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TMI Blog2003 (12) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... referred by the Revenue against the respondent companies for the relevant assessment years 1988-89 to 1991-92. The relevant facts necessary for disposal of these appeals are that the respondent-companies carry on business and follow the mercantile system of accounting and close their accounts on June 30 each year. The respondent-companies filed their returns and claimed deduction of lease rent paid in respect of the plant and machinery taken on lease, which had earlier been shown as sold in the previous years relevant to the assessment years. After the sale of plant and machinery, the assessee-companies took them back immediately on lease from the respective buyers for use in the business run by the company and they were being used as before. During the previous year, the assessee-companies paid lease rent for plant and machinery so taken back on lease and used by the companies for the purposes of their business during the relevant previous years. The company claimed lease rent paid as admissible deduction in respect of the plant and machinery taken on lease. The assessing authority disallowed the deduction to the company on the ground that the sale of the plant and machinery and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking delivery would suffice the requirement of taking delivery of goods for the paid price. The entire sale price was invested for capital gains in units of the Unit Trust of India and could be used later on by the company. The transactions of sale of plant and machinery and taking back on lease have not been disputed by the authority. The plant and machinery has been sold by the company to the lessor and thereafter leased back to the lessee but the lease payment was made from the yearly profit and not out of the capital realised from the sale of the plant and machinery. On the aforesaid findings, the appellate authority reached the conclusion that the transactions had not been effected as a colourable device, but were a genuine business arrangement entered into for the business purpose purely on business considerations. The first appellate authority allowed the deduction of the lease rent by the company. Aggrieved by the said order, the Revenue preferred appeals before the Income-tax Appellate Tribunal. The Appellate Tribunal has upheld the findings arrived at by the first appellate authority and held that the transactions entered into by the assessees were genuine and validly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 TC 490, similar view was expressed by Lord Tomlin, which runs thus: "Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax." In the case of McDowell and Ca. Ltd. v. CTO [1985] 154 ITR 148 (SC), O. Chinnappa Reddy J., while dismissing the observation of J.C. Shah J., in CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) based on, Westminster [1936] AC 1 (HL) and Fisher's Executars [1926] AC 395 (HL) said that: "We think that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah J., and similar observations made elsewhere." Chinnappa Reddy J., further stated that: "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or literally, nor whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical purposes, to secure that all of them were carried through to completion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax. The principle does not involve, in my opinion, that it is part of the judicial function to treat as nugatory any step whatever which a taxpayer may take with a view to the avoidance or mitigation of tax. It remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision such as section 460 of the Income and Corporation Taxes Act, 1970.'... Lord Oliver said: 'It is equally important to bear in mind what the case did not decide. It did not decide that a transaction entered into with the motive of minimising the subject's burden of tax is, for that reason, to be ignored or struck down. Lord Wilberforce was at pains to stress that the fact that the motive for a transaction may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary philosophical difficulties about the nature of reality and, in particular, about how a transaction can be said not to be a 'sham' and yet be 'disregarded' for the purpose of deciding what happened in 'the real world'. The point to hold on to is that something may be real for one purpose but not for another. When people speak of something being a 'real' something, they mean that it falls within some concept which they have in mind, by contrast with something else which might have been thought to do so, but does not. When an economist says that real incomes have fallen, he is not intending to contrast real incomes with imaginary incomes. The contrast is specifically between incomes which have been adjusted for inflation and those which have not. In order to know what he means by 'real', one must first identify the concept (inflation adjustment) by reference to which he is using the word. Thus in saying that the transactions in the Ramsay case were not sham transactions, one is accepting the juristic categorisation of the transactions as individual and discrete and saying that each of them involved no pretence. They were intended to do precisely what they purported to do. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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