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TMI Blog2007 (2) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... me group of individuals, as directors in the assessee-company and in other capacities, managing the lessees would leave no room for doubt that the transactions are blatantly geared to evade the tax liability. It would be extremely naive to accept the transactions as commercially accepted transactions. The same cannot be considered as being a tidy management of affairs in accordance with law. The assessee and the lessees are on the other hand, cocking a snook at the law. Though it remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one which will result in liability to tax and the other which will not, is at liberty to choose the latter. The transaction in the case on hand is not an alternative chosen by the assessee but a mechanism devised to enable a non-tax paying entity to acquire an asset and also to claim depreciation on it. It cannot be said that the transactions are entered into with the effect of minimising the subject's burden of tax, but only in order to facilitate the benefit as aforesaid. The finding that the assessee is not entitled to claim depreciation on the assets is not on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's income. The same having been challenged unsuccessfully before the first appellate authority and in further appeal before the Income-tax Appellate Tribunal, the assessee is before this court. 6. In I. T. A. No. 345 of 2001, the Revenue is before this court challenging the order of the Appellate Tribunal, pertaining to the very assessee, who is the appellant in I. T. A. No. 101 of 2000. 7. In respect of identical transactions entered into during the assessment year 1995-96, the Assessing Officer had denied the claim for depreciation as had been done for the earlier assessment year. This was confirmed in an appeal preferred by the appellant. However, in a further appeal before the Appellate Tribunal, the Tribunal remanded the matter to the first appellate authority as the first appellate authority had merely applied the view expressed for the assessment year 1994-95. This is under challenge by the Revenue. 8. Hence, the substantial question of law arising for consideration in these two appeals is : Whether, the assessee is entitled to depreciation upon assets owned by it and leased in favour of educational institutions which had made interest earning deposits with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 in some detail as to what it says, and what it does not say . 13. While pointing out that though Chinnappa Reddy J., dismissed the observation of J. C. Shah J., in CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC), based on IRC v. Duke of Westminster [1936] AC 1 (HL), which reflected the prevalent attitude towards tax avoidance (page 152) ( 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 tax gatherers may be of his ingenuity, he cannot be compelled to pay an increased tax ) by saying (page 160) : We think that the time has come for us to depart from the West minster principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah J. and similar observations made elsewhere. 14. The court observes that the rest of the judges of the Constitutional Bench did not share this view, as is evident from the majority view which is as follows (page 171) : Tax planning may be legitimate provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. 18. The Supreme Court has concluded thus (page 762) : If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp. The judgment of the Privy Council in Bank of Chettinad's case [1940] 8 ITR 522, wholeheartedly approving the dicta in the passage from the opinion of Lord Russel in Westminster's case [1936] AC 1 (HL) ; [1935] 19 TC 490, was the law in this country when the Constitution came into force. This was the law in force then, which continued by reason of article 372. Unless abrogated by an Act of Parliament, or by a clear pronouncemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive on the part of the assessee to claim any semblance of genuineness to the transaction except the seemingly candid documentation. The incidental term as regards refund of security deposit at the end of the lease period, did not materially affect the true character of the transaction. It was to be seen that many of the lease agreements are renewed and therefore, the lessee does not get back the security deposit. Counsel would submit that the scheme of the transaction is designed to pass on the depreciation claim from a non-taxable entity to a taxable entity without the taxable entity having to pay the price for it. Hence, the depreciation claim was rightly disallowed. 21. Shri Seshachala also advances an argument that from a reading of section 32(1)(ii) depreciation in respect of tangible assets shall be allowed at such percentage on the written down value for which purpose written down value shall have the same meaning as explained under clause (1) of section 43, which reads as follows : 43. (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geared to evade the tax liability. It would be extremely naive to accept the transactions as commercially accepted transactions. The same cannot be considered as being a tidy management of affairs in accordance with law. The assessee and the lessees are on the other hand, cocking a snook at the law. Though it remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one which will result in liability to tax and the other which will not, is at liberty to choose the latter. The transaction in the case on hand is not an alternative chosen by the assessee but a mechanism devised to enable a non-tax paying entity to acquire an asset and also to claim depreciation on it. It cannot be said that the transactions are entered into with the effect of minimising the subject's burden of tax, but only in order to facilitate the benefit as aforesaid. 27. It does not require a vivid imagination to discern the obvious in these transactions there is no warrant to give chase to a will-o'-the-wisp. 28. The finding that the assessee is not entitled to claim depreciation on the assets is not on the basis of the underlying ..... X X X X Extracts X X X X X X X X Extracts X X X X
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