Law:

Section:

Section 4(5) of the Wealth-tax Act, 1957 - Deemed wealth - Shares of a company were transferred to transferees by assessee - During period when transfer was in force company issued bonus shares to transferees on basis of aforesaid shares - Whether bonus shares held by transferees were assessable in hands of assessee - Held, yes Facts The shares of a company were transferred to certain transferees by the assessee. During the period when the said transfer was in force, bonus shares were issued by the company to the transferees by virtue of those shares held by them. The Tribunal held that the said bonus shares were not assessable in the hands of the assessee. On reference : Held In the instant case, it was true that bonus shares were issued to the transferees and not to the transferor. Nevertheless, it could not be gainsaid that bonus shares were issued on the strength of and by reason of the shares held by the transferees. Although the bonus shares were issued in the names of the transferees, being the holders of the other shares, the bonus shares would not have been issued, but for the other shares. In other words, the bonus shares assumed the character of an accretion. Even though the shares could not change hands except by means of a proper transfer effected in accordance with the provisions of the Companies Act, nevertheless, tax was charged not under the Companies Act, but by the taxing statute. So it was that statute which governed the question involved. Therefore, the said bonus shares were assessable in the hands of the assessee. Even if the asset transferred under an 'irrevocable transfer' as that expression is understood within the meaning of the Explanation to section 4, has not been retransferred to the transferor in accordance with the relevant provisions of the Companies Act, for the purpose of a charge under section 3 the asset shall be deemed to be an asset of the transferor as soon as the power to revoke in terms of the instrument of transfer arises. Although the shares would continue to remain in the hands of the transferees until revoked and the income accruing from such shares would be assessable under the Income-tax Act in the hands of the…

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