Clubbing of dividend from bonus shares fails where income arises from accretion, not the transferred asset.

Dividend income from bonus shares allotted to a minor child after an earlier transfer of shares by the assessee was not taxable in the assessee's hands under Section 16(3)(a)(iv) of the Income-tax Act, 1922. The provision applies to income arising directly or indirectly from assets transferred by the assessee, but the bonus shares were an accretion to the transferred holding and not the transferred assets themselves. As the dividend arose from that accretion rather than from the original transfer, it could not be clubbed with the assessee's income.

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Issues: Whether dividend income from bonus shares allotted to a minor child on shares earlier transferred by the assessee is taxable in the assessee's hands under Section 16(3)(a)(iv) of the Income-tax Act, 1922.

Analysis: The assessee had transferred 350 shares to his minor son, and the bonus shares were subsequently issued as an accretion to that holding. The statutory provision brings to tax income arising directly or indirectly from assets transferred by the assessee, but the bonus shares themselves were not the transferred assets. The source of dividend from the bonus shares was the accretion and not the original transfer, so the income could not be treated as arising even indirectly from the assets transferred by the assessee.

Conclusion: The dividend income from the 744 bonus shares was not taxable in the hands of the assessee.

Ratio Decidendi: Income arising from accretions to assets previously transferred to a minor child is not income arising directly or indirectly from the transferred assets for the purpose of clubbing under Section 16(3)(a)(iv).

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