M.CT.M. CHIDAMBARAM CHETTIAR versus COMMISSIONER OF INCOME-TAX, MADRAS

Citation: [1966] 2 S.C.R. 761 · Decided: 29-11-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

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M.CT.M. CHIDAMBARAM CHETIIAR 
v. 
COMMISSIONER OF INCOME-TAX, MADRAS 
November 29, 1965 
[K. SUBBA RAo, J. C. SHAH ANDS. M. SIKRI, JJ.] 
761 
Indian lncome4ax Act, 1922 (Act 11 of 1922), s. 44D-Firm trans-
ferred assets to Non-resident--lncon1e from Non-resident-If partners of 
firm assessable separately. 
A firm, constituted by the assessees who were closely related, trans-
ferred assets to a Corporation carrying on money-lending business in the 
Federated Malaya States. · In consideration of the assets •o transferred 
the Corporation allotted shares to the partners of the firm. The Income-
tax Officer assessed the partners of the firm separately under s. 44D of 
the Act in respect of the income of the Corporation, which on appeals 
were upheld by the Appellate 
Assistant 
Commissioner. 
On 
further 
appeals by the assessees, the Tribunal allowed the appeals on the ground 
that the income from the assets transferred was not assessable to tax at 
the time of transfer. At the instance of the Revenue, the question was 
referred to the High Court which was answered against the a:ssessee. In 
appeal to this Court : 
HELD : The High Court was 
correct 
in answering 
the 
question 
against the assessee. 
(i) The language of s. 440(1) of the Act is plain. It does not say 
"when any person has transferred any assets" but it says, "by means of 
a transfer of assets". 
The person who transfers assets is not designated 
but emphasis is laid on the consequence flowing from such a transfer. 
Whosoever effects the transfer, if by such a transfer the assessee acquires 
a right to enjoy the income, he is liable to tax. The words "means" 
and 
1'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. 
The words "by means of a transfer of 
assets'' mean nothing 
more than "as a result or by virtue or in consequence of the transfer". 
[765 E-G; 766 El 
c·onttreve and ('t>ngreve v. Commissioner of Inland Ret,.~nu~, (1943-'49) 
30 T.C. 163 and Bambrdige v. Commissioner of Inland Revenue, (1953-
'56) 36 T.C. 313, applied. 
(ii) The construction that s. 44D(l) can be invoked only if at the 
time of the transfer the income from the said assets was liable to tax, is 
not only inconsistent with the phraseology used but will defeat the object 
of the section. 
The express~ons "any income'', 
11such income" and "Lbat 
income" found in the sub-section refer to the same income. 
What is 
assessed in a particular year is that income which is deemed to be the 
income in the hands of asscssee. 
"That income" is such income in re~ 
gard whereof he has "the power to enjoy". 
"Such income" is any in-
come which if it were the income of the 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 asoesocd. [766 F; 767 Bl 
762 
SUPREME COURT REPORTS 
(1966] 2 S.C.R. 
(iii) If the asscssees were able directly or indirectly to control the 
mcome of the Corporation, they would be deemed to have the power 
to enjoy· the income. Sub-section (5) of s. 44D gives an enlarged mean-
ing to the words "power to enjoy" in sub-s. ( 1). 
. 
In the present case, the circum1Stances were overwhelming to estab-
lish that the assessees had a controlling voice in the affairs of the Corpo-
ration. They were closely related, holding almost all the shares of the 
Corporation, and were the partners of the firm which transferred the 
assets. [767 H; 768 B-C] 
(iv) The burden was upon the assesee to show to the satisfaction of 
the Income-tax Officer that the transfer was saved under sub-section (3) 
of s. 44D inasmuch as it was not for a purpose to avoid tax liability but 
was only a bona fide commercial transaction. The Tribunal found as a 
fact on the material placed before it that the transfer was to avoid the 
liability to taxation; and that being a finding of fact, the High 
Court 
rightly accepted it. 
The correctness of the said finding of fact cannot 
te permitted to be canvassed in these appeals. [768 G-769 A] 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 477 to 
488 of 1964. 
Appeals from the judgment aud order dated October 16, 
1959 of the Madras High Court in Case Referred

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