectively by Kasturi Devi, wife of the assessee, and Ramgopal, minor son of the assessee, on the respective amounts standing to their credit in the firm, Messrs. Lalji Mal Tika Ram in which the assessee is a partner are liable to be included in his total income under Section 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922?"