1989 (7) TMI 149 - AT - Income Tax

Business transfer upheld, avoiding tax planning claims, no double taxation, income not taxable.

The Tribunal upheld the validity of the business transfer from the assessee to another company, rejecting the Income-tax Officer's contention of tax ... Assessment Year Issues:1. Validity of transfer of business from assessee to another company.2. Deletion of addition under section 40A(8) in respect of interest paid to directors.3. Taxability of income in the hands of the assessee.Analysis:1. The main issue in this case was the validity of the transfer of the business from the assessee to another company. The Income-tax Officer contended that the transfer was not legal or a real transfer due to various reasons, including tax planning and lack of a registered conveyance deed. However, the Commissioner of Income-tax (Appeals) disagreed and deleted the addition made by the Income-tax Officer. The Commissioner found that the entire business was effectively transferred to the other company, and the intention of profit absorption was not evident. The Tribunal upheld the decision, stating that the business activity was carried out by the transferee company, and the income had already been assessed in their hands, preventing double taxation.2. The second issue involved the deletion of an addition under section 40A(8) related to interest paid to directors. This issue was not discussed in detail in the provided text, but it was mentioned as one of the grounds of appeal by the revenue. The Tribunal's decision on this specific issue was not explicitly stated in the summary.3. The final issue addressed was the taxability of income in the hands of the assessee. The Tribunal analyzed the provisions of section 28 of the Income Tax Act, which allows taxing profits and gains of any business carried on by the assessee during the previous year. The Tribunal concluded that since the business activity was taken over by the transferee company and the profits were assessed in their hands, the income could not be taxed in the hands of the assessee. The Tribunal rejected the revenue's appeal on this ground, emphasizing that the income was not assessable under section 28 due to the transfer of business to the other company.This detailed analysis of the judgment highlights the key legal arguments and decisions made by the Tribunal regarding the validity of the business transfer and the taxability of income in the hands of the assessee.