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TMI Blog1991 (3) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessing officer found as a fact that, the shares of Modi Spg. & Weaving Mills Ltd. had not realized any dividend, while the shares of Modi Rubber Ltd. did yield some dividend and the quantum of dividend received by the assessee was Rs. 3,198. 3. The assessing officer was of the opinion that, the sole purpose of floating the investment company was to evade tax by the individuals because, the investment company would be entitled to claim the deduction under section 80M, which could not have been claimed by the assessee. Since the investment company was also held by the relatives of the assessee, the corporate entity was used by the for perpetuating the tax avoidance. The shares of the investment company also being held by the relatives, the dividend by a circuitous method remained with the assessee in one way or the other. He then co-related the loss claimed in the earlier asst. year 1983-84 as a manner of careful planning of getting away from the payment of tax arising from the sale of long term assets. The assessing officer then related the facts of the assessee with the case of Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his was felt as an effort made in the direction of avoidance of tax. He pleaded that, no doubt the net effect was reduction in taxes but, what is provided by the Act, which only was claimed by the assessee, the administrator could not deny the same to the assessee by giving it an image of a scheme to avoid taxes. He further contended that, the investment company had held shares of other companies as well in addition to the shares of Modi group of companies. He pleaded that, it is true that the assessee who is an individual cannot claim any deduction under section 80M but that benefit which would be available to the company consequent to it having purchased the shares was not something that was conferred upon it by the appellant but by the Act itself. He contended that, if consequent to some transaction a company becomes entitled to some benefit under the Income-tax Act, as provided by the Act, merely because the transferor could not claim such a benefit could not be a criteria for holding the transaction to be a colourable one. He pleaded that, if this was the basis for consideration and evaluation of every transaction, especially if it involves two relatives, then, almost every tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ; (d) the shares of that company were held by the family members and relatives of the assessee ; (e) the shares of Modi Spg. & Weaving Mills Ltd. which were held by the assessee did not yield any dividend for the last few years ; (f) these shares were sold in the immediately preceding asst. year at the prevailing market prices to the investment company, the assessee suffering a long term capital loss of Rs. 45,000 and the revenue did not go into the question whether the said transaction was colourable one in that asst. year, because, there was no effect on the total income and the resultant tax thereon ; and (g) since in the asst. year under appeal, the assessee had sold 1599 shares of Modi Rubber Ltd. (on which it was getting a dividend of Rs. 2 per share) to the investment company at the prevailing market price and had a capital gain of Rs. 23,185 which was claimed to be set off against the brought forward capital loss of Rs. 49,500, the resultant effect being non-realization of taxes on the capital gains, the revenue had proceeded to examine the transaction as to whether it was a colourable one or not. 7.2 The revenue would not have objected to the said transactions had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to deduction under section 80M, which was not available to the assessee, thus, the company would also not be paying any tax on the dividend earned on those shares. On this feature, the assessee could not be said to have any control whatsoever, because, it is so conferred upon the company by the Statute. Can the assessee be said to possess best of both the words, i.e., show or exhibit something as sold, claim the loss to be set off and at the same time still own it as well ? The answer is an emphatic no. The assessee can exhibit something as sold only when the transaction tantamount to a sale and to this extent, in the instant case, there is no dispute by the revenue at all. The assessee no longer remains to own the shares is a resultant effect of the said sale. There is no dispute about the principle laid down by the Supreme Court in Durga Prasad More's case, as to the right of examination by the revenue to evaluate the reality of a transaction and in the event of the transaction revealing a planned scheme to defeat the provisions of law, the transaction can never have the sanction of any court. For applying this ratio, it is very necessary to enlist out from the facts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action would be acceptable, had the assessee not claimed any set off of the brought forward loss, since it would have realised taxes, clearly indicates that, the revenue had not the foresight that, this would ultimately wipe out the assessee himself, because combined with the reduction in his capital, if he is made to pay taxes, this would reduce further his capital, finally eroding to it to nil, which was never the intention of the Legislature. No country can survive or grow if it kills the growth of individuals or other persons. Therefore, the very philosophy of approach by the revenue that any transaction which results in the lowering of the realizable taxes is fraudulent one on the revenue needs a drastic reappraisal. The ratio laid down by the Supreme Court in McDowell & Co. Ltd.'s case would apply to a situation, where the statute normally makes the manufacturer liable for excise duty, which was not so paid by him but by the purchaser and if the interpretation of the statute gives rise to any ambiguity as to who is liable. In the instant case, the transferor has not diverted what was liable on him in favour of the transferee and there is no ambiguity occurring in the interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period mentioned in the trust deeds and reference was made to the observation of the apex court in McDowell & Co. Ltd.'s case . The Supreme Court observed that, "It is apparent that the assessee was entitled only to the minimum prescribed in each of the deeds of settlement. Whether or not he received any further amount out of the income of the trust fund was left entirely to the discretion of the trustees. There was no right in the assessee to any portion of the net income in excess of the minimum guaranteed to him. It is the minimum alone which he could claim as his property. So also, on the distribution of the accumulated balance as capital at the end of the stipulated period, there was no right to him to receive any part thereof. It was open to the trustees to ignore him altogether and they could pay it to such other members of the family as they chose". They had also considered the term 'property' and found that it did not extend beyond the interest to receive the minimum. In the instant case, the appellant was entitled to receive the consideration of the sale from the transferee, which he had and in turn, he had conferred the title to the goods upon the transferee. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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