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Whereby virtue of any agreement, settlement, trust, covenant, agreement, gift deed or any other arrangement for transfer, income arises to any person and there is no transfer of assets from which the income arises, the income may, on general principles, be regarded as the income of the transferor and be assessed in his hands under section 60 of the Income-tax Act, 1961, though it is applied in a particular manner under a legal obligation. In other words section, 60 will have an application where the income yielding assets from which the income arose were not transferred but only the income is transferred.


Following the ratio of the SC in 237ITR617 the Madras High Court in 271ITR109 held that the section 63 in the parallel does not contemplate the absolute transfer of commercial assets when it comes to any transfer under any settlement, trust, covenant, agreement, gift deed or any other arrangement for transfer. Before the Madras High Court the assessee who is reported to be the owner of building comprising residential rooms with other facilities executed a gift deed to gift the income from the said mansions to an educational and charitable institution. The ITAT in their finding noted that although there was no absolute transfer of property yet the assessee had transferred to the trustees the business of running the lodging house and since the business itself is the capital asset the transfer made by the assessee is not hit by the provisions of section 60. The High Court also held that the very agreement between the trust and the assessee where under the trust is bestowed the right to manage the property/business and receive rent from such property for ten years and utilize the same for the purpose of an educational and charitable institution is sufficient to hold that the transfer in such a case is not affected by section 60 even though the property with which the lodging business was done had not been transferred to the trust and even when such agreement was only for ten years.


As guided by the SC section 60 has its application only to a case where income accrues to the transferee but the income-earning asset or source of income remains with the transferor. Thus taxpayer/businessmen may therefore plan agreement for transfer of incomes at their source to the charitable institutions managed by them to avail this twin benefit. Even a gift of this kind will be exempt from capital gains tax u/s 47(iii).

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