Karnataka High Court
The State Of Karnataka vs M/S Lahari Recording Co (P) Ltd on 14 July, 2010
Bench: N.Kumar, B.V.Nagarathna
IN THE HIGH COURT OF KARNATAKA AT _ 1;3A'.:'1~;I;) Tr-I1s*'I'm+: 14%? DAY 01? JULY, PRE5SICN'1'. .
THE HONBLE MR.
THE HON'BLE MRS. JUsI1E;E_BVg,V.NAGAI§Af:§{NA 8,1'; 'iiefié. NO . 6.7 f A "
Bi*3'1"'VVEEN:
ma: STATE QFiKA'_RNA'£'AK1&._ _ V , BY ITS SECRE'1"ARY""TO " V. "
FINANCE DE}?AR'11'E\/1EN'F,'--» ~ VID}1AE\§ASO*L?f;'iI'-1A.'7: " f BANG/\L;{,OR.!:7 --*5.as0V_00%1.'«._V . j ...PET1'1'1ONER 4' . ' '{._r;3Y4v's:a:_'1"*;2,j'.'13*sa. G0vt.Ad\r,] f\?\Tl"'\- U -.
11£Vl..J.: _ _-MA/&;v;h',uE:;';;;zi%' Rpzcokiijiwe com 1:33., :'~:o'.'zs.1, Gamma:--iAM£3ERs, ~::r»1A_1\/1;2a;r.{A.<.JApE1i,.~ E3'A,N'€;AL0;é;':§:. @550 0 1 RE;-1., _ BY_ us MANAG ER. .. .RI:3SPONI)EI\E'1' " .__(BY SR1 G.SARA.NGAN, SENIOR ADVOCATE.
FOR SR1 SRIPAL J.sANG1~1Av1, ADVOCATE?) 2 )4.
T1~~11s STRP IS £911,135) £3 /523(1) 01? 'm1«: KS1' Acfi'-@957 AGAINST '1'1J1£«: OR1.)I.CR m'.20/1/2004 }1'ASSLi1{fi)_'»I.E\EL- 'VT.s"rgx NOS. 1.370 'PO 1399/2003 ON Tm: FILE 01> 'I'£-{IQ=_KzXI%;N;?a'151?:?§_A AI5'I?>E1.LA'I'I§ TRIBUNAL. BANGLAORE. A1-1;Qw:N<:;' m1«:
APPEALS FILED U /5.222(1) 01+' Ks'; ACT, 19.57";/~..L\sD 'S.E"iTi'.»\}GH ASIDE '.FI'iE 0R1'J:«:1-as 01? R1s:+ASé:£«:ssM§;N:I'sV'"v 41J'_/s';V::2rA. ORDERS OF ASSESSMENT u/s.2=s_s (0)0 AN0 L?120v'1$1_Q%~§p.+L ASSESSM'EN'I" 0RD1:«:Rs U/S.i2--l;'3[3)KAI;ONG \/V.£TH PPZNAJEY ORDERS U/S.12A{1rA] AND .U/.$.12E3{3--A) 1>As'3::;:0__ BYQ 'rI~:r_«_:f. DE'.SIGNATI:',D ASSESSING AU"I'i==IQ"RI'§{.'Y. ' THIS STRP comme ON' "-~:»:EAréiNa @115 DAY.
NAGARATHNA J., MA0r;'jérmcm1,L;0w1N0:
JUBGMENEKQ;
This 1*evi5i<03r) 'p_e:tii:§jA01'1.is'¢.:fi1cd'~.}j}z' i1'1e§':«1é3v0nL1€ cthallenging the ()1'CiV*';'1""'"(')V1"'-?i:.1:i§' K§if?:;'I'1:--1i".'¢1.ké1 Apf5éi'1'a1.{,0 T1*ibu11al£ Barlgalore. in STA.N0$';A_1f3:7:O/2CiU~V3'«_i.0~_j3;8é'9_./2003 dated. :20/1/2004. The 'I'ribLma1 order of the First Appellate 11vo1di'IA1'g'«11_1_;11.~t11i1*d proviso to Section 5[3]{a) of the i§f¢'V1V1'11;1{a.}§2x.5:-11630 "Fax Act, 1957 {for short. 'KST Act") is not z'1t_--t_1'z1'<rt:cdV.' 7_"I.711:i;~:QV1*0Visi011 peti1:1'01'a pertains 1.0 the assessme1'1i
-V year ':99--%;;975"1o 1999-2000.
AA T110. fa1(',1.5s of the (rasc lcz3.di1'1g to the filing of this " é=1}}§p€aI are {hat tI'1<;> 1'es]:)()ncE01'11.~2.1sssessc(é M/s;3.Lal1ari Recording 1".
Com .]&1I1V Pvi. £.td._ which is incor Joraied 1.1I'"1d€1' the C()1'3'1:)£111ies 1 y 1 44 ..
Act. £956. is esiigeigeci in the scllirlg; of }.)E'€--I'€C(}1'CE.€?£E for c,-o11sidm'a1.i()11. The 1'<":sp0n("1e1'1i is 21 dCE-E1631' 1"'£;11vC1€1:'V"'1}'1i't-'. E{ST V Act. For the assessmem. years in quc.*'s'£io1'} 1'1-'g_m1cIy*--..1'994+_$3.5 .1999-2000. the Assessing Atléhoriizy 'gggsr Section 12 of the Act. H()\R.'€'V'VIi'V1".- U'1€ Dr;:pi31.y C::i':in;VV:31:issioi3{3'.1*i Commmciz-:1 Tax {Vigi1£m.Ce]._ Bz1né§é&Isre?, (Hsi'eif1aiier:';'eibr:1'ed [.0 as 'DCCT'], Coilductttd Cr:i91s_iI1 \vii'f1V'AA1'é;g§e1rd to the business activities of i.h€V that basis, the C()mmissione1' 0fi7'-- _Co111:11'm'rci:é;1 an order on 4/ 1/2093 __aLr'1ii ~«.,_.fv'41V'1«1"1.1"1--«'.."i:.".Q'i0_1'i'i.iC&li0I"y ordm' on 8/ 1/2003 CollferrirllgjL1'I'i'SdiCi'.i'Oi.j'Oii {Vig1'1a1'1ce], Ba'r1ga10re, to look ' 4 41.1 ~ Ass" flu' . . ,1, 4 ~ "<1 '11'; , V' 1nLO u1C '1ssCss:1i<?I1..--s 0;. [£16 1csp<;:1u<;:1\.~assesses. H19 DCCE [Vigi.i3&¢;1c.e'}' p21sse'tiV_Q_rd.e.rs crea.ting additionai demand and fjeiigiligr lhzf *;h'(:«.._assessme11't'. years in (§L1esti0n. Aggrieved by the s21id- ()1'Li.éi*'s3,"ihie_}§€s1)()11d€ni p1'efe1*1'ed appeals before the first a;.>;':c1iIa.i..<: jaii i.."!'."_u_1)i.'ii.y w1'1i(:h were however dismissed /@ 4,421"
8. Ac.eo:'di11g to the 1'esponde1'1i-assessee.
bralid Cassettes me seeo1'1<.i s21Ee.ss in {he 3-izirids _t"E;e 1*espo11de111'.. M/s.L21hari Reco1'di11g§.:Coilapaiiiy, Héi"e-VV}')3rVme'rsi'1ip fim1, is the I11E"l1111f&'1('.11,11'C1' and firsi (1'efc1£é--.v_-_ iiz1b--1e"*.'.o per Section 5(3) of lhe AC1. Tl1Vc.1*e:s.po11:i'c.r1i' whov.h21s:'purchased. ' these lax. paid easseites;__ i"1'om Company is only a r11arkei'ing dea.ie'i* -- with the trade mark 'LAHARI':_Wh__1'Ch I ;Trade Marks Act.
The T1*acie1"ri211'i::;:" who is trading cassettes produced by 1\/I/s.La:'§ja1f_i_ »(3<.)>_ii'i~E--7:'~'l1'1j~[" are 1'11a1'keied by M / s.Lahari the 1'esponde"ni. herein. The ,___. AV!' 2." .~_..,,: -u'\*'_4-\ 4.'; n+.'.v- A k w _ - , 4 I 9 La a:3e_1,'aco_ cu , £1;L_hi.£ic1L,LL4.1Cu U" us11*rI€.%1e *.:z1\..e name "...--A........A..E , Vdw.!}&ie§i"} b'ei.«;*1igs_ to M/ S. Audio Vision, pee-u'iI1e1'ship firm. One of *5isu.*pairi;3:ieife, Manoharan, is the owner of {he trade £12111--3.e.
Aec()rc1i11g_;' to the respoiidcni. the am'1ho1'i1..iess below V.'~'_L'f}'.1ft'3('.'fA_' in 1'.reaii1':;_g the seeonci sc.r11edu}e gggoods sold by "the zissessee as the first sale. 'I'11e:'ei'0i'e. they (3()1'11('.I1€1€C1>fl1.éfi'i_.;ii1C orders passed by the zissessirig 21t.it11()i'iiy We}A£s éz-sh" iheu appe}iz1i':.e a1ii'h0i'ity were liabie to be'""se.iglsiidewijyi. 'fi}i1igf_ 21!} appeai before the '1'i'ibL.1iia1.
5. The Tribimai by iiS_."(1i'der has .heid .Seeti0i'iV.' 5(3]{a] of the AC1 is not ai'_i.raci.ed _i:_()V't.i1_e%'{'gi(:ts Ofihis ceise, as the resp0ndeni.--a1ssessee is riot' the pvi'c;pi'iei'v<iAf'iz)i" ihe ixrade mark and was not SCHiI'1'g_" the said '_T'1'z1V"i')"'iI'11'c1E by accepting the case uihsthe §}i'es1:ioiideiii, orders of the auilioriiies. Aggfifiieveid by same. ihe revenue is in appeal}.
6. "L-ee1r1'1e<5E'A:_C:g:)iv'E;,_1}\(iv0(:aie assailing the impiigned order of the Triiljviizlaii (.'.A(.":_fliii't"L'IT1(iCCi 1.112%. the brand name and the "~..,1ii'21de._kiiiggiifkowner;""'?vi'/S.AL1di0 Vision. is not e1'eai.iiig any ';1(3'iC.¥i_Ti(11'2'5;iv.E._ 'ciei'i:.;;1V1'irl by allowing me i'1'1€1}'1{E£E1(TTi111'€1'S to use their iraci e"iiiai'k'iii_1i.i;ie mime of the eoiiipzniy O1' in ailiowing {hem to 'sell 1,h(::~.pE\:_3dEI(?iS with the iraide I}'lE,1}'k. A C',£11't'.f{11 analysis of ihe v~?_é':'i'cV1te"i*i'2-ii 011 record ciezirly shows '£1131 the 'i.i'z';1c}e. n1a1'k owner i/'' = M/s.Audi0 Vision 1135; perniitied the 111211}ui'Ia(:1.u.1'e.:: "i'.144E>1'£.T_V1L'?1_"./' M/s.L21hari Re('0z'di1'ig' C0n1;3:«.u1y to L136 the lmde I':"i1"c'-'c171_{'V€ii.V1/i()'i.i[ consideration. The manL1fe1e'i11re1' in turn 1r1=2isf:s0lié:': 'the 1'11am.1fa('l,1.1red goods with the l.1'E}d€: mzialfii i.-.3 theirifesf5<)1jidei11~ V' 2'-assessee for a bare minimum cf;-.si..;"'i'heerea_fi'erj' ii "iijie assessee, who has sold ihe }')V1'{3C1'L1(TtSV'€}_t '-2. 11igher<:os.i., {vii-I; ae Ciear iniemiorl to evade tax. 'I'ii'e éa1.ici inie11tiC\11:"_;(:21i4, elearly be gathered from the above, Iransac_1'.i(§11._ 'i.'--h.us it7eonireni'.ion that the 3"' proviso I0 Se:-tioni Act. applies to the instant. case and the s211('3,.3~1'.,l_he assessee is i,i',0".be i.1'eai.ed as the iirsl: S2113 i_._e,. Viich.;§1¥:1__'{Ii1eejurisdieiioiial DCCT {vigilance} and the first appeilaite 21t:ihori:,y""h_£ive said. According to him. the '1'1'ibL;;na1_wii.h0ui hproper apprettiaiiicm 01' the facts on record as V'Kkfl€'?11VL"£1rS ifhez 1i.abi1.i1.y has c.0mm.ii,1ed 21 serious error in ini.erfering Ah'-with l"1;ef"«,s.é1idA'e~.;i.Ssessne1ent' orders in h.0}ding that the third 1:)rA()v,i_so _i.,;(; _S4jt:;:e1'.i<)11 5{3}[a1) is not z1E:.t1'ac1,ed to the iaC*i.s of the "liaise. 'I..'i1(§i'céi'<)1'e. ii'. is Sl.ib111iU.'<3d by {he I(?E11'1'1Gd Govi. Adv. that". a " .e21S_€ for' i1"1ie1'feren('c I'I'1é1dC out.
9. As set". out above. the I"a(?i's 22111'. not ('}iS}),!,}V1L'f;'.(j>.'.:I'1]€ Tféldfii iliark 'LAI-IARI' owned by M/s.A'L1di.o.__Visioijé,V" jd pa1i't'.ne1'ship firm. The said })£:1I'E,1'1(?i"Ship Ehrn has in__ '1,11.I'1--1__g'1'?'1'Iiéfifi V Iicte11cre to M/s.1,z1hari Re(:ordi11g Co'mpa.ny_ t'.o "1::r'odxuC_<-:«. {"1110 Erelssetics and to sell ihc same o 1'E\fii,"s.l§a11:xr_i" Re-.€f';orEi7:.t_1:g Conipaily I3r1'vaE.C Limited ~ 'c:s~.po_i1d€11i»:;1s'sessc§C;'Tlaé ctoi5;i1):1:i1},-*'g advertises the producii as ihe S(3I'Véf..fi'1E9.I'1'§€T.i.fig. 2ig€:f"1t' <31' LAHARI' brand cassettes. /{filer .'L"1[.EEL{1"1':L'£..f'f'--,tE".V1.vh":-lfilflg ihe" cassettes, M"/s.Lahai'i Recording C(;'1i1ph¢1y} }.v11'i'ié_ ii,s€>}I1ing them to the respo11deI1t~assessee haxzz-:*p:--,1id tax; '1;1id{:_1* 1:"i'1-9? Act. which is also not iii; diS131IVf(;;§V Pxi.fCi7_'V']1§l1'ChE1SC of these cassettes, the respo1"1ciehf.;~asosesseeihas"sold the cassettes to other deaiers. whichks ihe secroljtihsaivé: u'hde1' the Act. As the Iavv stood on the 'V'dg1i.é"'.<3I' sA%iir:sh'.i.1Eie said second sale was not taxable. It is also on W1feo.ord' .1;h*a1i" 1.}'i=13V.:~i'€S}3()'nd€f1'Lw8.SS€SS€(3 has sp<:1'11. co1isi_derable a1noi1r1t: Vforfitliic purpose of adverE'is<;'.n1e1ii of these products "'V_ "w11I1d€31'..iihé b1'Ei1'1d na1'11c 'LA!-IARII price 3.1.. which the 1'c.s1)d1"iLie.11{, l'12;1s solci ihcjrse p1'c')d1.1c.E.s co1111)£1i'ai:ive.Iy higher to riie cost. at which it was 1)L.1i'c"11a.scd. It is in 'this f21("rt.L1a.1 & /,w"":
{D E3ac~.k;§1"c)11nd, it xvels Co1:1Ie11c.icd by the State. llmi. on"21t*'a;:d:t1_1ii,of tzhc di1'fe1'c11ce in 11116 pri(*e between 1.11::- <*asscIt=:'rs' .'V{'1aC7 eissessee 2-incl 1.11211' of the I11zm141E.E1ct.u:'6r-élnd in (141963:-§.1"' to r_C'c£t.i:.':C% the {ax liatbiiity, this a11'rz'111gcé11'1c111 i3_._Td'tEe r}:)':.f .'l.h'(T .c)\ta{fi«£.:_.1""*().I' 'LAI-KARI' trade 1'12i1}'1c' 1'1e11'neiy."M.}":s, Audi';yVis_iOnV {:hc.i*efc)1'€;V the SCC011d sale by the lfcspoildg:11i.'«.:1ss¢ssee i":;155_Ht.Q_7be 1'.rea1'.ed as the first sale 1.391' pim5iso'--_t0 ?S<:ci."roj : 5[3}{21) of the Act and the {ax is to be pend on 1' 1€:":221i'-2%. é11--m2_u1:i .v_ Iji' this background. it necessary t4Q3._.:lc)(«§1i<'V'int..O ' ;3_1jr§yi.$ (> u1t)'"Sec:ii0n 5[3](a) oI'1.he Act. on whic:1i:._1'<§§ia;:fx(:e is p1€1bfcd."
" '.'_5[ on sale or purchase of oodsg VA 2 'V I} dealer sfxafi pay for each Iagc onfl 'f):'l"§"'fvCL'CClJ1)i(3 llurnover at the rate of V' " .. lltzzgéim' })é7'CC11.l.[ at U16' point: Qffirs1.sczle. . N01w1'.t}zs(,arzd£n.g anything con(ain.(3d in siab__ f'~3¢'?cr(fc):1 {I}. the tax under this Act shali be éa.
V j " " ~!e1.21'€d~A ProvidcciflrrI'hc=>r (Char wl'1erca any _(}o0c1'.<; (:0 Icvc ur1.de.>r this Act" are prc)(1uccd. or mamgf.Eé_grrzf.fc*fi"---- .h V by a d.ea.Ier' mm! the name or trade rnczr'I_c..zfcfgiskerfééd _ ur1dc.>r the "Wade and ]WercrI1.(1r'1(i'i§é;*'Marks AarI_.V"i .9f58V * ' (Central Act 43 Qt" I958}. Qf' (1:ryy C:17Yi:'.r."1f't'.I.".' which are not. used by I:h'c-.[_c1I'I.<;w"a;s "r.ru.z.: ;h.:1"(i1§:v'r"c1_Is. component park; or pactki'i'2«g:"'mc1rcrid1£s_dsgfldcgfined un.d.(-gr the e.\'plar1a.!.g'on f()xy-SL'£:"l:.i'C)T'1VV r.aI71.'e'-5;c:A£'é Qf such g<)od...<.; by ('fV1e'-..'rie_tA1l..:':r' %,:1':L/'rvf1(")"".vfA':'v1"."l;9"'_pI'()dIlC'€d. or rnaru.gfa.<:(1:r'ed to rI1QV_(V_ivL>(dVe.."»"_§.uh0 jbfand name or trade 1'_7'1.«I.':1:{":k'- _f'10l:§,fe'r.§ ','$:IfEaI-l'VAfi'L;.5'i:"~ é§'eé171ed to be. but tf1_e--. ~.Qj.::A'v:~§I.£C.'h _gooa'.s by the dealer: .VIj1céé2h1'}';='{g has proprier'0r or 1'1-rjhe or the trade mark.
et'r:fh_§3I': "--«():I":'-(:;7iI'C);iQ1"l ou'1ot.her, on his own ac:(?oL'm__(_, O!'_()h _CI'C':'(.'.<'@)li'£..'.1:i'_.'hr_?_}"()lj}?(;'I'S shall be Cleen'1c(1 (:0 !:.'.<;' sc:a.['.-ub_1;"t}:.e' firszl deciiei' Eiabie tic) tax 1.u1a'.er' L'2.I2Iz::Vis:.fVré1{z'or1.- 'A' has registered. a trade mark 'A V jbr r71ciri:_g,"?1(.'Iz.ire of ccrtam good.s. I---{ea gel}; the said 'gc)c)"(1s man:gfdcturcd by '[3' under the said. trade r7'1cir'«f{. Tile sale by B' to 'A.' (}["i'}1€? said goods; is not "fl.1t1E?_f-l.I'Sl s(1.l<-2 but the sale by 'A' or by c1ny other pc.>rsc.)r1 on his Ci(?C?()lli'll. is !':'1c_j'irsI' .s'(1ic7.] 43/ Ii (1)) in the case Qf purcitase Qf cxru; ' goods mcmionecz' in column (2) cgf' Schedule. at. the rate and ()11.lg_;v5zi"'Ii1::% p():' n.I in the C()rresp<)r'z.diI1_q en.!'r'x'Cs Q]?-,(I'Olig'I7'i'1%:iS 'cfiid Qf the said sclledtzle. on Ifle d€'alé>r l£c1f3!e;3U£r) f.:(LL'(':';
under this Act, on h.iS'*~,.?i?£L'(Clf):€" .l':V1:r?IIé1v(--3ti'si,7, purchases in each year r'elc1£:i1ig._i0--.such. gfloar_lA.s.f";§
10. A <:.a1'<:i'L1I exai1h:t1a1ti0.f1j01' the.V éiforesaid provision makes it clear Vi.11}a.'1;..x_vh<f:_i1 gOOds.'li'21bb-Isc i:'0";i,2i§: are produced or E112-u1u{a(:1.L11'§.ci' by -w7ii'.I%1 the-« r;a1:nG or trade mark of any other C;EVCVEHl1HC VI"'E:!.I':"x'Ci \-v1'§}IitV$h £111?' 210$. iiséci by the lailjer, the sale of such gdods by tIicfl'Cl.§?a.16i*wgviio'has p1'0duc:(-rd or I11€111LI.fEECE1_1I'€C1 1,0 the d€E1}i31' who 1.)rEu_1d name or trad:-3 mark holder shall not: be _CE(')€'1'I1uC"(1 1".(';'~.§I.1'~1(' 17irs'1',. sale. 11', is the subsequent": sale of ._ s11c:3'3":§§()Q_§is by 111$ 'd..r:3a1«e1' h.av1'ng the righl": eithex' as proprietol' €')?T~,(')1l7lvC?1'"!.'§('jV"SP"$0ail.-$3 1.11:: said 1'1a1'1'1e or t.rz1(fle Iuark. L='.if.I'}e1" di1'ec..:1.Iy or. t,h1"0L.1 g}i"_v».a1"1:)ViiI"1e1', on his own a<:cou1'1L or on account. of ()Eh¢'I'.s sI:_'_1i.i1}»V}5C. deemed E0 be E.hc;* sale by the first Cit'/2116.1' liable " W.1,.o 'tax {u.1s1'r'%e1' illis Se(*.tim'1. The i1]us1ratim'1 to fig? said SCcI.i.();'1 12 1:1:-xkes the posiiioii \-*@1jy' 0.163211'. I1' is only 1hc)s:4(' s£i1(§.~§'-}f)'jg"'i.]1e imuiufacturers who utilise 1:116 Eradc-.* 11'1-ark amji, 'ti1;'::n._i_..'i51e' p1~odL1c1s-3 to the p1'0p:'ie1o1* OF the E1'z'1€}€"'i':';:I-2 ifk. "u1.11tf4S'€%Cf):'1Ci ':5i,51.viei' %:}_V V :suc1'1 pmp1"ie>t(:>:' which is; in be i1'e21fCci ':1._s"1.h<> >1"il_'f.w'L'~ R31: 33.3 purpose of tax under Sec1'.ic512_ E3..V_of i.hr?_ A611. Case:
admittedly the p1'0p1'iet<_)_r of i'1fu2.. 1'_i'L1.(1'£":-~,,}_1}f£1'}{"'i'S£-_;1 VAE*'5a11'i:":c31*shi;) Firm under: {he 11z1111eR*c3iI'[--.1\/I--,/ Si;-igxhiiiiiii ..Rec01'di1'1g Company Liniifed. The semi:-xiv Iilzirstif:ici.i11'c¥:*$".a1'C '.'{h.(§ 7seVe1"a p1'0dl1C€i"S of V2]l'iOU.S goods. 'usi1{i_kj 11i.__:ir}§ which they have fiiey I11£1}"ll1fr'.1Cl11}'C' goods under Z and thereafter they are not selling P}'()pFiC[.()1' of the i.1'a.de niark.
'T"'hn r ~.»'~.av-A mn}i.'.~:.(_r }';g' r'\ :£-'J',_:--._._.,.4 1_-_....:: )\-J ., ,,_ , _, rns J _ at' _ 3 ;.ux._'y :04 u._ .~.;w1u.e l) a Lli£1L.i(.1EE. 11u£ut,.L1 l_.U£U[.)c.ll}_y. £I1(,1t,}OlL, 'w11cr; i':h:(4i'c Lia; t.hi*ee legal emiiies and 1101 two legal e11ii't,i.es as A'$0111"E-?1]Ii§).1iZ¥{§3d i.Iii:dei" {he proviso as Wei} as 1.110 iIIL1:si1'a1ion. £1110 z1i'()1'e:§21id.~proi.:'isi()1i not aiifi'z-x:.'1.ed to the f:--.1("3i.S oi" [.1113 02180. iii";- .Wi't1i1out disjeptitiiig the z1.i'c)1'es;aici fz1(1t.1.1al }')()s'siti()n ii i' . \.*.5a.1S~(:011i'<311c§e(i. on 13911211!' of "£110 :'(*v(~.m:c Ehzu. the Court has in 13 lift the veil and z21:)1:)1'c(':iz;ue the 1.:1'1(flispt11t?d 1"act'ts. '1'h<.)c12§' hu ti}1e1"c nlay be 21 Iicellce 2-Lg1'ee111e*1'11 't3em='e(=11 the ()x-\211c1i_ 01' "if'}~1'f€_'?'~..Ll':€is,dE. mark and the 1112;-111L1l11(',1.u1'e1*s, the 111;;;'1u1'a(:i..1Ii'éd- .:1_')}f()vCi~¥'l('.€_VS ::_1ré'x sold to the assessec. who is acting 1'0:_f":1..1-91d'cmabéélléilE"-._Qi"=ihe p1"0prieE.01' of the trade 1'11zu'k. it is 1.Ii.:§ c;tSS€S$é'£5_"W'h_O s_§pe1ids » n10n(:y for a.dv<:rE.ise.111e11t whi(.'.i{ eij:11:f§;s .:b(-3£ig€I"iI'l of the IT1E1I]11félC1L1I'Ci" well t':}1eAAa1§:sessee who is making h11g.ge p{Q§"i.t'. in(:111~red by the conlpany. 'O~{1;'aI1d ihe assessee is gaining gt.1ie kiabiiify {,0 pay tax.
'I'h(31~ef'(5r:0. hr»: é.'1;--bn,_1ii':s i"t'.._i.«VI"1-:2.__ facis are properly appreciated in the right '}')£_?1"'S5;T)€C1Ii~\F€;" §V'L "a._ (fi9e21r case of evasion of the tax and (§'0vr1'tT'€-"{1t.{'fiii; fi('3 1"l3IiCTd on a C011s1iu1ti0n I3em:h _]L1dgl"I16',I'1T. of the case of McDowell 82. Company Limited vs C(Z?AfT'-3.}'T1evT_74$:a':C:lm.~' Officer [1985 STC V0.59 277] and in V"'»;)a1'E.iC1iEv:1_1;' mliecl on £116: jL1dgmc1'1t of C1'1im'1appa Rr:dc1y.J, to V. " V1' hr.*_, _i'<3i1€3xxTi 11 C f1'C<'t'.: » .
14
"We think thcii time has come for i1s_tc>. ._ depari'fr0n1 the 'West.Ir1i1isier [19536] AC .1 as emphct.t'icalty as the British Courts i1a;.:e'(ic->nVei- ' and to cii'.ssociat.e ()Iu"S¢"I1.?(;'SfI'_QI11 the o_--bsefvci'tit)fIsv".i Of Shah, J., and similar :=_obsf..2rvc§2tii'9_n.s.Aimai:!e.,_ eIsetL:t1eI'e. The evil C()IISef,q1ie?I1C€:S rjjfl tax at;C-idCu'iee':.' '' are ntanifoid. First. there is.i_si*tbst.ar1Vifc1__l E()SS".Qf"IiTt'i'Cr'I needed public revenue, p§i:i;i{Ct.ti~@!'[}} «.ci. 1tJe[ih1re state like ours; the '..'A3(3"i'fOLts dist urbanee caused.' tci 'tit-e-.ee<:)I1c_iiiiyffqf' tile country by the pititigi__ up ytjf"r7te:tri'2.c:tiz'1_s mane}. directly"iiflisiiirijtg .i'.Vr:'*ij1cit_i£)V.r1. %f'il€ii't:'ftCi"'€ is "the large hiddeil lc2:ss_f""itj"'---tiiefifiptiii':r1i:it'1i't;; {as pointed out by i't.:iasi:'e'_fiAWiieqterejt. Law Review 209} biisexwle Qfi; in the country being iiivoibed in the pef;:1e't't,iai war waged between the i'Ct2c:Ci.t:oicicti_VVcir1ci ' his expert'. i.eam Q" uuuis-»'r , 'ici-11;-yetrs and deebtu1.tar1ts on one side and the tax ,gt1.£:fi€i;é3I'J'Ct!'1d his perhaps not. so skiifui, advisers on "=,'t"I'1.e' t,)"_ii'.1.er,Vside. Then again there is the "sense Of ir'y'tt;stiee and ineqi.tctli'i,y 1.t.vhiCi'1 ("ax avoidance Cli"()i;l.S'c'S in_t'he breasts Qf those who are t.1nwiitt'.ng A ' a.._or' imable to prQ]"it' by it". Last but not the least is :U'1(,? ethicirs (to be precise. the lack Qf it} Q/"
t'raris_]'erring the I9urc1.en Qf tax ital-Ji.iity ("O the /5, 16 I2. Reijalzme we-as also plzweci on the '§ucig11'1r::1'1'!".._ CE' 4.119 Apex C0L.11"I. in Wood Polymer Limited vs Bez:~gqiV.'}:"Ote'ls Limited [(1970) 40 com GAS 597'] W11<-grew' "
u1'1ci€1':~ "II. is neifherfcu'.r rler desvi1'r,_tb i.e-3 1'.o e.x.;';}_;?et'vlf1e'V "
Legisla.i:'1.u'e to l'r1I'(2I'IJ(3I2(-3v>C1,:i'v""[ifi.V'iaké device and scheme to avoid ?'(:z,.»§:c1£.z'()_11. His' to Rhe Coamf. (0 take stock: d(3.f.e.rrf1:1};e._:7e2at,ure"Qj4 the new and sopI1is(,iCaf'ed"Eeg:i13§1e;;fCe$2_fe*._avoid tax and COnside'.'--1:uF1.el!Azef"€--?ie by the devices c=':3z.¢lcj3;j;be zfe'.la(ed"I'o 'i:i'1e'e5ci3r;ir1g legislation uyfgiz _ fer7_1e_rgir1g" rleChn.iques Q/' ir1i"é'rp}eta1.£ori'L}V§r:1s de%':~<3 }'.;..:, Ramsay [1982] AC 300, BL£FTIIuCz;.._'OH_ " S:_if'z1ora's TC 30 and Dawson ;''j'.934;' :' Q-"xéi £0 expose {he devices for what I'E7gli;; cI«r9e""«cvzr1ci. to relnse to give _judiCx'.al ,, ., Vpgn.¢c::§s:v:§m 7' «V"_Lf1_1i1;fi2it'e1y the appeal in the said case was _ ciis111i.$;sec1.'1)yv'éi uuani1'11r)us ruling-;;. Relying on {his pztssage it .,ygia.-<s,c01'1ie1'i1c1ed mat. H1119 has 001116 to de1')art zzmci C0u1'1',s .,»/L"~ 17 have 1.0 find out xvhetiler the t1*a1'1sz1cti()n is Feaiiy a.fiie_§*.tL?e'.,AE0 avoid tax and whether the 1.1*a.nsaC1.i0n is such tt1'i&'1%-- t}1eVj'*.:idiei'a1E process Hlay accord its approval t_.0.....i1:_' in xsaied question arose for COI1Sid€I'€iti()}'1 beferefile':Apex"COt1:9't..V'ti;1.'the of Union of India and "Another as A2atii--v...Ba'chae.]' Andolan and Another [AIR senior counsel for the 1'esp011deA;«;-ti"h_as.V_ the said judgment to contend that the Opi1}i{3~.'-1:._(:J:'f J has been watered down; referring to the entire cate11€a_V(§.f_:V;'et1sesincluding the aforesaid C011stit.Ltt.io1_1 well as the Opi.I1iOI1 expressed in the Chi-nnappa Reddy, the Apex C0L11*t iheird. E1S' t_1I'2vCix€Vi"\;\"'_ "
V respect, therefore. we are unable 3 "te ;.eIi.t3 the view that Duke Q1' Westminster is its ghost. has been exercised in ""'----I+3r1gtc.1r*:v:tii The House of Lords does not seem to tti.t:'1__F$ so. and we agree wt.tf1 respect. In our view, "the principle in Duke Qf Westminster is very much ' alive and ktckin_q in the c.-ot.u'1try Qt" its birth. And as 4% I8 far as this (.'OIH'1lI'_lj is eoncerriecl, the observaiions."L"--_lV of'Shal'i. J. in CI'1'i:. Raman are very much r-:*levar:.i'L"---- even loday Thereafter. i.he Apex Cou1'i§:l Corlstittitiola I-3c-*.r1(:h judgment ofthe Vihle Mathuram Agrawal vs State F599) SCC 667] wherein 11, \va1:5"he'Id rgis L1fldé'r 'The intention of tile'leoislatilre'V_~inf.a taxation st:at:ut'e is iolbe gciifie.rlecl:_/Ztonivl"tile 'langviiage of the proui.sions pcifi"ieLLlarly =z._ohe_r-efi.i1e language i's plain. and i_._;,.ualni;Ei:g.i.ioiis.'li_'i"a__i'cvcing Aci ii is not possible t:o assiime' .i_nijeni.iori or governing purpose of the sVi.a{i.lii:e n1ore'..t.'l1a.i<{ what: is st:at'ed in the plain ,._§;language.l" not" the economic results sought. to
l)eE7ol)laii1ed oiiiilalciilg the provisions which is .__iri--" ini:erpreti'.ng a fiscal si'atut:'e. Equally HWinlpefifnissilfile is an inierpretiatiioii U_ll'l.lCl'l does not 'fol-l'oii5fi'oii1 the plain. lli'l(1l?'ll')lgLl()llS language of the sta__ii..ite. Words cannot" be added to or substituted '»,so as t:o give a meaning to the st:ai:ut:e which will it serve the spifrit and i'n.t.eni'ion of the legi'slat'i.ii'e. "
9:.
'V L£1u"1de"1".§zt..';5a1*ag1~aph "141 as under : A $3.. 19 At ¥3ar21.153 the Apex Cmm: prcnceeded under : ~ "153. The Consrimt.ior1:=.f3er1ofiA. f observations in Bank of C}1ot.'é.iaad I,i"cT1':.;'.';.L:' "CI'I'; " «' quotmg w1'ih. approval V!i1..;:3""~obsefi>a.§.io:o1§V Russeli of Killowezn in IRC__'l':)VV.V"I:3'11.'.3..C_»é' of.V»?é$a'r1ir1fSi,er and {he obseruaI'iOir3.S..Q]" in Ru"sSAell 1). Scott". ' VA 'A ' _ A .
U1tin_1§é£'i(:Iy. at 54 as under: ~ _ "IvI n3~ULlL£~.S: >(31%}pt'f'ClFSWJEO us that not only is the ;:9r_inoi;3V£Ve:'.'VinAV Westminster alive and kicking E.'fa it also seems io have dC'L};1iI'€;3i ;ja_Vci'i:;':'iaE §3enedic{~q'on of the Corzsg--Hmional 'a. :'Bencn.zir1 I'adi"CiI not:wii.hsi,anding the temporary V' " r11,'iI.V"bi.Jl:f';-'»I.1:'C»':*.'.. created in {he wake oj'McDowell." V'Wit1';-'V.'§*<3f'fé1'€:r1Ce to the aioresaid observations it was held /,/Ia:
20
"I41 It does not appear that the rest ggf learned Judges of the Constitutional j" A contributed to this radical thinking. Spetzktfig . the mqjority, Rarzganath Mishrc;i;J. hét_ther:,:wa;=.) says in Mclfiowetl:
"Tax planning may it is within the frarrze-Lvgrk of"li1w_§"C6'iottra1§té"(;ievibes cannot be part of tijcsé' .. is wrong to encourage or enterttim. 't_¥'w._ that it is honourabje' Clttifiidg of tax by resorfiztg tq isthe obiigatiort of euetgj to honestly without rezrsortifgg' tQ..sttf}te1;fLt;c;'e=_s. " _ -
14. V In_ th.e "of:-~'L'the aforesaid clarification by the '_Sup§'Em¢__LACQvurt, "vc'3V___h_ave to find out what is the approach g€)§fr:ert1$A"fis_ca1 legislation in this country particuiariy in the Ca1'1teXt'.t;*f tésstevasion and tax avoidance. 2 /vV< 21
15. This quest'ion arose for co;1side1'at.ion..Vm._'STRP No.4 of 2000 [STATE 01:' KARNATAKA VS. M/$";"i9::'2;:§.i_0i:01xf INTERNATIONAL LTI1.) which was petition. After 1'cfc1'1'ing to the laiy in,.i§31figl'an.d,l 'An1e1*iicaga_:9;d this Countiy. we have a.nswere,aE ihc séiicl q!i1€Sti,Q'I'i has uI1d7er:¥
33. From the aforesaiddiscussion is clear that there is no vihcon.si_shlenc_i;'lorpllndeviation the approach to the int'erp_ret'aot.ion:'o]f_--t'he"_i:o}cation law in England, A't7lvE?riCQ:_'(/2{'§;'»1ll):V'?Jll It is now well set:t'lVea'l}il*iat d'.cit§i§5eh eVn'title--d':io arrange his ajj"ciiri~§'las:."no'ii "lo,att'i*Ci§itx1'a)ceslui--rnposed by the State. 'lite «caratdo_so..i0ith.in the law. Every man is eniitle'd. to' in such a manner that the the appropriate Acts is less .._§;'t'haii, it o'ih_erwtse would be. H' he succeeds in '0rdferih_g_ themuso as to secure the said result. his w"'ingei1;.iiJi'yVis to be respected and he cannot be it to pay an increased tax. He may legiilimately claim the advantage of any express tevrhtls or of any omissions that he can find in his hi"-,Iav()i.1r in taxing st:'at;ut.'es. His legal righi so to it dispose of his capital and income as to af:tract' upon. A 22 himself the least amount. Qf tax is _fiil.ly recogriizecii' The law does not oblige a trader to make maximmn profit ihai he can out of his _ji§raclin_g~__"
transactions. The legal right of a i.a2goa;:ier':.A_t.'to' decrease the amount of what'-o'i'he--rivise woiilti beffi his taxes. or altogether to avoid ffheziri. "l:II}""_learu1s'iti--.. which the law permits,V,ca_nnoi«"l3e"doi1b:e'd;x. he basic proposition underliri'in:Q'-t,iihis t:cvgai"ion.= lawis that any tax payer is enti.tle"d._so.._as io'o.r.der'§his affairs in such a nia.n'ner'«._as;io"seeiliait. his liability to tax is as low as pos'sibEe}'_'Vlft; payer is in a position tagcarry in two ali'ernaiive jo_ne__ of» ijchlichllllwill result in liivfibiliiljl' olher which will not, is at l.ik$erii_'.;'_to cho~ofse t.h.e'l'iaiier and to do so effectively in tlie_ tabsence. Q,f"'g;1ny specific tax avoidance gprovision.i-Thejactf that the motive for a transaction '- frnay be to avo'iCi"'icvc does not invalidate it unless a artlicularvenactment so rovides. Eve erson is eni'ill'ed_ 'tovtso arrange his affairs as to avoid iaxal!'on= but the arrangement: should be real. and genigirie and not a sham or makebelieve. A ' 't-eiaxjaayer may resori to a device to divert the income before it accrues or arises to him.
Egffectiveness of the device depends not upon 23 considerations of morality. but on the ope>r'at.ioiv1V..of._' the In.come~tax Act. Coiourable devices canIiotjibe_l' . ' part of tax planning, A tax-saving rnott.vati'o__n does' not _justij'y the taxing a.ut'l1.orities._or' the comfts "i.-ii nullifjing or disregarding a Vt.axpag_er's:got'heritJise___ proper and bona flde choice 'arnong COI.l'_T:S.€S" of; . action. Legislative irijli.:tct'io_ri~i.ri. taxing s::qi;::_::és._jhay"' not, except on peril of pe_riaitg,;, be viotat_e_c_l, it rnag laugfuilg be'ciro.=,irn1ient'ea.~planning may be legitimate provided' it isioi'thin_lZttieframework of law. Their1't.entio:nWof'thc a taxation st'at"ut'e_is_ toybe gatrheifeelfronilthe"language of the provisionsparticzilarigsiuliereiltthe' language is plain and Act it is not possible to"A_ass_i1n1eVVarig;;.i intention or governing purpose of the statute VVrn_ore: t'ha"_n what is stated in the plain 5 'i<m.911ag€:» _ " "
In sofar as the observations ofJustice iC.h'i::in'appa}~Recldg.J., that time has come for us to it 'i«ctepai'VV't"I__,f'ror71 the Westminster /1936] AC 1 principle asi_eniphat'.i.cally as the British Courts have done and to dissociate ourselves jrom the observations Shah. J., and similar observations made elsewhere is answered by the Apex Court in the 24 case of Union of India «vs Azadi Bachcrgd-,j Andolan [AIR 2004 SC 1 107] as under para",1V'4V6"L*«._[:
and 154:
""146. With respect, il1er<,gf"Qre,_u'Lue unable to agree with il7u'e""view&t'i1«at:{ ljtlite of-:3 Westminster is dead, Ilia:-A.1'i1s been exorcised in.r'England, The Housve of Lords does not lhl'flVl'f._VS'O.i toe agree with respect'.VAiln iour view, the prineiple in Duke Of '.41/;l€::"stiri.iz1s.i'.evr :J;;';~g_ much alive and kicking in And as far this 'concemed, the .o.bseri5fa_t_ioras:Qf Shaft; J} in CIT u. Rarnan are today i appears to us that not tsj:-'he"vpri?ictple in Duke of Westminster alive"ar1d___!vcicking in England, but it" also sieevrns to have acquired judicial benediction COI1Slf[1.tliOT1C1l Bench in India, l'ixnotliuithstanding the temporary turbulence "'creat'ed in the wake Q/'McDowell. "
35. In the light: of the aforesaid "discussions and the obseri,:at.ions of the Apex Court 3% , 26 /;6\ The order of the Tribunal inipugned in roxtisioii petition is upheld and the orders of the other i_*-55.6' are set aside and the revision petition 1 Assessing Ofiicer is directed to reizido applying proviso to Section' .4_'E">[3]{lé{)._:lo.F accordingly. l _ &_ '. ll
7..*ini_Js ' V