Case: The Commissioner of Income Tax Vs. M/S. Hede Consultancy Company Private Limited

(supra) has observed at Paras 10 and 18 thus :10. Some of the provisions of Section 260-A are in pari materia with various sub-sections of Section 100 CPC. The provisions are Sections 260-A(1), 260-A(2)(c), 260-A(3), 260-A(4) of the Act corresponding to Sections 100(1), 100(3), 100(4) and 100(5) CPC....15. An appeal under Section 260-A can only be in respect of a substantial question of law. The expression substantial question of law has not been defined anywhere in the statute. But it has acquired a definite connotation through various judicial pronouncements. In Sir Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd.1 this Court laid down the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or (2) the question is of general public importance, or (3) whether it is an open question in the sense that the issue is not settled by pronouncement of this Court or Privy Council or by the Federal Court, or (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact.7. In the Judgment in the case of Vijay Kumar Talwar vs. Commissioner of Income Tax, Delhi(supra), the Apex Court has observed at para 23 thus :23. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See MadanLal v. Gopi, NarendraGopal Vidyarthi v. RajatVidyarthi, Commr. Of Customs v. Vijay Dasharath Patel, MetroarkLtd. v. CCE and W.B. Electricity Regulatory Commission v. CESC Ltd.)8. Considering that the findings of facts arrived at by the Tribunal and the CIT(A) are on the basis of material on record and there is nothing brought by the Appellants to disclose any perversity, in such findings, the question of any interference by this Court under Section 260A of the Income Tax Act, would not arise.9. We would also record the observations of the Apex Court in the Judgment reported in (2012) 6 S.C.C. 613, in the case of Vodafone International Holdings BV vs. Union of India & anr., wherein it has been observed at Paras 68, 69, 70 and 72 thus :68. The majority judgment in McDowell held that: (SCC p. 254, para 45)45. Tax planning may be legitimate provided it is within the framework of law.In the latter part of para 45, it held that: (SCC pp. 254-55)45. Colourable devices cannot be [a] part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods.It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds: (McDowell case, SCC p. 255)46. On this aspect one of us, Chinnappa Reddy, J., has proposed a separate opinion with which we agree.The words this aspect express the majoritys agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority.69. In the judgment of Reddy, J. in McDowell there are repeated references to schemes and devices in contradistinction to legitimate avoidance of tax liability (paras 7-10, 17 & 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from Westminster and tax avoidancethese are clearly only in the context of artificial and colourable devices.70. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and AzadiBachao or between McDowell and MathuramAgrawal.71. ...72. The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle i.e. treat a company as a separate person. The Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income tax. Companies and other entities are viewed as economic entities with legal independence vis--vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct taxpayers. Consequently, the entities subject to income tax are taxed on profits derived by them on stand-alone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/participants. Furthermore, shareholders/participants that are subject to (personal or corporate) income tax, are generally taxed on profits derived in consideration of their shareholding/ participations, such as capital gains. Nowadays, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers.10. Taking note of the said observations of the Apex Court, we find that the Tribunal has not committed any error in coming to the conclusion that the transaction arrived at by the Respondents was legitimate within the framework of law. As such, we find considering the findings of facts arrived at by the Authorities below, that there is nothing on record to assume that the transaction was dubious and that the exercise was to avoid tax by a colourable device. The Tribunal found that the transactions were in accordance with law and have been duly implemented. Hence, we find that the substantial question of law framed by this Court is to be answered against the Appellants.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In the present Appeal, we find that there is no challenge by the Appellants to the findings of the Tribunal that the transactions were genuine and that the price at which the shares were sold were not inflated. In such circumstances, the contention of Shri Y. V. Nadkarni, learned Counsel appearing for the Respondents, that as the genuineness of the transactions has not been disputed by the Appellants nor have been assailed in the present Appeal, the question of contending that the transactions were colourable transactions has to be accepted. The findings of facts arrived at by the Tribunal cannot beby this Court in the present Appeal.Considering that the findings of facts arrived at by the Tribunal and the CIT(A) are on the basis of material on record and there is nothing brought by the Appellants to disclose any perversity, in such findings, the question of any interference by this Court under Section 260A of the Income Tax Act, would not arise.Taking note of the said observations of the Apex Court, we find that the Tribunal has not committed any error in coming to the conclusion that the transaction arrived at by the Respondents was legitimate within the framework of law. As such, we find considering the findings of facts arrived at by the Authorities below, that there is nothing on record to assume that the transaction was dubious and that the exercise was to avoid tax by a colourable device. The Tribunal found that the transactions were in accordance with law and have been duly implemented. Hence, we find that the substantial question of law framed by this Court is to be answered against the Appellants.