Income of Minor from Indirect Transfer taxable under section 16(3)(a)(iv); sham cross-gifts treated as transfer.

Where identical reciprocal deposits were part of a pre-conceived scheme, income arising to a minor from assets indirectly transferred by the assessee falls within section 16(3)(a)(iv) and is taxable as the assessee's income. The court emphasises that transfers labelled as cross-gifts or simultaneous mutual transactions are not per se outside the provision; simultaneity is not conclusive and may be disregarded where evidence shows the transactions are sham or parts of a single arrangement. Outcome: the minor's income of Rs. 933 was included in the assessee's total income.

---

---

Issues: Whether the income of Rs. 933 derived from the sum of Rs. 50,000 credited in the name of the assessee's minor son Vijayakumar falls to be included in the assessee's total income under section 16(3)(a)(iv) of the Income-tax Act, 1922 on the ground that the sum was indirectly transferred to the minor by the assessee.

Analysis: The provision treats income arising to a minor from assets transferred by the assessee otherwise than for adequate consideration as the income of the assessee, whether the transfer is direct or indirect. The legislative purpose is to prevent taxpayers reducing their tax liability by transferring assets to minors while retaining or benefiting from the income. The facts disclose contemporaneous reciprocal transactions among three brothers whereby identical sums were withdrawn and redeposited in the names of minors of the respective brothers, designed to present the transfers as not being from father to son. The finding of the authorities, affirmed on review, is that the transactions formed part of a single pre-conceived arrangement and that the assessee in substance parted with Rs. 50,000 resulting in benefit to his minor son. The decision in C. M. Kothari v. Commissioner of Income-tax does not establish a rule that all cross-gifts or simultaneous mutual transactions are per se outside section 16(3); simultaneity alone is not conclusive, but where evidence shows the transactions are sham or parts of a single scheme to evade tax, the provision applies.

Conclusion: The income of Rs. 933 is to be included in the assessee's total income under section 16(3)(a)(iv) of the Income-tax Act, 1922; the question is answered in the affirmative and against the assessee (decision in favour of the Revenue).

Ratio Decidendi: Where transfers are, in substance, parts of a pre-conceived scheme effectuating an indirect transfer of the assessee's assets to his minor child otherwise than for adequate consideration, section 16(3)(a)(iv) applies and income arising therefrom is taxable as the assessee's income.

---