Interest paid to a partner's wife and minor children by virtue of their membership in the firm is includible in the partner's total income under Sec. 16(3)(a)(i) and (ii) of the Income-tax Act.

1. Both these cases are references under Sec. 66(1) of the Income-tax Act and a question of law common for the assessment years 1955-56 and 56-57 has been referred for the opinion of the High Court, which is in these terms:

"Whether the sums of Rs. 6,005 and Rs. 7,200 being interest paid to the assessees wife and to the three minor sons for assessment years 1955-56 and 1956-57 respectively are liable to be included in the assessees total income under Sec.16(3) (a) (i) and (ii) of the Income-tax Act?"

These cases have, therefore, been heard together with the consent of the parties and this judgment will govern them both.

2 On the facts found, it appears that up to the 5th November, 1953, Shri Bilas Rai, the assessee, was constituting a Hindu undivided family with himself as Karta, and his wife, Shrimati Sheo Bayee, his major son, Mantu Ram Tekriwal, and three minor sons, Kedarnath, Daulat Ram and Santosh Kumar, as members thereof. This undivided family was carrying on business in the name and style of Manoharlal Bilas Rao. On the 5th November, 1953, however, there was a partial partition in the family as regards the business assets only; the immovable properties remaining joint. A partition deed was executed on the same date and the business capital of the erstwhile Hindu undivided family totalling Rs. 1,33,463-1-0 was divided into six equal parts. On the very same day, the family business was converted into a partnership and a deed of partnership was executed between the assessee Bilas Rai, his wife and his major son, Manturam Tekriwal. The three minor sons were, on the same day, admitted to the benefits of the partnership; it being settled and decided between the major members of the partnership that the firm constituted under the deed of partnership will succeed to all the assets and liabilities of the Hindu undivided family business. The result was that the sum of money, namely, Rs. 22,243-13-6 which had fallen to the share of the wife and a like amount which had fallen to the share of each of the minor sons went to constitute the capital of the firm at its very inception and for purposes of accounts it stood credited in the accounts of the firms books to the credit of the wife and the minor sons, respectively. In the assessment of the assessee for the year 1955-56, the Income-tax Officer, while including the share income from the partnership arising to his wife and three minor children, excluded the interest paid by the said firm to the wife and the three minor children. On this coming to the notice of the Commissioner of Income-tax, a notice under Sec.33B of the Income-tax Act (hereinafter referred to as "the Act") was issued to the assessee to show cause why the sum of Rs. 6,005, which represented the interest paid by the firm to the wife and the three minor children of the assessees, be not included in the total income of the assessee for the year 1955-56 for the purposes of assessment under the provisions of Sec.16(3)(a)(i) and (ii) of the Act, After giving a hearing to the assessee, the Commissioner, by his order dated the 1st February, 1958, directed the aforesaid sum of Rs. 6,005 to be included in the total income of the assessee. Thereupon, there was an appeal by the assessee to the Income-tax Appellate Tribunal, Calcutta Bench, Calcutta. The members of the Tribunal examined Clause (4) of the deed of partnership dated the 5th November, 1953, and, while accepting all the facts as had been found by the Commissioner, they took the view that, as there was nothing in the said clause indicating any compulsion on the wife and the minor sons to either contribute or maintain any capital to and with the firm, the amount of interest paid to the wife of the assessee and credited to the accounts of the three minor sons could not be considered as income arising to the wife as a member of the partnership or to the minors for their admission to the benefits of the said partnership, either directly or indirectly, and, accor