1997 (12) TMI 93 - HC - Income Tax

Accounting Year, Cash System, Partnership Deed, Transfer Of Income Without Transfer Of Assets

Summary

Issues Involved:
1. Inclusion of Rs. 49,819 in the assessee's income under section 60 of the Income-tax Act, 1961.
2. Inclusion of Rs. 49,819 in the assessee's income under section 176 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 49,819 in the assessee's income under section 60 of the Income-tax Act, 1961:

The court examined whether the sum of Rs. 49,819 should be included in the assessee's income under section 60 of the Income-tax Act, 1961. The assessee had retired from the solicitor firm Bhaishankar Kanga and Girdharlal and was entitled to receive his share of profits for work done prior to his retirement. On December 27, 1976, the assessee executed a deed of settlement, irrevocably assigning his right to receive his share from the firm to the "M. G. Doshit Family Trust." The Income-tax Officer included the amount in the assessee's income, but the Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, stating that the income had not accrued to the assessee at the time of the settlement.

The court noted that the deed of settlement was irrevocable and prohibited any benefit from reverting to the settlor. The court held that section 60 applies when the asset producing the income remains with the transferor, but in this case, the assessee had transferred all his rights and entitlements, thus divesting himself of any right to receive the income. The court concluded that there was a valid assignment of the entire right to receive income, and the assessee had created an overriding title in favor of the trust. Therefore, section 60 did not apply, and the sum of Rs. 49,819 was not liable to be included in the assessee's income.

2. Inclusion of Rs. 49,819 in the assessee's income under section 176 of the Income-tax Act, 1961:

The court examined whether the sum of Rs. 49,819 should be included in the assessee's income under section 176 of the Income-tax Act, 1961. Section 176(4) applies when a profession is discontinued, but the court found that the assessee had not discontinued his profession; he continued to practice in his individual capacity. Therefore, section 176(4) did not apply to the facts of the case.

Conclusion:

The Tribunal was justified in holding that the income in question could not be assessed in the hands of the assessee under either section 60 or section 176(4) of the Income-tax Act, 1961. Both questions were answered in the affirmative, in favor of the assessee and against the Revenue. The reference was disposed of accordingly.