State Of Karnataka vs M/S Videocon International Ltd on 14 July, 2010

[Cites 6, Cited by 2]

Karnataka High Court

State Of Karnataka vs M/S Videocon International Ltd on 14 July, 2010

Bench: N.Kumar, B.V.Nagarathna

IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Dated this the 14"' day ofduly. 20.10   V'

PRESENT

THE HON'BLE MR. JUS'I*ICI3'_'1f\*.  

THE HON'BLE MRS. JUsT1§531ﬂB...jr. NAaAjzA1fHNA
s'I'RP":\Io.7.g% ..  _
BETWEEN:  _  V H K V

State of Karn.a§t.Vak.:3:  = 1

By Secreta;'yT"m; (_30v§;?,rnm€n
Finance: Departhnz;-*n,1. * ' '
Vidhanatﬁoudha.  _ 
I3aI1ga}0re"g =    ...Peiiti0ne1'

1;

H " ,{By Sm    Sa. Govex-n1nent.A<:1v0cate )

L' "M /« S . \{fiL{'€é:C}Ci§I1 1.1 iJ'6:1*11.';1f.i 011211 Li (1. .

Si. MHe1rk'S'Ri)a1é1
Ba1':ga}Q_§"t?Z : 560 001

 By its Bi'a,nch Managar ...Responc1ent

{By Sri G. Sarangan. Senior Counsel fer
Sri Sripal J. Sanghaaxfi. A(.1\«*0Cai.e]



\k5

This STRP filed under Semion 213(1) of the

against the order clzitecl 28--10--i999 passe;El"'i:1_' _
N0.<}73/1997. 474/1997 and 475/I997 on ?i1'l.€," fileeoif the' 
Kamataka Appellate Triburial, Bangalore. part-.ly ._é:I110wi;"ig the  V

appeal filed under section 22(1) of ;'~';ei:. 

This STRP coming on lbr   

N. KUMAR J delivered the i'oliow'i11g: '
Juneﬁﬁwi

This revision   revenue
challenging the order of'  'l{a'i;1ivat,aell§avxffihpeiiate Tribunal
[Sales Tax),  }1aii=:'  of the First
Appellate  to Section {5)(3][a) of
{he "Tg;X'.V,§L:'L,«'is_h'oi£a1t1*acted. This revision
pe1'tain's;&   199182. 1992-913 and
1993594.  Ah  4' 

 .__TheulE1(ti;s------«o'f the case leading up to the filing of

 this that the responclen1--assessee, Vicleocon

Iiil'.€i'Iiia{Li(5IE{:1l Lfiiliiéd. is a Private Limi1.ed Company, engaged

j in the..n'ianuié1etu.i*e of colour television sets in the State of
'_*..K21i"1=2._gi1'.aka and also sales of other €iCCl.}"O1'1i(.', goods like

--  xvgisliirig I1'1'c1(3I.'1iIﬂ.CS. video ceisseue recorders. video cassette

K



players. black aiici white telex-'isi0n sets. mixies, .§k.l'1"" ebdi'ers«

air eoi1dit.i0ners_. audio equipment. etc... after pL"zrel1as.1'_r1"g lt.i»":_e_f V'

same from local registered de21lers"'"ai1r.l i"i:om_. 'diii,side--.:'.ihe--~A

State. The assessee is haviiig braiiehes 'at l"IvUbll.:.'-£tI1ld'._

l.VlaI1gal01*e in Kamaiaka and a-llluover Iiiclia 0iit,sidVe=:i:}'1e' State 'V

0!" Karnataka. The assessee  0l'.ilievv§:)rei..;ld name.
'VIDEOCON for the :li;§;i1ilfai>1.:u;~ed products,
namely, coloirr  te1eVi'si':§r1§'--.  at its
nianuf"actLiijin,c;%   Aitibele Hobli.
Anekal  assessee is a selling
distribiitor  inside the State of
Karr1ata1l§a.,L4l . l L' V 3

f3. _ "i'l1eué1ssless'ee Filed annual reiurii in Form No.4

 '"fr,)r V'i'hvree'iyeVé11.'s. In  said 1'ei.u1*11 for the year 199192 they

 sh _rju.{i1'  Eurnover   13.46. 16.042-67. for the

yeéirl  ~ Rs.8,l5.6l,685~OO and for the year

l'-»..1993w§'i!Ig__Al:'- Rs.5.50.78,225-O0. However the Assessing

3 * iA:.1ih;e'ri 14.-Y h :1  cleiermined ihe taxable 1121 rn over

  as. for the year 199192 _ 123.25.69.40; 1.300. for ihe year

1;



1992-93 W R.s.26,48,88,01.4~»13 and for 

199394 --- Rs.30,7'4,57',495~98. Aggyieved by gzzie s';i:;:'¢'.--.T'tme' ~
assessee p1'eferred appeals ur1c1e»1jV b Seet.i'ot1' " *   ,ih.e 
Karnata.ka Saies Tax A01, (for shorf;._11e1fei:1jé.I'f.e.1fV1*efe1*19eo1'{o

"the Aet."}. All the three a13p.ea£s Vea.,_11'it: V1o1'vh{£_: v»di_sV1fVrxi'ss£}ci.VVVs

affirming the assessment orde1'sLL"».A»1"1 _a.ppe:§3Li  filed before
the Tribunal against t.he.4_s'aeid 1'wo,o13de_1"sM.'"'.
4. The case offﬂae :'ass*-eessee is '£1131; the assessees

Claim for exei:11pt?io'ne asgs:'e_cond4_Va.ne1us'LIbseqL1er1t dealer in

respec1;e'"o£" 'sajias téipc" sL1~£'§e'red oh"e1ectronio and eleotricai
goods h_asTbeeri' rejee1ebd"h'*.yi'thout referetlee to the assessees

claim 1112i':;.._t.he assesseje _o"L'z.tohased the said goods from other

1'egis1;ered deéielfs 'ahd the said selling dealers are very much

 -in exisi,éf1oeVVh'h&aviI1g coilected the single point; tax. The reason

e__gi"v&e_ru1' Authozﬂy in justifieatioI1 of the

rej'e_ci.ion _o1'"o]V_aiVI1'1s of second saie are baseless and merely on

",_I:1SSllITl'pti'QI1 which are not supported by any mateﬁal on
[<.I*e(t'ord. The 21L11,hor'it'.1'es below very grossly erred in applyhlg

 the».lﬁrovisions oE't.hi1'd proviso to Seciion 5[3]{a) of 'the Act

'E
is

,.



and erred in treal.ing the second schedule goods 

assessee as the first sale. 'l"'herei"ore. they" co1o11:e,o:ded_uav:ﬁorig: '

other grotmds that the orders passecl by.'thelfvaslsevssing ll

authority as well as the appellate a1i:itl1(,§i*it3? is liable to 

aside.
5. The Tribunal by a l--sngt.liy «-orcler  held
that proviso to Sectiori of; not attracted to

the facts of this ease. asA.i,h:e_ 'asses-see'li's r1'of_;--tl1e proprietor of
the trade iiiajrli   riot 4_4lsell'ih"g~~--t.'he said goods on
account"ol"bei1-lg tl"le"--p-r(;pi~ietor"'oftlie trade mark. In so far
as th§¥. year '   concerned it held that the

assessr11errt«..'orderlis l:.a'rreld by limitation and the return of

 turrroyerll'declareiri.Vas__per the a11nua.l turnover has to be

~aec~e,_pteVd'with"libe'rf,y to take suitable action in aocorclance

wifl-;._j_au'f_' ';/m;«r;evec1 by the same. the revenue is in appeal.

 The learned Government Advocate, assailing the

:@.iri1pL:gi1ed order of the Tribunal contended that the brand

'~ o'i:;;w'1er' - trade make owner, Vicleoeon lricfia. a Partnership

5



Firm. is not gett'ii1g aiziythirig in tum by 21llH(.)_\'}-"--.*ii""1'g:"-the

m'cmul'acture1's to use their trade iiiark iii i:lie'FI_iame_ lol"hth.e1 V

company nor in allowing them to 5.-:e1I'1he procl_.L1,eis'._'avii'.h:'.{he

trade mark. A Careful analysis oE"u'.i.lie. iiia1.eri2_1I*~r.)ri. 

clearly shows that the trade n1airk..oxvneVr',.3./ideo'ooii,VIh'diei has ll

permitted the nianL:i'act,.ii'rei's  the. ti'sld'e'marli without
consideration who in  tired goods with
the trade mark    cost and
it is the   se'ils1'i.hos.el  at a multiple cost
and, t;lierel'o'i\§-ii,rliiek   to evade tax could be
gathered. _  (ii.[:fe5l;!VI'1"1E?~l'.£_'1I1C€S. the third proviso to

Sectionlf}{V3J'{a)  sale by the assessee which is

second saie"a.is"to 'i3eKtrea"t.e<i as first sale. That is what

preC«isely'~ the l"as.sessipIig officer and the first Appellate

Z'/Xutfhorivtylip hiive done. The Tribunal without proper

"'a.p'p'_r'eiei'2i11'i"o.rVpi oftiie facts on record as well as the law on the

poiiii, corxiniitted a serious error in iiiterferirig with the said

 2issess.irie;_ii' orclers and in }I()1diI'}.g that"; the third proviso to

an'~..SAeet;-i._or1 S{3]{a) is not 2ii'.t'raeted to the laieis of the case and,



therefore, {he additions made by the 2'1uth.o2°ii..y are
rfherefore, he submits a case for imerfereiiee is   1/
7. Learned senior c:oun_.5e»}   eé id;-.:Vji1i'e_V
assessee on the other hand sL1hn1i'iieC1ﬁth;ai
manufacturers have sold the is   in ..
turn have paid tax for the fi1*si.§ﬁzi'lA'e:_;in_el L11i1g«»3,s:Vii1.eﬁsaid sale
transaction is shown   the said sale is
not in favour of the iarofssieior fnark, the third

proviso to SeV(.5.i_io1'i?5'_[3].{ei}  urJ1oi4_4é1i;tvfa'et'ed' as rightly heid by

the Tribi;1hi1"a}..['i£'ii.e1*e;Eoi~é','he subiﬁifs no case for interference
is n1adeKQut_. 'in  hve 'a}so_.subniiited for the assessment

year I994x~i§}'5h 'or1w-:_119dsS  department has accepted the

 ¢_ ste13'1d:. oifiihe asse's«se.e..und on that basis assessment orders

 ;u7e"pas--sedi.V,'I'i'1_erefore, he submits there is no merit, in this

I'€ViS1'OI1. '

4'  hi ihe light of {he aforesaid facts and the rival

"3coivitei1iio11s. the question of law izhat. arises for our

(i'.OIiSid€I'a[iOI1 is, 1% /////  '



Wheiher ifte third proviso to S<3c£ir9i'ii--."*«. 

5{3}{a} Qf the Act is a1fILra.cied Io tlwfacfs QfT_.'l..}"Lf;~3e.V_' :_. 

case?

9. As set. out above the fact.-.=._ai'e :1df'i--i1' d'1sp3._ue._.

The trade mark, 'VIDEOCON' is 0\t'l}{.lCd:._A'by'7VViaﬁtitdil 

Partnership Firm. The said Partnereliip F_i1*1:1 iaiturnj has * V

granted licences to the £'_ollow1'ng'_;V¥'-..V_' 

(1) M / s Rajal{Lirt1a.r-   (P) Limited,
Bangalore. Marjgaloirg 

E?) 'A lvlfs iffiiVA§:1Viaele*i.l§'3Vxp_ori;s (P) Limited, Bangalore.

(3) VXM/_s  VCR Limited, Bangalore,

A   ._l'\kl»,/Vs Videoeon India, Bangalore. Mangalore and
 = 'V " 3~["§}3.li.

 {5=}H  Malani Aqua Temp Private Limited,

B211'1ga1l0i'e .

--*:[6] M/ Vide.0Cm1 lndia. Bai1ga1oi'e and Hubli.



9

{7} t\/I/ B{')1I1b'c'1y Coolers {P} Li1'1'1it.ed. f3angfc_11<)1'e,

.Mangal01'e and Hubli.

(8) M/s Videocton Appliance 

I\/Iangaiore and Hubli.

Those companies are n1anL1fac:tt1rihg Vartétts..ei'eet;:'iezﬁ~._aI't1§'

electronic products under t"he.__. braf1d_  

Some of them are Private Limit'ed_'h'CQmpa'u1--ies"éinqlisorlae of
them are Public I,im1't'eA£_t."'C0n.tt)a:nies,_'fitter mantt'factu1'ing
t.h0se products it is net -shave soid the

products to the s's«sessee_. Onfstiehhvs.é1}es...:they have paid tax

under the Aethwhieliitits atsepot in dispute. After purchase of
these goods, th.e"E1'ssess__ee..'t--1as sold the goods to other
deaiers. I1Vi»_':_1h1e. se17_ies.'c5f..s7aies, the saie by the assessee to

other; dealers is'  seeond sale which under the Act as the

."'--iaw"'st'0CL~dt ortthe da't1eW0f" sales was not taxable. It is aiso on

 're.eOrcij '~E3.SS€'-SS€€' has spent huge arnounts for the

p'..--1br"pr.a'se V0i'.'V2;d\?eftise:1'1eat of these products under the brand

Itartte, V1t).E()"'CON. The price at which the assessee has sold

ht  "these pmCtt1('ts is e<)111paratively high when eompareci with



1.0

the Cost at which it was p1,:rC1'1aseci. I1,  in i'.}'liS-T3x'fhf.EiVLi'ar1

background it) was eonizended by the state that c'-;'1'17 ae.ceiuﬁl  V'

the difference in the price of the  

and the ma1mfae'€urers and in (3'!«'AC1Eii.' ?1il) 1'€'di1C.é 

liability I"hi.s arrangement isl__i':1g.1de by' the 0f= L'

Videocon Irade mark namel , Viuldeocnn 1ﬁCiia_ Limﬁed and,
therefore, this second salefby I-._11e%.j_21ssess.ene' is 1:0 be treated as
first sale as per Aprov'iso.Vv--te._Seei--!Qn 5(3}(é£] tax is to be
paid on the s1aid;:1is¢i1_}sa,1'11t.:';_VI': jsaiii ibis background, it is
necessary tb.._1o'b_}{;»'«_intd i.h.e"t}'1i.rVel'"proigiso to Section 5{3)('c1] On
which i:e1ia_neev._ '
"'5. _u_I_..g3uvt;.*,Vof.o'i:.. sale or purchase of «goods.-

 u{1) "I§vea_rfg,1&.dealer shall pay for each year
 his taxable lumover at the rate of [twelve
V }').&V':V7'"%3'§lV'il:l:'tS1Vl:lfhe pozfnt: qffirsl sale.

3? -$3 3: =1? =i= =s'=

. V '(;.'3) Notwithstanding cmyihing Contained
in'==s.ubAsect.ion {I}. the tax under this Act. shall be

H  levied" X



11

Provided fi.trt"h.er that where any 

liable to tax goods liable to tax under this A.et~..a.re "  V

produced or mamtfactured by a dealer with 2

name or trade mark t'egist'ered_,.under--'the" 
and Merchandise Marks Act, I_95é§l.[C{:=rit«ral  A-442%
of 1958), Qf any other dealer and'.a>hici1lVare'not; * l'

used by the latter as ra.:,z,_5"-ln;1ater;i'als, 'conitponérztl 

parts or packing materialsllas clefined itrider
explanation t.o    of suchlgoods
by the dealer who  'predltteedélorfhiaattfactured
to t.he dealer who" is the  or trade
mark  be, but: the
subseat1e.fit»V  by the dealer
tfiaoirij    as _* proprietor or otherwise
to'_use the  llnahrneor the trade mark, either

directjlyllor lll,f'_OLl_u.:fll ariother, on his own account or

 'o:1_accott:r,At_do]l' others shall be deemed to be the
l'sa-le by the 'firstlldealer liable to tax under this

    ..

' lf'j'-Illtistrationx 'A' has registered a trade niarkfor manttfacture of certain, goods. He gets the? said goods manufactured by 'B' under the A «._sai.d trade mark. The sale by 'B' to 'A' of the said ~3'~":'f"'""

.J/ 12 goods is not Ihe_fz'rst' sale but the \.5::zle by 'A' or~'h_:;- any other person on his account", is lf1e_j'irs£_sale§f '7'

(b) in the case of pu.r_(:ha.s'e Q/f'ar1'g'Q;i?jv fhe . '' goods mentioned in COll1f?U?.__ {2}-.-q}' 'z%he._Third"

Schedule, at the rate _.a_nd o:a.ly'--._ai. ;§omz " . specgfied in the correspertciiiag er1.I'.}"i.<22s 'qf'fVC(5)lii;'.:ﬁ}is"

{4} and {3} of the said s_e_he(§I11.{e. 0I1..'Ehev_dee}?ler liable to tax Ltr"Lrier_ t.}1'ie ~--. hi.s [ieikeble iumover] Cf purchases i'n--.ecieh_ year " relating to such goods?' V;::::,{2'a1'eiEi1'I._ ' e'xam.ir£e1ti0n of the aforesaid p1*0visi(3n Inakee"if-»eIeaf'f,.hVéL?"hwhen goods liable to tax are produced Vbr4%rnanu.1'aet1ireJ(§ by a dealer with the name or , [1"E1dEiIi1€}:i'k of xatxye dealer and which are not used by _1e1t1j:e1'e {.he~.VsaIe of such goods by the deaier who has 'up-.1_'<V3"i.Zi._1+1«c'.e'da'e.:.f_ r;1;a.h11I'aei.L1red to the dealer who is the brand na1Iﬁ'e o1=..V.1..1*e;dVe mark holder shali not be deemed to the first . _.us2a1Vr'*3_._ Ii':"ie. the subsequent sale of such goods by the dealer ' . h_aiv'i:1g; the right. ei1'he1' pI'0p.ﬂ'e1.01' or otherwise to use the h * -~s--a1'd nanle or trade mark. either di1'e(:11y or through another, ' 3 3':

23;-

13 on his own aoeowit. or on 21eeo11ni: o§'oEhe.1's shall be_Hti'e_.fi*':1f1"c'~vr,i to be the sale by the first: dealer iiabie to "

Section. The illustraéion to the _sair1_4Se(:i,.ion' Vi position very clear. it is O11I}:7"»'fI~.;i"()Sé iiisaleg manufacturers who 1.1t.i1.ise 1h'e_f,i<21de Inark 2111tI..t1'xe't1--v-Sffli the v ' products to the pFOpFi€i:OI' of it is the second sale by to be treated as the first saie forihe 'n'ti(vi&ei9v..Seciiori 5 of the Act. In this of the trade mark is a Pari11eV1'su11i_r)V;»'Fi1*n5'u'ndVe:f_ Vihie name of Videoeon India. The seven n1anVu'faei.'ure:*s.are the seven producers of various goods using the =<:m:1'e ,.1;1:I'€'._1":{V. VIDEOCON which they have obiailneciei u11&e'r'_ a"iieei'1ee agreement. They manufacture goods l1:i7K:C'1Fi1v". the trade mark Videoeon and thereafter they are ~.;1Voi..;- products to the Proprietor of the trade 111a1*-1;. T1'1Cyh"E€1I;€ soiling to a public. limited company in which Pobhtt Corporations like LIC, 3:-IDFC, e't'.e., have "$teb_s_tfar1E:ia1l i11E:erest.. Tlierefore. when Ehere are Three legal Vh VV eritities and not two legal eniities as eoiiiemplaied under the "I4 proviso as weii as the i11usi1*a.i.ion. the aforesaid pro't-*isioii_.is. not attracted to the facts of this case.

1 1. Without. disp1,1t.ir.1g the ;1'fores2iid"_4faettiziiV.positiong it was contended on behail' oi" the rexfenue that. t.he'CoL1ret£h~as'i. to lift the Veii and app1*eeiate*.._Vt.h~<; 't1n.dis_pt';tedv:l'iiets'.'" s:The '' proprietor of the trade mark 'ViD:E'}OCQN' is«'nis.n1.1vi;e1ctui*ing black and while TVS t.hs'i'toAo number. All their products are.__n1ar1tifétc:tt.1redtby manufacturers. Though thereW~i4s 3:AI.s,.';'.1iCet;ee ....agt'ee.ir1en1:.,Wit is without any Consider'ati'on.: dijiandifif 'atid ' .t:h-ese & hinavnufacturers supply the manufetetu*i"edi 'assessee who is acting for and on behsldfoil'=the"'~prbtjrieto.r'of the trade mark. ii: is the assessee who spuednds rnoney for advertisement which enures 'V V' to bi§11€f.i1:. of the"i'i'121i1L1faCtu rel' as well as the proprietor of Tra.de'.tr1i2:tr}<___a11d it is the assessee who is making huge "'pr'oi.t_'it.iAari4d".}deeVitti'se of the huge expenditure incurred by the assessee. .t.h£'ef:p1'ofit rnargin is set off and the assessee i.s i'._gaix1iI1gVuizidvailtage and reducing the Eiability to pay tax. v.'.I'h'erelo1'e. he sub1i1'1iE:s if ihe f'c1et's are properly appreei.e1ted in S 'E kg,' 15 the right perspemive. it is 21 CIGEU' Case of €TV21SiO1'} of and the Court should not permit such. an act. -E.i.1"SL1ApV}.5ci't ' K his ctorltezmitm he relied on 21 C011sti1;.L11:.ion&E3er1eh'ji1:1'gnie:1i. oil the Apex Court in the case of Limited vs Commercial V3.59 * L' 277] and in par'c.1eu1z,=u~ relied on__-1.lrje_]L1r:§g111ef1t«ol'_Cﬁmnappa RedC1y.J, to the 1-'0HO\I§,>j1]Vg~,5'Vl;';.i'(f3Ci'i.ﬁ ie '4 "We_:ihi_r1lc 3'llitil' ¢:;n;;;'»'_for us to d.epart'_V}frorr§fo'l' __z'h.e".Weel'mi;éste'r VVV!'1"336] AC 1 pﬁrlcfple as Ville' British. Courts lrave Vltro.éeizeleoeiqreﬂorxrselues from the ol9.<3erL2al1onVs«.'Vf.q]"v«_._lSho31, J.. and similar obser1;dt.for1e . 4'::1~;_ac1§.'r' elsewhere. The evil _;tjor';seq11es";,eeSV' oil" lax cwoidunce are ::1a:1g'c)ld. {'FZI"3i lhere l$W.§llbSfal1l'lal loss of much needed ».jpublie'«revenue. _pa,riicularly in a welfare state there 1'5 the serious disturbance earns-e3¢::i* lo the economy of the country by the p§li1:1g up of moumhins of black money, directly AA crarzsirlg ir;.j'lal"1'on. Then there is "the large 7hEdden loss" to the ctonunlmify {as pointed out by Master Wl'Ieatcrqjl. in 18 Modern Law Review

209) by some of the best brains in the Coi,.vi(_:'rg:

being involved in the perpetual war waged between the lcvcavoider and his expe'rt~Vi;e.arn, oil:

advisers, lawyers and aCC€)ll:'.ll.C1IIl.§'()!l".OFtI(2 -sideg V and the laX«QClll'1eI'€I' and his._perliapsl":ioi~.;;o skil/'i,il. advisers on, thei'o:'h_er side. it Then.'V'cig:a.inVg there is the "sense of in}i»:.si:ice arid~.i.ri'e;;ttali'f3y which tax avoidanee ar'ozises_:'--iri"-the breastsvof those who are tiriLuiiling_goaﬁliirialjlellioo profit by it". Last'. but" not the.' {to be precise, ii; burden qr tax lio:l2iliig.';io"tl1e__shQLtl.de:rs of the guideless. good V "ariful dodgers mag; " lesser mortals to ai;iai'n._ the of of Mr. Justice Holmes, wltdsaidv; "T"are' what' we pagfor civilized ;'so.:j'eiy. 1' ,lil*e to pay Vv':Iili their': 1' buy .C'civiliz'a,ziion." 'Bli'1','vSll.l'€ly, it is high time for the India too to part its ways from the Westminster [1936] AC 1 and the al_litn'.r1g logic of iax avoidance. We now live in a t,vel;"at'e state whose financial needs. if backed A bg the law, have to be respecied and met. We must. recognise that there is behind taxaiiori laws as rruich moral sanciion as behind any E 17 other welfare legislation and it is a pretence say that at.:oicl.ance of taxation is not and that it st.anr:ls on no less moral planet'_'i:l1an::" honest. payment of t'axat.ior1.:"ln 'ot.:.r l.2'iet,(,!. lathe ' A proper way to construe a tctfirlg twill:-2AVV V considering a device i:oavot'cl take is not, whether the provisions "'s}t'o-itld be literally or liberallyt nor t;.xh.et'l'1er'the transaction is not unreal ancl statute, but whether the l:ransaetionlbtfs a'~6le'L5jieel.'i'o avoid tax and all-tether the i.ran.sac't~ion_ is" such that the _ 1' udlcial. proof;

may accord ltgz: approval to it"

_p_ia(:ed on the judgment of the Apex Co-urt«.irV1 Woo:dt_'Po_lymer Limited vs Bengal Hotels Limited [{i9_fm,3 45 eezﬁfcas 597} whexfe it was held as under; vsl"° ' l "It z's"nei.i,.herjair nor desirable to expect the iislaitare to intervene and take care of every artrlscltenie to avoid taxation. It is up to the to take stock to determine the nature of th"e,Vnetv and sophist.icat.eci legal devices to avoid and consider l,l.?l'l(3l'lI€I' the situation CI'€C1l.€d, by ffthe clevices could be related. to the exlsizing 38 legislation usith the aid of "e>mergz'I'tg" €€C!'1I1iqt'!\:€§.S"-:""-, of l'I1K€I'pT(3i.ait'Or1 was done in Ramsay I 1- 300, Burma 01.! {I982}. Str710n'S _ Dawson [1984] I AH ER 530 t<3"é}€po<s(.f the _d£,_'t )f(t'¢;'SV L" for what they really are arlaa to1'_"rejfus1e.ttao give _}'udict'at benediction. V I3. Relying on this x\ta~s_ that time has come to dep2:.i§t.~..,fr0n}ﬁ.t1§gva--:§j}«tVt;iCiple ottxtvéatminster and the Courts have to transaction ls really a device; to.t_Va1\roidL_ta>;: ai1d«.V\2{r1é.§3therVVfthe transaction is such tIjtat"t}"1'e 1ﬁ.ay"'avccord its approval to it. ENGLIsa;aaw - at t 3.4. "g_Pi'io1' to the"S<*:}:o11d 'w'o1"1d 'vv'a1'. the CI€CiSiOli1 in IRC"55:25.:.Duke"'q;f_Vi}xkeszaﬁinster [(1936) AC 4 {HL)] was holding :the_ tt"1'c1o11".Rlftowever, it was thought that there was a radical "'c!._e:p:3_._1ft:.:i'x"::.§V"iv3'_1 fiﬁiiell jurisprudentte by the Engiish Courts as €V1(iu(3I1CE3ti.iI1:.'V'W.T. Ramsay Lid. «Vsx JRC [[1982] AC 300}.

h "I:1.laI1(i. R--éver1z1e C(nnmissIor1<:>rs ~Vs.~ }f3u.rmar1 Oil Company _ t' I,t'ti.--. 982) STC :30; & .Furnz'ss ----Vs.-- Dawson [(1984] 1 All ER to 530}. But. from .21 (*z:>.te11z:1 of su'oseque111. (roses, it i§..§'_(?:}f3EVi2"' ih21"£« Duke ofWest'n1i11st,er still holds the ﬁekd. A r<--:i'o«i.'__én;::c3..:{o' relevam. cases is made in the i"o11ovvin'§};"pare1grap.hsT.'-V

15. In mo V/s. Fishefs Ekecﬁtérs (£926) Ao{§3'95"~ at Page 412 {HL] it is opined as'fo:1:Iows: 3 "My Lords, 'VfL'r'n.§_2 :__a i£Ehor1'I;ies have always recogniseda 'orltftled so to arrangevhv1's a§}"ctirs::"as" _o.~oI';' taxes 1'mposed2_'VbQ}jot.?.te Crown'.' so'jor7a::...1{e can do so wit'hiriL"u"i_e':--. Va-nczs 'ifih.ai_ ~I~':iC1I_ le itimaiel _. V , _ J 9' 3:1 'iho.5'acf_ a_r1yVoHxpressed terms or of afiy any omissions that he car1_f;',§1d in in taxing Acts. In so doing, ; 'ho rzci.i.':-cr;' undezr iimiiiiy nor incurs ' pointed out in Duke of Westminster's caséfi (HL];[1935]1 9 TC 490, 51 1}.

J do not use {he words device in any " r siriister sense:_for it: has to be recogmsed that the ' V' fsulgject. u,!hetf1(-3r poor and humble or u.veali:h.y and 20 noble. has the legal right so to dispose of eapttal and income as to attract" upon l1fT7lS£?l:l'.]E'EF';t?§v:- :_. least amount of tax. The OI1ly_fl.ll1ClLl'Oit.Qfi'Cl,()Ottl'i of law is to determine t:'he:~tegal«tresult_..t§T':vl_iis dispositions sofar as they aﬂlectl Lord Tomlin said:--

"There may. ofcourse. beeases where do:t_m1e:hts are not bonafide int'enoled<..t'o. acted upon. but are only used as a cloak to eoneeal a different t;ransact'io'r_t v e._"éX;§v.ressed by Lord Tomlin in me V/S. Duke ¢f'i«Ir¢s:;§i£;;§'z¢:-'{193e) AC NHL); 19 TC 490, 520(HL) whéichv re'ﬂe.ét;ed prevalent attitude towards tax avoidance: , ' "Eveiy is entitled if he can to order his that the twc attaching under the Acts is less than it otherwise would _ succeeds in ordering them so as to seettiteéhihthis result. then, however, unapprectat:i.ve the. Commissioners of Inland Revenue or his b' 2} fellou: tax _payers may be in his ingenuity. he} Cannot, be compelled to pay an increased iax._fT..__ ' . V

17. in fact, in English La1"s.v~~ia.l?_s'o, fin i:I1x:+.:»z:2ise'_=ol'x_ V Sherdley -Vs.-- Sherdley [(1980) AEL Eta? ~2'o2;~the:'lo1fb%;%g>~in';§;.n.i passage has the effect: of reiteirﬁing the p1'ir_1clibples._l'c£[DTlke 0] Westminster :~ "The baslilcl 1'rjrO;i?asili_a'IiA_'.:'is_'_j.i:hai' any lgaxpayerfv is: l " his rs that his liability. «lau v Duke of Wesirnln.§:_l§e;r 'i;::.ll'(.19V3'5) ALL ER 259). IF{oa:evef,l"?:ev..is"naI.~_eni:itled to pretend so to order Vaﬁairs *"in.i,a a sham transaction.

and he"aloVe'{._~: rm; Inland Revenue can call on C0rnini::..3ianers and, ulrirnaiely, the Courts to a sham transaction, and. as 2 ' «s_1"l:li.- is be disregarded."

22

E8. In Craven V/5. White (1933) 3 All Elie---§5 Lord Keith ofKir1kel says, with rel'eren(:e to the'ilfiilogirgioiliiilaeu' aforesaid cases.

'The court must first 'ilhe"3"€A'i\le1.'ZiC¢f.1ir"

enactment in order to *a_s£:erI.aih'-..it,s must: then analyse the of izransaciionsi in question, regardedas a gwhole,' as to as"ceriain its true effect in must. apply the ertacimeni effect of the series' irjifg:irans_ac{.io.ris 'arA1:'c~l.j_5.oV'.(iecide whether or T1Q'i',"'Vl','iPl§?v 'rwcis i:riter_rded to cover it. Thenniosa if:pes'.;;ggrr;;;.';1-ije;:z:--i:}fé of:l.l1.e principle is {hair the Q[ is to be regarded as a In J?-he true legal effect of the seriesil: is VVrelevar2:t:_"Io take into account', if it be 'Elke case;"i,lial'all lhe sleps in if. were contractually a5gFe(:'d'l'I'l aaoahce or had been determined on in,

---by a guiding will which was in a for all practical purposes, to secure that a.l_l'oj.'ViAl:}*iern were carried through to completion. It. also relevant to take into accotmit, if it be the A «._case, that one or more of the steps was A' introduced into the series wiih no business purpose other than the avoidance of tax. 23 The pnnciple does not involve. in my opinion, that. it is part of the judicial function to treat' as nugatory any step whatever which a,_ taxpayer may take with a view to the auoidance'n."--. ' or mitigation of tax, It remains true in. __grer1eratf" 3 that: the taxpayer, where he is in a to ' carry through a transaction. in tuéov "atten'zat:ive.__ ways, one of which will resultin--._liability._t.o tax"

and the other of whicl1'w*ill not.,"v-is at choose the latter and to daso _e_[fectii=ely " in the absence of any spe_c_i]'ic/tax"air-oiciance proviéion such as section 460" the?_ Atlncorne and CorpO_rat'io'n .Tt_'axes«/_ictc,__ 11 9 7o. c4_LC1fd VO1.iireAr "It "equall_ig. important to bear in mind what not decide. It did not decide that a tfar1lSac'tionj.. entered into with the motive of ""t'r7'itrtinVii;:»'irig the sutgjecfs burden of tax is, for that. reason}. to be ignored or struck down. Lord Wiliirerforce was at pains to stress that thefact "that": the rnotiive for a transaction may be to avoid tax does not ini:aiidat.e it unless a particular enactment so provides {see [I 981,! I All ER 865 at 24 87! : I 1982/ AC 300 at 323]. For did it decide i'li.ai___ the court is eniii.led. because of the si,ilq;'eci.'S.._ motive in entering into a genuine t'ranscicti_o.i1_.' attribiiie to it a legal effect which it did I/'LCi_'l;.:'l1CV1l2_é."~." Both. Lord. Wilberforce and LordmFro:ser.e'riipiicesise the coritiniiedvalidiigy and ':.applica:t.i(')i_1 *lo')"-_:

principle of IRC V/s. Dulce of Wesiiriirister-.t1'936]lV AC 1; 119351 All ER Rep'.'259; ci'vp;-imfpie ughiewh. Lord Wilberforce describeciltis' ':?cirdintili_prii1ciple'. What it did. decide wizlé "t'itail.l"-._ihal lclcliriiiinai principle does not." hiwtieréliivit, that at Pclrticular irariﬁaﬁi-io;r'i " l in *9 connected.'lY;s.eries_ iofll "'1terol'eper§ider1ti steps c:,lesigne'<iI[_.i'o'¢ prod-.=.ice_v<:i single composite overall resiiliz, compel"t.he~coL:,rt;,.t'o regard it as otherwise ihc1n"ii;l*i«:ii: is! 'ihczti to say merely 61 part of the ; eomposiite .Lui*ioie. "

-.O1iver observes:

for my part I find myself unable to ciccepil that Dawson either established or can ., properly be used to support 0. general proposition llftliat any transa.ct'ion wtiic:h is effected. _/or the purpose of avoiding tax on a coniemplcaed siibseqiierzi. t'ransact'ion and is therefore 'planneoi' 32/' 25 1's._f'or that reason. necessarily to be treated one with that subsequent transaction and having no independent effect even where t:_h'at"i--sff " ~ realistically and logically impossible. Corltinuillg. Lord O1iV€:'.I'::»'()'{)S:F.s'.I',Vt:';SZ'-,> 1 "Essentially. Dawson was colricernecl iL'.3i.£.7'"l a question which is cor:7,_nie;'1 to "al__l 's.itee_es'si"v'e~ trarisactiions where an ..traI.1_sfer.of.,oroperty has taken place a .'VAcor,ooratel"~-entity 'which subsequently carries .oiit'ia.i3ﬁ:trt:he'r< fclispositi.or1 to an ultzirnate'Vdisponeel." "llhe"'q.z..lc>sI.io.n'when is a diSpOs(1l§._._nOt5ti, diS'po$_al whhiri ths:""t'ern1s of the :;"t1at'aie?ffT}'o that_"q'iiest'ion the answer 'when. on oj"t.hefact:s, it is seen. in reality to be a""dfﬂe"r*entJtransaction altogether' is , well within' the accepted canons of construction. V 'u'~To._an__swer"it'~5it.heri it is effected with a view to _V a.oo«:'.di..ng~--._ tax on another eontemplatied ¢lAtria.hsVactVion"' is to do more than simply to place a V glosst:h.e words of the statute. It is to add a lirnit.ati<)r1 or qualification which. the Legislature itself has not sought. to express and for which there is no context: in the st.a.tut.e. That. however. desireable it may seem. is to legislate, not to Coristrue. and that is something which is not 'as gg-.% =., 2,6 ltiilhitt._f1.t.diCi(ti eompet.en.ce. I can find nothing in Dawson or in the cases wlu'el'1_precected it which'.-=._ causes me to suppose that that was wtiat. this House was seeictng to do."

19. While referritig to t.he'*--c:ase'_" '--u)nl€e_'_f«.of'v.V it Westminster in Macniven "

Westmoreland Investments [(2(§01 Lord Hoffman observed as l'o11oWs::A' "tn the Ramsay' lyilberfforrre and Lord ffrczser {of V'LUho gave the other w_ereHearefi.tl to stress that tneftottse. .not«..olept;;rting_]roIn the principle in IRCublﬂalceofaWestinttinst'er, (1936) AC 1, (1935) 'AELER V'There has nevertheless been a «good deal Qfaiselttssion about how the two cases reconciled. How, tf the various discrete aCqt.uIsi.tions and disposals tt2_tt1chuf.niade up the scheme were genuine, could House collapse them into a composite self~ it Cancelling transaetzion without. being gmlty of ignoring the legal position and looking at the st.1.bst.ance of the matter '.2' 27 My Lords, I venture t.o suggest. that 7<_3'("}\--TI1(3'u(V);fv:._:"'- the difficulty which may have reconci.l1'.ng the Ramsay caseéJiott'f't« the West'minster's case arises out'-Qf7an"'arnbigitity In A T Lord 'l'om1in's st:atement' that the Coiirt.sv:"Cann_ot ignore 'the legal position' have Vfegard-I t'o.':'i:the substance of the a--natt:erf,t"'1ff'A'Vtheu legal phositionh' is that the tax is irwipased'~.byi;rg;fei?eI1ceto a legally defined concept, sy(:_h vs__Vta_n1p"'di;ii'yjvvp--ayabie on a docurnemt 'tohie-h cc1nstitiiht;es_V~.a_.conoeyance on sale, __.the 'c::;n_;1b.:.._ tax ::a tfansactiori which uses V F1O'::-.SVtt(;h ground that it c*icti.ieoeshvj'tt1eV sarneleeonomic effect. On the other hana,._ is that tax is imposed by Vfr:;ier':2nce_ to €iv'!C':'{)T!1FT1€;'I"CIClI concept, then to ; hatre regard' to the business 'substance' of the n2z,t33.'E'te"tjfS not Vhtohvignore the legal position but to V' " --. . ygiye to it.

'7j'._I"h'e speeches in the Ramsay case and si--ibseqi.ie:1t. cases c:ont:'ai.n numerous references to tfze 'real' nature of the transaction and to what"

happens in 'the real worid'. These expressions are iEii,un.inating in their Context. but you have to EL-4§'3;),,/'///' "

be careful about the sense in which they being used. Otherutise you land in all kinds unnecessary philosophical di.ﬂ'tct.tlt'ies abbot"

nature of reality and . in part_I_'Cu_l,ar, a.?j()ttt."l".-'$1,:

transaction can be said not to beta} yet be 'disregarded' for. t.he plitrplose of "

what. happened in 'tl1.elreat'~. _world'..__ 'poi'nvt'"to hold on to is that sot11ei'l1i_n§I- .n1c:.y belrlealfor purpose but not _f'l::»:Ztl""tilI1Oifll.€lf.'VA peoplelisloealc of something beingla.c_'r§.;'1i.f «llsor11eth.:'.t1Q,1' they mean that: itjallswhithin"some: they have in rnindi_i bigicotitvfcistl_with:_'son1et'htng else which mtgh.t t4l'1o.t:glylht..to do but does not. an'.econolnt--ist"'~says that' real incomes have fa!len.._ he to contrast: real incomes wit"h°._imaginary " v1:liCOTTl€S. The contrast is j ':§jJ£3C_lflC(lE£_.;V_ lbeiween incomes which have been "adj.t,as't'ed_]or in]lat'ior1 and those which have not'. ~.jIn._order."t'o know what. he means by 'real'. one ident'ify the concept {in_.flat.i.on, CLQ£}'IL£.':?l.:""l16'l"l.lI) by re erence to which h.e is using the woiitd.

Thus in saying that the transactions in the Ramsay case were not sham. transactions. one is accepting the 'juristic ccLt:egorisa.t'ior1 of the Exit 29 i"ransocI.z'ons as incliuidual and discrete and;'"

SCl_lji.T1_Q' that each. of them involved no preierlee"; They were 1'n£end.ed to do precisely what, purported to do. T hey had a legal realil'jL},"_'f3.;;t' L. saying that they did not, :r;*o'iis'£:it,sL1te: A disposal giving rise to a 'real' loss,1'on~e isilrejeoiinlgc lhejuristic cai'egorisali.or1 not Vbeirig deternlinalive for the purpoees of Concepts of 'd.isp.osal' or:d:A."Lv*los~sLA' properly interpreted. :"cor11!j'r<15;i1. 'r'1.err3:'*ris with a Commercial meanmg§,tf_z.r:g§s:§ And in saying ".'.U1e':;A ir3.eo:ne:Vi'tl$¢:.._jlegislotion was in.te21ded1'»v uf_,'oi:_cb:)_;;3ier"<:1.'L_:c'__A_ 'ix; tlIe::l'real,lV1V)orld', one is clgain comrrlercial context. which sli-oulld ilrgflrleriice1'ivl2;eo'---eonstruciion of the concepts used I?arliarr1erlt,f'_j* 10"; ThxL1s--..e\vre11lr'.1'1 the year 2001 the House of Lords continued validity and application of the 'pri"n.ee§pV1'e «iii». .Du}'c'e of Wesi:m1'nsler's case. / u /' 30 AMERICAN JURISPRUDENCE

21. The situation in the U11i1.ed States the following passage from A::1ié:'ic21n J_urispi*L1ciet:ce'3 (American Jurisprudence [1973] seccana'-eldit.i0n'; is}o'h;n.1e" i~];nV * "The legal right. of"ac:t'axpager the amount of what ot'l1eri.i>i«se' would be or altogether to _th'ein;_ 'rnearis which the law permits, cannot ('be __i[-ax-saving motivation a',oe$ not Athe .. taxihg I aut'horit'ies or i'h_._e~ irtgrtu-Zl§fyir'1gfc' :'clisr'egarding a taxpag.er*s alherwise'jjrogber and bonafide choice c;.;v,n1ong1Acoa;.frs_es_ofLactjion._' and the State cannot comjalain, -- resorts to a legal available: him to compute his tax liability, V'ih.§tl.Vl'If1€.r€SLliI. is more beneficial to the «taxpayer tharijlllioas ini"ena'.ed. ti. h.as even been ii is common knowledge that not changes in the basic facts affecting tiab'iZitg to taxation are made for the purpose of a.o_o~idi.r1g taxation, but that where such changes it Vlikgare actual and not merely simulated. although madefor the pi.trpo:e;e of'avoicii.rig iaxaiion. Thus. a man may change his residence to avoid E» taxation, or change the form of his property ..£;">;;.. putting his money into r1on~raxable seCizrit'iés;"or' 1- in the form of property which would less. and not be guilty Qffraiizi:'i.'---. «On; the hand, if a t.axpayer at assesssnentst;'ime'»cOr1uerr:§ taxable property into rzoretaxabie._property;'foritfie purpose of avoiding taxatEori';'~runithout. .ir'iter1'._dirigVuaV permanent change.' and shortij 'C'ifi'€.'I' the --tr'me_'§]or assessment has re;oo\ri'u;_g'r.t.s'rite property to its originatforrrt it isa iépasiori of the i'a_ws,fg '_--ar1oi iuiill not be Sl£SFI(1i'I.1w{3.'d'. " 5;:

. _Sé'Wftr£_ﬁVj,ucigri'1z:_:1is of the US. Courts are in respect of_t'11e pr.oposi+,ioni"fhé1t motive of tax avoidance is irrelevaitii iri v.,Cr.J}1s'i:ie':'e1ti.o'r1 of the legal efficacy of E1 °'€.rai1'sé1etion:i£_situatioa (see in this Connection Gregory V. 465, 469. 55 s. Ct.226, 267, 78 L.Ed.566, 97' V} 33i§.;'::I"1'€lU€I'iT1g V. St.Louis Trust Company 296 US 'Q48, AS.Ct.78, 80L: Becker V. St. Louis Union Trust"

"_Co:rrip_aI1y 296 US 48, 56 ct. 78. 801,). / \a "

32

23. To similar eftbct. are the fo11()\.=viI'1g ()bse1"v3.t;i011s of the U.S. court in Perry R. Bas V. Commissioner of Internal Revenue [1968] US 50 TC 595:

"We 1'.nfer than Stantus was petﬂtoners with a view to regiuetrzg t_--h'etr"

through quattffcation of the cafporat.'io.r1":etriElAer*._the convention. The t.esf_-A f"[O[!t?(3UL'I'.v'I'$_ riot the persomlln purpose of a taxpayer t}1_e:=eatin;cj' a corpor'cg;:'.or3... Rather, it is whether that to be accomplishecz. tt'r;rot1g_F'1h"'ancajporatg-1'_on out substantive 4Z"§v1V1.<_;_ir*.es,s.:7 , If the purpose of the :.»corporat'i.o&r'1_ out $L1bSf'aIti'it'('.._b'1'1.SiftQ§}E2'.v__']'3.1T't'c3[iOTIS, or if if in fact engages in, SV:A{bstar_tti.;:e..--~business acavtty, it: will not be..dts.regarciedJfoi' Federal tax p1U"pOS(3. "

Iwnlzgg VIEW V. "M-.{\voi.d21ﬁ'C'é'of tax i.e._. reducttion of tax by lawful ._;i*..e;1'f1e- _'i<:.-."gaote_ f';ge11'ded as an instance of tax evasion th'o__agh in ttrae 'early years of the last. (:e111.my it was regarded &1I'I ifi.SIE1I1C('3 of 'tax evzlsion. P'()1EoWiI1g the English (1.e(?ié}.01'1. 1116 Apex Court'. in tin;-r case of Jiyaji Rao 1 33 Cotton Mills --~Vs.» CIT AND CEPT 1 (1958) 34]'jn*R,_ 888 (SC)] held that ex-*e1"y pe1*son is entilled toéo a11'1'z-iii-ge"--'.o a- his affai1's £0 avoid L21xat.ion but ihe.;141"ra1.rige'1i'ieijt sh;5u1c:; 'V be real and genuine and not a e311e1n17.01' ?ﬁziRe~bé:Ii'e\~'e. V '

25. The Supreme Courf"e=iﬁ;'eease of'.Cam.tni§.sioﬁer of Income~Tax, West Beftgal 'Discbant Co., Ltd., (AIR 1961 sc 3292 .1 »;;:::11 the similar eireumstaneeage his goods to another the market price, and the EransaveiioVﬁ"Ee.:v5a taxing authority cannot take Jeriee of those goods, ignoring the real pruicejeie};ede.:V£o the profftfrom the transaction. "'¥3VL": "Io*--.1ndia, the Courts have made a clear dist'iimetionbeixveeli Tax evasion and 'Fax Avoidance. In the ease evasion, the Apex Court has held that the Courts igvould have to pierce the corporate veil and to find out the eecmornic reaEit'ies behind the Iegali fzxeade. A <::o1"'porate em.it.y ea-m. be disregarded if it is used for tax evasioru or to K a 2; -

35 is taxable in his h.and.s: income iL:i'1icI1 he have. but has I'EOI'é?CL1"I1(?d. not made tcvcaiiie 'V'. income accrueci Io him. By adopang a is made (0 appear that i.r'1co:ne iL=Ii_ici1«.vljaelotigeci'-to the assessee had been earried Jsc>rr"ae_A'0I;h«3r"

person, that income mayiV_b::>_V.broag.i1i' :0 hands of the assessee, if the escaped toxin as preiiioiis"assessment a c'ase"_Vfor commencing a }-'easisess*meI1t under Section 147(1) (b}_may--,be.i7i.ad'e"oiLi§i_~Avoidance of tax liabiiéjigj by so arfarigirigfCoirirrierciai affairs that c;F1arg_e «is.._ais!.r&buredV is not prohibited. A ~ cievice to divert the mcomjé AV ii'jﬁ'*accrz.Le.9 or arises to him. Evff.ect«iver'1essV'ipievice depends not upon coz1s'id.eiraiio'1'z,s of rnoraliiy, but on the operation of 4;: 'tliei Ir1co'me§iax Act. Legisiative irijuncizion in V t'a5a'.ng..«siai;iLies"« may not, except on peril of be violated, but it may lawfully be i" '-- "

28)' .V the case of Calcutta Discount Co., Ltd., ~ A Vs,» rmime Tax Officer I (1973) 91 ITR 8), it has been " _ ' 2.h(-:1da'{ha1 ifihe assessee had 21r1'anged in Such 21 manner 8 X3 *;,,./"'-

36

to reduce its tax liability by siariing a sL.1l)sidi211*yme()ni'pl1z1y~ and i1'a11sferringg_§ its shares to that subsiciiary c:'o.in1)a'nyr"ziiadﬁi thus foregoing part o1'ii.s own ;)roiji:s"a;i*1d at. ihse_Asa'I_1h1e 'i.ii11e'g enabling its swosidiary to earn s()ml'eV proﬁts, s'u.Ch~. .;1«.Co;_i1=sé"

is not impermissible imder

29. En Case of, ,CotnrV11=i.'£s.i0rié3!f' of l'W3alVt§§1--Tax~H, Ahmedabad ~Vs~ Amirid'i"n*a£qtVlq.m'"'{(.i_Q88)' 173 ITR 479 (SC) 1 . the Supreme Co1irl"1::éid 'asl:'esi111lrie.r'};v" l """ .;l'if23.e-- q{lesl:c§':1 many ordinary o]*ier'z;~--__ir': crouniry of shortages with lostsentatiousl"<roi'i.si1mptsior1 and deprivation the-V largeV'Vmasses'lask, is, does he wit'h taxes brig ci.uili'Zal.io_n_or does he facilitate the waste osientaliorl of the few. Unless waste and in Govemment spending are avoided ll or esVEr'helL:ed, no amount of moral sermons Luould cl-iang'e peoples aI':tii.ud.e to (at avoidance.

In any event, where the true effect" on the A' Construction of the deeds is clear, appeal to 3'?

ciiscfourage {ax czvoidancre is no! (1 re?Ie.1:é.:ii'--e:"Ve. cons1'deraz'z'.on.".

30. In the case of Union VqfbIndia"'&--.:C)rhs";w:

Playworld Electronics Pvt., LtdL',,_ [ while holding that eolourableh cievicesé'eaV1'mc)E.:b'e f;;»'?1.1.'_1 Ofl tax _ planlaing and it is wrong to e11(:()4L>z'z«:*;i§;eVV or ef1'teftZ2iiI1 the belief that it: is 11onou1*a1b}e_ﬂ--t0 a\§--oied=_p;iyment of tax by dubious "'e'.1710ds. 'V"C0urt also Droceeded ithé' true that in order' to "C:'.eate 7f 2ia7_ "»21ftrr10s;)V1VieVre of tax compliance, taxes rnusi; be ,--<:011ected and when collected should be tI'i:i1i2edVp1"Opei'}3? and not wasted. The1*ee.fteer; another Co11s1.itut.ion Bench of the ' Ajjex C?Qurt.«.eii*iv1;_11e case of Mathuram Agrawal vs State of [(1999) 8 SCC 66?] held at para 12 as L11'1d€.l'I ~. ' 'The iF1[&?I'1Ii()rI of the legislature in a A Iaxaimn statute is to be gathered from Jhe \¥'1,// /-

38 lan._qi.1age of ("he provisions pariieularly langiiage is plain and imambigiious. In Act. it is i'lOl. possible to Cissiiine any iriien-i'.ior1 governing purpose of ihe siaiiiie i_§io.:;»"':i1a:A1- is siaied in the plain lar1gi.lagé;._ isl".rioi.~,i.he"

economic results s<)i,igfii:'i.'o"l<ie obifa-inecri. the provisions which is rellei_ia:1i:' in in-:._e;'¥pr'ez:ﬁg a ﬁscal stature. VE€jllClll_L,"InWlf)Il§l3I'ill'i.'§Sibl€lHllS"l an interpretation iiihitfi ? gloes lnoillll ; from the plain, unambiguoiis iangz.ioge""'~iW._. siaiuie. Words cai"inoi' be i:o"«oi"s:ii.l:Is_iiiiii,ed so as to give to i.lf:e__ :.Sl((Zll.i1ll.€3" 1',L!lV"Vi_I'_*L':t'l will serve the ' ' l_..ieniio_rt*Voj"'{he legislaiiire. "

32. --. 'In fei:~.'[;._the 's~aVid* ..qLiesti0r1 arose for consideration before the Coliift. ease of Union of India and Another.' vs Bachao Andolan and Another [AIR Learned senior counsel for the respondeni:

1.h'§:...§aid judgrileni to COl'll'€'I1d that the opinion of Cl1in_r1app'i1_nReddy J has been wa.te1'eci down. In the l"~21Ai'oreSaiv=:1"decision. afier referring to ihe eni..i.1'e Galena of " up--1L<)--daie iixcliidiilg the z:1fores3.id C()r1si.ii.ui,io1'1 Bench 1 , 'u2'// 39 j1lCig'I}(]€'111. as well as the opirlion expressed in. the said judgnlent by JL1sI"iee Chimiappa Ready, the Apex C<_)*.iIfi'-.1jie.1_CE as under : ~ "146. WiI"l'1. respect. :"rii¢'r¢;:g_ri», wehare unable io agree !,UiU1 ('he l)':l7€:1.L3::'ll'lKC1lZijlalkg Westminster is dead, of (\.f.1_ci.t: i.i.s'.ghi)si f_be_er1 exercised in England. Th'e_TH»c>ilse Lora-S not seem to i.hink:*'sg), ar1.cl"iu.<§l_:'c:,_lji'e.?e wiihrespecl.

In our view, the 1rji'irlcipl£;5. inI)ilke"afWesiminsier is very rnuell aliue...a,n_dV k'i}:ki_I'1g'°ir1'i.h.e«. eount:ry Qf its birth; asfar __as~'i.his «Ca:;z--r1l;_ry:f'is concerned, ihe bbservaiiefis C31' ;Shal1,"LJ;" in CIT 1). Raman are ﬁery mueli':9elei)::Ini:--ez5er"l today". _ .."I53.V ution. Bench reit.eral'ed the VobzéeruailionswinABank of Chetlinad Lid..v. CIT, wiihllapproual the observations Qj' Lord

-- l§"L»r.,ssvell».a)_f,Killoi,uen. in IRC v. Duke Qf Westminster ar1«d.v--V'ii'l1ll(;3i1'ebservaiions Q1" Lord Simonds in Russell t>.V.A saiu "

"We are unable to agree 1.uil.l1 the submission (half an act. which is otherwise valid in. law can be (reared as non est merely on the .w'f':'"ﬁ ('H \ \\ 40 basis Of some 1.mderIy1'ng moz'.'1'L»e szqJp(;s.e3§l1g;"L-W r'esult'ir1g in some economic demmerzt. or p:ief1:cv1i:;7Ve"s- to the rlational fnterestes, as Hperce1'u,e'd'"by~the respondents."

Though. the u>ord's:-"sI'1ci}nvf"V'ar'2d were loosely used iri 'V"e«s.rV,Vj.'<'):»1_r1eczicV)"r7,__ "1:e:.'.é?f'2 incorporatiorz under. the Mz1:i.;..¥ihr,.i11s"-'gnu. LLie'deevr'h ff, ﬁt 10 enter a caecéaffzeire. gﬁjords are not intended tohe useei n1:1:n:.:'r¢»i_s catch--aH phrases 'V zee ¢j;;3fea§1' or-I ejfeef, Qf' a legal sitz.Latje.rr. ff 51; V_

33. "I*"r.tf;r_V11 faforesaide discussion it is clear that there isno i.I1c0nsis1;"entfy__d1=.'deviation in the approach to the interpreta1.ic5'n <5f.1'.h.e '[vElX;£LiiO11 law in England, America as J"«....\ve}ie..~&%1s:,_--iI'1 VIndia.'VA""ﬁ"is now Wei! settled that a citizen is VCvntitieci:i§)"z1'f'1'ai'1'g(3 his affairs as not to attract taxes imposed 'Lhe so far as he can do so withirz the law. Every man entitled 10 order his affairs in such 9. manner that the ..f»t:a>E"aitatthizig u11der 1:116 approp1't'at.e Acts is less than it Oﬂfierxvisct would be. If he succeecis in ordering J{.h('3l"I1 so as to 'secure the s.:aid result. his i1'1ge1'u.2iiy to be 1'espe(.:1.t?€! and E' .' ' qéww 42 unless a particular enacttrrient. so provides. Every person 'is entitled to so arrange his affairs as to avoid taicationributlllihléi it arrangement should be real and g8-1'l'U'li1~€'aT;'_d not sham oi»-.. niake--believe. A taxpayer may resori:ito7_al "devioeto. ydiye.r_jt'«i;lie.. income before it accrues or arises to liini; _E§1*{eo't.iVer;e-ss of ' the device depends riotfjupon eonsivderationhs "ofiriorality, but on the operation of .:lLColourable devices cannot be part opf'-tax rnotivation does not justify ieourts in nullifying or proper and bona fide choice:7_am.onglVieoursesl"'oll"aotio'n. Legislative injunction in taxing statutes' on peril of penalty, be violpafietlgbut lawfully be circumvented. Tax planning belilegitiiraate provided it is within the framework of law.

"the legislature in a taxation statute is to be gathered' the language of the provisions particularly Vlﬂirblere the language is plain and unambiguous. In a taxing it is not possible to assume any intention or governing QM 43 [_)1,lI'pO.'.5t? 01" E}1(',' stz-1'E.1.11e 1'11(3rc'~r 1'11a1'1 w}"12i1E is stated ';sn'E;1i'1i. langniaigge.

34. In so 1&1' as the j0bse_rVéx--}.iC_ns 'QfﬁJ.r1.si[ee:' Chinr12E1pp€1 Reddy.J., that 1,1136 11as"eA0 me 1'0j.-iL;s t.0" dép.é1rt '= from the Westminster [1936] A"C,:'1"r.pri11cif2}e as the British Courts h*a*...{_e dcme ute.gjissdeiiite"e11rse1ves from the observations or J observations made €1S€W}1€:1j{3' '§'3(x5vu1*t' in the Case of Union of 1;1d{.%;..Bqc}_;c'z}§ Andolan [AIR 2004 SC I Ehgarefbre. we are unable to agree'1[ui;'h E:'heV Duke Qf Westminster is aor-. "that its gfxost has been exorcised in V Er2gir1rgd.. The"'HO11se of Lords does not seem to r',--h_iVn~.1.c' arid we agree with respect. In our view. in Duke Qf Westminster is very much a_l.1'~ue_ kr'Ckz'ng in me Courury Qf its birth. And far as this c:o1.mI.ry is concerned. ("he ' * c)5ser'v(1i.i.{)r'1.s QfShah. J. in CIT U. Raman are very " much relevant" even today 'as 44 "I54. 11 thus appears to us thati. r1c)I_.c)§1lyt'S the principie in Duke Qf WesI.mz'nster_.a£i1.:e'v;,1r1;d:

kicking in England, but it: also S;e'e.Ins no acq1.u'red.judicial loenedict'1'on c3}".thfe, C'or1.st'i!";£{.£or1.::l" A' Bench in India, I"t()iLUi{.r':iSE.'£{T1dfI1Q'._(hit te1.f7:1pQra.rfy turbulence created In the Ltiafée Qf"McDoLbeii.'' '

35. In the light ef.'t11e_«'Aaf"0re's:aid"diseussibnis and the observations of the Apex Cot-Ln't. ie'ii1;;5E1at._iV(ta.1j}y in Azadi Baehao Ando1an's caSe,"e1«sV'_T0ng;_as§ the ari'2:1?1g;en1e'r1t of the assessee to avoid"i'pva_yn1.e11t'1eE'.taxwzio 1Tot....ebnt;"avene any statutory provision a.11d,iShwithin 't11e'v--t'k)ur corners of law, it cannot be found fa'ult4'with;r._ :_t'I=5_inSe1et.io11s referred to are neither sham or unreal.' -__T'11'()u;2gJ*1V we could see that these three conjyiarlies areV"ﬁ'c:_ated with the ir1t.enti0I1 of avoiding payment.

"o«f_t.{*:. innggas the said act is within the frame work of Iaw I is 2; V.':§'}_1vE1'{I1 E':1'a'11SaCti011, the benefit. of the law or the 1ee>_;5I1«01eS'ii'; €116 law would enure to the beneﬁt. of the .A1ifte1' seeing new this Ioephoie has been exploited _ 'v.,riVt'hi1'1 the four {?()i"1'1f:1'S of law, the I-'drIi'c11"nent has promptly sag 45 now amended the imv 1:3i1,.1§;gii1g the loophole. 'E'E1ere-foi*e."..by. any judicial int.erp1*et.atioi1 we eamioi read it. irlto {h:3'isefc:§':ioi1_$_'i which not intended by the Pvs;rli'zim.e11i'_4 aiwilheét.ir1=1.t:§',ol"~.. eraaoting this provision. 'Fhei'e1'oi'e, i','l.1e7.:_)rder p--:--1_s:;ed Tribunal is in eonsoiianee \.vVit--h'"'i.he l.21"wlof.i,ll1€ "The "

subsi.an'tial qu.esi.ion of law raised _in._th.is appeal_isH;inswered against the revenue ariduin favcuri-,o}'.'thevlasdsessee.

36. in Vivyear 1991-92 is concerned, flhe"Tirib-Li-nal«.fwi{n.ou'il' proper application of mind has held ordler is barred by limitation.

it is not ii'; was an order for deferment under Seoiioii l2{6) which saved limiiiation and, ihe1'€fo.i'e, théii ..}§oi'wtivo1i of order of the Tiibunal is liable to «..be and lii1v'~fa«vVoL2r of the revenue. As the Tribunal »l1:a's ren1a"nded'~--i.he nu-1tl..er back to the assessing oliieer for re« "':;sse_ssn1e'i';.i._aJi:'ei'"careful S(?.]'L]l.i.I1iZl]1g the l'aei;L1al aspects of l':he'-.ease.,-- i11lAd(5i1'1g so the assessing officei' shall 1101, take into 'V._eonsid'ei'éi:.:.ion the third proviso to Section 5{3)[a) of the Ael. '5.

'Li "

again and is at liberty to pass appropriate 0rder§w§5:i:ciVIu":3i.1:ig the said portien. Ordered accordingly. 1 Ksp/ck;/'g/mag" 'L

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Karnataka High Court

State Of Karnataka vs M/S Videocon International Ltd on 14 July, 2010

Bench: N.Kumar, B.V.Nagarathna