High Court Of Punjab & Haryana
CIT vs. Punjab State Electricity Board
Section 32(1)(ii), 260A
Adarsh Kumar Goel & Mrs. Daya Chaudhary, JJ.
IT Appeal No. 227 of 2009
9th July, 2009
Counsel Appeared :
Rajesh Katoch, for the Appellant
JUDGMENT
Adarsh Kumar Goel, J. :
The Revenue has preferred this appeal under s. 260A of the IT Act, 1961 (for short, “the Act) against the order of the Tribunal, Chandigarh Bench ‘B’, Chandigarh, dt. 30th Sept., 2008 passed in ITA No. 111/Chd/2008 for the asst. yr. 1996-97, proposing to raise following substantial question of law : “Whether on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that in the present case, no colourable device has been adopted by the assessee, even when the intention of the assessee behind drafting the agreements between the assessee and the financial institution was to reduce the tax liability artificially of both the parties and as such the ratio of the decision of the Hon’ble apex Court in the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) has wrongly been interpreted.”
2. The assessee is Punjab State Electricity Board, who sold energy saving devices on which 100 per cent depreciation was permitted under s. 32 of the Act read with r. 5 of the IT Rules, 1962 (for short, “the Rules) and the same assets were taken on lease and deduction was sought for lease money. This deduction was disallowed on the ground that the transactions entered into by the assessee were sham transactions. The CIT(A) dismissed the appeal but the Tribunal upheld the plea of the assessee. The relevant observations are as under : “It cannot be said that any and every attempt of tax planning is illegal/illegitimate or that every transaction or arrangement which is perfectly permissible under the law, having the effect of reducing the tax burden on the assessee cannot simply be discarded because it is the businessman/assessee who is to take a decision in view of its business expediency. As far as the reliance by the learned senior Departmental Representative on the decision of the Hon’ble apex Court in the case of McDowell & Co Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), wherein it was held that the tax planning may be legitimate provided it is within the framework of law and colourable device cannot be part of tax planning, we are of the humble opinion, that the facts of the aforesaid judicial pronouncements may not help the Revenue because in the present appeal, no colourable device has been adopted by the assessee and even the learned AO has not brought on record any evidence even to suggest that the tax planning of the assessee is not within the permissible limit or any colourable device has been adopted by the assessee. In such a situation, the decision of the Hon’ble Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. (2004) 187 CTR (Gau) 499 : (2004) 265 ITR 626 (Gau) clearly supports the case of the assessee wherein various judicial pronouncements have been considered including the case of McDowell & Co. Ltd. vs. CTO (supra). In the light of aforesaid facts and judicial pronouncements, we have not found any infirmity in the impugned order, consequently all these six appeals of the Revenue are having no merit, consequently dismissed.”
3. Only contention raised by the learned counsel for the Revenue is that the machinery was integral part of the boilers and the same continued to be with the assessee in spite of sale. The fact remains that the sale consideration was received by the assessee and lease rental was paid by the assessee. Merely because tax liability was reduced could not be conclusive of arrangement being sham or a device. As regards observations of the Hon’ble Supreme Court in McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), the matter has been explained in subsequent judgments including in Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : AIR 2004 SC 107. Reiterating the view that the assessee was entitlted to arrange his affiairs to reduce tax liability, without violating the law, it was observed in Azadi Bachao Andolan (supra) that the principle laid down in IRC vs. Duke of West Minster (1936) AC 1 was still valid.
4. It was further observed that the above principle had been approved in India in judgment of the Hon’ble Supreme Court in CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) and observations of Chinnappa Reddy, J. in McDowell (supra) could not be treated as ratio of the judgment in view of opinions of majority to the effect : “Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.”
5. The Hon’ble Supreme Court affirmed the view taken by the Madras High Court in M.V. Valliappan & Ors. vs. ITO (1988) 67 CTR (Mad) 289 : (1988) 170 ITR 238 (Mad) and Gujarat High Court in Banyan & Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj). Reference was also made to judgment in CWT vs. Arvind Narottam (Individual) (1988) 72 CTR (SC) 94 : (1988) 173 ITR 479 (SC) and Mathuram Aggarwal vs. State of Madhya Pradesh (1999) 8 SCC 667. It was further observed that words “device” or “sham” could not be used to defeat the effect of a legal situation.
6. In view of the finding recorded by the Tribunal in the facts of this case, no substantial question of law arises.
7. The appeal is dismissed.
[Citation : 320 ITR 469]
