1. Since the above appeals involve a common contention, they are disposed of by this consolidated order for the sake of convenience.
2. The assessee is a retired person. Among others, his sources of income are salary and interest. He was author of several books. By virtue of a deed of agreement dated 20-5-1968, he transferred the copyright of his book Bharat Varsha Ka Sampurna Itihas published in two volumes by Lok Bharti of Allahabad to> his three daughters-in-law, namely, Smt. Padmawati Pandey, Smt. Malti Pandey and Smt. Badama Pandey for their maintenance and the education of their children. The assignment or transfer of the copyright was only for a period of fifteen years beginning from the date of the assignment. The deed further stated that after the lapse of the above period of fifteen years, the copyright was again to to revert back to the assessee, i.e., the transferor. The assignees were to forfeit all the rights accrued to them under the said assignment. I quote below the above deed in full : I, Sri Netra Pandey, son of Pt. Chet Ram Pandey, resident of 31-C Beli Road, Allahabad, hereby assign and transfer the copyright of my book 'Bharat Varsha Ka Sampurna Itihas' published in two volumes by Lok Bharti, 15A, Mahatma Gandhi Marg, Allahabad, to my three daughters-in-law, namely, Smt. Padmawati Pandey, wife of Shri Sugreev Pandey, Smt. Malti Pandey, wife of Shri Rarnesh Chandra Pandey and Smt. Badama Pandey, wife of Shri Brijesh Chandra Pandey, for their maintenance and the education of their children, for a period of 15 (fifteen) years beginning from the date of this assignment and after the lapse of this period of 15 (fifteen) years.
The copyright will again revert back to me and the assignees will forfeit all the rights that have accrued to them by this assignment.
Hence, forward the royalty which may be due and payable on the aforesaid book will be equally divided and paid to the aforesaid assignees from the date of assignment.
3. The assessee made another agreement on 1-4-1969 by which the income of the books published by Student Friends was assigned to the married daughters of the assessee. A copy of this agreement was, however, not placed before me.
4. The assessee claimed before the ITO that the income arising to him from the publication of Bharat Varsha Ka Sampurna Itihas by Lok Bharti and from the books published by Student Friends was not includible in his assessment as those incomes belonged to his daughters-in-law and married daughters. With regard to the income from Student Friends, it was further submitted that the assessee had been following cash system of accounting and unless income was actually received in cash, it could not be assessed even in the assessment of his daughters.
5. The ITO did not accept the above claim. With regard to the income accruing to the assessee from publication of books by Student Friends, his finding was that there was only an assignment or transfer of the income without any transfer of the assets, which was the copyright in this case. He, therefore, held that such income was assessable in the hands of the assessee in terms of Section 60 of the Income-tax Act, 1961 ('the Act'). He also rejected the other contention of the assessee that he was following cash system of accounting. The ITO held that the assessee had been following mercantile system of accounting with regard to this income and, therefore, as soon as that income became due to him from Student Friends, it was assessable in his assessment under Section 60. On this basis, he brought to tax various incomes in the above assessments of the assessee.
6. The ITO also rejected the assessee's contention with regard to the income accruing from Lok Bharti. According to him, such income was also assessable in the hands of the assessee under Section 61 of the Act.
This section states that 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. The ITO, therefore, brought such income also to tax in the respective assessments.
7. The assessee appealed to the AAC. The AAC passed a combined order for all the years. With regard to the income from publication by Student Friends, he agreed with the ITO that there was assignment or transfer only of income without any further transfer of the asset and, therefore, it fell within the scope of Section 60. He, however, accepted the other claim of the assessee that he had been following cash system of accounting and, therefore, unless the income was actually received in cash it was not taxable. Since in the year under appeal, the assessee had not received any income from Student Friends, there being a dispute regarding it, he held that no income was taxable in the hands of the assessee and directed the exclusion of such income from the assessments. He, however, observed that such income will be assessed whenever it was received by the daughters from the publishers.
8. With regard to the income accruing from Lok Bharti his finding was as under : The assessee had copyright of some books through the publishers, Lok Bharti. The copyright was assigned to three daughters-in-law in 1968. Since the income along with the assets were already transferred, therefore, no income arises to him.
9. The above findings of the AAC have been challenged before us by the department. It may be mentioned here that there is no appeal by the assessee in this case. The learned departmental representative submitted before me that the assessee had been following mercantile system of accounting even with regard to the income accruing from Student Friends and, therefore, its exclusion by the AAC from the assessments was not justified. On behalf of the assessee, reliance was placed on the order of the AAC.10. After considering the facts of the case, I am in agreement with the finding of the AAC on those issues. There is now no dispute left that with regard to the income due from Student Friends, there was only the assignment or transfer of the income alone without any corresponding transfer of the asset or the copyright to the assessee's married daughters. This case, therefore, falls within the mischief of Section 60 as held by the AAC and about which there is no dispute from the side of the assessee. However, an income has to be assessed in accordance with the method of accounting followed by an assessee. The assessee claimed before the income-tax authorities that he was following cash system of accounting. There is nothing on record or any evidence to suggest that he was following mercantile system of accounting. That being the position and the assessee having not received any amount in the years under appeal, he cannot be taxed on any income only on accrual basis. The deletion of the income from Student Friends from the assessments of the assessee is, therefore, upheld.11. The learned departmental representative, with regard to the income falling from Lok Bharti, submitted that the so-called deed of agreement or deed of assignment was a revocable one inasmuch as it contained a clear clause for the retransfer directly of the entire asset in favour of the assessee or the transferor. It was also submitted that the deed itself gave the assessee a right to re-assume power directly over the whole of the income or the assets after a period of 15 years. He, therefore, submitted that this was clearly a revocable transfer in terms of Section 63 (a) of the Act. He further submitted that the assessee's case, therefore, fell within the scope of Section 61, there being no provision in Section 62 of the Act by which the assessee could claim any exemption from tax. The learned counsel for the assessee, on the other hand, submitted that the assignment was irrevocable for a period of fifteen years and, therefore, income arising during this period, which also covered the assessments under appeal could not be taxed in the hands of the assessee as it was clearly taxable in the hands of his daughters-in-law. In this connection, he drew my attention to Sub-section (2) of Section 62. This sub-section states that notwithstanding anything contained in Sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arise, and shall then be included in his total income. Relying on this sub-section, the learned counsel for the assessee submitted before me that such power could arise to the assessee only after a period of fifteen years and only then the income coming from Lok Bharti would be taxable in his assessments.
12. I have given my careful thought to the entire matter. I have also studied the various provisions of Sections 61 to 63 very carefully.
There is no dispute that the arrangement made by the assessee for transferring the copyright of 'Bharat Varsha Ka Sampurna Itihas' published by Lok Bharti for a period of fifteen years amounts to transfer in terms of Section 63(a). However, it is a revocable transfer as the deed itself gives the assessee a right to re-assume power directly over the whole of the income and the assets, i.e., the copyright. Under the Indian Income-tax Act, 1922, the assignments which were not revocable for a period exceeding six years were considered irrevocable transfers. There is, however, a change in the 1961 Act. By the definition given in Section 63 all transfers which contain any provision for the retransfer of the whole or any part of the income or assets to the transferor or if they give, in any way, the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets have been held to be revocable transfers.
Section 62 of course provides certain exceptions. There are two such exceptions. One exception is in the case of a trust, which is not revocable during the lifetime of the beneficiary and similarly, in the case of any other transfer, it is not revocable during the lifetime of the transferee. Admittedly, this is not the case here. The second exception is in the cases of those transfers which were made before 1-4-1961 and which were not revocable for a period exceeding six years.
The assessee transferred the copyright after 1-4-1961 and, therefore, this case also does not apply to him. There is also a proviso to Section 62(1), which states that the above exceptions will apply only if the transferor derives no direct or indirect benefit from such income in either case. This is a exception to the above exception provided in Section 62. We are, however, not concerned with this proviso in the present case. Section 62(2) as stated above, only states that after the power to revoke the transfer has arisen, the income will be assessable in the assessment of the transferor. This case, in my opinion, therefore, does not help the assessee as it applies only after the power to revoke arises. I have already held above that the case of the assessee is one of a revocable transfer and, therefore, it is Section 61 which applies to his case. Section 62 deals with the exceptions which do not apply to the case of the assessee as stated above. I, therefore, hold that the income from Lok Bharti is assessable in the assessments of the assessee of the years under appeal in terms of Section 61 as was held by the ITO. I, therefore, set aside the order of the AAC and restore that of the ITO on this issue.