9911796707
TMI Blog1980 (8) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... Land Development Trust Ltd. The two companies whose shares were sold had distributed the dividends of Auto Distributors Ltd. at the rate of 100% on March 27, 1956, for the year ending January 31, 1955, and on May 3, 1956, at the rate of 100% for the year ending January 31, 1956, and of Hindustan Housing and Land Development Trust Ltd., at the rate 23% on August 30, 1956, for the year ending on March 31, 1955, and at the rate of 3% on December 28, 1956, for the year ending March 31, 1956. On examining the transactions as a whole the ITO came to the conclusion that the provisions of s. 44F of the Indian I.T. Act, 1922, applied. The shares were sold to the trusts created for the benefit of minor children of the partners, wives and mothers of the partners and one charitable trust controlled by the family. The shares in question were sold just before the declaration of dividends knowing fully well that 200% dividend was going to be declared in the case of Auto Distributors Ltd. As the assessee was the agent of the company it was taken that the assessee had knowledge about the declaration of such dividends. The sales were made only at the face value which was much below the market v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons clearly showed that the avoidance was systematic. But, again, to clarify that, he had held earlier that there was no " avoidance of tax " in the true nature, and what actually resulted was only a reduction of tax liability. It was also found by him that it could not be established that there was such avoidance of tax in the earlier three years. The AAC, therefore, deleted the addition of Rs. 94,775. The department, thereafter, came in appeal to the Tribunal. According to the department, there was a clear reduction in the tax liability on the part of the assessee by transferring the shares in question and it was stated that this was manifestly an " avoidance of tax ". The submission on behalf of the department was that there was no need to consider all the other share transactions of the assessee and the case had to be decided on the basis of the particular instances which were considered by the ITO. According to the department, the decision in the case of CIT v. Sakarlal Balabhai [1968] 69 ITR 186 (SC) fully supported the department. In reply, the assessee reiterated the points which were taken before the AAC as the grounds of appeal. The Tribunal found as a fact that in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer by reference to all the circumstances in relation to the securities of any such person (including circumstances with respect to sales, purchases, dealings, contracts, arrangements, transfers or any other transactions relating to such securities) that such person has thereby avoided or would avoid more than ten per cent. of the amount of the income-tax or super-tax for any year which would have been payable in his case in respect of the income from those securities if the income had been deemed to accrue from day to day and had been apportioned accordingly, and the income so deemed to have been apportioned to him had been treated as part of his total income from all sources for the purposes of income-tax or super-tax, then those securities shall be deemed to be securities to which sub-section (3) applies. (3) For the purposes of assessment to income-tax or super-tax in the case of any such person, the income from any securities to which this subsection applies shall be deemed to accrue from day to day, and in the case of the sale or transfer of any such securities by or to him shall be deemed to have been received as and when it is deemed to have accrued: P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoidance of tax liability. Furthermore, the opening part of sub-section (2) also requires the Income-tax Officer to be satisfied as regards avoidance of tax by the assessee by reference to all the circumstances in relation to the securities of the assessee 'including the circumstances with respect to sales, purchases, dealings, contracts, arrangements, transfers or any other transactions 'relating to the securities. Now, all the circumstances in relation to the securities including the circumstances with respect to sales, purchases, dealings, contracts, arrangements, transfers or any other transactions would be material only if what is required to be judged is the purpose of the assessee in entering into the transactions. They would have no bearing if what is required to be found is merely whether there is actual saving or escapement of tax liability. Whether there is actual saving or escapement of tax liability would be a matter of mere mathematical calculation. But in order to determine whether the transactions are entered into by the assessee for the purpose of achieving such saving or escapement of tax liability the circumstances relating to the transactions would be very mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged with avoidance of tax liability. The avoidance of tax liability must be deliberate act. The purpose or intention of the assessee must be, as if, the avoidance of tax liability. The transaction in order to attract s. 44F must be mala fide or, in other words, must be a concerted action directed to the end of avoidance of liability for tax. Thus, in order to attract the provisions of this section, there must be some device on the part of the assessee to avoid payment of tax on his real and true income. So, if the transaction is bona fide or, in other words, entered into for the purpose of meeting the liability, the question of avoidance of tax would not arise at all. Thus, if the transactions are the result of ordinary business or familiar dealings without any intention to avoid tax, then the provisions of s. 44F would not be attracted. Mr. Balai Pal, learned advocate for the revenue, argues with reference to the transfer of the shares in the present case that this was a clear case of reduction in tax liability on the part of the assessee by transferring the shares in question mala fide immediately before the declaration of dividend with the definite purpose of avoidance of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty, be violated, but it my lawfully be circumvented. " Exactly such view was also expressed by the Supreme Court in the case of CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8. At page 13 of the report, their Lordships observed as follows: " It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. " Thus, it would follow that it is within the competence of an assessee to arrange his affairs or matters in such a way that there might be reduction in his tax liability. It is only to be seen whether the intention of the transfer is mala fide or bona fide. If the transfer is made with a particular artifice or device for avoidance of tax, the provision of s. 44F would surely be attracted. But if the assessee arranges its affairs in such a manner as to reduce its tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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