Law:

Section:

Income-tax Act (XI of 1,922), S. 44-D (3)(a)-Transfer of assets-Transfer of business to non-resident company-Transaction whether intended to avoid liability to tax-"Purpose"-Meaning.   The assessee was carrying on a business at Colombo, which was established in 1826. In 1948 the assessee decided to leave Ceylon and settle down in this country. The assets and the goodwill of the business he was carrying on were then transferred to a private limited company of which he was the major share holder the other share-holders being his sons. The Appel late Tribunal found that the transfer to the non-resident company was a bona fide one with a view to preserve the business to the family. On appeal to the High Court the Department contended that the transactions could not be saved by the provisions of section 44-D (3) (a) as the assessee has got to satisfy that the purpose or one of the purposes for which the transfer was made was not avoidance of liability to taxation. It was further contended that in order that the provisions of section 44-D (3) (a) should apply, the avoidance of tax liability should not have entered into the mind of the assessee at all and that even in a case where the main purpose of the transaction was not the avoidance of taxation, the assessee should be deemed to have had the purpose of avoiding tax when once it is established that he was conscious of the effect of the transaction;   Held, in every case where there is a transfer of an income producing asset to a non-resident company, there will be avoid ance of tax and the assessee who transfers such assets would certainly know or be presumed to know that the effect of the transfer would be that the tax liability would be avoided. The real question to be decided in a case like this is whether the actual avoidance of tax was the result of a design on the part of the assessee and not merely an incident or effect of the transaction entered into for other reasons. In the present case the transfer of the assessee's assets to the non-resident company was poi with the object of avoiding income-tax, but with a view to facilitate the continuance of the business which he was carrying…