JUDGMENT - Chagla, C.J.

1. The question that arises on this reference is a very simple one and not capable of much elaboration. The assessee started a partnership business along with his major son and he admitted to the benefit of this partnership his two minor sons. In the assessment year 1950-51 the share of the profit of each of the minors came to Rs. 1,05,077 and this amount was included in the income of the assessee under the provisions of Section 16(3)(a)(ii). Each of the minors also received interest in the sum of Rs. 43,210 on deposits which stood to their credit in the firm, and the question that we have to consider is whether the interest which the minors received could be included in the income of the assessee under the provisions of Section 16(3)(a)(ii).

2. Now, what Section 16(3)(a)(ii) requires is that a minor must be admitted to the benefits of the partnership in a firm of which the assessee is a partner and income must arise either directly or indirectly to the minor from his admission to such a partnership. Therefore there must be a connection between the income and the admission of the minor to the partnership. The connection need not be direct; it may even be indirect. We have to look to the partnership deed in order to determine whether there was a connection direct or indirect between the interest received by the minors on the deposits and their admission into the partnership. For this purpose the relevant clause in the partnership deed is clause 3 and that clause provides :-

"Interest at the rate of six per cent. per annum shall be paid to each partner on the moneys for the time being standing to his credit out of the gross profits of the business and such interest shall be cumulative so that any deficiency in any one year shall be made up out of the gross profits of any succeeding year or years."

3. It is significant to not that this clause does not case any obligation upon the minors to maintain any deposit in the firm. It is equally significant that this clause does not cast any obligation upon the firm to keep any deposits made by the minors. Therefore it is optional on both sides, on the side of the depositor and on the side of the depositee, Whether to have deposits or not. All that clause 3 does is to fix the rate of interest and it casts an obligation upon the firm to pay interest at the rate of 6 per cent. if there are any deposits or any moneys standing to the credit of the minor.

4. Mr. Joshi has relied on clause 6 for the purpose of contending that although the minors may withdraw their moneys there is an obligation upon the firm to keep the moneys. Now, clause 6 provides for the making up of accounts and it goes on to provide that the profits coming to the share of each partner shall be credited to his account with the partnership. Mr. Joshi reads this expression to mean that if there is any profit, then it is obligatory upon the firm to keep that profit in the partnership and pay interest on it. In our opinion it is impossible to accept that contention. All that clause 6 deals with is book-keeping and the making of proper entries. The only obligation upon the firm is to credit to the account of the partners their share of the profits. But there is no further obligation, after having credited the share in the profits, to retain that share and to pay interest under clause 3.

5. If therefore this be the true position under the partnership deed, can it be said that the interest which the minors earned was an income which directly or indirectly arose from their admission to the benefits of the partnership ? It is clear that the minors earned interest primarily and substantially by reason of the fact that they deposited moneys in the firm. It is not by reason of the fact that they were partners, nor was it by reason of the fact that they were obliged under the partnership deed to make the deposits, that this interest was earned. Therefore, this income arose to the minors not from their admission to

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