Spouse transfer income inclusion applies where gifted cash is invested and later earns dividends or interest.

Income from dividends and interest was held to fall within the spouse-transfer inclusion rule where the husband had made cash gifts to his wife and she later invested those gifts in shares and deposits. The provision applies to income arising directly or indirectly from assets transferred by the husband, and the later investment by the wife did not sever the statutory link. The controlling test is a proximate, not remote, connection between the transferred assets and the income. On that basis, the income was correctly included in the assessee's taxable income.

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Issues: Whether income arising as dividends from shares and interest from deposits, acquired out of cash gifts made by the assessee to his wife, was includible in the assessee's total income under section 16(3)(a)(iii).

Analysis: The statutory language covers income arising directly or indirectly from assets transferred directly or indirectly to the wife by the husband. The cash gifts were direct transfers, and the wife's subsequent investment of those gifts in shares and deposits did not break the link between the transferred assets and the income earned from them. The requirement is not that the income must spring immediately from the transfer itself, but that there must be a proximate nexus between the transferred assets and the income. The earlier decision relied upon concerned a remote connection and was therefore distinguishable.

Conclusion: The income from dividends and interest was income indirectly arising from the assets transferred by the assessee to his wife and was correctly included in the assessee's taxable income.

Final Conclusion: The appeals failed because the statutory inclusion provision applied to income with a proximate connection to the transferred assets, even where the income arose after investment by the recipient spouse.

Ratio Decidendi: For section 16(3)(a)(iii), income is taxable if it arises directly or indirectly from assets transferred to the wife and the transfer must bear a proximate, not remote, connection with the income.

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