Under Section 4 of the income tax act every person is chargeable to income tax in respect of his total income i.e. income, profits & gains accruing or arising to, or received by him but subject to provisions of the Act, which are contained in Section 60-62 of the Act.
Section 60-Transfer of income where there is no transfer of assets
Section 60 runs as – All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income –tax as the income of the transferor and shall be included in his total income.
The principle laid down in section 60 is that the income derived from a certain source or assets belong to the asseessee, who is the owner of that assets or source. The assessee cannot escape taxability of his income by transferring the income to another person without alienating or assigning the source of income, in other words if an assessee alienates or assigns the source of his income so that the source of income no longer belong to him he cannot be taxed upon the income arising from that source or assets
In a settled case the asseessee who was the registered holder of certain shares in company assigned to his wife ,by a deed of settlement , the right , title and covenanted to deliver and endorse over to her any dividend warrant or other document of title to such dividends and sums of money to her. The supreme court held that as the assessee had not assigned the shares and what the contract provided was merely that the income which continued to accrue to the assessee , should be paid to his wife under the terms of the contract instead of him,the income was assessable in his hands.
IN CIT v Rameshwar Lal Pahwa ( DR ) ( 1980 ) 123 ITR 681 ( DEL ) Followed CIT v Thakkar ( PR) ( 1988 ) 170 ITR 224 ( Bom ) it was held that-
The deed of maintenance executed by the assessee did not in any way affect the ownership of the house property in question . By the said deed the assessee did not transfer either the ownership or any interest in the said property in favour of either his parents or any body else.
SECTION 61 – Revocable Transfer of Assets
Section 61 Runs as – All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income –tax as the income of the transferor and shall be included in his total income.
In CIT v Sathiyavathi ( Smt. M .C. ) ( 1997 ) 225 ITR 109 ( Mad )
The contribution made by wife of the assessee to a trust created by her husband with no power of revocation were also held not to attract clubbing provisions both for income & wealth purposes.
For the applicability of this section there must be a valid transfer of assets. Where though there is adequate consideration , but there is no valid transfer of assets due to some reasons the section will not be applicable. For example- if the deed of transfer of property got not registered, the property will continue to be with transferor and any income accruing from such property will be assessed in the hands of transferor.
Section 62 – Transfer irrevocable for a specified period- The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer
1, by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee or
2, made before the 1st day April, 1961 , which is not revocable for a period exceeding six years
Provided that the transferor derives no direct or indirect benefit from such income in either case.
Notwithstanding anything contained in sub section ( 1 ), all income arising to any person by virtue of such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises , and shall then be included in his total income
Ajay Bajaj Advocate
Bajaj & Bajaj Advocates
128, Sangam Complex,
Milap chowk, Jalandhar (Punjab)