Dixit, C.J.
1. This consolidated reference under Section 66(1) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax arises out of the Tribunal's common order disposing of the assessee's appeals for the assessment years 1956-57, 1957-58, 1958-59 and 1959-60. The question, which has been referred to this Court for decision, is:
'Whether the sum of Rs. 3,440/-, Rs. 6,806/-, Rs. 7,468/- and Rs. 6,457/- each being interest earned by Sureshchandra the minor son of the assessee on the amounts standing to his credit in the firm of M/s Badrilal Bholaram, for the years 1956-57, 1957-58, 1958-59 and 1959-60 respectively are liable to be included in the total income of the assessee under Section 16 (3) (a) (ii) of the Indian Income-tax Act, 1922? '
2. The material facts are that the assessee Badrilal, his three major sons and a minor son Sureshchandra constituted a Hindu undivided family till or about 11th September 1955. The undivided family was carrying on business of forest contracts. On or about 11th September 1955, there was a partial partition of the family as regards the business of forest contracts. In this partition, the business capital of the Hindu undivided family was divided between the father and his sons. On 12th September 1955, a partnership consisting of Badrilal and his three major sons for carrying on the business of forest contracts was brought into existence by a partnership deed. The minor son Sureshchandra was admitted to the benefits of the partnership. The amount that came to the share of the father and his sons in the division of the business capital was credited in the account-books of the firm to the father and his sons respectively. The firm was granted registration under Section 26-A of the Act for the assessment year 1956-57. The registration was renewed for subsequent years.
3. The Income-tax Officer included in the total income of the assessee Badrilal for the assessment year 1956-57 the share income from the partnership arising to the minor Sureshchandra as also the interest earned by him on the capital amount standing to the credit of Sureshchandra in the books of the firm. In the subsequent assessment years also, the share in the profits of the firm arising to Sureshchandra, interest earned by him on the capital amount standing to his credit as also interest on accumulated profits were included in the total income of the assessee Badrilal. This inclusion was made by the Income-tax Officer under Section 16 (3) (a) (ii) of the Act.
4. The assessee then preferred appeals before the Appellate Assistant Commissioner questioning the correctness of the decision of the Income-tax Officer with regard to the inclusion of the interest earned by the minor on the 'capital amounts standing to his credit in the accounts of the firm'. All those appeals were dismissed by the Appellate Assistant Commissioner who took the view that the minor had supplied capital to the firm and, therefore, the inclusion of the interest amount credited to the account of the minor justified under Section 16 (3) (a) (ii) of the Act. The Appellate Assistant Commissioner relied on the decision of the Assam High Court in Chouthmal Kejriwal v. Commr. of Income Tax, Assam .
5. The assessee then filed appeals before the Tribunal. The Tribunal took the view that as there was no obligation on any of the partners or the minor to contribute or maintain any capital in the firm, the amount of interest paid to the minor could not be considered as income arising to the minor from his admission to the benefits of the partnership and, therefore, the interest amount could not be included in the total income of the assessee-Badrilal for the relevant assessment years. The Tribunal sought support for this conclusion in the decision of the Bombay High Court in Bhogilal Laherchand v. Commr. of Income Tax, Bombay City : [1954]25ITR523(Bom) where interest earned by minors on deposits maintained in a partnership firm was held to be not a benefit which the minors received from their admission to the benefits of the partnership firm.
6. The material provision of the Act to consider in this case in Section 16 (3) (a) (ii) of the Act, which runs as follows:--
'16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included --
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly
(i) *****(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner;..... '
This provision is clear enough. It says that in the total income of an individual the income of a minor child arising directly or indirectly 'from the admission of the minor to the benefits of partnership' in a firm of which the assessee is a partner shall be included in the total income of the assessee for the purpose of assessment. If the income arising to the minor child has direct or indirect connection with the fact of its admission to the benefits of the partnership, then the minor's income has to be included in the total income of the individual. If, on the other hand, the income derived by the minor child is quite independent of the fact of its admission to the benefits of a partnership then that income of the minor child cannot be included in the total income of the individual. For the inclusion of the minor child's income in the total income of an individual under Section 16 (3) (a) (ii), there must be a direct or indirect connection between the minor's admission to the benefits of partnership and the receipt of the income. It follows, therefore, that if the minor child gets interest on any capital contributed by him to the firm, then the interest earned by him on the capital amounts is an income which he derives from his association to the benefits of the partnership. It is because of his admission to the benefits of the partnership that he can contribute to or maintain any capital in the firm. If, on the other hand, the minor makes a deposit with the firm or advances a loan to the partnership firm, then the interest paid to him on the loan or deposit amount has no connection whatsoever with the fact of his admission to the benefits of the partnership. The minor child could have made the deposit or advanced the loan and earned interest thereon even if he had not been admitted to the benefits of the partnership firm.
7. Now here, the Tribunal has not found that the amount, which came to the share of the minor Sureshchandra in the division of the business capital, and was credited in the books of the firm when the partnership was formed was an amount advanced by Sureshchandra and was not capital contributed by him. On the other hand, it has found that the amount, which Sureshchandra and other members of the Hindu undivided family got in the partition, was credited in the account books of the firm as their capital. But there was no obligation on any of the partners 'to retain any moneys in the shape of capital in the firm'. The Tribunal found that several partners had been withdrawing amounts from the amounts standing to their credit and this indicated that there was no obligation of any of the partners to 'retain any moneys in the shape of capital in the firm'. The Tribunal also said:--
'Here in this case the conduct of parties as evidenced by the withdrawals from the capital accounts would indicate that there was no agreement as to their contribution of capital and we may safely therefore infer that there was no obligation on the partners to contribute capital.'
Further, it was observed by the Tribunal:
'In the instant case there is no evidence that the minor was required to supply the capital and it cannot be said therefore that the supply of capital was incidental to the admission of the minor to the benefits of the partnership.'
In paragraph 6 of its order, the Tribunal also made the observation:--
'So, if there is no obligation on the part of a partner to bring in any capital but he advances certain moneys it will be very difficult to say that the interest on the advances made or the capital contributed voluntarily is income arising directly or indirectly from his admission to the benefits of the partnership.'
8. It is thus manifest that the Tribunal, though it held that the amount standing to the credit, in capital account, of minor Sureshchandra in the books of account of the partnership firm was capital amount, reached the conclusion that the interest paid on that amount could not be regarded as income which arose directly or indirectly to the minor Sureshchandra from his admission to the benefits of partnership in the firm as there was no obligation on him or any partner to retain any moneys in the shape of capital in the firm. We are unable to accept this reasoning. In our opinion if the minor child did contribute any capital to the partnership firm, and if on that capital he earned interest, then that income would be one falling under Section 16 (3) (a) (ii) of the Act, no matter whether the minor or any partner was or was not under any obligation to contribute any capital. An amount in fact contributed by a partner as capital does not become an advance merely because under the partnership deed there is no compulsion on the partner to contribute or maintain any capital with the firm. There is a material distinction between capital contribution of a partner and advances made by him to the firm. This is clear from Section 13 of the Partnership Act, 1932. Again, the fact that several partners made some withdrawals from the capital account does not necessarily lead to the conclusion that there was no obligation on them to contribute any capital. It is settled law that the agreed capital of a partnership can be added to or withdrawn with the consent of all the members of the partnership. If, therefore, there was such consent on the part of all the members of the partnership then the fact of withdrawal by itself cannot justify the inference that there was no obligation on the partners to contribute any capital. Be that as it may, whether or not there was any obligation on the part of the minor Sureshchandra or other partners to contribute to the capital of the firm, the fact, as found by the Tribunal, remains that the amount, which Sureshchandra got in the division of the business assets of the Hindu undivided family, was credited in the , capital accounts of the partnership when it was formed. On this finding, the interest income, which arose to Sureshchandra on this capital amount, was clearly an income which arose to him from the fact of his admission to the benefits of the partnership. The Income-tax Officer, therefore, rightly included the interest income earned by Sureshchandra in the total income of the assessee Badrilal. If the share of profits of Sureshchandra was allowed to accumulate and interest was paid on the accumulated profit, then that interest amount is also assessable in the hands of the assessee Badrilal under Section 16 (3), (a) (ii) of the Act.
9. The view we have taken is amply supported by authorities. In Ram Narain Garg v. Commr. of Income Tax, U. P. : [1965]55ITR435(All) the Allahabad High Court held that interest paid to a minor son admitted to the benefits of a partnership on his capital investment is income derived directly or indirectly by him from the admission and is includible in the income of the father under Section 16 (3) (a) (ii) of the Act. It was observed by the Allahabad High Court (at page 439)--
'In order that the provision may apply to it, the receipt of the income must have some connection, whether direct or indirect, with the fact of his admission. Any income that could have been derived by him without his being admitted to the benefits of the partnership cannot be said to have been derived by him from the admission. Once some connection between the receipt of income and the admission is established, the provision applies, whether the connection is direct on indirect.'
The Allahabad High Court also pointed out that interest paid on a loan advanced to the partnership by the minor is connected with the fact of his admission to the benefits of partnership, if the partnership deed forbids raising of a loan from any person other than a partner or a person admitted to its benefits, it is not connected with the fact if interest is paid on a deposit made, or a loan advanced by the minor, and the partnership was free to accept a deposit or a loan from any person even if not connected with it.
10. The case before us is analogous to the case of , where the Assam High Court has held that where a minor has been admitted to the benefits of partnership in a firm in which his father is a partner, and the minor has supplied capital, any income accruing to the minor as interest on the capital is an indirect result of his being admitted to the benefits of partnership and has to be included in the total income of his father under Section 16 (3) (a) (ii) of the Act. In that case also, it was contended that as there was no obligation on the minor to contribute any capital interest earned by him on the capital amount did not fall under Section 16 (3) (a) (ii). While dealing with this contention, the learned Judges of the Assam High Court said --
'It was contended that there may be cases where a minor may be admitted to the benefits of partnership without supplying capital and, consequently, the supply of capital cannot be regarded as obligatory on the part of the minor before he could be admitted to the benefits of the partnership. It may be that a minor may be admitted to the benefits of the partnership without supplying any capital and to that extent the supply of capital may not be obligatory on him, But when a minor has been admitted to the benefits of the business and has supplied capital, any income accruing to him as an interest on the capital is certainly an indirect result of his being admitted to the benefits of partnership.'
11. The decision of the Bombay High Court in : [1954]25ITR523(Bom) on which the Tribunal relied, is not in point here. That was a case where interest was paid to minors on some deposits made by them with a partnership firm and there was no obligation on the minors admitted to the benefits of the partnership to make a deposit. It was, therefore, held that interest earned by minors on deposits maintained in the firm could not be held to be a benefit which the minors derived from their admission to the benefits of partnership. As there was no obligation on the minors to make any deposit, it could not be said that the deposit made by them had any connection with their admission to the partnership and hence the interest accruing on such deposit could not be said to have arisen directly or indirectly by the admission of the minors to the partnership. While distinguishing the Bombay case, the Assam High Court has pointed out in Chouthmal Kejriwal's case that the case of supply of capital stands on a footing different from the case of deposits and that unless there is anything express in the deed of partnership to the contrary, the supply of capital by the minor can only be the necessary result of his admission to the benefits of partnership and, consequently, any interest accruing on the capital will arise directly or indirectly from the admission of the minor to the benefits of partnership. The Bombay case is inapplicable here as in the present case the interest amount, which arose to the minor Sureshchandra, was not the result of any deposit made by him with the firm.
12. To the same effect are the decisions in A. Venkatasubbaiah v. Commr. of Income Tax : [1963]47ITR458(AP) and Commr. of Income Tax, B. and O. v. Bilas Rai Tekriwal 0044/1966 : [1966]61ITR467(Patna) , In those cases it was held that interest on the capital contributed by the minors was an indirect result of his being admitted to the benefits of partnership and consequently the interest amount had to be included in the total income of the father in his assessment. It may be noted that in Bilas Rai Tekriwal's case 0044/1966 : [1966]61ITR467(Patna) also the Tribunal had found that there was no compulsion on the minor sons to either contribute or maintain any capital to and with the firm.
13. The decision of the Supreme Court in S. Srinivasan v. Commr. of Income Tax, Madras : [1967]63ITR273(SC) shows that interest earned by the minor Sureshchandra on the accumulated profits is assessable in Badrilal's hands. That was a case in which S. Srinivasan was a senior partner in a firm in which his wife and a stranger were partners and his two minor sons had been admitted to the benefits of partnership. For a number of years up to the relevant assessment year, the shares of profit of the wife and the minor sons were allowed to accumulate without interest. With effect from the previous year to the relevant assessment year the firm decided to allow 9 % interest per annum on these accumulated profits. The Supreme Court held that the interest accrued to the wife and the minor sons at least indirectly because of their capacity mentioned in Section 16 (3) (a) (i) and (ii) and was, therefore, assessable in S, Srinivasan's hands. By distinguishing the decision of the Bombay High Court in : [1954]25ITR523(Bom) and of the Assam High Court in , the Supreme Court affirmed the principle laid down in those two cases.
14. For these reasons, our conclusion is that interest earned by Sureshchandra, the minor son of the assessee, on the amount standing to his credit in the firm for the years 1956-57, 1957-58, 1958-59, 1959-60 has to be included in the total income of the assessee Badrilal under Section 16 (3) (a) (ii) of the Act. Our answer to the question posed before us is, therefore, in the affirmative. The Commissioner of Income-tax shall have costs of this reference. Counsel's fee is fixed at Rs. 200/-.