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TMI Blog2024 (6) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner? HELD THAT:- It is worth taking note of the fact that here is a situation where the special provision of law was already there in the Act when the general provision of law has been subsequently enacted by way of an amendment. Normally it is the vice-versa, i.e., where the general provision of law already being in force, the special provision of law is subsequently enacted. What next to be appreciated is the fact that chapter X-A begins with a non-obstante clause, where in Section 95(1) dealing with the applicability of the General Anti-Avoidance Rules, it has been held that, notwithstanding anything contained in the Act if the Assessing Authority finds that an arrangement entered into by the Assessee is an impermissible avoidance arrangement, the determination has to be done in respect of the consequential tax arising there from and shall be subject to the provisions of chapter X-A. This in other words means that by virtue of the aforesaid non-obstante clause, the provisions of chapter X-A gets an overriding effect over and above the other existing provisions of law. So far as the contention of petitioner that the case of the petitioner is one which should have otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly supersede GAAR mainly pertains to international agreements, not domestic cases such as this. This stand, as per the report is further substantiated by the Finance Minister's declaration, made on January 14, 2013. During this announcement, the Minister stated that the applicability of either GAAR or SAAR would be determined on a case-by-case basis. What further weakens the petitioner's argument is the subsequent introduction of a Rule under Section 95 and Section 100. This provision indicates that Chapter X-A could be used in conjunction with, or as a substitute for, other Sections of the Act. This development again highlighted the selective and misinterpreted use of legal provisions by the Petitioner. Finance Bill, 2013, only incorporated some of the expert committee s recommendations and CBDT also clarifies that both GAAR and SAAR would be applied depending upon the specifics of each case. However, Petitioner's assertion is that the facts of the case are irrelevant in determining the application of a general law is also fundamentally flawed. This stance was already addressed and refuted by the Supreme Court in M/s. S. Zoraster and Company [ 1967 (2) TMI 25 - DELHI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns lack merit, as they fail to make a case so far as the application of Chapter X-A in the present facts of the case. Writ Petitions are dismissed. The respondents are allowed to proceed further with the process under Section 144AB - THE HON BLE SRI JUSTICE P.SAM KOSHY AND THE HON BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY FOR THE PETITIONER : RUBAINA S KHATOON FOR THE RESPONDENT : B NARASIMHA SARMA ORDER ( Per the Hon ble Sri Justice P. SAM KOSHY ) Since the grounds of challenge being the same and the question of law to be decided also being the same, both the writ petitions are taken up and decided by this common order. For convenience, W.P.No.46510 of 2022 is being taken as the lead case, so far as the facts are concerned. 2. The instant writ petition i.e. W.P.No.46510 of 2022 is filed seeking issuance of writ of mandamus declaring the initiation and continuation of proceedings dated 14.12.2022, issued by the respondent No.1/Principal Commissioner of Income Tax (Central) vide DIN Letter No:ITBA/COM/F/17/2022-23/1047994899(1), for the assessment year 2019-2020, under Section 144BA of the Income Tax Act, 1961 (briefly the Act hereinafter) and all consequent proceedings thereto as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allegations. The petitioner also questioned the validity of the said reference notice issued by respondent No.2. It is thereafter that the respondent No.1 has issued the impugned notice on 14.12.2022 stating that the transactions undertaken by the petitioner qualifies as a Impermissible Avoidance Arrangement (for short IAA ) under chapter X-A of the Act and objections were again called from the petitioner. According to the learned Senior Counsel, initiation of proceedings under chapter X-A of the Act is illegal and uncalled for. 9. It was the contention of the learned Senior Counsel that the entire transactions in question; are all transactions which are covered under Chapter X the provisions of the Specific Anti-Avoidance Rules (for short SAAR ). Chapter X-A was made as a special provision relating to avoidance of tax, the provisions of chapter X-A containing the General Anti-Avoidance Rules (for short GAAR ) thereafter cannot be made applicable to the said transactions. It is this issuance of notice under Section 144BA invoking chapter X-A of the Act which is under challenge in the present writ petitions. The challenge primarily is on the applicability of the said provision and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. 14. In the instant case, the transactions undertaken by the petitioner involved subscription and sale of shares and not units of mutual fund. According to the learned Senior Counsel for attracting or for invocation of Section 94(8) it was the pre-requisite to have buying and acquiring of units of mutual fund. Else, the provision of Section 94(8) would not get attracted. Hence, the petitioner was entitled to set-off of short term capital loss sustained on sale of shares. It was submitted that the transactions of bonus stripping are subject to the specific provisions of Section 94(8) of the Act, which is a SAAR enabling provision. It was further submitted that any loss incurred on account of the purchase and sale of shares, there upon, resulting in bonus stripping is required to be computed as per Section 94(8) and the respondents cannot be permitted to resort to the provision under Section 96 of the Act. 15. It was also the contention of the learned Senior Counsel that the provision of Section 94(8) being a specific provision, therefore impliedly excludes the application of the general provision i.e. Section 96. It was strongly contended that the respondent No.1 in the given fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned ASG appearing for the respondent-Department, there has been no specific material available to entertain the writ petitions where the challenge primarily is to the show cause proceedings. 19. According to the learned ASG, the petitioner can very well enter appearance before the authorities concerned and take all the relevant objections in support of his contentions. That the authorities concerned shall duly consider all the contentions that the petitioner will raise in his response. Thus, no strong case for interfering with the impugned show cause notice at this juncture is made out. 20. It was further contended vide order dated 05.02.2019, the Board of Directors had sanctioned inter corporate deposit of Rs.350 crores to related entity i.e. REFL. The mischief played by the petitioner was that all the ledgers reflected the writing of the loan to the tune of Rs.288.50 crores during the month of March, 2019, and further the said amount was claimed as business loss and set off against the capital gains. 21. Drawing the attention to the events that had transpired within a short span of time, learned ASG contended that in the AGM that was held on 27.02.2019, the share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 2019. Further, the disbursement made during the same month clearly establishes the non-genuineness of the inter corporate deposit and the motive or object exclusively being claiming of business loss against taxable gains. It is in this context that the learned ASG appearing for the respondent-Department submits that in the given factual backdrop, the proceedings had to be initiated under Chapter X-A of the Act. 25. In the light of the contentions put forth on either side, for proper appreciation of the dispute, it would be relevant at this juncture to take note of the provisions of chapter X and chapter X-A. Chapter X deals with the special provisions relating to avoidance of tax. Chapter X-A at the same time is brought by way of an amendment to the Income Tax Act, 1961, consequent to the Finance Act, 2013, with effect from 01.04.2016. 26. What is also required to be seen is that the learned Senior Counsel appearing for the petitioner contends that since there is a special provision relating to avoidance of tax envisaged under the Act, under the said circumstances, the general provision of law of anti-avoidance cannot be applied and the respondents are required to scrutinize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units within a period of three (3) months prior to the record date. The explanation to the said Section provides for definitions of certain terminologies used in the said sub-section which includes the definition of securities and the definition of units. For ready reference both, the definition of securities as also the definition of units provided under clause B and clause D to the explanation of Section 94 is being reproduced herein under: (b) securities includes stocks and shares; (d) unit shall mean, -- (i) a unit of a business trust defined in clause (13A) of section 2; (ii) a unit defined in clause (b) of the Explanation to section 115AB; or (iii) beneficial interest of an investor in an Alternative Investment Fund, defined in clause (b) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and shall include shares or partnership interests. 30. Before the formal codification of the General Anti Avoidance Rules (GAAR) into law in 2018, the judicial system had already established its own set of rules known as the Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which should fall under the umbrella of Chapter X-A and not Chapter X. Section 94(8) might be relevant in a simple, isolated case of the issuance of bonus shares, provided such issuance has an underlying commercial substance. However, this provision does not apply to the current case, as issuance of bonus shares here is evidently an artificial avoidance arrangement that lacks any logical or practical justification. It is clear that this arrangement was primarily designed to sidestep tax obligations, in direct contravention of the principles of the Act. 33. As far as the petitioner's reliance on the 2012 Shome Committee Report is concerned, in the given factual backdrop, the same is totally misplaced and misconstrued. Even the contention of the petitioner that the aforementioned Report with regard to SAAR under Section 94 would override the GAAR in Chapter X-A, is unacceptable. The Committee's stance that SAAR should generally supersede GAAR mainly pertains to international agreements, not domestic cases such as this. This stand, as per the report is further substantiated by the Finance Minister's declaration, made on January 14, 2013. During this announcement, the Minis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he burden of proof on the Revenue to prove any fiscal misconduct. This means, the Revenue needs to provide sufficient evidence of any alleged wrongdoing. In stark contrast, Section 96(2) places this responsibility on the taxpayer. It requires the taxpayer to disprove the presumption of a tax avoidance scheme. This is a significant shift in responsibility. In this particular case, there is clear and convincing evidence to suggest that the entire arrangement was intricately designed with the sole intent of evading tax. The Petitioner, on their part, hasn't been able to provide substantial and persuasive proof to counter this claim. 38. Section 144AB outlines the procedure for applying the rules in Chapter X-A. This section ensures that transactions are thoroughly evaluated at multiple levels and from various perspectives before determining any connected outcomes. This involves a comprehensive examination of all the elements of the transaction, upholding the principles of fairness at each step. It ensures that the process is thorough, fair, and just. However, the Petitioner has chosen to seek this court's intervention instead of following the process set out under Section 144A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has also then recorded a finding that the Revenue has failed to place any material before the Appellate Tribunal to prove that the cheques in question were being sent by the Government of India through post. Unfortunately, all these aspects have been missed by the learned Judges when dealing with the applications filed by the Revenue for the grant of certificates. 18. On the above findings recorded by the Appellate Tribunal and confirmed by the High Court, no question of applying any presumption under Section 114 of the Evidence Act arises for consideration. The learned Judges, dealing with the applications for grant of certificates, had no jurisdiction to go behind the finding recorded in the original judgment disposing of the reference. In our opinion, the entire discussion on this aspect of posting of the cheques at Delhi by the learned Judges is beside the point, as that question no longer was available to the Revenue, in view of the finding recorded against it, to which we have made a reference earlier. 19. When once the question of a presumption under Section 114, Illustration (f) of the Evidence Act does not fall to be considered in these proceedings, in view of the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e now live in a Welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. 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 liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Limited, In re [47 Com Cas 597 (Guj HC)] where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. 18. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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