INCOME TAX OFFICER v. R.M. PATEL
[Citation -1984-LL-0416-5]

Citation 1984-LL-0416-5
Appellant Name INCOME TAX OFFICER
Respondent Name R.M. PATEL
Court ITAT
Relevant Act Income-tax
Date of Order 16/04/1984
Assessment Year 1977-78, 1979-80
Judgment View Judgment
Keyword Tags standard deduction • income from salary • capital account • interest earned • interest income
Bot Summary: The only contention made in these two appeals is that the AAC was not justified in allowing the claim of the assessee that the interest income credited in the accounts of the minor sons in the deposit accounts with the assessee firm was not includible under s. 64 of the IT Act. It is relevant to mention the facts obtaining in the case before us in brief as under: Here the minor sons have two accounts in the firm-one is the capital account and the other one is deposit account in which moneys advanced by the minors to the firm are credited along with the share of profits. The capitals contribution originally the minors have been credited in separate accounts. The minors thus have two accounts with the firms one is capital account and the other is deposit account. The dispute is with regard to the interest credited in the deposit account. As far as the interest credited in the accounts of the partners in the deposit account is concerned, there is practically unanimity amongst various High Courts that as far as this interest is concerned, it does not come within the purview of s. 64 and is not includible. Taking the totality of the facts into account and applying the principles laid down in the decided cases cited above, we are of the opinion that the interest credited in deposit account of the minors was not includible in the total income of the assessee and the AAC was justified in deleting the same.


Both these appeals pertaining to asst. yrs. 1977-78 and 1979-80 involve common issue and hence are being taken up together. It may be relevant to mention here that these are departmental appeals. Department has not thought it fit to file any appeal for intervening year, namely, asst. yr. 1978-79. order of AAC for that year has been accepted by department. only contention made in these two appeals is that AAC was not justified in allowing claim of assessee that interest income credited in accounts of minor sons in deposit accounts with assessee firm was not includible under s. 64 of IT Act. departmental representative argued that it was includible and he relied upon following case laws: (i) S. Srinivasan vs. CIT (1967) 63 ITR 273 ((SC)) (ii) S. Srinivasan by L.Rs. Shanbagammal & Ors. vs. CIT (1976) 105 ITR 315 (Mad) (iii) Smt. Nripendra Kumari Bhandari vs. CIT (1976) 105 ITR 158 (Mad) A.R. relied upon following case laws: (i) CIT vs. S.V. Nashte (1979) 12 CTR (Bom) 231: (1979) 119 ITR 130 (Bom) (ii) Chandanmal Kistur Chand (1978) 112 ITR 296 (Bom) (iii) Decision of ITAT, Ahmedabad Bench-B in ITA No. 2282 of 1980 dt. 16th Dec., 1981. We have given our due consideration of case and decisions relied upon by both sides. It is relevant to mention facts obtaining in case before us in brief as under: Here minor sons have two accounts in firm-one is capital account and other one is deposit account in which moneys advanced by minors to firm are credited along with share of profits. capitals contribution originally minors have been credited in separate accounts. minors thus have two accounts with firms one is capital account and other is deposit account. dispute is with regard to interest credited in deposit account. case laws relied upon by both parties lay down one common principle that as far as interest credited in capital account (which minors are obliged to introduce in firm for becoming entitled to share of profits) is concerned, there is no dispute that it is includible under s. 64 and it comes within its purview. As far as interest credited in accounts of partners in deposit account (which minors are not obliged to introduce in firm for being entitled to be admitted to benefits of partnership) is concerned, there is practically unanimity amongst various High Courts that as far as this interest is concerned, it does not come within purview of s. 64 and is not includible. Their Lordships of Bombay High Court have held after discussing earlier case laws in case reported at (1979) 12 CTR (Bom) 231: (1979) 119 ITR 130 (Bom) that for s. 64 to apply there must be nexus direct or indirect between income which accrues to minor and his admission to benefits of partnership. Interest received on loans advanced by minor out of his own funds to partnership firm to benefits of which he is admitted cannot be said to be income arising directly or indirectly from admission of minor to benefits of partnership. Thus their Lordships of Bombay High Court held that interest so credited in deposit accounts of minor was not liable to be included in income of assessee. Ahmedabad Bench of ITAT in decision quoted above have clearly held as under: "The main principal which emerges from above decision is that if there is obligation cast on minor either to make deposit or to contribute capital as condition for admission to benefits of partnership then interest earned on deposit can be said to have connection with admission to benefits of partnership, as consequence earned on such deposits would be his by s. 64(i) (iii) of Act. But if minor make deposit on volition without any obligation then interest earned by him on deposit would not be liable for inclusion under said section. It is in light of this principle therefore, that we do consider and examine that facts which obtain in instant therefore, that we do consider and examine that facts which obtain in instant case. As pointed out earlier two minors are partners in these different firms, we shall therefore, proceed to examine terms of partnership deed in case of firm in which three minors have been admitted to benefits of partnership." Taking totality of facts into account and applying principles laid down in decided cases cited above, we are of opinion that interest credited in deposit account of minors was not includible in total income of assessee and AAC was justified in deleting same. departmental appeals on this issue are rejected. only other point which is there in asst. yr. 1979-80 only is that AAC was not justified in directing ITO to allow deduction of Rs. 3,600 for conveyance out of commission income when standard deduction against salary income was already allowed. departmental representative argued that standard deduction would take care of conveyance expenses of assessee and there was no justification for giving further deduction of Rs. 3,600. A.R. argued that this deduction was given out of commission income which has been assessed. It is kly argued that assessee had to move here and there every day for earning commission and hence he has to incur expenses. standard deduction is meant to be deducted out of income from salary and not out of income from commission which is different source of income. We have considered arguments of both sides. There is force in contention of A.R. that standard deduction allowed against salary income has nothing to do with commission income. conveyance expenses were correctly allowed. departmental appeal is dismissed. In result, both appeals of Department are dismissed. *** INCOME TAX OFFICER v. R.M. PATEL
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