Law:

Section:

Section 93 of the Income-tax Act, 1961 [Corresponding to section 44D of the Indian Income-tax Act, 1922] - Avoidance of income-tax by transactions resulting in transfer of income to non-residents - Whether mere fact that transfer results in avoidance of tax liability could not mean that there was an intention to avoid such liability - Held, yes - Whether - Where purpose is shown to be other than avoidance of liability to taxation, exemption given by section 44D(3)(a) would apply - Held, yes - Whether where transfer of assessee's assets to non-resident company was not with object of avoiding Indian income-tax but with a view to facilitate continuance of business which he was carrying on, such transfer could not be held to be one with of purposes for avoidance of liability to taxation and, therefore, provisions of section 44D(3)(a ) of 1922 Act would apply to such a case - Held, yes FACTS The assessee was originally carrying on business in hardware, and as general merchant, exporter and importer at Colombo. The business itself was established as early as 1826 during the time of the great grandfather of the assessee. Sometime in 1948 the assessee appeared to have made up his mind to leave Ceylon for good and to settle down in this country. He had six sons who were then all majors and to them he made a gift of six out of the eight items of immovable properties he owned in Ceylon. 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 shareholder the other shareholders being his sons. The Tribunal had found that the transfer to the newly formed company was made by reason of the advancing age of the assessee and with a view to put the business on a secure foundation and that the controlling interest which the quondam proprietor reserved to himself in the affairs of the company was with the object of guiding his sons, the other directors of the company, who had not yet gained sufficient experience therein. The Tribunal held that even if the assessee's transfer of his assets to the non-resident company was held to come within the purview of section 44D(1) and clauses (5) and (6)…

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