The Commissioner of Income Tax vs D. Kaveri Ammal and Others and C. Doraisamy

P.D. Dinakaran, J.—The above tax case appeals are directed against the order of the Income Tax Appellate Tribunal in ITA Nos.

1210/Mds/2003, 1212/Mds/2003, 1211/Mds/2003, 1214/Mds/ 2003 and 1213/Mds/2003 respectively.

The Revenue is the appellant in all the above appeals. The assessment year involved in these cases are 1996-1997, 1997-1998 and 1998-

1999.

The assessee is a partnership firm. The business of the assessee firm was taken over by one of the partners with effect from 1.11.1987 by

transfer of assets and liabilities of the assessee firm and an agreement in writing in the form of memorandum of understanding was entered into by

the firm with the transferee. The assessing officer held that the claim is not supported by any book entry or any other material, that the liabilities to

the extent of Rs. 49,588/- cannot be deemed to have been taken over by 31.12.1997, and that, the interest at 15% is due to the assessee from the

transferor. Against the said order, assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and he came to the conclusion

that the interest income cannot be taxed because it has neither accrued or arisen and it does not represent any real income and consequently

deleted the interest income. The appeal preferred against that order before the Income Tax Appellate Tribunal was dismissed, which is impugned

in this appeal, framing the following substantial question of law,

Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that Section 61 of the

Income Tax Act is not attracted on the assessee, even though the assessing officer has proved beyond doubts that the take over by the partner, of

the business of the firm, is sham and revocable, leading to the clubbing u/s 61 of the Income Tax Act ?

this Court in an earlier occasion had considered a similar question in T.C.(A) No. 814 to 823 of 2004 dated 23.9.2004 (The Commissioner of

Income Tax, Coimbatore v. C. Doraisamy), wherein in paragraphs 3 and 4, it is held thus,

The Tribunal found that the transfer of assets in the memorandum of understanding in question is absolute and irrevocable. That apart, the

assessing officer did not reach any conclusion that the memorandum of understanding was sham transaction. Therefore, the transaction is held to be

absolute and irrevocable and there is no question of revocation of the assets in terms of the memorandum of understanding as the memorandum of

understanding does not provide for any sort of revocation. Hence, the inclusion of income in respect of business transaction on or after 1.11.1987,

which really has gone in favour of the person who has taken over the business, cannot be supported either on law or on facts.

Therefore, we are unable to take a different view as the one taken by the Tribunal that the transfer of assets does not attract Section 61 of the

Act. Hence, we find no merit in these appeals and the same are dismissed.

The above view is also upheld by the decision of the Apex Court in the decision of S.P. Jaiswal, etc. Vs. Commissioner of Income Tax, ,

wherein it is held as under,

The transaction between the appellant and the partners of the firm constituted by his children and the so-called return of money on April 1, 1963,

in the books of account of the firm, and retransfer of the sum in the names of the children in the books of the firm was nothing but a paper device

designedly made to reduce the tax burden of the appellant. By no stretch of imagination could it be held a loan transaction by the appellant in

favour of the children. The High Court, in the circumstances, could not be said to have exceeded its advisory jurisdiction in answering the question

posed. The fact that the appellant''s children had been taxed in respect of the income accruing from the amount was of no relevance.

In view of the above settled proposition of law, the substantial question raised in these appeals are answered against the revenue, holding that

the Tribunal was right in law in holding that on the facts and in the circumstances of the case, Section 61 of the Income Tax Ac is not attracted on

the assessee.

Consequently, we do not see any merit in the appeals and hence, they are dismissed. No costs.