B. N. Kirpal, J ( 1 ) IN respect to the assessment year 1977-87, the Income-tex Tribunal has referred the following question to this Court: "whether, on the facts and circumstances of the case, the interest paid to the three minors who were admitted to the benefits of Partnership in the firms the Associated Sales Company and the Vikas Textile Agency was includible in the income of the assessee under section 64 (l) (iii) of the Income-tax Act, 1961?" ( 2 ) BRIEFLY stated the facts are that three minor children of the assessee viz. , Ramesh kumar Dalmia. Harsh Kumar Dalmia and Swarna Lata Dalmia were admitted to the benefits of two partnership firms viz. , Vikas Textile Agency and Associated Sales Company. While the assessee was a partner in Vikas textile Agency, but of the other firm, he was not a partner. ( 3 ) THESE minors were not only paid the share of profits but they also received interst in the firm on the accumulated profits and it is this interest which was assessed in the hands of the assessee by the Income-tax Officer, by invoking the provisions of Section 64 (l) (iii) ( 4 ) THE assessee filed an appeal before the Appellate Assistant Commissioner but he came to the conclusion that the interest received by the minors was assessable in the hands of the assessee. ( 5 ) A second appeal was filed to the Income-tax Tribunal who examined the clauses of the Vikas Textile Agency the partnership deed was executed on 1st July, 1974 and on 12th March, 1975 the following resolution was passed by the partners: "all partners feel that the capital contributed by the partners may not be sufficient and therefore, decide that deposits should be accepted from minors and loans may be raised from other outsiders. Such deposits and loans shall carry interest @ 12% per annum. " ( 6 ) IN respect of the other partnership firm viz, Associated Sales Company a similar resolution was passed on 15th July, 1975, by the partners of that firm, which in the following terms: "after computing the accounts for the accounting year ending 31st March, 1957, a sum of Rs. 7887. 49 in the name of Master Harsh Kumar Dalmia, a sum of Rs. 7887. 48 in the name of Master Ramesh Kumar Dalmia and a sum of Rs. 7013. 7887. 49 in the name of Master Harsh Kumar Dalmia, a sum of Rs. 7887. 48 in the name of Master Ramesh Kumar Dalmia and a sum of Rs. 7013. 82 in the name of Kumari Swarna Lata Dalmia, has been brought forward as on 1-4-1975 as deposits. The partners have accepted and agreed to these deposits bearing interest not more than 15% per annum. Partners have also agreed that other deposits from minors will be accepted as and when made. " ( 7 ) THE Tribunal referred to the decision of the Supreme Court in the case of S. Srinivasan v. Commissioner of Income-tax. 63 ITR 273 and also to the other decision of the High Courts, which had followed and applied the principles laid down by the Supreme Court in Srinivasan s case and the Tribunal came to the conclusion that the decision of the Supreme Court in S. Srinivasan s case directly covered the question in issue and that the interest income was assessable in the hands of the assessee. Thereafter the aforesaed question was referred to this Court by the Tribunal under Section 256 (1) of the Income-tax Act. ( 8 ) ON behalf of the assessee it has been vehemently contended that the interest income arose and accrued to the minors and this did not arise by reasons of the fact that the minors had been admitted to the benefits of the partnerships. While strongly relying on the decisions of some of the High Courts, in particular of the Bombay High Court in the case of CIT V. Chandan Mat Kastur Chand. 112 ITR 296, it has been contended by Shri Bishamber Lal that the interest income did not arise because of any partnership deed and it was an independent contact because of which the interest was paid. Elaborating the contention further, it was submitted by the learned counsel, that the partners of the firm had passed a resolution in regard to Vikas Textile Agency. That such deposits and loans should carry interest @ 12%. With regard to the Associated Sales Company also the amount which was standing to the credit of the minors was to be regarded as deposits and loans. That such deposits and loans should carry interest @ 12%. With regard to the Associated Sales Company also the amount which was standing to the credit of the minors was to be regarded as deposits and loans. While strongly relying upon the foresaid judgment of the Bombay High Court it was submitted by the learned counsel for the petitioner that deposits and loans are independent contracts and any interest which arises thereon would be the interest belonging to the minors exclusively and the provisions of Section 64 (l) (iii) would not be applicable. ( 9 ) ON behalf of the Department Shri Rajendra has vehemently contended that in the instant case the Tribunal has rightly applied the ratio of the decision of the Supreme Court in. Srinivasan s case and that the facts in the present case are in pari materia with that decision. According to the learned counsel it is by reason of the minors being admitted to the benefits of the partnership that the interest was paid and, therefore, the provisions of Section 64 (l) (iii) were attracted. ( 10 ) IN order to appreciate the contention it is necessary to set out the provisions of Section 64 (1) (iii) as it stood at the relevant time: "64 (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm. " A bare reading of the said Section shows that any income which arises directly or indirectly to a minor child of an individual from the admission of the minor to the benefits of the partnership is to be taxed in the hands of the individual. We need not go into the question as to what is the meaning of the words "all such income" as it was sought to be contended, on behalf of the revenue that income of any type which a minor receives from the firm is assessable in the hands of the individual viz. , the father. We need not go into the question as to what is the meaning of the words "all such income" as it was sought to be contended, on behalf of the revenue that income of any type which a minor receives from the firm is assessable in the hands of the individual viz. , the father. It may be possible to construe Section 64 (1) (iii) in the said manner as suggested by the learned cc insel for the revenue but even by giving a restricted meaning to Section 64 (l) (iii) as interpreted by the Bombay High Court, we feel that, in the present case, the revenue must suceed. ( 11 ) THIS provision carne up for consideration, as already noted, before the Supreme Court in. Srinivasan s case (supra ). In that case two minor sons of the assessee were admitted to the benefits of a partnership, in which the assessee and his wife were partners. One of the clauses of the deed provided that "if the firm requires any sum for meeting the expenses of its management and if any of the partners has and is willing to give such loan, he may advance (such amount) as loan. He may receive interest for such sum @ 12 annas per mensern. " In the beginning interest was not allowed to the wife and the minor sons on the accumulated profits. With effect from the subsequent years the firm decided to allow 9% per annum interest onthe accumulated profits and the question arose whether this interest was taxable in the hands of the assessee. While holding that the interest accrued to the wife and minor Sons, atleast indirectly, because of their capacity viz. With effect from the subsequent years the firm decided to allow 9% per annum interest onthe accumulated profits and the question arose whether this interest was taxable in the hands of the assessee. While holding that the interest accrued to the wife and minor Sons, atleast indirectly, because of their capacity viz. , because the wife was a partner and the minor sons were admitted to the benefits of the partnership firm and therefore, was assessable in the assessee s hands, the Supreme Court observed as follows: "learned Counsel appearing for the appellant mainly argued before us the second question and urged that though the profits earned from the partnership by the wife and the minor sons of the appellant were undoubtedly income arising to them directly from the partnership of the wife in the firm or the admission of the minors to the benefits of the partnership in the firm, the interest accruing on the accumulated profits belonging to the wife and the minor sons should be held to be in the nature of deposits made by them with the firm, or in the nature of loans advanced by them to the firm. and interest earned on such deposits or loans can have no relationship with the membership of the firm of the wife or the admission to the benefits of the partnership of the firm of the wife or the admission to the benefits of the partnership of the minor sons. It appears to us that these accumulated profits remaining in the hands of the firm cannot, on any principle, be equated with deposits made or loans advanced. The profits accumulated to the credit of the wife and the minor sons, because they did not draw their share of profits when distribution of profits took place, and allowed those profits to remain with the firm, but there is no suggestion at all that, at that stage, either the wife or the minor sons, or anyone on their behalf, purported to enter into an ar- rangement with the firm to keep these accumulated profits as deposits. Similarly, there was no such contract which could convert those accumulations into loans advanced to the firm by these persons. Similarly, there was no such contract which could convert those accumulations into loans advanced to the firm by these persons. The fact and circumstances indicate that the wife and the minor sons had earned these profits because of then- membership of the firm or because of their admission to the benefits of the firm, and having earned these profits in that capacity, they allowed the use of their profits to the firm without any specific arrangement as would naturally have been entered into if these funds had belonged to a stranger. They let the firm use funds of theirs, because they had interest in the profits of the firm. The facts also show that the use of these moneys was allowed to the firm without asking for any interest, and it was only at a later stage that the three partners of the firm decided to give interest on these amounts. When the decision was taken to given interest, the nature of the funds did not change. They did not get converted into deposits or loans. They still remained accumulations belonging to a partner or persons admitted to the benefits of the partnership and allowed to be used by the firm. The interest also appears to have been allowed by the firm simply because these funds belonged either to a partner or to the minors who had been admitted to the benefits of the partnership. It is thus clear that the interest at least indirectly arose and accrued to the wife and the minor sons because of their capacity mentioned in Section 16 (3) (a) (i) and (ii) in the Income-tax Act. " ( 12 ) IN arriving at the aforesaid conclusion the Supreme Court referred to the earlier decisions of the High Court in the case of Bhogi Lal Lehar Chand v. Commissioner of Income Tax, 25 ITR 523, Chouth Mat Kejriwal v. s Commissioner of Income Tax, 41 ITR 570, Akula Venkatasubbaiah v. Commissioner of Income Tax. 47 ITR 458 and L. Ram Narain Garg v. Commissioner of Income-tax, 55 ITR 435. ( 13 ) THE observations of the Supreme Court in Srinivasan s case clearly show that any interest which is received on the accumulated profits would be relatable to the minor s admission to the benefits of the partnership. 47 ITR 458 and L. Ram Narain Garg v. Commissioner of Income-tax, 55 ITR 435. ( 13 ) THE observations of the Supreme Court in Srinivasan s case clearly show that any interest which is received on the accumulated profits would be relatable to the minor s admission to the benefits of the partnership. It is only if by an independent volition on the part of the minors or their guardians that the accumulated profits are imparted with a character of a deposit or a loan and interest is earned thereon, could such as income escape from being assessed in the hands of the father. To put it differently if any income arises to the minor as a result of or as a consequence of the partnership deed, whether it be in the form of share of profit, commisision, fee or even interest the same would be assessable in the hands of the father but if there is an independent contract, de-hors the partnership agreement whereby loan is advanced by a minor to the partnership firm, to which firm he has been admitted to the benefits of the partnership, then that interest may not become liable to tax in the hands of the father. ( 14 ) IT will be appropriate, at this stage, to refer to some of the decisions of the High Courts and to see how they have applied and followed the decision of the Supreme Court in Srinivasan s case (supra ). In Smt. Nripendrakumari Bhandari v. Commissioner of Income-tax, 105 ITR 158 minors had been admitted to the benefits of the partnership and interest was paid to them in terms of clause 4 of the Partnersship Deed which provided that whatever excess remained over the capital should be treated as a loan to the firm and that interest is payable on such accumulations which are treated as loans. The Division Bench of the Madras High Court came to the conclusion that the ratio of the decision of the Supreme Court in Srinivasans case was clearly applicable. After referring to the decision of the Madras High Court in P. A. P. Chidambara Nadar v. Commissioner of Income-tax. 77 ITR 84 and Kaladhar Prasad Chaturvedi v. CIT. The Division Bench of the Madras High Court came to the conclusion that the ratio of the decision of the Supreme Court in Srinivasans case was clearly applicable. After referring to the decision of the Madras High Court in P. A. P. Chidambara Nadar v. Commissioner of Income-tax. 77 ITR 84 and Kaladhar Prasad Chaturvedi v. CIT. 82 ITR 713 (Allahabad) the Court in Bhandari s case (supra) observed as follows: "on a due consideration of the various principles laid down in the above decisions the true legal position appears to us to be this: Whereever there is a connection between the admission of the minor to the benefits of the parnership and the realisation of income by him by way of interest. The same can be included in the income of the parent, whether the said connection is direct or indirect. The fact that payment of interest has been provided under the terms of the partnership deed does not ipso facto establish such a connection if the payment could be enforced otherwise under the general law applicable to a debtor and creditor. If under the terms of the partnership deed the minor is bound to make a deposit and the firm is not free to receive deposits from others, the interest paid on such deposit to a minor will be taken to have a connection with his admission to the benefits of the partnership, but in the case where the firm is free to receive deposits from anyone and the minor makes a deposit though not obliged to make such deposit, the interest on such a deposit will have no connection with his admission to the benefits of the partnership. The interest paid on accumulations of the minor s share of profits arises only out of his having been admitted to the benefits of the partnership. If under the terms of the partnership deed the firm is under an obligation to accept deposits from the minor admitted to the benefits of the partnership and pay interest thereon. , the interest can be taken to have arisen as a result of such admission. If under the terms of the partnership deed the firm is under an obligation to accept deposits from the minor admitted to the benefits of the partnership and pay interest thereon. , the interest can be taken to have arisen as a result of such admission. But where the minor is not obliged to deposit or the firm is not obliged to receive and keep the deposit on condition of its paying interest thereon, the any interest paid on deposits made by a minor cannot be taken to have a direct or indirect connection with his being admitted to the benefits of the partnership. " ( 15 ) APPLYING the aforesaid principles the Madras High Court came to the conclusion that interest was paid to the two minors on the basis of clause 4 of the Partnership Deed on the amount standing to their credit in excess of the capital contributed or on profits accumulation. The said clause made it obligatory for the retention of the money and payment of interest and, as such, it was by reason of the admission to the benefits of the partnership that the interest was paid and therefore, the same was rightly included in the assessment of the father s income. A somewhat contrary note was struck by the Bombay High Court in the case of Chand Mal Kastur Chand (supra ). In that case interest was paid on two amounts viz. , on the capital which had been contributed on behalf of the minors and secondly on the accumulated profits which had been credited to the minors account. The Bombay High Court applied the principles laid down in Srinivasan s case and came to the conclusion that the interest which was paid on the capital which had been contributed was clearly assessable in the hands of their father. With regard to the interest paid on the accumulated profits the Court took notice of the fact that the partnership deed itself provided that any money belonging to the minor admitted to the benefits of the partnership if brought into the partnership or retained in the partnership shall be treated as a deposit and interest shall be paid thereon. With regard to the interest paid on the accumulated profits the Court took notice of the fact that the partnership deed itself provided that any money belonging to the minor admitted to the benefits of the partnership if brought into the partnership or retained in the partnership shall be treated as a deposit and interest shall be paid thereon. It was held by the Bombay High Court that this would amount to a contract to convert the accumulated profits into loans and would fall in the exception enumerated by the Supreme Court in Srinivasan s case. We however, note that the decision of the Madras High Court in Smt. Nripendra- kumari Bhandari s case (supra) was not brought to the notice of the Bombay High Court. Whereas in Bhandari s case there was a term like clause 4 which required payment of interest on capital contribution or on profit accumulation and it was still held that theinterest paid in respect thereto attracted the provisions of Section 64 (1) (iii) but in Kastur chand s case (supra) the Bombay High Court took a diferent view. A clause in the partnership deed did contemplate the accumulated profits to be treated as deposits on which interest was payable. If the principle laid down by the Madras High Court in Bhandari s case had been applied then possibly, not with standing the clause as it existed, in Kastur Chand s case also the conclusion may have been that interest would be taxable under Section 64 (1) (iii ). Be that as it may Kastur Chand s case is of little assistance to the learned counsel for the assessee for the reason that there is no clause in the agreement of partnership by which the accumulated profits are to be treated as deposits. Had there been such a clause we may perhaps still have been persuaded to agree with the ratio of the decision in Bhandari s case and hold that wherever the partnership deed itself contemplates payment being made to the minors, under whatever circumstance, the provisions of Section 64 (1) (iii) are attracted. In the present case, as we shall presently see, the finding of the Tribunal is that the accumulated profits were infact never converted to deposit or loan and, therefore, the ratio of the decision in Kastur chand s case would not apply. ( 16 ) IN CJ. In the present case, as we shall presently see, the finding of the Tribunal is that the accumulated profits were infact never converted to deposit or loan and, therefore, the ratio of the decision in Kastur chand s case would not apply. ( 16 ) IN CJ. T. v. S. V. Nashte, 119 ITR 130 it was held by the Bombay High Court that in order to attract the provisions of Section 64 (ii) it was necessary that there should be a nexus between the income of the minor and his admission to benefits of partnership. In that case money were originally contributed as capital in the firm to which the minors had been admitted to the benefits of the partnership but thereafter, by a positive act, the guardian of the minors directed that a part of the capital should be withdrawn and be treated as a loan. It those circumstances the Bombay High Court came to the conclusion that the nature of the amounts immediately underwent a change and thereafter the said amount, which was originally a capital stood transformed to that of a loan and that interest which was received on the loan belonged exclusively the minor and could not be clubbed in the hands of the father. In arriving at this decision the Bombay High Court followed its earlier decision in Kastur Chand s case (supra ). As we shall presently see there was no such overt act in the present case whereby the accumulated profits were imparted the character of a loan or deposit. ( 17 ) THE Calcutta High Court has also had occasion to consider the provisions of Section 64 (1) (iii) in the case of Commissioner of Income-tax v. Ramesh Chandra Sogani, 1990 (52) Taxman 244, where a similar question came up for consideration. The Head Note of the report clearly brings out the facts and the ratio of the decision and the same is as follows: "facts The assessee s minor son was admitted to the benefits of a partnership. The Head Note of the report clearly brings out the facts and the ratio of the decision and the same is as follows: "facts The assessee s minor son was admitted to the benefits of a partnership. The partnership deed provided, inter alia, that (1) the amounts standing to the credit of the partners would be regarded as their capital, (ii) all further contributions made for the purpose of the firm s business by the partners, including the minor admitted to the benefits of partnership, would be deemed as loans to the firm, (iii) the undrawn share of profit and interest lying credited in the partners accounts including the minor s share shall also be considered as loan, which would carry interest. The ITO included in the total income of the assessee the minor s share in the profits of the firm and interest payable to him on accumulation of profit under section 64 ( 1) (ii ). On appeal, the AAC excluded the interest income. The Tribunal upheld the order of the AAC on the ground that interest payable by the firm on independent loans made by the minor to the firm or on the credit balance in the current account in the name of the minor was not includible in the income of the parent. ( 18 ) INTEREST allowed to a minor admitted to the benefits of the partnership, by a firm on the capital supplied on behalf of the minor is liable to be included in the hands of the parent as income arising from the benefits of the partnership. Similarly,interest allowed by the firm on the accumulated share of profits of the minor is includible in the income of the parent. But interest on independent loans made to the firm is not includible, since the income is not related to the admission to the benefits of partnership. The accumulation of profit and all accretions there to will be referable to the admission to the benefits of partnership unless there is an agreement subsequent to the crediting of the share of profit to the minor s account for converting such amount into a loan or deposit. A mere provision in the partnership deed for treating accumu;ated profits as a loan or deposit is not effective to convert such accumulated profits into loan or a deposit. A mere provision in the partnership deed for treating accumu;ated profits as a loan or deposit is not effective to convert such accumulated profits into loan or a deposit. ( 19 ) IN the instant case, there was no separate arrangement or agreement between the guardian of the minor and the firm so as to pay interest by conversion of the amount into a deposit or a loan. The treatment or accumulated profit as loan had been made in the partnership deed itself. The interest payable to the minor by the firm on such accumulations was, therefore, liable to be included in the income of the assessee. ( 20 ) WE may, however, note that the attention of the Hon ble Judges of the Calcutta High Court was apparently not drawn to the two decisions of the Bombay High Court in Kastur Chand s case and S. V. Nashte s case (supra ). ( 21 ) THE last decision on this point is also of Calcutta High Court in the case of Commissioner of Income-tax vs. Santosh Kumar Kanoria, 193 ITR 655. In this case the High Court considered the judgment of the Bombay High Court in Kastur Chand s case and applied the ratio of the decision of the Supreme Court in Srinivasan s case (supra) and came to the conclusion that even where there was a provision in the partnership deed for payment of interest, the interest so paid would be includible in the total income of the assessee under Section 64 (l) (iii ). In Kanoria s case (supra) the High court also referred to the decision of the Madras High Court in the case of Addl. C. I. T. v. Misrirnul Sowcar, 119 ITR 123, the head note of which brings out the ratio of the decision which iss as follows. ( 22 ) "the deed of partnership of a firm in which the assessee was a partner and in which his minor sons were admitted to the benefits of the partnership, provided, inter alia, that any amount other than the capital standing to the credit of the partners including share of profit that may be adjusted shall be treated as loan deposits bearing such interest as may be mutually agreed upon having regard to the rate prevailing in the market. The ITO included in the income of the assessee the interest credited to the accounts of his minor sons on the deposits in their names by invoking s. 64 (1) (ii) of the IT Act, 1961. The AAC, however, deleted the inclusion and this was confirmed by the Tribunal. On a reference to the High Court: Held, that S. 64 (l) (ii) contemplates assessment in the hands of the parent of all income arising to a minor by was of interest so long as the interest is traceable to the admission of the minor to the benefits of the partnership either under the partnership deed or under a subsequent agreement. Even in the absence of any agreement, interest paid on capital would be traceable to the membership of the Firm and so long as the interest is traceable to the admission of the minor to the benefits of the partnership, s. 64 ( l) (ii) will be attracted. On the basis of the decision of the Supreme Court in S. Srinivasan v. CIT 63 ITR 273, interest paid on the accumulated profits of the minors will have to be included in the hands of their father and the exception contemplated by the Supreme Court would not apply to this case because there was no subsequent agreementconverting the accumulated profits into loans but such conversion was simulataneous. The Tribunal, was therefore, not correct in holding that the interest credited to the accounts of minor sons was not includible in the hands of their father. " ( 23 ) REVERTING to the facts of the present case we find that in Srinivasan s case it had been held that the accumulated profits had been allowed to remain with the firm "but there is no suggestion at all that, at that stage, either the wife or the minor sons, or anyone on their behalf, purported to enter into an arrangement with the firm to keep these accumulated profits as deposits. " In other words no overt act was done to impart the Character of a deposit or aloan on the accumulated profits which were there in the books of account of the firm. The Tribunal, in the present case, has found as a fact that there was no exercise of volition by the minors or anyone on their behalf to convert the accumulated profits to a loan or deposit. The Tribunal, in the present case, has found as a fact that there was no exercise of volition by the minors or anyone on their behalf to convert the accumulated profits to a loan or deposit. The resolution of 12th March, 1975, in the case of Vikas Textile Agency was prior to the accumulated profits arising. The accounting year in the present case is the year ending 30th June, 1976. After 30th June, 1976 there was no suggestion either by the father viz. , the assessee or the minor children or anyone else on their behalf that the accumulated profits should be converted into loan. On 12th March, 1975 a decision was taken by the partners that, in future, deposits should be accepted from minors and loans be raised from outsiders. There was no decision, thereafter, of the minors or anyone on their behalf, includinng the assessee, that the accumulated profits existing as on 30th June, 1975 and 39th June, 1976 should be regarded as deposit or loan to the firm. As regards the Associated Sales Company, the resolution of 15th July, 1975 does not bear the signature of either the minors or anyone on their behalf. That is also a decision which has been taken, unilaterally, by the partners of the firm. As already stated the assessee, who was the father of the minor children, was not a partner of Associated Sales Company and was not a party to the decision of 15th July, 1975. The exception contemplated by the Supreme Court in Srinivasan s case (supra), does not arise in the present case. ( 24 ) APPLYING the ratio of the decision in Srinivasan s case the only conclusion which can be possibly arrived at on the facts and circumstances of this case is the Income-tax Tribunal was right in holding that the provisions of Section 64 ( 1 ) (iii) were attracted and that the interest income was includible in the income of the assessee. ( 25 ) FOR the aforesaid reasons we answer the question referred in the affirmative and in favour of the revenue. ( 26 ) THERE will be no order as to costs.