Friends of WWB India, Ahmedabad V. The Dy. CIT (Exemption), Circle-1, Ahmedabad

CO 49/AHD/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 2937 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Gift; Residential status; Search and seizure; Charitable institution; Avoidance of tax; Capital receipt; Sham transactions; Set aside
• Section: 143(3); 12A; 201; 56; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER THE DCIT(E), CIRCLE - 1, AHMEDABAD (APPELLANT /RESPONDENT ) VS FRIENDS OF WWB INDIA, 101, SAKAR - 1 BUILDING, OPP: GANDHIGRAM RAILWAY STATION, AHMEDABAD - 380009 PAN: AAATF0274B (RESPONDENT /CROSS OBJECTO R ) REVENUE BY : S H RI S.K. DEV , SR. D . R. ASSESSEE BY: SHRI SANJAY R. SHAH, A.R. DATE OF HEARING : 06 - 02 - 2 019 DATE OF PRONOUNCEMENT : 05 - 03 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL AND ASSESSEE S CROSS OBJECTION FOR A.Y. 2012 - 13 , ARI SE FROM ORDER OF THE CIT(A) - 9, AHMEDABAD DATED 27 - 04 - 2 017 , IN I T A NO . 1608/AHD/2017 & CO NO. 49 / A HD/20 18 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 2 PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; I N SHORT THE ACT . 2. T HE SOLITARY GROUND OF APPEA L OF THE REVENUE IS AGAINST THE DECISION OF LD. CIT(A) IN GRANTING THE BENEFIT OF EXEM PTION U/S. 11 AND 12 OF THE ACT TO THE ASSESSEE IGNORING THE FACT THAT THE ACTIVITY OF THE ASSESSEE WAS IN THE FORM OF ADVANCEMENT OF GENERAL PUBLIC UTILITY AND NOT RELIEF OF POOR AS DEFINED IN SECTION 2(15) OF THE ACT. THE ASSESSING OFFICER HAS NOTICED THAT DURING THE COURSE OF ASSESSME NT PROCE EDINGS THAT THE 12(A)(A) CERTIFICATE ISSUED TO TH E ASSESSEE WAS CANCELLED BY DIT( E) VIDE ORDER DATED 2 0 TH MAY, 2014 W.E.F. ASSESSMENT YEAR 2009 - 10 ONWARDS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXISTENCE OF REGISTRATION U/S. 12A (A) IS A PRE - CONDITION AND WITHOUT THE VALIDITY OF THIS CERTIFICATE , THE BEN E FI T OF SECTION 11 CANN OT BE GIVEN TO THE ASSESSEE TRUST. THE ASSESSING OFFICER HAS ALSO MENTIONED THAT THE ASSESSE E HAS CHALLENGED THE CANCELLATION OF AFORESAID REGISTRATION BEFORE THE ITAT AND THE DECISION FOR SAME WAS PENDING AND HE HAS HELD THAT DONATION RECEIVED BY THE ASS ESSEE COULD NOT BE TREATED AS CAPITAL RECEIPT, THEREFORE, THE ASSESSING OFFICER HAS ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS. 1 , 67 , 77 , 775/ - . 3. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF CO - ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2011 - 12. AT THE TIME OF HEARING THIS APPEAL, THE LD. COUNSEL HAS BROUGHT TO OUR NOT ICE THAT THE CO - ORDINATE BENCH OF THE ITAT VI DE ITA NO. 1927/AHD/2016 AND SP NO. 64/AHD/2017 DATED 09 - 03 - 2017 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 3 WE HAVE GONE THROUGH THE AFORESA ID DECISION OF THE CO - ORDINATE B ENCH OF THE ITAT. THE RELEVANT P ART OF DECISION OF LD. CO - ORDINATE BENCH OF THE ITAT IS REPRODUCED AS UNDER: - 8.THE FIRST ALLEGATION IS THAT IFIG IS NOT A REGISTERED TRUST. IT IS TRUE THAT IFIG HAS BEEN DENIED REGISTRATION U/S. 12A OF THE ACT. HOWEVER, REGISTRATION U/S. 12A OF THE ACT O NLY ENTITLES THE ASSESSEE TO CLAIM EXEMPTION UNDER SECTIONS 11 & 12 OF THE ACT. THERE MAY BE A CASE WHEN A TRUST DOES NOT WANT TO AVAIL EXEMPTIONS GIVEN UNDER THE INCOME TAX ACT AND AGREES TO PAY TAXES ON ITS INCOME. THEREFORE, NON - REGISTRATION OF IFIG WOU LD NOT DISENTITLE THE APPELLANT OF ITS CORPUS DONATION. 9. THE NEXT ALLEGATION IS THAT IFIG IS NOT DOING ANY CHARITABLE ACTIVITY AND IS ONLY A LINK CHANNEL AND NOT DIRECTLY INVOLVED IN RELIEF TO POOR. IT IS AN ADMITTED FACT THAT THE MICRO FINANCE ACTIVITY W HICH WAS ERSTWHILE CARRIED ON BY THE APPELLANT TRUST WAS TRANSFERRED TO AFIG. 10. MFA WHICH WAS CONSIDERED AS A CHARITABLE ACTIVITY IN APPELLANT S HAND WILL NOT LOSE ON ITS CHARACTER IN THE HANDS OF AFIG. SINCE IFIG IS NOW HOLDING MORE THAN 99% OF THE SHARES OF AFIG FOR ALL PRACTICAL PURPOSES, IT CAN BE ASSUMED THAT IFIG IS DOING MFA ACTIVITIES THROUGH AFIG AND THUS IS ENGAGED IN CHARITABLE ACTIVITIES. IT IS LIKE A PRINCIPAL DOING CHARITABLE ACTIVITY THROUGH HIS AGENT. THEREFORE, IT CANNOT BE SAID THAT THE PR INCIPAL IS NOT ENGAGED IN ANY CHARITABLE ACTIVITY. 11. THE THIRD ALLEGATION IS THAT THE SETTLERS OF IFIG TRUST ARE THE TRUSTEES OF THE APPELLANT TRUST AND, THEREFORE, THE ENTIRE SET UP IS A COLOURABLE DEVICE TO AVOID TAXATION. 12. THE ISSUE OF COLOURABLE DEVIC E AS A TOOL FOR AVOIDANCE OF TAX HAS BEEN ELABORATELY CONSIDERED BY THE HON BLE SUPREME COURT IN THE CASE OF UNION OF INDIA AND ANOTHER VS. AZADI BACHAO ANDOLAN AND ANOTHER IN 267 ITR 706 AND AT PAGE 753, THE HON BLE SUPREME COURT HAS CONSIDERED THE RULE I N MCDOWELL AS UNDER: - THE RESPONDENTS STRENUOUSLY CRITICIZED THE ACT OF INCORPORATION BY FIIS UNDER THE MAURITIAN ACT AS A 'SHAM' AND 'A DEVICE' ACTUATED BY IMPROPER MOTIVES. THEY CONTEND THAT THIS COURT SHOULD INTERDICT SUCH ARRANGEMENTS AND, AS IF BY WAV ING A MAGIC WAND, BRING ABOUT A SITUATION WHERE THE INCORPORATION BECOMES NON EST. FOR THIS THEY HEAVILY RELY ON THE JUDGMENT OF THE CONSTITU TION BENCH OF THIS COURT IN MCDOWELL AND CO. LTD. V. COMMERCIAL TAX OFFICER [1985] 154 ITR 148. PLACING STRONG REL IANCE ON MCDOWELL'S CASE [1985] 154 ITR 148 (SC) IT IS ARGUED THAT MCDOWELL'S CASE [1985] 154 ITR 148 (SC) HAS CHANGED THE CONCEPT OF FISCAL JURISPRUDENCE IN THIS COUNTRY AND ANY TAX PLANNING WHICH IS INTENDED TO AND RESULTS IN AVOIDANCE OF TAX MUST BE STR UCK DOWN BY THE COURT. CONSIDERING THE SEMINAL NATURE OF THE CONTENTION, IT IS NECESSARY TO CONSIDER IN SOME DETAIL AS TO WHY MCDOWELL'S CASE [1985] 154 ITR 148 (SC), WHAT IT SAYS, AND WHAT IT DOES NOT SAY. IN THE CLASSIC WORDS OF LORD SUMNER IN IRC V. FI SHER'S EXECUTORS [1926] AC 395 AT 412 (HL) : 'MY LORDS, THE HIGHEST AUTHORITIES HAVE ALWAYS RECOGNIZED THAT THE SUBJECT IS ENTITLED SO TO ARRANGE HIS AFFAIRS AS NOT TO ATTRACT TAXES IMPOSED BY THE CROWN, SO FAR AS HE CAN DO SO WITHIN THE LAW, AND THAT HE M AY LEGITIMATELY CLAIM THE ADVANTAGE OF ANY EXPRESSED TERMS OR OF ANY OMISSIONS THAT HE CAN FIND IN HIS FAVOUR IN TAXING ACTS. IN SO DOING, HE NEITHER COMES UNDER LIABILITY NOR INCURS BLAME.' SIMILAR VIEWS WERE EXPRESSED BY LORD TOMLIN IN IRC V. DUKE OF WES TMINS TER [1936] AC 1 (HL); 19 TC 490, 520 (HL) WHICH REFLECTED THE PREVALENT ATTI TUDE TOWARDS TAX AVOIDANCE : 'EVERY MAN IS ENTITLED IF HE CAN TO ORDER HIS AFFAIRS SO THAT THE TAX ATTACH ING UNDER THE APPROPRIATE ACTS IS LESS THAN IT OTHERWISE WOULD BE. IF HE SUCCEEDS IN ORDERING THEM SO AS TO SECURE THIS RESULT, THEN, HOWEVER, UNAPPRECIATIVE THE COMMISSIONERS OF INLAND REVENUE I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 4 OR HIS FELLOW TAX PAYERS MAY BE OF HIS INGENUITY, HE CANNOT BE COMPELLED TO PAY AN INCREASED TAX.' THESE WERE THE PRE - SECOND WORL D WAR SENTIMENTS EXPRESSED BY THE BRITISH COURTS. IT IS URGED THAT MCDOWELL'S CASE [1985] 154 ITR 148 (SC) HAS TAKEN A NEW LOOK AT FISCAL JURISPRUDENCE AND 'THE GHOST OF FISHER'S CASE [1926] AC 395 AT 412 (HL) AND WESTMINSTER'S CASE [1936] AC 1 (HL); 19 TC 490, HAVE BEEN EXORCISED IN THE COUNTRY OF ITS ORIGIN'. IT IS ALSO URGED THAT MCDOWELL'S CASE [1985] 154 ITR 148 (SC) RADICAL DEPARTURE WAS IN TUNE WITH THE CHANGED THINK ING ON FISCAL JURISPRUDENCE BY THE ENGLISH COURTS, AS EVIDENCED IN W. T. RAM SAY LTD . V. IRC [1982] AC 300, INLAND REVENUE COMMISSIONERS V. BURMAH OIL COMPANY LTD. [1982] SIMON'S TAX CASES 30 AND FURNISS V. DAWSON [1984] 1 ALL ER 530 (HL). AS WE SHALL SHOW PRESENTLY, FAR FROM BEING EXORCISED IN ITS COUNTRY OF ORI GIN, DUKE OF WESTMINSTER' S CASE [1936] AC 1 (HL); 19 TC 490 CONTINUES TO BE ALIVE AND KICKING IN ENGLAND. INTERESTINGLY, EVEN IN MCDOWELL'S CASE [1985] 154 ITR 148 (SC), THOUGH CHINNAPPA REDDY J. DISMISSED THE OBSERVATION OF J. C. SHAH J. IN CIT V. A. RAMAN AND COMPANY [1968] 67 I TR 11 (SC) BASED ON WESTMINSTER'S CASE [1936] AC 1 (HL) ; 19 TC 490 [68] AND FISHER'S EXECUTORS CASE [1926] AC 395 AT 412 (HL), BY SAYING (PAGE 160 OF [1985] 154 ITR) 'WE THINK THAT THE TIME HAS COME FOR US TO DEPART FROM THE WESTMINSTER PRINCIPLE AS EMPHA TICALLY AS THE BRITISH COURTS HAVE DONE AND TO DISSOCIATE OURSELVES FROM THE OBSERVATIONS OF SHAH J., AND SIMILAR OBSERVATIONS MADE ELSEWHERE', IT DOES NOT APPEAR THAT THE REST OF THE LEARNED JUDGES OF THE CONSTITUTIONAL BENCH CONTRIBUTED TO THIS RADICAL T HINKING. SPEAKING FOR THE MAJORITY, RANGANATH MISHRA J. (AS HE THEN WAS) SAYS IN MCDOWELL'S CASE [1985] 154 ITR 148, 171 (SC): 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES.' (EMPHASIS SUPPLIED) THIS OPINION OF THE MAJORITY IS A FAR CRY FROM THE VIEW OF CHINNAPPA REDDY J. (PAGE 160): 'IN OUR VIEW THE PROPER WAY TO CONSTRUE A TAXING STATUTE, WHILE CONSIDERING A DEVICE TO AVOID TAX, IS NOT TO ASK WHETHER A PROVISION SHOULD BE CONSTRUED LITERALLY OR LIBE RALLY NOR WHETHER THE TRANSACTION IS NOT UNREAL AND NOT PROHIBITED BY THE STATUTE, BUT WHETHER THE TRANSACTION IS A DEVICE TO AVOID TAX, AND WHETHER THE TRANSACTION IS SUCH THAT THE JUDICIAL PROCESS MAY ACCORD ITS APPROVAL TO IT.' WE ARE AFRAID THAT WE ARE UNABLE TO READ OR COMPREHEND THE MAJORITY JUDGMENT IN MCDOWELL'S CASE [1985] 154 ITR 148 (SC) AS HAVING ENDORSED THIS EXTREME VIEW OF CHINNAPPA REDDY J., WHICH, IN OUR CONSIDERED OPINION, ACTUALLY MILITATES AGAINST THE OBSERVATIONS OF THE MAJORITY OF THE JUDGES WHICH WE HAVE JUST EXTRACTED FROM THE LEADING JUDGMENT OF RANGANATH MISHRA J. (AS HE THEN WAS). THE BASIC ASSUMPTION MADE IN THE JUDGMENT OF CHINNAPPA REDDY J. IN MCDOWELL'S CASE [1985] 154 ITR 148 (SC) THAT THE PRINCIPLE IN DUKE OF WEST MINSTER'S C ASE [1936] AC 1 (HL) HAS BEEN DEPARTED FROM SUBSEQUENTLY BY THE HOUSE OF LORDS IN ENGLAND, WITH RESPECT, IS NOT CORRECT. IN CRAVEN V. WHITE [1988] 3 ALL ER 495 ; [1990] 183 ITR 216, THE HOUSE OF LORDS POINTEDLY CONSI DERED THE IMPACT OF FURNISS CASE [1984] 1 ALL ER 530 (HL), BURMA OIL'S CASE [1982] SIMON'S TAX CASES 30 AND RAMSAY'S CASE [1982] AC 300 (HL). THE LAW LORDS WERE AT GREAT PAINS TO EXPLAIN AWAY EACH OF THESE JUDGMENTS. LORD KEITH OF KINKEL SAYS, WITH REFERENCE TO THE TRILOGY OF THESE CASES, (AT P AGE 225 OF [1990] 183 ITR) : 'MY LORDS, IN MY OPINION THE NATURE OF THE PRINCIPLE TO BE DERIVED FROM THE THREE CASES IS THIS : THE COURT MUST FIRST CONSTRUE THE RELEVANT ENACTMENT IN ORDER TO ASCERTAIN ITS MEANING; IT MUST THEN ANALYSE THE SERIES OF TRANSA CTIONS IN QUESTION, REGARDED AS A WHOLE, SO AS TO ASCERTAIN ITS TRUE EFFECT IN LAW ; AND FINALLY IT MUST APPLY THE ENACTMENT AS CONSTRUED TO THE TRUE EFFECT OF THE SERIES OF TRANSACTIONS AND SO DECIDE WHETHER OR NOT THE ENACTMENT WAS INTENDED TO COVER IT. THE MOST IMPORTANT FEATURE OF THE PRINCIPLE IS THAT THE SERIES OF TRANS ACTIONS IS TO BE REGARDED AS A WHOLE. IN ASCERTAINING THE TRUE LEGAL EFFECT OF I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 5 THE SERIES IT IS RELEVANT TO TAKE INTO ACCOUNT, IF IT BE THE CASE, THAT ALL THE STEPS IN IT WERE CONTRACT UALLY AGREED IN ADVANCE OR HAD BEEN DETERMINED ON IN ADVANCE BY A GUIDING WILL WHICH WAS IN A POSITION, FOR ALL PRACTICAL PURPOSES, TO SECURE THAT ALL OF THEM WERE CARRIED THROUGH TO COMPLETION. IT IS ALSO RELEVANT TO TAKE INTO ACCOUNT, IF IT BE THE CASE, THAT ONE OR MORE OF THE STEPS WAS INTRODUCED INTO THE SERIES WITH NO BUSINESS PURPOSE OTHER THAN THE AVOIDANCE OF TAX. THE PRINCIPLE DOES NOT INVOLVE, IN MY OPINION, THAT IT IS PART OF THE JUDI CIAL FUNCTION TO TREAT AS NUGATORY ANY STEP WHATEVER WHICH A T AXPAYER MAY TAKE WITH A VIEW TO THE AVOIDANCE OR MITIGATION OF TAX. IT REMAINS TRUE IN GENE RAL THAT THE TAXPAYER, WHERE HE IS IN A POSITION TO CARRY THROUGH A TRANSACTION IN TWO ALTERNATIVE WAYS, ONE OF WHICH WILL RESULT IN LIABILITY TO TAX AND THE OTHER OF WHICH WILL NOT, IS AT LIBERTY TO CHOOSE THE LATTER AND TO DO SO EFFEC TIVELY IN THE ABSENCE OF ANY SPECIFIC TAX AVOIDANCE PROVISION SUCH AS SECTION 460 OF THE INCOME AND CORPORATION TAXES ACT, 1970. IN RAMSAY AND IN BURMAH THE RESULT OF APPLICATION OF T HE PRINCIPLE WAS TO DEMONSTRATE THAT THE TRUE LEGAL EFFECT OF THE SERIES OF TRANSACTIONS ENTERED INTO, REGARDED AS A WHOLE, WAS PRECISELY NIL.' LORD OLIVER (AT PAGES 252 OF [1990] 183 ITR) SAYS : 'IT IS EQUALLY IMPORTANT TO BEAR IN MIND WHAT THE CASE DID N OT DECIDE. IT DID NOT DECIDE THAT A TRANSACTION ENTERED INTO WITH THE MOTIVE OF MINIMISING THE SUBJECT'S BURDEN OF TAX IS, FOR THAT REASON, TO BE IGNORED OR STRUCK DOWN. LORD WILBERFORCE WAS AT PAINS TO STRESS THAT THE FACT THAT THE MOTIVE FOR A TRANSACTIO N MAY BE TO AVOID TAX DOES NOT INVALIDATE IT UNLESS A PARTICULAR ENACTMENT SO PROVIDES (SEE [1981] 1 ALL ER 865 AT 871 ; [1982] AC 300 AT 323). P NOR DID IT DECIDE THAT THE COURT IS ENTITLED, BECAUSE OF THE SUBJECT'S MOTIVE IN ENTERING INTO A GENUINE T RANSACTION, TO ATTRIBUTE TO IT A LEGAL EFFECT WHICH IT DID NOT HAVE. BOTH LORD WILBERFORCE AND LORD FRASER EMPHASISE THE CONTINUED VALIDITY AND APPLICATION OF THE PRINCIPLE OF IRC V. DUKE OF WESTMINSTER [1936] AC 1; [1935] ALL ER REP. 259, A PRINCIPLE WHIC H LORD WILBERFORCE DESCRIBED AS A 'CARDINAL PRINCIPLE'. WHAT IT DID DECIDE WAS THAT THAT CARDINAL PRINCIPLE DOES NOT, WHERE IT IS PLAIN THAT A PARTICULAR TRANSACTION IS BUT ONE STEP IN A CON NECTED SERIES OF INTERDEPENDENT STEPS DESIGNED TO PRODUCE A SINGL E COMPOSITE OVERALL RESULT, COMPEL THE COURT TO REGARD IT AS OTHERWISE THAN WHAT IT IS, THAT IS TO SAY MERELY A PART OF THE COMPOSITE WHOLE.' LORD OLIVER (AT PAGE 258 OF [1990] 183 ITR) OBSERVES : 'MY LORDS, FOR MY PART I FIND MYSELF UNABLE TO ACCEPT THAT DAWSON EITHER ESTABLISHED OR CAN PROPERLY BE USED TO SUPPORT A GENERAL PROPOSITION THAT ANY TRANSACTION WHICH IS EFFECTED FOR THE PURPOSE OF AVOIDING TAX ON A CONTEM PLATED SUBSEQUENT TRANSACTION AND IS THEREFORE 'PLANNED' IS, FOR THAT REASON, NECESSARILY TO BE TREATED AS ONE WITH THAT SUBSEQUENT TRANSACTION AND AS HAV ING NO INDEPENDENT EFFECT EVEN WHERE THAT IS REALISTICALLY AND LOGICALLY IMPOS SIBLE.' CONTINUING (AT PAGE 260 OF [1990] 183 ITR), LORD OLIVER OBSERVES : 'ESSENTIALLY, DAWSON WAS CONCERNED WI TH A QUESTION WHICH IS COMMON TO ALL SUCCESSIVE TRANSACTIONS WHERE AN ACTUAL TRANSFER OF PROPERTY HAS TAKEN PLACE TO A CORPORATE ENTITY WHICH SUBSEQUENTLY CARRIES OUT A FURTHER DISPOSI TION TO AN ULTIMATE DISPONEE. THE QUESTION IS : WHEN IS A DISPOSAL NOT A DISPO SAL WITHIN THE TERMS OF THE STATUTE ? TO GIVE TO THAT QUESTION THE ANSWER 'WHEN, ON AN ANALYSIS OF THE FACTS, IT IS SEEN IN REALITY TO BE A DIFFERENT TRANSACTION ALTO GETHER' IS WELL WITHIN THE ACCEPTED CANONS OF CONSTRUCTION. TO ANSWER IT 'WHEN IT IS EFFECTED WITH A VIEW TO AVOIDING TAX ON ANOTHER CONTEMPLATED TRANSACTION' IS TO DO MORE THAN SIMPLY TO PLACE A GLOSS ON THE WORDS OF THE STATUTE. IT IS TO ADD A LIMITATION OR QUALIFICATION WHICH THE LEGISLATURE ITSELF HAS NOT SOUGHT TO EXPRESS AND FOR WHICH THERE IS NO CONTEXT IN THE STATUTE. THAT, HOWEVER, DESIR ABLE IT MAY SEEM, IS TO LEGISLATE, NOT TO CONSTRUE, AND THAT IS SOMETHING WHICH IS NOT WITHIN JUDICIAL COMPETENCE. I CAN FIND NOTHING IN DAWSON OR IN THE CASES WHICH PRECEDED IT WHICH CAUSES ME TO SUPPOSE THAT THAT WAS WHAT THIS HOUSE, WAS SEEKING TO DO.' THUS WE SEE THAT EVEN IN THE YEAR 1988 THE HOUSE OF LORDS EMPHASISED THE CONTINUED VALIDITY AND APPLICATION OF THE PRINCIPLE IN DUKE OF WESTMINSTER'S CASE [1936J AC 1 (HL). I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 6 WHILE CHINNAPPA RED DY J. TOOK THE VIEW THAT RAMSAY'S CASE [1982] AC 300 (HL), WAS AN AUTHORITATIVE REJECTION OF THE PRINCIPLE IN THE DUKE OF WESTMINS TER'S CASE [1936] AC 1 (HL); 19 TC 490, THE HOUSE OF LORDS, IN THE YEAR 2001, DOES NOT SEEM TO CONSIDER IT TO BE SO, AS SEEN FROM MACNIVEN (H. M. INSPECTOR OF TAXES) V. WESTMORLAND INVESTMENTS LTD [2001] 1 ALL ER 865 AT 877 - 878 ; [2001] 2 WLR 377, 389 ; [2002] 255 ITR 612 ; LORD HOFFMANN OBSERVES : 'IN THE RAMSAY CASE [1982] AC 300 BOTH LORD WILBERFORCE AND LORD FRASER OF TULLYB ELTON, WHO GAVE THE OTHER PRINCIPAL SPEECH, WERE CAREFUL TO STRESS THAT THE HOUSE WAS NOT DEPARTING FROM THE PRINCIPLE IN IRC V. DUKE OF WESTMINSTER [1936] AC 1; [1935] ALL ER REP. 259. THERE HAS NEVERTHELESS BEEN A GOOD DEAL OF DISCUSSION ABOUT HOW THE TW O CASES ARE TO BE RECONCILED. HOW, IF THE VARIOUS JURISTICALLY DISCRETE ACQUISITIONS AND DISPOSALS WHICH MADE UP THE SCHEME WERE GENUINE, COULD THE HOUSE COLLAPSE THEM INTO A COMPOSITE SELF - CANCELLING TRANSACTION WITHOUT BEING GUILTY OF IGNORING THE LEGAL POSITION AND LOOKING AT THE SUBSTANCE OF THE MATTER ? MY LORDS, I VENTURE TO SUGGEST THAT SOME OF THE DIFFICULTY WHICH MAY HAVE BEEN FELT IN RECONCILING THE RAMSAY CASE WITH THE DUKE OF WESTMINSTER CASE ARISES OUT OF AN AMBIGUITY IN LORD TOMLIN'S STATEMENT THAT THE COURTS CAN NOT IGNORE 'THE LEGAL POSITION' AND HAVE REGARD TO 'THE SUBSTANCE OF THE MATTER'. IF 'THE LEGAL POSITION' IS THAT THE TAX IS IMPOSED BY REFERENCE TO A LEGALLY DEFINED CONCEPT, SUCH AS STAMP DUTY PAYABLE ON A DOCUMENT WHICH CONSTITUTES A CONVEYANCE ON SALE, THE COURT CANNOT TAX A TRANSACTION WHICH USES NO SUCH DOCUMENT ON THE GROUND THAT IT ACHIEVES THE SAME ECONOMIC EFFECT. ON THE OTHER HAND, IF THE LEGAL POSITION IS THAT TAX IS IMPOSED BY REFERENCE TO A COM MERCIAL CONCEPT, THEN TO HAV E REGARD TO THE BUSINESS 'SUBSTANCE' OF THE MATTER IS NOT TO IGNORE THE LEGAL POSITION BUT TO GIVE EFFECT TO IT. THE SPEECHES IN THE RAMSAY CASE [1982] AC 300 AND SUBSEQUENT CASES CONTAIN NUMEROUS REFERENCES TO THE 'REAL' NATURE OF THE TRANSACTION AND TO W HAT HAPPENS IN 'THE REAL WORLD'. THESE EXPRESSIONS ARE ILLUMINATING IN THEIR CON TEXT, BUT YOU HAVE TO BE CAREFUL ABOUT THE SENSE IN WHICH THEY ARE BEING USED. OTHERWISE YOU LAND IN ALL KINDS OF UNNECESSARY PHILOSOPHICAL DIFFICULTIES ABOUT THE NATURE OF RE ALITY AND, IN PARTICULAR, ABOUT HOW A TRANSACTION CAN BE SAID NOT TO BE A 'SHAM' AND YET BE 'DISREGARDED' FOR THE PURPOSE OF DECIDING WHAT HAPPENED IN 'THE REAL WORLD'. THE POINT TO HOLD ON TO IS THAT SOMETHING MAY BE REAL FOR ONE PURPOSE BUT NOT FOR ANOTH ER. WHEN PEOPLE SPEAK OF SOME THING BEING A 'REAL' SOMETHING, THEY MEAN THAT IT FALLS WITHIN SOME CONCEPT WHICH THEY HAVE IN MIND, BY CONTRAST WITH SOMETHING ELSE WHICH MIGHT HAVE BEEN THOUGHT TO DO SO, BUT DOES NOT. WHEN AN ECONOMIST SAYS THAT REAL INCOME S HAVE FALLEN, HE IS NOT INTENDING TO CONTRAST REAL INCOMES WITH IMAGI NARY INCOMES. THE CONTRAST IS SPECIFICALLY BETWEEN INCOMES WHICH HAVE BEEN ADJUSTED FOR INFLATION AND THOSE WHICH HAVE NOT. IN ORDER TO KNOW WHAT HE MEANS BY 'REAL', ONE MUST FIRST IDEN TIFY THE CONCEPT (INFLATION ADJUSTMENT) BY REFERENCE TO WHICH HE IS USING THE WORD. THUS IN SAYING THAT THE TRANSACTIONS IN THE RAMSAY CASE WERE NOT SHAM TRANSACTIONS, ONE IS ACCEPTING THE JURISTIC CATEGORISATION OF THE TRANSACTIONS AS INDIVIDUAL AND DISCR ETE AND SAYING THAT EACH OF THEM INVOLVED NO PRETENCE. THEY WERE INTENDED TO DO PRECISELY WHAT THEY PURPORTED TO DO. THEY HAD A LEGAL REALITY. BUT IN SAYING THAT THEY DID NOT CONSTITUTE A 'REAL' DISPOSAL GIVING RISE TO A 'REAL' LOSS, ONE IS REJECTING THE J URISTIC CATEGORISATION AS NOT BEING NECESSARILY DETERMINATIVE FOR THE PURPOSES OF THE STATUTORY CONCEPTS OF 'DIS POSAL' AND TOSS' AS PROPERLY INTERPRETED. THE CONTRAST HERE IS WITH A COMMER CIAL MEANING OF THESE CONCEPTS. AND IN SAYING THAT THE INCOME TAX LEGISLATION WAS INTENDED TO OPERATE 'IN THE REAL WORLD', ONE IS AGAIN REFERRING TO THE COM MERCIAL CONTEXT WHICH SHOULD INFLUENCE THE CONSTRUCTION OF THE CONCEPTS USED BY PARLIAMENT.' WITH RESPECT, THEREFORE, WE ARE UNABLE TO AGREE WITH THE VIEW THAT DUKE OF WESTMINSTER'S CASE [1936] AC 1 (HL); 19 TC 490 IS DEAD, OR THAT ITS GHOST HAS BEEN EXORCISED IN ENGLAND. THE HOUSE OF LORDS DOES NOT SEEM TO THINK SO, AND WE AGREE, WITH RESPECT. IN OUR VIEW, THE PRINCIPLE IN DUKE OF WESTMINSTER'S CASE [1936] AC 1 (HL); 19 TC 490 IS VERY MUCH ALIVE AND KICKING IN THE COUN TRY OF ITS BIRTH. AND AS FAR AS THIS COUNTRY IS I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 7 CONCERNED, THE OBSERVATIONS OF SHAH J. IN CIT V. ROMAN [1968] 67 ITR 11 (SC) ARE VERY MUCH RELEVANT EVEN TODAY. WE MAY IN THIS CONNECTION USEFULLY REFER TO THE JUDGMENT OF THE MADRAS HIGH COURT IN M. V. VALLIAPPAN V. ITO [1988] 170 ITR 238 , WHICH HAS RIGHTLY CONCLUDED THAT THE DECISION IN MCDOWELL [1985] 154 ITR 148 (SC) CANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST BE IGNORED, OR THAT EVERY TRANSACTION OR ARRANGEMENT WHICH IS PERFECTLY PERMISSIBLE UNDER LAW, WHICH HAS THE EFFECT OF REDUCING THE TAX BURDEN OF THE ASSESSEE, MUST BE LOOKED UPON WITH DISFAVOUR. THOUGH THE MADRAS HIGH COURT HAD OCCASION TO REFER TO T HE JUDGMENT OF THE PRIVY COUNCIL IN IRC V. CHALLENGE CORPORATION LTD. [1987] 2 WLR 24, AND DID NOT HAVE THE BENEFIT OF THE HOUSE OF LORDS' PRONOUNCEMENT IN CRAVEN'S CASE [1988] 3 ALL ER 495 (HL); [1990] 183 ITR 216 (HL), THE VIEW TAKEN BY THE MADRAS HIGH C OURT APPEARS TO BE CORRECT AND WE ARE INCLINED TO AGREE WITH IT. WE MAY ALSO REFER TO THE JUDGMENT OF THE GUJARAT HIGH COURT IN BANYAN AND BERRY V. COMMISSIONER OF INCOME - TAX [1996] 222 ITR 831 AT 850 WHERE REFERRING TO MCDOWELL'S CASE [1985] 154 ITR 148 ( SC), THE COURT OBSERVED : 'THE COURT NOWHERE SAID THAT EVERY ACTION OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILITY TO WHICH HE MAY BE SUB JECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS A DEVICE FOR A VOIDANCE OF TAX IRRESPECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFER ENCE WHICH UNFORTUNATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MCDOWELL'S CASE [1958] 154 ITR 148 (SC). THE RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LEAD TO MCDOWELL'S DECISION LEAVE US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF THE CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAMEWORK OF LAW, UNLESS THE SAME FALL IN THE CATEGORY OF COLOURABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY.' THIS ACCORDS WITH OUR OWN VIEW OF THE MATTER. IN CWT V. ARVIND NAROTTAM [1988] 173 ITR 479 (SC), A CASE UNDER THE WEALTH - TAX ACT, THREE TRUST DEEDS FOR THE BENEFIT OF THE ASSESSEE, HIS WI FE AND CHILDREN IN IDENTICAL TERMS WERE PREPARED UNDER SECTION 21(2) OF THE WEALTH - TAX ACT. THE REVENUE PLACED RELIANCE ON MCDOWELL'S CASE [1985] 154 ITR 148 (SC). BOTH THE LEARNED JUDGES OF THE BENCH OF THIS COURT GAVE SEPARATE OPI NIONS. CHIEF JUSTIC E PATHAK, IN HIS OPINION SAID (AT PAGE 486) : 'RELIANCE WAS ALSO PLACED BY LEARNED COUNSEL FOR THE REVENUE ON MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC). THAT DECISION CANNOT ADVANCE THE CASE OF THE REVENUE BECAUSE THE LANGUAGE OF THE DEEDS OF SE TTLE MENT IS PLAIN AND ADMITS OF NO AMBIGUITY.' JUSTICE S. MUKHARJI SAID, AFTER NOTICING MCDOWELL'S [1985] 154 ITR 148 (SC) CASE (AT PAGE 487) : 'WHERE THE TRUE EFFECT ON THE CONSTRUCTION OF THE DEEDS IS CLEAR, AS IN THIS CASE, THE APPEAL TO DISCOURAGE TAX AVOIDANCE IS NOT A RELEVANT CONSIDERATION. BUT SINCE IT WAS MADE, IT HAS TO BE NOTED AND REJECTED.' IN MATHURAM AGRAWAL V. STATE OFMADHYA PRADESH [1999] 8 SCC 667 AT PARA. 12 ANOTHER CONSTITUTION BENCH HAD OCCASION TO CONSIDER THE ISSUE. THE BENCH OBSERVE D (PAGE 673) : 'THE INTENTION OF THE LEGISLATURE IN A TAXATION STATUTE IS TO BE GATHERED FROM THE LANGUAGE OF THE PROVISIONS PARTICULARLY WHERE THE LANGUAGE IS PLAIN AND UNAMBIGUOUS. IN A TAXING ACT IT IS NOT POSSIBLE TO ASSUME ANY INTENTION OR GOVERNING P URPOSE OF THE STATUTE MORE THAN WHAT IS STATED IN THE PLAIN LANGUAGE. IT IS NOT THE ECONOMIC RESULTS SOUGHT TO BE OBTAINED BY MAKING THE PROVISION WHICH IS RELEVANT IN INTERPRETING A FISCAL STATUTE. EQUALLY IMPERMIS SIBLE IS AN INTERPRETATION WHICH DOES NO T FOLLOW FROM THE PLAIN, UNAMBIGUOUS LANGUAGE OF THE STATUTE. WORDS CANNOT BE ADDED TO OR SUBSTITUTED SO AS TO GIVE A MEANING TO THE STATUTE WHICH WILL SERVE THE SPIRIT AND INTENTION OF THE LEGISLATURE. I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 8 THE CONSTITUTION BENCH REITERATED THE OBSERVATIONS I N BANK OF CHETTINAD LTD. V. CIT [1940] 8 ITR 522 (PC), QUOTING WITH APPROVAL THE OBSERVATIONS OF LORD RUSSELL OF KILLOWEN IN IRC V. DUKE OF WESTMINSTER [1936] AC 1 (HL); [1936] 19 TC 490 AND THE OBSERVATIONS OF LORD SIMONDS IN RUSSELL V. SCOTT [1948] 2 ALL ER15. IT THUS APPEARS TO US THAT NOT ONLY IS THE PRINCIPLE IN DUKE OF WESTMINSTER'S CASE [1936] AC 1 (HL) ; 19 TC 490 ALIVE AND KICKING IN ENGLAND, BUT IT ALSO SEEMS TO HAVE ACQUIRED JUDICIAL BENEDICTION OF THE CONSTITUTIONAL BENCH IN INDIA, NOTWITHSTANDI NG THE TEMPORARY TURBULENCE CREATED IN THE WAKE OF MCDOWELL'S CASE [1985] 154 ITR 148 (SC). 13. THE HON BLE SUPREME COURT IN ANOTHER CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. IN 326 ITR 1 HAS MADE THE FOLLOWING OBSERVATIONS: - THE REAL OBJECTI ON OF THE DEPARTMENT APPEARS TO BE THAT THE ASSESSEE IS GETTING TAX - FREE DIVIDEND ; THAT AT THE SAME TIME IT IS CLAIMING LOSS ON THE SALE OF THE UNITS ; THAT THE ASSESSEE HAD PURPOSELY AND IN A PLANNED MANNER ENTERED INTO A PRE - MEDITATED TRANSACTION OF BUY ING AND SELLING UNITS YIELDING EXEMPTED DIVIDENDS WITH FULL KNOWLEDGE ABOUT THE FALL IN THE NAV AFTER THE RECORD DATE AND THE PAYMENT OF TAX - FREE DIVIDEND AND, THEREFORE, THE LOSS ON SALE WAS NOT GENUINE. WE FIND NO MERIT IN THE ABOVE ARGUMENT OF THE DEPAR TMENT. AT THE OUTSET, WE MAY STATE THAT WE HAVE TWO SETS OF CASES BEFORE US. THE LEAD MATTER COVERS ASSESSMENT YEARS BEFORE INSERTION OF SECTION 94(7) VIDE THE FINANCE ACT, 2001 WITH EFFECT FROM APRIL 1, 2002. WITH REGARD TO SUCH CASES WE MAY STATE THAT ON THE FACTS IT IS ESTABLISHED THAT THERE WAS A 'SALE'. THE SALE PRICE WAS RECEIVED BY THE ASSESSEE. THAT, THE ASSESSEE DID RECEIVE DIVIDEND. THE FACT THAT THE DIVIDEND RECEIVED WAS TAX FREE IS THE POSITION RECOGNIZED UNDER SECTION 10(33) OF THE ACT. THE ASS ESSEE HAD MADE USE OF THE SAID PROVISION OF THE ACT. THAT SUCH USE CANNOT BE CALLED 'ABUSE OF LAW'. EVEN ASSUMING THAT THE TRANSACTION WAS PRE - PLANNED THERE IS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION. WITH REGARD TO THE RULING IN MCDOWELL AN D CO. LTD. V. CTO [1985] 154: ITR 148 (SC), IT MAY BE STATED THAT IN THE LATER DECISION OF THIS COURT IN UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 IT HAS BEEN HELD THAT A CITIZEN IS FREE TO CARRY ON ITS BUSINESS WITHIN THE FOUR CORNERS OF T HE LAW. THAT, MERE TAX PLANNING, WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABLE DEVICES IS NOT FROWNED UPON EVEN BY THE JUDGMENT OF THIS COURT IN MCDOWELL AND CO. LTD.'S CASE (SUPRA). 14. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF MRS. SARITA P. SH IRKE IN 281 ITR 373 HAD THE OCCASION TO CONSIDER A TRANSACTION ALLEGED TO BE A COLOURABLE DEVICE AND THE RELEVANT OBSERVATIONS OF THE HON BLE BOMBAY HIGH COURT READS AS UNDER: - A CONCURRENT FINDING HAS BEEN RECORDED BY BOTH THE LOWER AUTHORITIES THAT THE AMOUNT LYING IN THE ACCOUNT OF RESPONDENT NO. 1/ASSESSEE IN VASCO WAS TRANSFERRED BY DEMAND DRAFT TO HER ACCOUNT IN KASHMIR AND THERE SHE HAD MADE A GIFT TO 5 TRUSTS IN KASHMIR. RESPONDENT NO. 1 BEING A NON - RESIDENT OF INDIA AND PERMANENTLY RESIDING IN DUB AI WOULD HAVE VERY WELL GIVEN THE GIFT IN DUBAI WHERE THE GIFT IS NOT TAXABLE. IT IS, THEREFORE, NOT POSSIBLE TO COME TO A CON CLUSION THAT THIS WAS A COLOURABLE DEVICE FOR AVOIDING TAX. IN ANY CASE, EVEN OTHERWISE, IF A PERSON IS ENTITLED TO AN EXEMPTION IN LAW AND ACCORDINGLY MAKES A PLAN TO AVOID THE TAX LIABILITY WHICH HE IS OTHERWISE LEGALLY ENTITLED TO IT WOULD NOT AMOUNT TO A TAX EVASION. THE SUPREME COURT IN A RECENT CASE IN THE CASE OF UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 HAS T O A VERY LARGE EXTENT WATERED DOWN THE RATIO LAID DOWN IN MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC) AND HAS OBSERVED THAT THE OBSERVATIONS MADE BY CHINNAPPA REDDY, J. IN THE SAID JUDGMENT DO NOT NECESSARILY REFLECT THE OBSERVATIONS OF THE OTHER HON'BLE JUDGES. THE SUPREME COURT IN THIS JUDGMENT HAS CONSIDERED THE MAJORITY VIEW AND THE VIEW TAKEN BY CHINNAPPA REDDY J. AND HAS OBSERVED THAT THE MAJORITY JUDGMENT IN MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC) HAD NOT ENDORSED THE VIEW OF CH INNAPPA REDDY J. THE .APEX COURT HAS OBSERVED AS UNDER (PAGE 754) : 'AS WE SHALL SHOW PRESENTLY, FAR FROM BEING EXORCISED IN ITS COUNTRY OF ORIGIN, DUKE OF WESTMINSTER'S CASE [1936] AC 1 (HL); [1935] 19 TC 490 CONTINUES TO BE ALIVE AND I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 9 KICKING IN ENGLAND. INTERESTINGLY, EVEN IN MCDOWELL'S CASE [1985] 154 ITR 148 (SC), THOUGH CHINNAPPA REDDY J. DISMISSED THE OBSERVATION OF J. C. SHAH J. IN CIT V. A. RAMAN AND CO. [1968] 67 ITR 11 (SC) BASED ON WESTMINSTER'S CASE [1936] AC 1 (HL); 19 TC 490 [68] AND FISHER'S EXECUTORS CASE [1926] AC 395 AT 412 (HL), BY SAYING (PAGE 160 OF [1985] 154 ITR) 'WE THINK THAT THE TIME HAS COME FOR US TO DEPART FROM THE WESTMINSTER PRINCIPLE AS EMPHATICALLY AS THE BRITISH COURTS HAVE DONE AND TO DISSOCIATE OUR SELVES FROM THE OBSERVAT IONS OF SHAH J., AND SIMILAR OBSERVATIONS MADE ELSEWHERE', IT DOES NOT APPEAR THAT THE REST OF THE LEARNED JUDGES OF THE CONSTITUTIONAL BENCH CONTRIBUTED TO THIS RADICAL THINK ING. SPEAKING FOR THE MAJORITY, RANGANATH MISHRA J. (AS HE THEN WAS) SAYS IN MCD OWELL'S CASE [1985] 154 ITR 148, 171 (SC) : TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAME WORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID TH E PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES/EMPHASIS 1 SUPPLIED) THIS OPINION OF THE MAJORITY IS A FAR CRY FROM THE VIEW OF CHINNAPPA REDDY J. (PAGE 160) : 'IN OUR VIEW THE PROPER WAY TO CONSTRUE A TAXING STATUTE, WHILE CONSIDERING A DEVICE TO AVOID TAX, IS NOT TO ASK WHETHER A PROVISION SHOULD BE CONSTRUED LITERALLY OR LIBERALLY NOR WHETHER THE TRANSACTION IS NOT UNREAL AND NOT PROHIBITED BY THE STATUTE, B UT WHETHER THE TRANSACTION IS A DEVICE TO AVOID TAX, AND WHETHER THE TRANSACTION IS SUCH THAT THE JUDICIAL PROCESS MAY ACCORD ITS APPROVAL TO IT/ WE ARE AFRAID THAT WE ARE UNABLE TO READ OR COMPREHEND THE MAJORITY JUDGMENT IN MCDOWELL'S CASE [1985] 154 ITR 148 (SC) AS HAVING ENDORSED THIS EXTREME VIEW OF CHINNAPPA REDDY J., WHICH, IN OUR CONSIDERED OPINION, ACTUALLY MILITATES AGAINST THE OBSERVATIONS OF THE MAJORITY OF THE JUDGES WHICH WE HAVE JUST EXTRACTED FROM THE LEAD ING JUDGMENT OF RANGANATH MISHRA J. (AS HE THEN WAS).' THE SUPREME COURT, THEREFORE, BY THE SAID JUDGMENT HAS CLEARLY WATERED DOWN THE VIEW TAKEN BY CHINNAPPA REDDY J. IN MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC). THE SUBMISSION OF LEARNED COUNSEL APPEAR ING ON BEHALF OF THE REVE NUE THAT THE RATIO OF MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC) IS APPLICABLE TO THE FACTS OF THE PRESENT CASE THEREFORE CANNOT BE ACCEPTED. 15. THE HON BLE HIGH COURT OF CALCUTTA IN OBEROI HOTELS P. LTD. IN 334 ITR 293 HAS MADE FOLLOWING RELEVANT OBSERVATIONS: - IN OUR OPINION, SO LONG THE DECISION IN THE CASE OFAZADI BACHAO ANDOLAN [2003] 263 ITR 706 (SC) IS NOT HELD TO BE PER - INCURIAM BY A LARGER BENCH DECISION OF THE SUPREME COURT AS DONE IN THE CASE OF OFFICIAL LIQUIDATOR V. DAYANAND [2008] 10 SCC 1 RELIED UPON BY MR. SARAF, THE HIGH COURTS SHOULD BE BOUND BY THE EXPLANATION OF THAT BENCH GIVEN TO THE DECISION IN THE CASE OF MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC). EVEN ON THE MERITS, WE ALSO DO NOT APPRECIATE THE REASON OF THE AS SESS ING OFFICER THAT THE ASSESSEE - COMPANY COULD HAVE EASILY WAITED FOR A REASONABLE PERIOD OF TIME FOR WATCHING THE MARKET AND COULD ALSO HAVE INVESTED A FURTHER AMOUNT OF RS. 9 TO 10 CRORES TO REVIVE THE BUSINESS OF M/S. 8KB. IT IS NOT WITHIN THE PROVINC E OF THE ASSESSING OFFICER TO IGNORE AN OTHERWISE GENUINE TRANSACTION AND TO BRAND IT AS A COLOURABLE ONE ON THE GROUND THAT IT WAS THE DUTY OF THE COMPANY TO INVEST FURTHER AMOUNT OR IT SHOULD HAVE WAITED FOR A REASONABLE PERIOD. WE, THEREFORE, FIND THAT THE VIEW OF THE TRIBUNAL AND THE COMMISSIONER OF INCOME - TAX (APPEALS) AS REGARDS THE NATURE OF THE TRANSACTION IS QUITE IN CONFORMITY WITH THE LAW OF THE LAND. 16. A CONSPECTUS READING OF THE AFOREMENTIONED JUDGMENTS OF THE HON BLE SUPREME COURT AND THE HIGH COURTS WOULD SUGGEST THAT EVERY ARRANGEMENT CANNOT BE CONSIDERED AS A COLOURABLE DEVICE FOR TAX AVOIDANCE. I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 10 17. COMING BACK TO THE FACTS OF THE CASE IN HAND, THE ALLEGATION OF THE REVENUE THAT THE APPELLANT COULD NOT HAVE INVESTED DIRECTLY IN AFIG OTHERWISE I T WOULD HAVE LOST ITS EXEMPTION DUE TO VIOLATION OF SECTION 11(5) R.W.S. 13(1)(D) OF THE ACT DOES NOT HOLD ANY WATER BECAUSE THE MFA WHICH WAS EARLIER CARRIED ON BY THE APPELLANT TRUST WAS NOW CARRIED OUT BY IFIG THROUGH AFIG. 18. THE HON BLE HIGH COURT OF G UJARAT IN THE CASE OF SARLADEVI SARABHAI TRUST 40 TAXMANN.COM 388 WHEREIN ON IDENTICAL FACTS AND AFTER CONSIDERING THE CBDT INSTRUCTION NO. 1132 DATED 05.01.1978 OBSERVED AS UNDER: - 'A QUESTION HAS BEEN RAISED REGARDING THE AVAILABILITY OF EXEMPTION IN T HE HANDS OF CHARITABLE TRUSTS OF AMOUNTS PAID AS DONATION TO OTHER CHARITABLE TRUSTS. THE ISSUE HAS BEEN CONSIDERED BY THE BOARD AND IT HAS BEEN DECIDED THAT AS THE LAW STANDS AT PRESENT, THE PAYMENT OF A SUM BY ONE CHARITABLE TRUST TO ANOTHER FOR UTILIZAT ION BY THE DONEE - TRUST TOWARDS ITS CHARITABLE OBJECTS IS PROPER APPLICATION OF INCOME FOR CHARITABLE PURPOSE IN THE HANDS OF THE DONEE - TRUST, AND THE DONOR TRUST WILL NOT LOSE EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT, 1961 MERELY BECAUSE THE DONEE - TRUST DID NOT SPEND THE DONATION DURING THE YEAR OF RECEIPT ITSELF. THE ABOVE POSITION MAY KINDLY BE BROUGHT TO THE NOTICE OF ALL OFFICERS WORKING IN YOUR CHARGE.' ADVERTING TO THESE INSTRUCTIONS, THE HON'BLE GUJARAT HIGH COURT IN PARA - 10 OF THE DECISION HELD AS UNDER: '10, MR. SOPARKAR FOR THE REVENUE SUBMITTED THAT THE AFORESAID INSTRUCTION WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE AS THE CIRCULAR NOWHERE CONTEMPLATES A DONATION WHEREIN THE DONEE - TRUST IS NOT ALLOWED TO SPEND THE DONATED AMOUNT WHO LEHOG FOR ITS CHARITABLE OR RELIGIOUS PURPOSE BUT HAS TO KEEP IT INTACT AS CORPUS AND HAS TO UTILIZE ONLY THE INCOME THEREOF. IT IS NOT POSSIBLE TO AGREE WITH THE AFORESAID FINE DISTINCTION SOUGHT TO BE DRAWN BY THE LEARNED ADVOCATE FOR THE REVENUE IN THE LIGHT OF THE WORDING OF INSTRUCTION NO. 1132. EVEN THE LAST SENTENCE OF PARAGRAPH 2 INDICATES THAT WHETHER IN THE GIVEN YEAR, THE DONEE - TRUST HAS SPENT DONATION OR NOT, WOULD BE TOTALLY IRRELEVANT CONSIDERATION. WHAT THE DONOR TRUST DOES IS THE ONLY RELEVA NT MATTER.UTILIZATION BY DONEE - TRUST IN ANY YEAR WOULD NOT BE RELEVANT FOR THE PURPOSE OF DECIDING WHETHER THE DONOR TRUST GETS EXEMPTION UNDER SECTION 11 OR NOT. THIS IS AN ADDITIONAL ASPECT OF THE MATTER, THEREFORE, WHICH ENABLES THE ASSESSES TO SUCCEED. THESE INSTRUCTIONS ARE BINDING TO ALL THE OFFICERS UNDER THE ACT AND, THEREFORE, EVEN APART FROM THE LEGAL POSITION WHICH WE HAVE DISCUSSED EARLIER, THE FIRST CONTENTION CANVASSED BY THE REVENUE WILL HAVE TO BE HELD TO HAVE BEEN SQUARELY COVERED AGAINST I T BY INSTRUCTION NO. 1132 ITSELF.' 19. THUS, THE HON BLE JURISDICTIONAL HIGH COURT OF GUJARAT HAS ALSO EMPHATICALLY SAID THAT WHAT THE DONOR TRUST DOES IS THE ONLY RELEVANT FACTOR. UTILIZATION BY THE DONEE TRUST IN ANY YEAR WOULD NOT BE RELEVANT FOR THE PURPO SE OF DECIDING WHETHER THE DONOR TRUST GETS EXEMPTION U/S. 11 OF NOT. 20. THE FIRST APPELLANT AUTHORITY HAS FURTHER ALLEGED THAT THE SECOND OBJECT IS TO BUILD, PROMOTE, AND OWN THROUGH DIRECTLY OR THROUGH EQUITY CONTRIBUTION TO MFI WITH VIEW TO EXPAND MICR O FINANCE SERVICES AT THE GRASS ROOT LEVEL ALL OVER INDIA CANNOT BE CONSIDERED AS A CHARITABLE PURPOSE. WE ARE NOT INCLINED TO ACCEPT THIS ALLEGATION FOR THE REASON THAT THE SAME ACTIVITY WAS CONSIDERED AS A CHARITABLE ACTIVITY WHEN THE APPELLANT TRUST WA S CARRYING OUT AND WAS ALLOWED EXEMPTION BY THE REVENUE. MERELY BECAUSE NOW THIS ACTIVITY IS CARRIED OUT BY IFIG THROUGH AFIG THE SAME ACTIVITY CANNOT LOSE ITS CHARACTER. 21. CONSIDERING THE NATURE OF TRANSACTION AS EXPLAINED ELSEWHERE, IN OUR CONSIDERED OPI NION AND UNDERSTANDING OF LAW, THE CORPUS DONATION OF RS. 45 CRORES DESERVES TO BE ALLOWED AS AN APPLICATION OF INCOME OF THE APPELLANT TRUST U/S. 11 OF THE ACT. WE, ACCORDINGLY, SET ASIDE THE I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 11 FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO ALLOW THE COR PUS DONATION AS APPLICATION OF INCOME OF THE APPELLANT TRUST. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. REPRESENTATIVES ARE AGREED THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY THE DECISION OF CO - ORDINATE BENCH AS ABOVE, THEREFORE, W E DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE, THEREFORE, THE SAME IS DISMISSED. CO 49/AHD/ 2017 FILED BY ASSESSEE 5. THE ASSESSEE HAS RA ISED FOLLOWING GROUND IN THE CROSS OBJECTION : - IN ANY EVENT, IF THE LEARNED AO'S ORDER IS UPHELD, IT IS SUBMI TTED THAT THE DONATION RECEIVED SHOULD BE CONSIDERED AS CAPITAL IN NATURE AND SHOULD NOT BE CONSIDERED AS INCOME OF THE CROSS OBJECTOR AND SHOULD NOT BE INCLUDED WHILE CALCULATING THE INCOME OF THE TRUST AS PER THE NORMAL PROVISIONS OF THE ACT TREATING IT AS INCOME U/S. 56 OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 6. SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE, THEREFORE, CROSS OBJECTION OF THE ASSESSEEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED. 7. IN THE RESULT, T HE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEEE BOTH ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 05 - 03 - 201 9 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 05 /03 /2019 I.T.A NO. 1608/AHD/2017 & CO NO. 49 /AHD/20 18 A.Y. 2012 - 13 PAGE NO D CIT (E) VS. FRIENDS OF WWB INDIA 12 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,