HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
S. Srinivasan v. Commissioner of Income-tax, Madras
Civil Appeal No. 556 of 1965
[1967] 1 SCR 727 ·
Indian Income-tax Act, 1922: section 16(3)(a)(i) and (ii)
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, J. · V. Ramaswami, J. · V. Bhargava, J.
Assessment years: 1957-58
01 · Facts of the case
The assessee, his wife and an unrelated person were partners; his two minor sons were admitted to the firm's benefits. The partnership deed specified profit shares and permitted a partner to advance a management-expense loan carrying interest. The wife's and minors' profits accumulated with the firm for years without interest. From the previous year relevant to AY 1957-58, the firm credited 9% interest on the opening accumulated balances. The department included both current profits and that interest in the assessee's income. The Tribunal excluded interest on capital supplied by the minors' grandparents but sustained inclusion of interest attributable to accumulated profits.
Source: Partnership, accumulations and procedural history: SCR pp.728-729 / PDF pp.2-3
02 · Discussion by the Hon’ble Court
The constitutional objection to section 16(3)(a)(i) and (ii) was not pressed in view of Balaji. On the live issue, the Court refused to recharacterise the accumulated profits as deposits or loans. The wife and minors had earned those sums through partnership or admission to its benefits and left them with the firm without the type of specific arrangement expected from an outside depositor or lender. The later decision to credit interest did not change the funds' character. Because the firm used those accumulated profits by reason of the family members' partnership capacity, the interest arose at least indirectly from that capacity. The Court distinguished authorities concerning an actual deposit, loan or separately supplied capital and did not state that every payment of interest to a minor automatically falls within the provision.
Source: Accumulated-profit nexus and deposit/loan distinctions: SCR pp.729-731 / PDF pp.3-5
03 · Judicial decision
The Court affirmed the High Court's answers against the assessee. Interest on the wife's and minors' accumulated partnership profits was includible under section 16(3)(a)(i) and (ii). The appeal was dismissed with costs.
04 · Outcome / in whose favour
In favour of Revenue. The disputed interest on accumulated profits remained included in the assessee's income and his appeal was dismissed with costs. The judgment preserves factual distinctions for genuine deposits, loans and capital contributions.
05 · AKHB REVIEW POINT
AKHB analysis: classify the underlying balance before analysing interest. Preserve partnership deeds, profit-allocation entries, withdrawal rights and any later loan or deposit agreement. The source and capacity in which funds remained with the firm can be decisive. For a current matter, separately verify the later clubbing statute, the family member's legal capacity and subsequent treatment of this decision.
Source: AKHB analysis based on the character-of-funds distinction
Source & verification
Download original judgment / order · Open cited source rendition
Full 5-page SCR report read and visually reviewed. The editorial headnote is on PDF p.1; the unnumbered judicial text begins on PDF p.2/SCR p.728 and ends on PDF p.5/SCR p.731. No neighbouring judgment is included.
- Exact source bytes and 5-page count match catalogue asset 1967_1_727_731.
- The report identifies Civil Appeal No.556 of 1965, decided 4 October 1966 by J.C. Shah, V. Ramaswami and V. Bhargava JJ.; Bhargava J. delivered the judgment.
- PDF p.1 is an editorial headnote; judicial reasons were taken from PDF pp.2-5/SCR pp.728-731.
- The constitutional question was not pressed in the Supreme Court in view of Balaji; the substantive holding concerns interest on accumulated profits.
Statutory scope
This ruling construes section 16(3)(a)(i) and (ii) of the Indian Income-tax Act, 1922 for AY 1957-58. It does not certify treatment under later clubbing provisions or a current partnership arrangement.
Later treatment
Source checked 2026-10-10. Later treatment and present statutory applicability have not been comprehensively checked; no current citator clearance is represented.
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