The Commissioner Of Income-Tax Tamil Nadu Iii, Madras v. A.radhakrishnan

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 07/09/2004 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN T.C.No.86 of 2000andT.C.No.214 of 2000 The Commissioner of Income-TaxTamil Nadu III, Madras. .. Appellant -Vs- A.Radhakrishnan .. Respondent PRAYER: Tax case reference under Section 256(2) of the Income Tax Actreferred by the Income Tax Appellate Tribunal, 'B' Bench, Madras, inR.A.Nos.656 and 657/Mds/ 1993 (I.T.A.Nos.2195 and 2438/Mds/1992) for theassessment year 1988-89 and 1989-90. !For Appellant : Mr.J.NarayanasamyStanding Counsel forIncome Tax Department ^For Respondent : ..Nil.. :JUDGMENT (Judgment of this Court was delivered byK.RAVIRAJA PANDIAN.J) Pursuant to the orders of this Court dated 24.8.1998, the Income TaxAppellate Tribunal, 'B' Bench, Madras has made a statement of case to thisCourt by raising the following question of law for our answer: "Whether, on the facts and in the circumstances of the case, the AppellateTribunal was right in law and had valid materials in holding that the assesseehad transferred only the lodging business to the trust and hence the transferis not hit by the provisions of Section 60 , even though the property withwhich the lodging business was done has not been transferred by the assesseeto the Trust?" 2. The assessee, an individual, is the owner of a building situated at No.5A (Old No.6), Lakshmikanthan Street, Thyagaraja Nagar, Madras. Thebuilding comprises of 40/41 single cot residential rooms and 40 /41 double cotresidential rooms with other facilities. For the assessment year 1988-89 and1989-90, the assessee made a claim before the Assessing Officer to the effectthat by a gift deed dated 18.6.1986, he had gifted the income from the saidmansions to one "M/s.Poonga Educational and Charitable Trust" and hence, nopart of the income from the said mansions was chargeable to tax in his hands.The claim of the assessee has been negatived by the Assessing Officer byreferring Section 60 of the Income Tax Act and brought to tax in the hands ofthe assessee the income from the said mansions for the two assessment yearsreferred to above. 3. On appeal, the Commissioner of Income Tax (Appeals) confirmed thethe order of the Assessing Officer. On further appeal, the Appellate Tribunalheld that although the property with which the business of lodging iscontinued has not been transferred, the assessee had transferred to thetrustees the business of running the lodging house and since the businessitself which is the capital asset has been transferred to the Trust, thetransfer made by the assessee is not hit by the provisions of Section 60 ofthe Income Tax Act and in that view of the matter, the Appellate Tribunaldeleted the income earned from the property at the hands of the assessee. 4. In the above said factual matrix, at the instance of this Court, the Tribunal framed the question of law and referred the matter. 5. The learned counsel for the revenue submitted that what was transferred in favour of the Educational Charitable Trust was only the incomefrom the property, and the income earning property, viz., source of income,has not been transferred, and as such, it is hit by Section 60 of the IncomeTax Act. The reasoning of the Appellate Tribunal for reversing the orders ofthe authorities below is not correct. He also relied on the decisions in(i) COMMISSIONER OF INCOME TAX v. SMT.P.ANDAL AMMAL AND ANOTHER, [20 00] 243ITR 715; and (ii) COMMISSIONER OF INCOME TAX v. SUNIL J.KINARIWALA, [2003] 259 ITR 10. 6. The decision in COMMISSIONER OF INCOME TAX v. SMT.P.ANDAL AMMAL 4. In the above said factual matrix, at the instance of this Court, the Tribunal framed the question of law and referred the matter. 5. The learned counsel for the revenue submitted that what was transferred in favour of the Educational Charitable Trust was only the incomefrom the property, and the income earning property, viz., source of income,has not been transferred, and as such, it is hit by Section 60 of the IncomeTax Act. The reasoning of the Appellate Tribunal for reversing the orders ofthe authorities below is not correct. He also relied on the decisions in(i) COMMISSIONER OF INCOME TAX v. SMT.P.ANDAL AMMAL AND ANOTHER, [20 00] 243ITR 715; and (ii) COMMISSIONER OF INCOME TAX v. SUNIL J.KINARIWALA, [2003] 259 ITR 10. 6. The decision in COMMISSIONER OF INCOME TAX v. SMT.P.ANDAL AMMAL AND ANOTHER, referred supra, was from a case where the assessee was a co-ownerof a lodging house having one-third share therein and she along with other twoowners of the property let out the lodging house to a firm styled L in whichone of the co-owners of the property, namely, A, was a partner. The claim ofthe assessee was that the entire income derived from the lodging house by wayof letting out the same should be assessed under the head "Income from othersources". The Assessing Officer as well as the First Appellate Authorityrejected her claim and held that a portion of the income referable to andderived from the letting out of the property should be charged under the head"Income from house property" and the income referable to the use of amenitiesprovided in the lodge should be charged under the head "Income from othersources". On the above said facts and circumstances, the Court held thatthough there were two separate leases in respect of furniture and buildingsboth the species of property were enjoyed on payment of one lumpsum which gavean indication that the letting of building and furniture was one letting and a 7. The other decision of the Supreme Court, relied on by the learned counsel for the revenue, is one rendered in the case of COMMISSIONER OF INCOMETAX v. SUNIL J.KINARIWALA, referred supra. That was a case in which theSupreme Court reversed the decision of the High Court holding that there was aclear distinction between a case where a partner of a firm assigns his hare infavour of a third person and a case where a partner constitutes asub-partnership with his share in the main partnership. Whereas, in theformer case, in view of Section 29(1) of the Indian Partnership Act, 1932, theassignee gets no right or interest in the main partnership, except of course,to receive that part of the profits of the firm referable to the assignmentand to the assets in the event of dissolution of the firm, in the latter case,the sub-partnership acquires a special interest in the main partnership.Though, in view of Section 29(1) of the Partnership Act, the trust, as anassignee, became entitled to receive the assigned share of the profits fromthe firm, it received the share of profits not as a sub-partner, because nosub-partnership came into existence, but as an assignee of the share of incomeof the assignor-partner. There was no diversion of income by overridingtitle. The share of the income of the assessee assigned to the trust had tobe included in the income of the assessee. 8. The learned counsel for the revenue is not able to satisfy us asto how the above said two decisions apply to the facts and circumstances ofthe present case. 8. The learned counsel for the revenue is not able to satisfy us asto how the above said two decisions apply to the facts and circumstances ofthe present case. 9. On the contrary, the Supreme Court in DALMIA CEMENT LTD. v.COMMISSIONER OF INCOME TAX, [1999] 237 ITR 617 = AIR 1999 SC 2154, afterreferring the provisions of Sections 60 and 63 of the Income Tax and havingregard to the special definition made under Section 63(b) of the Income Tax asto what is meant by transfer of assets in respect of Sections 60, 61 and 62 ofthe Income Tax Act, held that Section 60 of the Income Tax Act has itsapplicability only to the case where the income accrues to the transferee butthe income earning assets or source of income remains with the transferor.Section 63 of the Income Tax Act contains a rather special definition of"transfer" for the purpose of Sections 60 to 62 of the Income Tax Act, and,inter alia, includes an "agreement" and in the referred case, there existed anagreement to transfer and because of the existence of that agreement totransfer, the Supreme Court held that the applicability of Section 60 of theIncome Tax Act is ruled out and totally excluded. 10. The principle laid down in DALMIA CEMENT LTD. v. COMMISSIONEROF INCOME TAX, referred supra, is squarely applicable to the facts andcircumstances of this case, as in the case on hand also, apart from the factumof transfer of income to the Educational and Charitable Trust, there exists anagreement in respect of the relevant assessment years in favour of the trustto manage the property in question and receive the rent from that property andutilise the same for the purpose of the Educational and Charitableinstitution. 11. The learned counsel for the revenue, incidentally, raised anargument that the agreement is only for ten years and that would not by itselfconstitute a absolute transfer. We are unable to accept his contention asthere is no provision to require for absolute transfer, as argued by thelearned counsel for the revenue either in Section 60 or Section 63 of theIncome Tax, which defines the word "transfer". In view of the above reasoning, the question of law referred to us hasto be answered in affirmative against the revenue and in favour of theassessee. The reference is thus answered and returned. Index :YesInternet:Yes sasi