uestion 16: Write a note on Bond Washing Transactions.

Answer: Bond Washing Transactions

Section 94 If any person has transferred any security in the name of any other person sometimes
before the due date and has reacquired it sometimes after the due date in order to evade tax, it will
be considered to be a bond washing transaction and income shall be considered to be of the person
who has manipulated in this manner. Example Mr. Yuvraj Arora has purchased security of `10,00,000
in ABC Ltd. on 01.04.2018 @ 10% and interest is due on half yearly basis i.e. on 30th Sept and 31st
March of every year. If Mr. Yuvraj Arora has transferred this security just before the due date in the
name of any other person through a fictitious sale transaction and has re-transferred it in his name
after the due date through a fictitious purchase transaction so that he can evade tax, it will be called
bond washing transaction and in such cases interest income is taxable in the hands of Mr. Yuvraj
Arora. [This practice is generally adopted by high-income class assessees to evade the tax by
transferring securities to low income class assessee on the eve of due date of payment of interest.]