(1) The assesee was the holder of 350 shares of the shree Ram Mills Ltd., On 2812-1946, the assessee gifted these shares to his ninor son Virendra. Under S.16(3)(a)(iv)of the Income - Tax Act, the dividend income fromthese 350 shares was liable to be included in computing the total income of the assessee for the purpose of assessment. Onm 9.8.1947, the directors of the Shree Ram Mills,. Ltd, 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 assesse's minor son Virendra. There was a further increase in the capital of the company on 30.12.1947, and certain additional bonus shares were issued in his name. VIRENDRA. The minor son of the assessee, was thus alloted 744 bonus shares for is original holding of 350 shares. The Income Tax Officer held that the 350 shares originally transferred by the assessee and the 744 bonus shares were 'assets trnasferred y the assessee, and computed his total income under S.16(3) of the Income Tax Act by including the dividend income from all these shares. The appellate assistant Commissioner of Income Tax and the Income Tax Appellate Tribunal confirmed the order of the IncomeTax Officer. At he request of the assessee the Tribunal has refgerred for decision the question whether 'the dividend income from the 744 bonus shares held by the assessee's minor son is taxable in the hands of the assessee under S.16(3) of the Income Tax Act.''
(2) Section 16(3)of the Income - Tax Act in so far as it is material provides:
'In computing the total icome of any indidividual for the purpose of the income of a wife or minor child for such individual as arises directly or indirectly ............. (iv) from assets transferred directly a married daughter, by such individual otherwise than for adequate consideration.
The assessee concedes that the dividend income from the 350 sares trnasferred by him to his minor son is liable to be included in computing his total income. He contends, however, that the dividend received fro the 744 bonus shares is not liable to be so included. In our judgment, the contention of the assessee must be accepted. The assets trnasferred by the assessee were 350 shares. The bonus shares were in the hands of the assesse's minor son undoubtedly an accretion to the assets transferred, but they could not be regarded as ``assets transferred'' by the assessee Mr. Joshi, who appears on behalf of the Department, contends that the dividend income from the bonus shares in the hands of the minor child is income which arose indirectly from assets transferred by the assessee and is liable to be included the purpose of assessment. But, in out judgment, the source of the dividend income from the bonus shares is not the assets transferred but the accretion thereto; and that income cannot be regarded as arising even indirectly from the assets transferred by the assessee. The Legislative has not by enacting S. 16(3) (a) (vi) sought to tax in the hands of the assessee income arising from accretions to the assets transferred by him to his minor children.
(3) We, therefore, answer the question referred to us in the negative. The Commissione of Income Tax to pay the costs of the reference.
(4) Answer of Assessee