Rights shares and perquisite treatment under income tax: receipt through an HUF karta is not taxable merely due to directorship.

Rights shares received through an HUF's karta, even where he is a director or managing director, are not treated as a perquisite under section 2(24)(iv) merely because of that office. The receipt arises from the shareholder's existing holding, and a director stands in no different position from any other shareholder for this purpose. The character of the issue does not change because the shares are held on behalf of an HUF. Where the same receipt is not taxable as income in the director's personal assessment, it is likewise not includible in the HUF's total income. The article concludes that the rights shares were not taxable in the HUF's hands.

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Issues: Whether rights shares received by an HUF through its karta, who was also a director or managing director of the company, constituted income includible in the HUF's total income as a perquisite under section 2(24)(iv) of the Income-tax Act, 1961.

Analysis: Rights or bonus shares are not received gratis but arise from the shareholder's existing holding. A director or managing director, in relation to such shares, stands in no different position from any other shareholder so far as the receipt of rights or bonus shares is concerned. The character of the receipt does not become a perquisite merely because the shares are held by the karta of an HUF or because he occupies a directorial office in the company. If such receipt is not taxable as income in the hands of the director in his personal assessment, the same receipt cannot be taxed in the hands of the HUF when the shares are held on its behalf.

Conclusion: The amount received by way of rights shares was not includible in the HUF's total income under section 2(24)(iv).

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