The ownership of the income credited to the minors' accounts and their lack of obligation to contribute capital influenced the court's decision to exclude the income from the assessee's total income.

1. On an application filed under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the

following question for the opinion of this Court: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loan accounts of the minors in the books of the firm, M/s. Ratnalaya, will not lose its character and will not partake of the character of capital account by virtue of the fact that the share incomes of the minors were credited to their loan account ?“

2. The partnership firm styled as M/s. Ratnalaya started vide partnership deed dated July 31, 1968, and it was constituted by the two major partners, namely, Smt. Kanchan Devi Golecha and Shri Satish Chandra Bothra. Two minors, Master Pankaj Kumar and Peeyush Kumar, were admitted in the partnership to the benefits of the partnership. These minors are sons of the assessee. Shri Peeyush Kumar Golecha, according to the assessee, deposited a sum of Rs. 5,000 on October 15, 1968, and a sum of Rs. 10,000 on March 14, 1969, with the firm. Similarly, Pankaj Kumar is said to have been deposited a sum of Rs. 14,000 on October 15, 1968, with the firm. Interest was paid to the minors on this count and that was credited to their accounts accordingly. The income falling to the share of these two minors from the firm was also credited to such account of the minors in the books of the firm, so the accounts of Master Peeyush Kumar and Pankaj Kumar swelled up to Rs. 97,280 and Rs. 96,798, respectively, as on April 1, 1976. The assessment year is 1976-77. The Income-tax Officer has invoked the provisions of Section 64(1)(iii) of the Act and held that the amount, which is credited in the account of the minors is includible in the income of the assessee, while assessing the total income of the assessee and he added that amount in the income of the assessee.

3. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has also confirmed the view taken by the Income-tax Officer. In appeal before the Tribunal, the Tribunal has found the fact that the minors were admitted to the benefits of the partnership firm, they were not under any obligation to contribute any capital, therefore, there is no question of clubbing their income from the firm in the income of the assessee under Section 64(1)(iii) of the Act.

4. At the outset, learned Counsel for the assessee placed reliance on the decision of their Lordships in the case of CIT vs. Jwalaprasad Agarwala [1967] 66 ITR 154 (SC) and the decision of the Gauhati High Court in the case of CIT vs. Smt. Savitri Devi Dhandharia [1996] 219 ITR 277.

5. In the case of CIT vs. Jwalaprasad Agarwala [1967] 66 ITR 154 (SC), their Lordships observed as under

(page 159) “The High Court observed that ‘from the account books it appears that Rs. 74,721 were taken as the minor’s deposit in the account books and, further, that the minor was admitted to the benefits of the partnership. There is no evidence to show that he was admitted to the benefits of the partnership because he had undertaken to deposit the sum of Rs. 74,721 given to him by his father in the firm. We agree with these observations. But Mr. S.T. Desai, learned Counsel for the appellant, complains that there could be no evidence on the record because this point was not raised before the Income-tax Officer and the assessee had been accepting the past assessments. We find, however, that the point was raised before the Appellate Assistant Commissioner, and if the department was so minded, evidence could have been led before the Appellate Assistant Commissioner, and even before the Appellate Tribunal after obtaining its permission.”

6. In the case of CIT vs. Smt. Savitri Devi Dhandharia [1996] 219 ITR 277 (Gauhati), their Lordships observed

as under (page 282): “This would only mean that the amount of Rs. 95,743.19 was the absolute property of the minor kept in deposit with the partnership firm. Admittedly, the