Deemed income under anti-avoidance rules applies where asset transfers enable control or enjoyment of income, regardless of who effected the transfer.

Section 44D was interpreted as an anti-avoidance deeming provision focused on the effect of a transfer, not on whether the assessee personally executed it. The provision applied where assets were transferred by a firm if the arrangement enabled the assessees to enjoy or control the income in the relevant assessment year. The section was also held to operate even if the income was not chargeable at the time of transfer. On the facts, the assessees were found to have power to enjoy the income through family control of the company, and the bona fide transaction exemption was unavailable because the transfer was found to have been made to avoid tax.

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Issues: (i) whether section 44D(1) applied where the transfer of assets was effected by a firm and not personally by the assessees; (ii) whether the section required the transferred assets to have yielded taxable income at the time of transfer; (iii) whether the assessees had, by reason of the transfer, acquired power to enjoy the income within the meaning of section 44D(1) and section 44D(5)(e); and (iv) whether the transfer was protected by section 44D(3) as a bona fide transaction not intended to avoid tax.

Issue (i): whether section 44D(1) applied where the transfer of assets was effected by a firm and not personally by the assessees.

Analysis: The expression "by means of a transfer of assets" was construed as focusing on the result of the transfer rather than on who physically effected it. The statutory language did not require that the transfer be made by the assessee personally. What mattered was whether the transfer, however brought about, enabled the assessee to enjoy the income.

Conclusion: This contention was rejected and section 44D(1) was held applicable.

Issue (ii): whether the section required the transferred assets to have yielded taxable income at the time of transfer.

Analysis: The chargeability condition was held to relate to the income sought to be assessed in the relevant assessment year, not to the position existing when the transfer was made. The wording of the section was read as covering income which, if it were the assessee's income in the relevant year, would be chargeable to tax. A contrary interpretation would defeat the anti-avoidance purpose of the provision.

Conclusion: This contention was rejected and the section was held to operate even though the income was not chargeable at the time of transfer.

Issue (iii): whether the assessees had, by reason of the transfer, acquired power to enjoy the income within the meaning of section 44D(1) and section 44D(5)(e).

Analysis: The enlarged definition of "power to enjoy" included the ability, directly or indirectly, to control the application of income. On the facts, the family held almost the entire share capital of the company, the shareholders were close relatives, and the surrounding circumstances showed a common controlling interest. The factual record supported the inference that the assessees were able to control the company's income.

Conclusion: The assessees were held to have power to enjoy the income within the meaning of the section.

Issue (iv): whether the transfer was protected by section 44D(3) as a bona fide transaction not intended to avoid tax.

Analysis: The burden of establishing the protection of the proviso lay on the assessees. The Tribunal had found, on the material before it, that the transfer was made to avoid tax liability. That was a finding of fact and was not open to challenge in the appeals.

Conclusion: The protection of section 44D(3) was denied.

Final Conclusion: The deemed-income provision was held applicable on all material grounds, and the assessees failed to establish any statutory exemption from its operation.

Ratio Decidendi: For the purposes of section 44D, the focus is on whether the transfer of assets enables the assessee to control or enjoy the income in the relevant assessment year; the identity of the transferor is immaterial, and the anti-avoidance provision applies even if the income was not taxable when the transfer was made.

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