Income from shares held by spouse and minors is not assessable to the husband under Section 16(3) if not directly arising from transferred assets.

1This is a reference under S.66(1) of the Indian Income Tax Act, 1922, by the Income Tax Appellate Tribunal, Madras. The question referred is:
"Whether the aforesaid income of the wife and minor children is assessable in the hands of the assessee under S.16(3)(a) (iii) and (iv) ? "

2 The assessment years concerned are 1950-51, 195t-52, and 1952-53. The order from which the reference arises is the consolidated order of the Income Tax Appellate Tribunal in I. T. A. Nos. 974, 975 and 2653 of 1958-59 dated 18-11-1958.

3 The Tribunal said :
"The assesses, Sri M. K. Mackar Pillai, owned house properties and agricultural lands in and around Alwaye and was carrying on business under the name and style of M/s. Mackar Pillai & Sons at Cochin and Always. By a deed of settlement dated 12-11-1116 M- E. he transferred certain agricultural lands to his wife Khader Amina Unma and minor daughters (i) Kadija, (ii) Jameela and (iii) Zulckha. In October, 1941, he converted the business of Mackar Pillai and Sons into a private limited company. It is common ground that Mackar Pillai's wife and three minor children were alloted certain shares (hereinafter referred to as the company shares) in the said company. Each of them got Rs. 3,000/- as dividends from these shares which together with a sum of Rs. 1,000/- being income from agricultural lands, transferred to them in the manner stated above, was utilised to purchase shares for each of them in the Back of Alwaye, Ltd., (hereinafter referred to as 'the (Bank shares'). These shares yielded dividend income and the question at issue is whether this income from the shares of Bank of Alwaye Ltd., can be assessed in the hands of the assessee, Sri Mackar Pillai, under the provisions of sec. 16(3)(a)(iii) & (iv) of the Act.";
and held :
"The income in question from the shares held by Mackar Pillai's wife and minor children in Bank of Alwaye, Ltd., is includible in the total income of Mackar Pillai under the provisions of sec. 16(3)(a)(iii) and (iv) of the Act.
There is an additional contention regarding the inclusion of the interest received by the wife and minor children by depositing in Bank the dividend received by them from Mackar Pillai and Sons Ltd. Our decision on the first question covers this as well."

4 The amounts in controversy will be clear from the following statement.

5 The relevant portion of S.16(3) of the Indian Income Tax Act, 1922, reads as follows:
"In computing the total income of any individual for the purpose of assessment, there shall be included-
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-
(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration ;"
It is common ground that the agricultural lands and the shares in Mackar Pillai and Co. Ltd. transferred by the assessee to his wife and minor children in 1116 M, E. have to be considered as assets "transferred directly or indirectly" by him to them, that the income derived from those assets has to be included in the computation of his total income. The dispute is only as regards the assessee's liability to tax in respect of the yield from the investment of such income by his wife and minor children.

6 The assessee will be liable to tax in respect of that yield if, and only if it can be considered an income arising "directly or indirectly" from the assets transferred by him. It is clear that the said yield cannot be considered as arising "directly" from the assets transferred by the assessee. We think we will also have to hold that it does not arise "indirectly" from the assets transferred by him. Even the word "indirectly" apparently indicates a nexus between the income assessable and the assets transferred which i