Indirect transfer of shares to a wife can trigger income clubbing, while trust-style benefit transfers fall outside the narrower clause.

Inter-connected share transfers carried out as part of a single scheme may constitute an indirect transfer of assets to a wife under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, even where no direct one-step transfer from husband to wife occurs. On that reasoning, dividend income from such shares is includible in the assessee's income. Section 16(3)(b) is narrower and applies only to transfers to another person for the wife's or minor child's benefit, such as a trust or similar arrangement; it does not extend to indirect chain transactions of this kind.

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Issues: (i) Whether the transfer of shares, though not made directly by the assessee to his wife, was an indirect transfer of assets to the wife within section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. (ii) Whether section 16(3)(b) of the Indian Income-tax Act, 1922 applied to the transactions in question.

Issue (i): Whether the transfer of shares, though not made directly by the assessee to his wife, was an indirect transfer of assets to the wife within section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.

Analysis: The transfers made on the same day by the father, the assessee and the assessee's brother were closely inter-related and produced the same result as a direct transfer to the respective wives. The surrounding circumstances indicated that the arrangement was designed to reach the wives through a circuitous route. The expression "indirectly" in section 16(3)(a)(iii) was applied to cover such connected transactions and not merely transfers in which the identical asset passed unchanged from husband to wife.

Conclusion: Section 16(3)(a)(iii) applied. The dividend income from the transferred shares was includible in the assessee's income.

Issue (ii): Whether section 16(3)(b) of the Indian Income-tax Act, 1922 applied to the transactions in question.

Analysis: Section 16(3)(b) contemplates a transfer of assets to another person for the benefit of the transferor's wife or minor child, such as by a trust or similar arrangement. The transactions here did not create any trust or quasi-trust and were concerned with indirect transfers rather than the direct transfer contemplated by that clause.

Conclusion: Section 16(3)(b) did not apply. The Tribunal was correct on this aspect.

Final Conclusion: The reference was answered against the assessee on the applicability of section 16(3)(a)(iii) and in the assessee's favour on the inapplicability of section 16(3)(b), leaving the decision only partly in the revenue's favour.

Ratio Decidendi: A series of inter-connected transfers carried out as part of one scheme may amount to an indirect transfer of assets to the wife within section 16(3)(a)(iii), even if the property does not move by a direct one-step transfer from husband to wife; section 16(3)(b) is confined to transfers to another person for the wife's benefit and does not cover such indirect chain transactions.

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