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2021 (3) TMI 599 - HC - Income TaxTax evasion in the guise of tax planning - Colourable Devise - arrangement to avoid payment of taxes on account of correct quantum of capital gain that would result on transfer of shares of NCCPL to GBFL was permitted and within the framework of law - Allegation of Transfer of shares to Godrej Group as part of sale of business of the Nutrine Group to Godgrej Group, routed through a series of transactions including the reconstitution of the defunt firm M/s. B.V. Reddy enterprises to accommodate the shareholders of M/s. Nutrine confectionery Co. P. Ltd HELD THAT - The Supreme Court in AZADI BACHAO ANDOLAN supra held that an act which is otherwise valid in law cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest. The aforesaid view has quoted with approval in WALFORT SHARE AND STOCK BROKERS P. LTD supra . - As long as arrangement of the assessee to avoid payment of tax do not contravene any statutory provision and the same is within four corners of law it cannot be found fault with. There were two ways in which the shares of NCCPL held by 13 partners of BVRE to be transferred to Godrej Beverages and Foods Ltd., firstly, that 13 partners in their individual capacity could transfer the shares to NCCPL held by them to Godrej Beverages and Foods Ltd. at a price the shares were ultimately sold to Godrej Beverages and Foods Ltd. through NCSPL and secondly, the manner in which the assesses have transferred the shares through medium of the firm BVRE. The later course would definitely result in lesser tax burden to the assessee but the aforesaid course is permissible in law. It is pertinent to note that there was a lacuna in law which has been addressed by Finance Act, 2012 by introducing clause (xiii) to sub clause(e) of Section 49(1) with effect from 01.04.1999. Before the aforesaid amendment, the assessment was complete. It is also pertinent to mention that during the previous year relevant to Assessment Year 2007-08, there is no transfer of shares by the assessee (individual /HUF) in favour of Godrej Beverages and Foods Ltd. The tribunal on the basis of meticulous appreciation of evidence on record has recorded a conclusion in favour of the assessee. The substantial questions of law answered against the revenue and in favour of the assessee.
Issues Involved:
1. Recognition of a colorable device for tax evasion. 2. Validity of the series of transactions involving the transfer of shares. 3. Legitimacy of the arrangement to avoid payment of taxes. 4. Validity of the transactions under the framework of law. 5. Addition on account of non-existent liability. Detailed Analysis: 1. Recognition of a Colorable Device for Tax Evasion: The revenue contended that the Tribunal failed to recognize the colorable device employed by the assessee, resulting in massive tax evasion under the guise of tax planning. The Tribunal, however, held that the transactions were within the framework of law and permissible. The Supreme Court's decision in AZADI BACHAO ANDOLAN was cited, which stated that an act valid in law cannot be treated as non est merely due to some underlying motive. The Tribunal's decision was upheld, confirming that the transactions did not violate any statutory provisions. 2. Validity of the Series of Transactions: The revenue argued that the shares were ultimately transferred to Godrej Group through a series of transactions, including the reconstitution of a defunct firm, to avoid actual capital gains tax. The Tribunal found that the firm BVRE was genuine and legally existing, and the transfer of shares was valid. The Tribunal's finding that the firm BVRE was not defunct and the transfer of shares was genuine was upheld, as it was based on proper appreciation of evidence. 3. Legitimacy of the Arrangement to Avoid Payment of Taxes: The Tribunal held that the arrangement to transfer shares through BVRE was within the framework of law and permissible. The Tribunal's finding was based on the fact that the transfer of shares did not disclose any violation of the law and was a legitimate tax planning method. The Supreme Court's decision in AZADI BACHAO ANDOLAN supported the view that tax planning within the law is permissible. 4. Validity of the Transactions Under the Framework of Law: The Tribunal concluded that the transactions were not colorable or dubious devices but were legal and valid. The Tribunal's finding was based on the fact that the firm BVRE was genuine, and the transfer of shares was valid. The Tribunal's decision was upheld, confirming that the transactions were within the framework of law and not colorable devices. 5. Addition on Account of Non-Existent Liability: The Tribunal held that the Assessing Officer did not invoke any specific provision of law for the addition of ?1,77,778/-. The Commissioner of Income Tax (Appeals) had sustained the addition under Section 41(1) of the Act. The Tribunal found no evidence of benefit to the assessee by way of remission or cessation of liability, and therefore, the addition under Section 41(1) could not be made on assumptions and presumptions. The Tribunal's finding was upheld, and the addition was deleted. Conclusion: The appeal was dismissed, and all substantial questions of law were answered against the revenue and in favor of the assessee. The Tribunal's findings on the legitimacy and validity of the transactions, as well as the non-existence of liability, were upheld.
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