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Issues involved: Interpretation of a deed of release, transfer of property within a Hindu undivided family to a company, tax evasion through legal documents.
Summary: The High Court of GAUHATI considered a reference u/s 256(2) of the Income-tax Act, 1961 regarding the legality of a deed of release transferring property from a Hindu undivided family to an assessee-company. The facts revealed that the transfer was challenged by a widow after the death of the karta of the family. The Tribunal held that the release deed was a means of tax evasion and not based on lawful authority. The Court analyzed the legal principles established by the Supreme Court in various cases regarding the power to disregard transactions used for tax evasion or to circumvent tax obligations. It was emphasized that the true nature of a transaction should be determined by the taxing authorities, especially if there is an attempt to conceal the legal relationship. Examining the specific case, the Court noted that the properties were transferred to the company by the karta for a consideration, and the shareholders were also members of the Hindu undivided family. Despite attempts to transfer possession back to the family, the Court found that the release deed did not clearly indicate valuable consideration and did not operate as a conveyance. Ultimately, the Court concluded that the deed of release was not lawful for tax purposes, leading to a decision in favor of the Revenue. The judgment will be communicated to the Appellate Tribunal for further action.
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