S. SRINIVASAN vs COMMISSIONER OF INCOME-TAX, MADRAS

The Supreme Court held that under Section 16(3)(a)(i) and (ii) of the Income-tax Act, 1922, the interest accrued to the wife and minor sons of the appellant could be included in the income of the assessee for assessment purposes. The Court clarified that the accumulated profits in the firm, which were allowed to earn interest, were not equivalent to deposits or loans made by a stranger, as the profits were earned due to their partnership status. Thus, the interest indirectly arose from their capacity as partners and was rightly assessable under the statute.