11.—Persons trying to alienate their assets.

Assessment of persons likely to transfer property to avoid tax.

319(1)

Irrespective of anything contained in section 4, where it appears to the Assessing Officer during any current tax year that any person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoiding payment of any liability under the provisions of this Act, the total income of such person for the period beginning from the first day of that current tax year up to the date when the Assessing Officer commences proceedings under this section shall be chargeable to tax in current tax year.

319(2)

For the purpose of sub-section (1), the provisions of section 317(2) to (6) shall, so far as may be, apply to any proceedings in the case of any such person as they apply in the case of persons leaving India.

Explanation

Section Summary:

Section 319 of the new income tax law addresses situations where the Assessing Officer (AO) believes that a taxpayer is attempting to transfer, sell, or dispose of their assets to avoid paying tax liabilities. The section allows the AO to assess and tax the person's income for the period from the start of the current tax year until the date the AO initiates proceedings under this section. This provision is designed to prevent tax evasion through asset alienation.

Key Changes:

1. New Provision: Section 319 introduces a specific mechanism to address tax avoidance through asset transfers. Previously, such cases were handled under general anti-avoidance rules or other provisions, but this section provides a clearer framework.
2. Link to Section 317: Sub-section (2) ties this section to Section 317(2) to (6), which deals with individuals leaving India. This means the procedural rules for assessing individuals leaving India will also apply to cases under Section 319.

Practical Implications:

1. For Taxpayers: Taxpayers attempting to transfer assets to evade taxes may face immediate assessment and taxation of their income for the current tax year, even before the tax year ends.
2. For Businesses: Businesses or individuals planning significant asset transfers must ensure that such actions are not perceived as tax avoidance, as this could trigger proceedings under Section 319.
3. For Assessing Officers: AOs now have a specific tool to act swiftly when they suspect tax avoidance through asset transfers, ensuring quicker enforcement.

Critical Concepts:

1. Likely to Transfer: The AO must have reasonable grounds to believe that the taxpayer intends to transfer assets to avoid tax. This is a subjective determination but must be based on evidence.
2. Chargeable to Tax in Current Year: Income for the period from the start of the tax year until the initiation of proceedings is taxed immediately, even if the tax year is not yet complete.
3. Link to Section 317: The procedural rules for assessing individuals leaving India (e.g., notice requirements, timelines) apply here, ensuring consistency in enforcement.

Compliance Steps:

1. Document Asset Transfers: Maintain clear documentation for any asset transfers, including the purpose and timing, to demonstrate that the transfer is not for tax avoidance.
2. Respond to AO Notices: If the AO initiates proceedings under Section 319, provide all necessary information and evidence to clarify the intent behind the asset transfer.
3. Monitor Transactions: Be cautious about large or unusual asset transfers during the tax year, as these could attract scrutiny.

Examples:

1. Scenario 1: A taxpayer plans to sell a property worth ₹5 crore in the middle of the tax year. The AO believes this sale is intended to avoid paying taxes on income generated from the property. Under Section 319, the AO can assess and tax the taxpayer's income from the start of the tax year until the date proceedings begin.
2. Scenario 2: A business owner transfers shares of a company to a family member. If the AO suspects this is done to avoid capital gains tax, they can invoke Section 319 to assess and tax the income for the relevant period.

This section strengthens the tax authorities' ability to prevent tax evasion through asset transfers, ensuring taxpayers cannot easily avoid liabilities by disposing of assets.