Law: Income Tax Act, 1922

Section: 16(3)(a)(iv)

Section 64 of the Income-tax Act, 1961 [Corresponding to section 16(3)(a)(iv) of the Indian Income-tax Act, 1922] - Transfer of assets - For benefit of spouse etc. - Assessee transferred certain shares of a company to his minor son - Subsequently company allotted bonus shares in name of minor son - Whether dividend income on bonus shares was not liable to be included in income of assessee - Held, yes FACTS The assessee was the holder of certain shares of a company. The assessee gifted these shares to his minor son 'V'. Under section 16(3)(a)( iv), of 1922 Act the dividend income from these shares was liable to be included in computing the total income of the assessee for the purpose of assessment. Subsequently, the directors of the company, resolved to recommend the issue of bonus shares by increasing the capital of the company and a certain number of bonus shares were issued in the name of the assessee's minor son. There was a further increase in the capital of the company and certain additional bonus shares were issued in his name. The ITO held that the shares originally transferred by the assessee and the bonus shares were "assets transferred" by the assessee, and computed his total income under section 16(3) of 1922 Act by including the dividend income from all these shares. The AAC and the Tribunal confirmed the order of the ITO. On reference: HELD The assessee conceded that the dividend income from the shares transferred by him to his minor son was liable to be included in computing his total income. He contended however, that the dividend received from the bonus shares was not liable to be included. The contention of the assessee must be accepted. The assets transferred by the assessee were shares. The bonus shares were in the hands of the assessee's minor son undoubtedly an accretion to the assets transferred, but they could not be regarded as "assets transferred" by the assessee. The source of the dividend income from the bonus shares was not the assets transferred but the accretion thereto; and that income could not be regarded as arising even indirectly from the assets transferred by the assessee. The Legislature has not by enacting section 16(1)(a…

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