Partial clubbing applies only to the inadequacy in consideration, while indirect transfer to minors needs proof of a connected arrangement.

Under section 16(3)(a)(iii), income from immovable property transferred by a husband to his wife is includible only to the extent the transfer lacked adequate consideration; inadequacy does not make the entire income taxable in the transferor's hands. Under section 16(3)(a)(iv), an indirect transfer to minor children must be shown by evidence of a connected or circuitous arrangement, and not by mere identity of the gifted asset. The discussion emphasises that the wife remains owner despite inadequacy of price, and that a later gift by intermediate donees to the minors is insufficient without proof of a common scheme or prior agreement.

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Issues: (i) Whether the sale of immovable property by the assessee to his wife was for adequate consideration so that only the proportion attributable to inadequate consideration could be included in the assessee's income under section 16(3)(a)(iii); (ii) Whether the gift of shares first made by the assessee to his sister and maternal uncle, and the later gifts of the same shares by them to the assessee's minor sons, constituted an indirect transfer by the assessee attracting section 16(3)(a)(iv).

Issue (i): Whether the sale of immovable property by the assessee to his wife was for adequate consideration so that only the proportion attributable to inadequate consideration could be included in the assessee's income under section 16(3)(a)(iii).

Analysis: The statutory scheme of section 16(3)(a)(iii) is to include in the husband's income only so much of the income from assets transferred to the wife as arises from a transfer otherwise than for adequate consideration. The transfer itself is not rendered void, and the wife remains owner of the property. On the facts, the property's value was found to be about Rs. 1,50,000, while the sale consideration was Rs. 1,00,000. The Court accepted the Tribunal's finding that the consideration was not adequate, but rejected the Revenue's contention that inadequacy required inclusion of the entire income from the property. The inclusion operates only to the extent of the inadequacy of consideration.

Conclusion: The sale was not for adequate consideration, but only the proportion of income referable to the inadequate consideration was includible in the assessee's income; the remaining income was not includible.

Issue (ii): Whether the gift of shares first made by the assessee to his sister and maternal uncle, and the later gifts of the same shares by them to the assessee's minor sons, constituted an indirect transfer by the assessee attracting section 16(3)(a)(iv).

Analysis: Section 16(3)(a)(iv) applies where assets are transferred directly or indirectly to a minor child otherwise than for adequate consideration. The Revenue had to prove that the later gifts by the sister and maternal uncle were part of a connected arrangement or a circuitous device amounting to an indirect transfer by the assessee. The Court found no evidence of any prior agreement or common scheme, and the mere identity of the subject-matter of the gifts was insufficient to infer that the two sets of transactions were inseparable parts of one device. The donees were absolute owners during the interval and could have dealt with the shares as they pleased. The evidence did not establish an indirect transfer by the assessee.

Conclusion: The dividend income from the shares was not includible in the assessee's income under section 16(3)(a)(iv).

Final Conclusion: The reference was answered by sustaining partial inclusion of the income from the immovable property, while rejecting inclusion of the dividend income from the shares; the decision turned on the extent of inadequacy of consideration and on proof of an indirect transfer.

Ratio Decidendi: Under section 16(3)(a)(iii), only the part of the income from transferred assets corresponding to the inadequacy of consideration is includible in the transferor's income, and under section 16(3)(a)(iv), an indirect transfer to a minor child must be proved by evidence of a connected or circuitous arrangement and not by mere identity of the gifted asset.

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