Report No. 12
96. Avoidance of income-tax by transactions resulting in transfer of income to nonresidents.-
(1) Where there is a transfer of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, any income becomes payable to a non-resident, the following provisions shall apply-
(a) where any person 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 non-resident person which, if it were income of the first-mentioned person received by him in India, would be chargeable to income-tax, that income shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be income of the first-mentioned person for all the purposes of this Act;
[Section 44D(1), part]
(b) where, whether before or after any such transfer, any such first mentioned person receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operations, then any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a non-resident shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be the income of the first-mentioned person for all the purposes of this Act.
[Section 44D(2), part]
(2) The provisions of sub-section (1) shall not apply if such first mentioned person shows to the satisfaction of the Income-tax Officer either-
(a) that neither the transfer nor any associated operation had for its purpose or for one of its purposes the avoidance of liability to taxation; or
(b) that the transfer and all associated operations' were bona fide commercial transactions and were) not designed for the purpose of avoiding liability to taxation.
[Section 44D(3)]
(3) For the purposes of this section, an "associated operation" means, in relation to any transfer, an operation of any kind effected by any person in relation to-
(i) any of the assets transferred, or
(ii) any assets representing whether directly or indirectly any of the assets transferred, or
(iii) the income arising from any such assets, or
(iv) any assets representing whether directly or indirectly the accumulations of income arising from any such assets.
[Section 44D(4)]
(4) A person shall, for the purposes of this section, be deemed to have power to enjoy income of a non-resident if-
(a) the income is in fact so dealt with by any person as to be calculated at some point of time and, whether in the form of income or not, to enure for the benefit of the first-mentioned person, or
(b) the receipt or accrual of the income operates to increase the value to such first-mentioned person of any assets held by him or for his benefit, or
(c) such first-mentioned person receives or is entitled to receive at any time any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and assets which represent that income, Or
(d) such first-mentioned person has power by means of the exercise of any power of appointment or power of revocation or otherwise to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or
(e) such first-mentioned person is able, in any manner whatsoever and whether directly or indirectly, to control the application of the income.
[Section 44D(5)]
(5) In determining whether a person has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to such person as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.
[Section 44D(6)]
(6) For the purposes of this section-
(a) 'assets' includes property or rights of any kind, and 'transfer' in relation to rights includes the creation of those rights;
[Section 44D(7)(a)]
(b) 'benefit' includes a payment of any kind; and
[Section 44D(7)(b)]
(c) 'capital sum' means-
(i) any sum paid or payable by way of a loan or repayment of a loan; and
(ii) any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money's worth
[Section 44D(2), part]
(d) references to assets representing any assets, income or accumulations of income include references to shares in or obligation of any company to which, or obligation of any other person to whom, those assets, that income or those accumulations are or have been transferred;
[Section 44D(7)(d).]
(e) any body corporate incorporated outside India shall be treated as if it were a nonresident;
[Section 44D(7)(e)]
(f) a person shall be treated as a non-resident if he is not ordinarily resident within the meaning of section 6, clause (6) [4B1.
[Section 44D(1) and (2), part.]
(7) The provisions of this section shall apply also in relation to transfers of assets and associated operations carried out before the commencement of this Act.
[Section 44D(8)]
(8) Where any person has been charged to income-tax on any income deemed to be his under the provisions of this section, and that income is subsequently received by him, whether as income or in any other form, it shall not again be deemed to form part of his income for the purposes of this Act.
[Section 44D(9)]
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