Trust settlement for spouse treated as transfer, making dividend income taxable under clubbing provisions.

Dividend income from shares settled in trust for the assessee's wife was held includible in the assessee's total income under section 16(3)(b) of the Income-tax Act. The trust deed divested the settlor of ownership, so the shares could not be treated as remaining his property under section 16(1)(c), and no revocable settlement or direct or indirect benefit to the settlor was shown. A declaration of trust by a settlor acting as trustee was treated as a transfer of assets because the settlor assumes a different legal character in that capacity. Natural love and affection was not accepted as adequate consideration for section 16(3)(b).

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Issues: Whether the dividend income arising from shares settled in trust for the assessee's wife was includible in the assessee's total income under section 16(1)(c) or section 16(3)(b) of the Income-tax Act.

Analysis: The trust deed divested the settlor of the shares and vested them in the trustee, so the assets could not be treated as remaining the property of the settlor within section 16(1)(c). The settlement was also not revocable for the relevant period and no direct or indirect benefit to the settlor was shown, bringing it within the statutory exclusion from that clause. As to section 16(3)(b), a declaration of trust by a settlor acting as trustee was treated as a transfer of assets, since the settlor holds a different legal character as trustee. The words of the clause were held wide enough to cover transfer to oneself in a different legal capacity. The expression "adequate consideration" was held not to include natural love and affection, because such a reading would largely defeat the provision in the context of transfers for the benefit of a or minor child.

Conclusion: The dividend income was includible in the assessee's total income under section 16(3)(b) and not excluded by section 16(1)(c).

Final Conclusion: The reference was answered in the affirmative, holding that the income was assessable in the hands of the assessee.

Ratio Decidendi: A declaration of trust by which a settlor divests property for the benefit of his wife can constitute a transfer of assets for section 16(3)(b), and natural love and affection is not adequate consideration for that provision.

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