Gifted shares intended for the Hindu undivided family are taxable as family property, including accretions and related income.

Where gifted shares were transferred without an express recital defining the donee's interest, their character had to be determined from the donor's intention and surrounding circumstances. The grandfather's per stirpes distribution, the father's affidavit, and the assessee's own treatment of the shares showed that the gifts were meant for the Hindu undivided family, not for the assessee personally. The right shares issued against those holdings, financed from dividends on the original shares, were treated as accretions to the same family property. The accumulated dividend deposits and the interest earned on them likewise retained that character. The dividend and related income were therefore not taxable in the assessee's individual hands.

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Issues: (i) Whether the shares gifted by the grandfather and father belonged to the assessee's Hindu undivided family and the income therefrom was not taxable in the assessee's individual hands, including the right shares allotted on those gifted shares. (ii) Whether the accumulated deposits out of dividends on the gifted shares and the interest thereon belonged to the Hindu undivided family.

Issue (i): Whether the shares gifted by the grandfather and father belonged to the assessee's Hindu undivided family and the income therefrom was not taxable in the assessee's individual hands, including the right shares allotted on those gifted shares.

Analysis: In the absence of any express recital in the gift, the character of the bounty had to be determined from the surrounding circumstances and the donor's intention. The distribution by the grandfather was made per stirpes among the branches of the family, which indicated an intention to benefit the family branches and not the donees personally. The father's affidavit also supported the view that the shares were meant for the joint family and not for the assessee's separate enjoyment. The assessee's own treatment of the shares as belonging to the Hindu undivided family when his son was born further corroborated that understanding. The right shares were financed out of the dividends from the original gifted shares and were therefore merely an accretion to the original holding.

Conclusion: The gifted shares, together with the right shares, belonged to the Hindu undivided family and the dividend income was not taxable in the assessee's individual hands.

Issue (ii): Whether the accumulated deposits out of dividends on the gifted shares and the interest thereon belonged to the Hindu undivided family.

Analysis: The deposits represented accumulation of the income from the gifted shares, whose character had already been found to be joint family property. Since the source itself belonged to the Hindu undivided family, the accretions derived from that source retained the same character. The interest earned on those deposits followed the nature of the principal amount.

Conclusion: The accumulated deposits and the interest thereon belonged to the Hindu undivided family and were not assessable as the assessee's individual income.

Final Conclusion: The references were answered in favour of the assessee, and the revenue failed on all substantive questions decided.

Ratio Decidendi: Where a gift of self-acquired property is made without express terms as to the donee's interest, its character must be determined from the donor's intention gathered from the document and surrounding circumstances; if the gift is intended for a family branch, the property and its accretions belong to that Hindu undivided family.

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