AI Drafter 
TaxTMI 
TaxTMI 
1965 (11) TMI 24
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....he said family and that Sir M. Ct. M. Muthiah Chettiar and his two sons constituted a firm. The said firm was duly registered and it was assessed to income-tax. After the death of the said Sir M. Ct. M. Muthiah Chettiar in 1929, his two sons and his wife continued the firm and it was assessed to income-tax as a firm. In June, 1929, the said firm started a new money-lending business at Kuala Lumpur in the Federated Malay States with a capital of Rs. 12 lakhs. The said capital was transferred from its business in Burma. On March 24, 1932, a company called the M. Ct. M. Banking Corporation, hereinafter called the Corporation, was incorporated in Pudukkotai. It commenced business on and from March 31, 1932. One of the purposes of the said Corporation was to acquire and carry on business which was being carried on by the firm in Kuala Lumpur. A branch of the Corporation was opened in Kuala Lumpur on September 22, 1933. Between November 1, 1933, and November 9, 1933, assets of the firm of the net value of Rs. 12 lakhs were transferred to the Corporation and in consideration of the assets so transferred the Corporation allotted to the partners of the firm 1,200 shares of the face value of....
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....urt accepted the said finding and answered the question against the assessees in the affirmative. The present appeals were filed against the order of the High Court after obtaining a certificate from the said High Court. We shall now proceed to consider the arguments advanced by Mr. Palkhivala, learned counsel for the assessees, in support of his contention that the income of the Corporation was not assessable to tax in the hands of the assessees. As all his arguments turned upon the provisions of section 44D of the Act, it would be convenient to read the same at the outset : " Where any person has, by means of a transfer of assets, by virtue or in consequence whereof, either alone or in conjunction with associated operations, any income which if it were the income of such person would be chargeable to income-tax becomes payable to a person not resident or to a person resident but not ordinarily resident in the taxable territories, acquired any rights by virtue or in consequence of which he has within the meaning of this section power to enjoy such income, whether forthwith or in the future, that income shall, whether it would or would not have been chargeable to income-tax a....
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....uires a right to enjoy the income, he is liable to tax. The words " means " and " acquired " in the context are only words of passive nature. The hand that transfers is immaterial : what matters is the result envisaged by the said section, namely, a non-resident is the transferee of the assets but the assessee acquires the power to enjoy the income from those assets. This construction is supported by the decisions of English courts given on a section which is in pari materia with the relevant part of section 44D(1) of the Act. The material part of section 18 of the English Finance Act, 1936, as amended by section 28 of the English Finance Act, 1938, reads : " (1) Where such an individual has by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights by virtue of which he has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled out of the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income-tax by deduction or otherwise, that income shall, whether it would or would not have be....
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....assessee would be chargeable to income-tax. The quality of chargeability is referable only to the income from the assets transferred during the year in which it is sought to be assessed. As Balakrishna Ayyar J. pointed out in the judgment under appeal, to accede to the argument of the assessee, the words in section 44D(1) of the Act should actually read this way : " any income which had it been the income of such person would have been chargeable to income-tax." But the words read otherwise thus : " any income which if it were the income of such person would be chargeable to income-tax ". The tense refers to the assessment year and not to the year, when the transfer was effected. Learned counsel for the assessees contended that this construction would affect adversely a bona fide transferor of assets who could not possibly have anticipated that the income from such assets would be chargeable to tax in future and that that could not have been the intention of the legislature. As indicated earlier, the sub-section is not concerned with the transferor but only with the result brought about by means of the transfer of the assets in conjunction with associated operations. The sub-sectio....