1979 (10) TMI 35 - HC - Wealth-tax

Summary

Issues:
1. Whether bonus shares gifted to a minor daughter can be considered as assets transferred by the assessee under the Wealth-tax Act, 1957?
2. Whether the value of bonus shares issued to the minor daughter should be excluded in computing the net wealth of the assessee?

Analysis:
The case involved references under section 27(1) of the Wealth Tax Act, 1957. The primary issue was whether the bonus shares gifted to a minor daughter by the assessee should be considered assets transferred by the assessee under section 4(1)(a)(ii) of the Act. The assessee had initially gifted 10,000 shares to the minor daughter, and subsequently, due to bonus shares issued by the company, the daughter acquired another 10,000 shares. The dispute arose when the value of the entire 20,000 shares was included in the total wealth of the assessee. The Appellate Tribunal held that the bonus shares in the hands of the minor daughter could not be considered as assets transferred by the assessee, either directly or indirectly, under the Act. This decision was based on the fact that the bonus shares were not transferred by the assessee but were allotted by the company itself based on the original shareholding.

The interpretation of section 4(1)(a)(ii) of the Wealth Tax Act was crucial in determining the tax liability in this case. The provision requires a transfer by the assessee to a minor child without adequate consideration for the assets to be included in the individual's net wealth. The court emphasized that for the bonus shares to be considered transferred assets, there must be a direct or indirect transfer by the assessee. The judgment referred to a similar case decided by the Bombay High Court, highlighting that the accretions to the assets transferred should not be taxed in the hands of the transferor. In this case, the bonus shares were not directly or indirectly transferred by the assessee to the minor daughter, as they were allotted by the company based on the original shareholding.

The court also discussed a previous decision related to indirect transfers of assets to minor children. In that case, it was held that indirect transfers could still be taxable if there was a clear transfer of the asset by the assessee to the minor child, even if done through indirect means. However, in the present case, the court concluded that there was no transfer of the bonus shares by the assessee, and therefore, the bonus shares could not be considered as assets transferred by the assessee under the Wealth Tax Act. The judgment favored the assessee, ruling that the bonus shares gifted to the minor daughter should be excluded in computing the net wealth of the assessee.