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TMI Blog2004 (5) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeded the said sum of Rs. 4 lakhs. Assessing Officer noticed that assessee company had never done any advertisement business previously. He also observed that two companies were under the same management and the agreement was only an arrangement to save taxes because Kasyap Publications Pvt. Ltd. had no taxable income. He also observed that past revenues did not justify the consideration of Rs. 4 lakhs to be paid p.m. This addition was deleted by ld. CIT(A) by holding that assessee company had genuinely entered into an agreement and carried on the business of advertisement and principle of McDowell's case could not be applied. CIT(A) referred to the decision of Supreme Court in CWT v. Arvind Narottam [1988] 173 ITR 479 (SC), where it was held that as long as true effect on the construction of deed is clear the question of tax avoidance is not a relevant consideration. 16. Before us, ld. DR referred to the contents of assessment order and submitted that Kasyap Publications Pvt. Ltd. was a sister concern. He contended that on investigation Assessing Officer has clearly found that in this assessment year and next two assessment years, assessee had to incur losses on account of mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of agreement entered into by the Co. with Kasyap Publications Pvt. Ltd. He referred to various terms and conditions and submitted that assessee company had a very valuable right to share the advertisement revenue in excess of Rs. 4 lakhs against which a minimum guarantee of Rs. 4 lakhs was provided by the Co. He then referred to pages 78 to 83 which are copies of affidavits of various employees who were working with the Co. and were directly looking after the work of procurement of advertisement. He then referred to page 84 which is copy of the visiting cards of various employees. Then he referred to pages 85 to 97 which are copies of appointment letters of employees and other correspondence in respect of booking of advertisement which clearly shows that assessee company was actually booking advertisements. Then he referred to pages 98 to 104 which are copies of certificates given by various Cos., which clearly shows that advertisements were booked by the employees of the assessee company on behalf of Kasyap Publications Pvt. Ltd. All these evidences clearly show that assessee had expanded into advertisement business and was trying to generate more revenues. He particularly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urer company had contended that sales-tax was payable on the contractual sale price which did not include excise because same was paid directly by the customers as per the Excise Rules and they were issued distillery passes for release of liquor. Thus, the basic question before Hon'ble Supreme Court was whether Co. could legitimately reduce its sales-tax liability in this manner. The Court had in the earlier round decided this issue in favour of the manufacturer Co. but later on Excise Rules were amended and it was held that excise duty which was payable by the appellant but by amicable arrangement was being paid by the buyer was actually a part of the turnover of the appellant and was therefore liable to be so included for determination of liability for sales-tax. In this case itself, his lordship Hon'ble Justice Chinnappa Reddy had made observations regarding tax avoidance devices which were called colourable devices. It was observed that tax avoidance through such colourable device should not be encouraged by the Courts. It was further observed that it was neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first WIL had to pay the arrears of interest to the pension scheme trustees and for this WIL had no funds and was not in a position to even borrow from outsiders. The trustees of pension scheme, to whom WIL was indebted, paid money round in a circle in three instalments and WIL used this money in paying the outstanding arrears of interest to the trustees, after deducting the tax at source for which it accounted to Inland Revenue; and the trustees, as trustees of a tax exempt superannuation scheme, reclaimed this tax from the Inland Revenue. Now the question before House of Lords was whether payments of interest for the purpose of section 338 of Income and Corporation Tax Act, 1988 was valid. The Special Commissioner decided that the interest had been paid within the meaning of section 338 and was deductible and this decision was reversed by the Judge. The Court of Appeal allowed W. Limited's appeal. On further appeal, House of Lords held dismissing the appeal, that statutory construction involved ascertaining what Parliament had meant by using the language of the statute, and all other principles of construction were no more than guides to assist in that task; that the first step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiscal purposes. 'Further, as I have sought to explain, the Ramsay case did not introduce a new legal principle. It would be wrong, therefore, to set bounds to the circumstances in which the Ramsay approach may be appropriate and helpful. The need to consider a document or transaction in its proper context, and the need to adopt a purposive approach when construing taxation legislation, are principles of general application. Where this leads depends upon the particular set of facts and the particular statute.' As is well known, the Ramsay case (1982) AC 300 was concerned with a tax avoidance scheme designed to manufacture a capital loss to set off against a capital gain. The question before the House was whether a transaction by which the taxpayer company acquired certain shares for Rs. 1,85,034 and almost immediately sold them for Rs. 9,387 gave rise to a 'loss accruing on a disposal of an asset' within the meaning of section 23(1) of the Finance Act, 1965. Both the acquisition and sale of the shares formed part of a pre-planned series of transactions by which the alleged loss was exactly balanced by a gain which was alleged to fall within an exemption from the charge. The ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies by the Dawsons to Wood Bastow. It did not in Ramsay. Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax not 'no business effect'. If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statute sought to be applied." "My Lords, this statement is a careful and accurate summary of the effect which the Ramsay construction of a statutory concept has upon the way the courts will decide whether a transaction falls within that concept or not. If the statutory language is construed as referring to a commercial concept, then it follows that steps which have no commercial purpose but which have been artificially inserted for tax purposes into a composite transaction will not affect the answer to the statutory question. When Lord Brightman said that the inserted steps are to be 'disregarded for fiscal purposes', I think that he meant that they should be disregarded for the purpose of applying the relevant fiscal concept. In the Furniss case, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planning is illegitimate and must be ignored, or that every transaction or arrangement which is a perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour.' It is further observed at page 760, 'it thus appears to us that not only is the principle in Duke of Westminster's case [1936] AC 1 (HL); 19 TC 490 alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell's case [1985] 154 ITR 148 (SC).' While commenting on the words 'sham' and 'device' it was observed that 'these words are not intended to be used as magic mantras or catch all phrases to defeat or nullify the effect of a legal situation and following para of Lord Atkin from Duke of Westminster's case was reproduced. 'I do not use the word device in any sinister sense for it has to be recognized that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. The only function of a court of law is to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om non-Government parties for the Kasyap Publications Pvt. Ltd. Though it guaranteed a minimum sum of Rs. 4 lakhs P.M. but at the same time it was entitled to share 50% of non-Government advertisements revenue in excess of this Rs. 4 lakhs. We further find that advertisements revenue of Kasyap Publications Pvt. Ltd. for the month of Oct. 1992 from non-Government parties was Rs. 4,06,686 and that was the basis for entering into the agreement with the expectations that revenue would increase further. Here it is pertinent to note that we do not find any merit in the contention of ld. D.R. that all this information was not brought to the notice of Assessing Officer. We find from the first appellate authority's order that Shri S.K. Singh, Dy. Commissioner (Assessment) was present before the CIT(A) which clearly shows that he was aware of the facts and we also find from the order of CIT(A) that he has made various contentions also during the appeal proceedings. Further from the details of business procured during the year, we find that advertisement revenue from non-Government companies increased from Rs. 1,39,996 in Nov., 1992 to Rs. 3,09,263 in March, 1993 which means revenue was incre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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