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33. Without prejudice to our findings as above, we may examine the merits of the substantive additions in the hands of the assessee-HUFs, proceeding on the basis that the cash deposits have been made out of concealed income of the group Companies received/earned by under-invoicing of sales and inflation of expenses etc. Even if this version strongly pleaded and argued by Shri Soparkar is to be accepted, we are of the view that the income has to be assessed substantively in the hands of the HUFs in the light of realities and actualities of the situation hereunder the assessee HUFs have received the income by utilizing instrumentality of corporate entity as mere puppets. The facts are undisputed that the group Companies are under the direct control and management of Vachhani Brothers who have total control over the Board of Management as well as General Body Meeting of Shareholders. Under a systematic plan and well organized arrangement the income generated through instrumentality of the corporate entities of the Group have been sliced away by the HUFs. It is an established proposition increasingly accepted in the Anglo Saxon jurisprudence as well as in America and other countries that the Court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation. Various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have been spelt out by various judicial authorities as well as eminent jurists from time to time and the ghost of Salomon v. Salomon & Co. Ltd. 1897 AC 22 has since been laid to rest. While it is not necessary for us to enumerate all cases where the corporate veil can be penetrated, one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Principles of Modern Companies Law Edition 1979 at page 137]: Pennington's Company Law,5th Edition 1985, at page 53, also states that:

When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons.

The various decisions of the Hon'ble Apex Court as well as High Courts cited by Shri K.C. Patel, the learned Counsel for Western India Ceramics P. Ltd., upheld the doctrine of lifting of the corporate veil particularly if it is used for violation of tax legislation or welfare legislation. Few such decisions may be considered at this stage.

34. In Shri Meenakshi Mills Ltd. 's case (supra) it has been held that the reality of the transaction would have to be seen keeping in view if the entire transactions formed part of an arrangement or scheme to circumvent tax obligations.

35. In Juggilal Kamlapat's case (supra) it has been held that the Income-tax authorities were entitled to pierce the veil of corporate personality and look at the reality of the transaction. The Court further observed that it was true that from the juristic point of view the company was a legal personality entirely distinct from its members. But in certain exceptional cases, the Court was entitled to pierce veil of corporate entity and pay regard to the economic realities behind the legal facade. The Court further observed that the judicial authorities have power to disregard the corporate entity if it was used for tax evasion or to circumvent tax obligations or to perpetrate fraud.

41.1 The learned Counsel has next argued that the concept of lifting the corporate veil runs contrary to Section 88 of the Indian Trust Act,1882. We are not inclined to accept the contention. The principle of lifting of corporate veil, as we have already discussed above, has been increasingly accepted in legal jurisprudence of various countries of the world and it does not in any manner runs contrary to the Indian Trust Act. Section 88 of the Indian Trust Act pre-supposes; i pecuniary advantage gained by a Director in his fiduciary capacity. In such circumstances Section 38 of the Indian Trust Act enjoins upon him to hold such advantage for the benefit of the company. The provisions would obviously not be applicable when the Directors of the Company carry out the transactions under a well planned arrangement to circumvent legislation or to perpetrate fraud. In such circumstances there is absolutely no occasion for invoking the provisions of Section 88 of the Indian Trust Act. In the instant case Vachhani Brothers have in fact operated common pre-conceived and collective arrangement endorsed and approved by the Kartas of the HUFs who are Directors and having control of Board of Directors as well as General Body of Shareholders who are key organs of the company. In such circumstances when the corporate veil is lifted, the very applicability of Section 88 of the Indian Trust Act becomes redundant. The gains arising to the Directors under such circumstances would not be governed by Section 88 of the Indian Trust Act. The contentions of the learned Counsel therefore are rejected.