1. The assessee was the holder of 350 shares of the Shree Ram Mills Ltd. On 28th December, 1946, the assessee gifted these shares to his minor son Virendra. Under section 16(3)(a)(iv) of the Income-tax Act, the dividend income from these 350 shares was liable to be included in computing the total income of the assessee for the purpose of assessment. On 9th August, 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 assessee's minor son Virendra. There was a further increase in the capital of the company on 30th December, 1947, and certain additional bonus shares were issued in his name. Virendra, the minor son of the assessee, was thus allotted 744 bonus shares for his 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 transferred' by the assessee, and computed his total income under section 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 Income-tax Officer. At the request of the assessee the Tribunal has referred 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 section 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 income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - ....
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration.'
3. The assessee concedes that the dividend income from the 350 shares transferred by him to his minor son is liable to be included in computing his total income. He contends, however, that the dividend received from the 744 bonus shares is not liable to be included. In our judgment, the contention of the assessee must be accepted. The assets transferred by the assessee were 350 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. 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 in computing the total income of the assessee for the purpose of assessment. But, in our 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 Legislature has not by enacting section 16(3)(a)(iv) sought to tax in the hands of the assessee income arising from accretions to the assets transferred by him to his minor children.
4. We, therefore, answer the question referred to us in the negative. The Commissioner of Income-tax to pay the costs of the reference.
5. Question answered in the negative.