2004 (9) TMI 89 - HC - Income Tax

Whether, Tribunal was right in law and had valid materials in holding that the assessee had transferred only the lodging business to the trust and hence the transfer is not hit by the provisions of section 60, even though the property with which the lodging business was done has not been transferred by the assessee to the trust? - Revenue, contend that the agreement is only for ten years and that would not by itself constitute an absolute transfer - We are unable to accept his contention as there is no provision to require an absolute transfer, as argued by learned counsel for the Revenue either in section 60 or section 63 of the Income-tax Act, which defines the word transfer . Question is answered in the affirmative, against the Revenue

Summary

Issues:
Transfer of business to a trust without transferring the property itself, Applicability of section 60 of the Income-tax Act, Interpretation of transfer of assets, Agreement to transfer assets, Duration of agreement for transfer.

Analysis:
The case involved a dispute regarding the transfer of a lodging business by an individual to an educational and charitable trust without transferring the property itself. The primary issue was whether this transfer was hit by the provisions of section 60 of the Income-tax Act. The Assessing Officer and the Commissioner of Income-tax (Appeals) had held that the income from the property should be taxed in the hands of the individual as the property itself was not transferred to the trust. However, the Appellate Tribunal reversed this decision, stating that the transfer of the business itself to the trust was sufficient and not hit by section 60.

The Revenue argued that only the income from the property was transferred to the trust, not the property itself, making it subject to section 60. The Revenue relied on previous court decisions to support their argument, emphasizing that there must be a transfer of the income-earning asset for section 60 to apply. However, the court distinguished these cases and referred to the decision in Dalmia Cement Ltd. v. CIT, which clarified the definition of transfer of assets under sections 60 to 62 of the Income-tax Act. The court held that an agreement to transfer, as in the present case, excludes the applicability of section 60.

The court found that the principle in Dalmia Cement Ltd. v. CIT was directly applicable to the current case, as there was an agreement in place for the trust to manage the property and utilize the income for educational and charitable purposes. The court rejected the Revenue's argument that the agreement was limited to ten years and did not constitute an absolute transfer, as there was no such requirement in the relevant sections of the Income-tax Act. Consequently, the court answered the question of law in favor of the assessee, stating that the transfer was not hit by section 60, and returned the reference accordingly.