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TMI Blog2010 (3) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... n for tax. Held that: Hon’ble the Supreme Court in the matter of Apollo Tyres Ltd. [2008 -TMI - 6081 - SUPREME Court] specifically rejected the contention of the revenue that Explanation to Section 73 of the Act, ( which makes the business of purchase and sale of shares as business of speculation) was applicable to the transaction of a sale and purchase of units. – Sale and purchase of US-64 units not to be treated as speculative loss – eligible for set off – decided in favor of assessee. On the issue of tax planning versus tax evasion versus tax avoidence, held that: once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification. Hon’ble the Supreme Court in the concluding paras of its judgment in Azadi Bachao Andolan (2008 -TMI - 6130 - SUPREME Court) has rejected the submission that an act, which is otherwise valid in law, cannot be treated as nonest merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the revenue. The aforesaid view looks to be the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced. The assessee-appellant is a Public Limited Company incorporated under the Companies Act, 1956. It is a subsidiary of Porritts Spencer Ltd. U.K. and is engaged in manufacturing of engineered fabrics and industrial textiles. The registered as well as corporate office of the assessee-appellant is at Faridabad where it has its factory also. At all material times the assessee-appellant have been carrying on the business of manufacturing and selling machine clothing for different applications to a diverse range of industries in India and abroad. 3. For the Assessment Year 1991-92, the assessee-appellant filed its return of income on 30.12.1991 declaring an income of Rs. 2,93,17,260/-. It was accompanied with computations, mandatory audit reports under Section 44AB of the Act, Annual Report containing Profit and Loss Account, Balance Sheet and other relevant documents. It is appropriate to mention that on 21.5.1990 the assessee-appellant had purchased 25 lacs units of 'US'64' of Unit Trust of India (UTI) at the then prevalent market rate of Rs. 15/- per unit, for a total consideration of Rs. 3,75,00,000/- from ANZ Grindlays Bank, New Delhi. The units were purchased on credit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or it under Section 80M of the Act, which was calculated after deducting from the total dividend the alleged interest of Rs. 9,86,300/- for the loan for purchasing them. A copy of the assessment order is on record (Annexure 'B'). 6. On appeal before the CIT (A) Faridabad, the assessee-appellant challenged various additions and disallowances made by the Assessing Officer. The appeal was partially allowed by the CIT (A), vide order dated 31.1.1997 (Annexure 'C'). The CIT (A) upheld the view of the Assessing Officer opining that the transaction concerning unit 'US-64' was speculative in nature. He affirmed the finding of the Assessing Officer declining set-off of the aforesaid short term capital loss. 7. The order of the CIT (A) was challenged by both the assesseeappellant as well as the revenue-respondent. Both the appeals were decided by consolidated impugned order dated 3.6.2003 (Annexure 'A'). Both the appeals were partially allowed. The Tribunal held that the transactions with regard to purchase and sale of unit 'US-64' with the ANZ Grindlays Bank, New Delhi, were genuine and that the loss incurred by the assesseeappellant on these transaction was loss of speculation business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered on 21st May, 1990, as the same was entered on 21st July, the day when the units were sold by the assessee to the bank. This also clearly proves that there was a clear understanding between the banker and the assessee that the units will be sold after 60 days. Though the units were transferred in the name of assessee and then in the name of bank, but there is no material on record which suggests that physical delivery of the units in question were handed over to the assessee or not, as it seems that the physical possession was with ANZ, to secure the sum of Rs. 3.75 crore invested on behalf of assessee against sale of units to the assessee." (Italics added). 8. Mr. Santosh Aggarwal, learned counsel for the assesseeappellant has argued that buying and selling of units by the assesseeappellant could not be treated as speculative business and Explanation to Section 73 of the Act would not apply. Accordingly, the loss in buying and selling of units of the UTI has to be regarded as business loss and not speculation loss, which could be disallowed by the revenue. It is submitted that the proposition would not be affected by virtue of Section 32(3) of the Unit Trust of India Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a Division Bench judgment of this Court rendered in the case of Commissioner of Gift Tax v. Satya Nand Munjal, [2002] 256 ITR 516 (P H). Placing reliance on the paras under Question No. 2, Mr. Aggarwal has argued that if on account of lacunae in the law or otherwise, the assessee-appellant becomes entitled to avoid payment of tax then it cannot be said that such a transaction would be void merely because it was intended to save the payment of tax. Accordingly, it has been submitted that as long as the law existed before the amendment in Section 94(7) of the Act, the assessee-appellant was entitled to tax advantage despite the fact that a prudent businessman may not invest in a transaction to earn losses. Mr. Aggarwal has also placed reliance on the view taken by a Division Bench of Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. v. Commissioner of Income Tax, [2004] 268 ITR 130 (Orissa), and argued that a transaction, which is otherwise valid in law, cannot be treated as nonest merely on the basis of some underlying motive, supposedly resulting in some economic detriment or prejudice to the revenue. Therefore, Mr. Aggarwal has urged that it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Tribunal in respect of the transactions in question and argued that because the assessee-appellant was fully aware about the loss on account of sale in the month of July 1990, which, in fact, resulted into avoidance of the tax payment. Referring to the observations made in the extracted para 20.6 (supra), Ms. Dhugga has submitted that such a tax planning cannot be approved as it is aimed at prejudicing the tax effect, which is impermissible in the eyes of law. She has also highlighted that no banking company would pass the entry after 60 days from the date of actual transaction. She has pointed out that the transaction was entered into on 21.5.1990 whereas the entry was made on 21.7.1990. Accordingly, she has submitted that it is not arms length transaction but appears to be collusive transaction between the assessee-appellant and the banking company on a clear understanding that the units were to be sold after 60 days. According to her, even the physical delivery of the units was not ever handed over to the assesseeappellant, which remained in the custody of the ANZ Grindlays Bank, New Delhi, so as to secure Rs. 3,75,00,000/- invested by the assessee-appellant. She has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtracted para 20.6. The Tribunal, however, went on to hold that the transactions were entered bona fide. The basis of the aforesaid conclusion reached by the Tribunal is that the assessee-appellant was aware that the prices of the units were high in the month of May and lowest in the month of July and even then the assesseeappellant entered the transaction. The Tribunal has further recorded a finding that there was a planning to purchase the shares and then to sell the same after 60 days, which was with a obvaious motive. The assesseeappellant was aware that dividends on the units were to be declared in the month of June, which happened and accordingly the assessee-appellant claimed deduction under Section 80-M of the Act. The assessee-appellant was also aware that there would be loss on account of sale of the units in the month of July, which accordingly occurred. The assessee-appellant claimed set off of amounting to Rs. 51,61,875/- against its business income. 14. The question which falls for consideration is whether to apply the principle laid down by Hon'ble the Supreme Court in the case of McDowell Co. Ltd. (supra), wherein it was held that the judgment of House of Lords ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). After quoting the speeches of Lord Keith of Kinkel and Lord Oliver, Hon'ble the Supreme Court proceeded to conclude that even in the year 1988, the House of Lords emphasised the continued validity and application of the principle in Duke of Westminster's case (supra). Accordingly, the principle laid down in Duke of Westminster's case (supra) was reiterated. The observations of Hon'ble the Supreme Court in that regard reads as under:- " With respect, therefore, we are unable to agree with the view that Duke of Westminster's case [1936] AC 1 (HL); 19 TC 490 is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, and we agree, with respect. In our view, the principle in Duke of Westminster's case [1936] AC 1 (HL); 19 TC 490 is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah, J. in CIT v. Raman [1968] 67 ITR 11 (SC) are very mcuh relevant even today. We may in this connection usefully refer to the judgment of the Madras High Court in M.V. Vallipappan v. ITO, [1988] 170 ITR 238, which has rightly concluded that the decision in McDowell [1985] 154 ITR 148 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the revenue. The aforesaid view looks to be the correct view. It has ready support from the Division Bench judgment of this Court rendered in the case of Satya Nand Munjal (supra) and the Division Bench judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. (supra) and various other judgments of Delhi and Madras High Courts (supra). 20. When the principles laid down in the case of Azadi Bachao Andolan (supra) are applied to the facts of the present case it becomes evident that the question is liable to be answered in favour of the assesseeappellant and against the revenue-respondent. In the present case, the transaction concerning purchase of units has been held to be genuine by the Tribunal. It is also evident that the basic object of purchasing the units by the assessee-appellant was to earn dividends, which are tax free under Section 80-M of the Act and to sell the units by suffering losses. Thus, it cannot be concluded by any stretch of imagination that the assessee-appellant used any colourable devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. State of Punjab, AIR 1985 SC 218. Accordingly, the Full Bench held that the later judgments although by smaller Benches, which have analysed and explained the Constitution Bench were binding. Accordingly, we take it as well settled that if a smaller Bench has lateron explained the judgment of a larger Bench of Hon'ble the Supreme Court then the later is binding. Examined in the aforesaid perspective, the view expressed by Hon'ble the Supreme Court in the case of Azadi Bachao Andolan (supra), has to be accepted as binding. Therefore, it cannot be said that the principle of law laid down by the House of Lords in Duke of Westminster's case (supra), as followed, explained and applied in the case of Azadi Bachao Andolan (supra), is no longer applicable. The principle is found applicable in its native country and cannot be deemed to have been abandoned. Moreover, no such principles having been laid down in the case of McDowell Co. Ltd. (supra) by the majority judgment, it is not possible to accept the argument advanced by the revenue-respondent. Accordingly, the second question is also answered against the revenue-respondent and in favour of the assessee-appellant. 22. As a se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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