Section 64(1)(v) covers income from converted transferred assets where a proximate connection with the original transfer exists.

Section 64(1)(v) of the Income-tax Act requires inclusion of income arising directly or indirectly from assets transferred otherwise than for adequate consideration for the benefit of a spouse or minor child. Income from converted assets remains covered where there is a proximate connection between the transfer and the income, so later investment of the transferred property does not break the statutory link. The provision is not confined to a notional return on the original amount transferred. On that basis, the entire income attributable to the assessee's transferred share in trust property was includible in total income.

---

---

Issues: Whether income arising from property purchased out of assets settled by the assessee in trust for the benefit of minor children was includible in the assessee's total income under section 64(1)(v) of the Income-tax Act, 1961, and whether such inclusion was confined only to a notional return on the amount originally transferred.

Analysis: The statutory language of section 64(1)(v) requires inclusion of all income arising directly or indirectly from assets transferred otherwise than for adequate consideration for the benefit of a spouse or minor child. The reference to income arising indirectly is wide enough to cover income earned from converted assets where there is a proximate connection between the transfer and the income. The assessee's transfer was direct, for inadequate consideration, and for the benefit of minor children; the subsequent investment in property did not break the statutory link. The amendment made by the Taxation Laws (Amendment) Act, 1975 did not alter this position so far as accrual of income is concerned. The 1922 Act provision was materially different, and the present provision could not be confined to a hypothetical yield on the original amount transferred.

Conclusion: The entire income attributable to the assessee's transferred share in the trust property was rightly included under section 64(1)(v), and the Revenue's view was correct.

Ratio Decidendi: Where income is derived from assets settled for the benefit of minor children, section 64(1)(v) applies to income arising directly or indirectly from those assets, including income from converted assets, provided a proximate connection exists between the transfer and the income.

---