Case: Killick Nixon Limited Vs. Dcit, Central Circle (3)

January 2012) is concerned, the Court considered its decisions in the matters of McDowell reported in (1985) 3 SCC 230 , Azadi Bachao reported in (2004) 10 SCC 1 and the MathuramAgarwal reported in (1999) 8 SCC 667 and concluded that where the transaction is not genuine but a colourable device there could be no question of tax planning. The Supreme Court in the aforesaid case after considering the aforesaid two decisions concluded as follows:The majority judgment in McDowell held that tax planning may be legitimate provided it is within the framework of law (para-45). In the latter part of para 45, it held that colourable device 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 on this aspect one of us, Chinappa 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. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to legitimate avoidance of tax liability (Paras 7-10, 17 and 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the Westminster and tax avoidance- these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between Mcdowell and Mathuram Agarwal.15 The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of McDowell (supra), Azadi Bachao (supra) and Mathuram Agarwal (supra). In the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities came to a finding that the same was not genuine. So far as the question Nos.(ii), (iii) (iv) and (v) are concerned, we hold that these are pure questions of facts and as there are concurrent finding of the authorities below, no question of law arises for this Court to interfere.16 So far as Question No.(vi) is concerned, the issue of guarantee loss was raised for the first time in appeal before CIT (Appeal) and both the CIT (Appeal) and the Tribunal also found that the claim for loss is not genuine. However, the Appellant is correct in contending that even a single transaction could be in the nature of trade. However, on examination of surrounding circumstances and the parties involved viz. the G.K. Rathi group and its close relationship with the Appellant, it was concluded that the transaction was not genuine. The Tribunal is entitled to look at the surrounding circumstances and to human probabilities to test the evidence led before it. However, while testing the evidence the Tribunal must correctly look at all the evidence and the surrounding circumstances to decide the issue. We find that the Tribunal has considered the fact that for the earlier year Rs.6/- crores was assessed to tax but held that there is no evidence to show that any attempt was made to recover the amounts from Geekay Exim (India) ltd. when in fact evidence was placed before the Tribunal by the Appellant of suits being filed by the Appellant against Geekay Exim (India) Ltd. However what is the nature of suits and for what amounts etc is something which has not been examined. The Tribunal in its order amongst other factors has also taken into account the fact that ever since 1947 when the Appellant company was incorporated it had never issued any Guarantee and therefore, the deduction of business loss of Rs. 105/- crores for providing guarantees by the CIT (Appeal) was upheld by the Tribunal. To our mind, the fact that the Appellant did not do the business of providing guarantees earlier will not prohibit the assessee from providing guarantees during the relevant assessment year. The Memorandum of Association of the Appellant company does provide as one of its objects for providing guarantees in respect of loans advanced to other parties. There were other reasons for which the Tribunal and the CIT did not accept the business loss of Rs.105/- crores emerging from the Appellants business from providing guarantees. The surrounding circumstances can be looked at, but not without considering the evidence led by the party in support of its stand. In this case, the Tribunal has not considered the evidence of suit etc. being filed by the Appellant before rejecting its claim for loss only on the basis of surrounding circumstances. In view of the above, so far as the question No.(vi) is concerned, it would be proper to remand the matter to the Tribunal to reconsider the issue and pass an appropriate orders thereon.17. So far as the Question No.(vii) is concerned, we are of the view the same does not arise as all the authorities including the Tribunal have considered all the evidence produced before them and on appreciation of facts have come to a conclusion which is a possible conclusion. Therefore, question No.(vii) also does not arise.

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

Explanation:
0[ds]The proviso to the Rule 11 would have no application to the present facts, as the Tribunal has not based its decision on a ground which had not been urged by the parties before it. The decision of the Supreme Court supports a statement of a well settled position in law. Counsel for the Appellant thereafter relied upon a decision of this Court in Inventure Growth Vs. ITAT reported in 324 ITR 319 to submit that in similar facts, this Court set aside the order of the Tribunal. In Inventure Growth and Securities Ltd. (supra) a petition under Article 226 of the Constitution of India had been filed challenging an order of the Tribunal passed on a rectification application filed by the party. The Tribunal had disposed of the appeal on merits by relying upon another decision of the Tribunal, without furnishing an opportunity of hearing to the party to deal with the decision. Consequent thereto, the party in the above case filed a rectification application before the Tribunal under Section 254(2) and sought to bring on record the fact that the decision of thebench on merits of the matter was not available to the party as it had not been published in a law journal at the date of the hearing and consequently they were not in a position to deal with the same. The Tribunal by its order dated 20 November 2009 dismissed the rectification application after recording the fact that the decision of the coordinate Bench of the Tribunal was not placed before the Tribunal either by the assessee or by the Revenue and the Tribunal decided to follow it on its own. It was in the aforesaid facts that this Court allowed the Misc. Application and restored the appeal before the Tribunal for reconsideration. However, while doing so, the Court clarified that It cannot be laid down asproposition of law that an Order of remand on a miscellaneous application under Section 254(2) would be warranted merely because the Tribunal relied upon a judgment which was not cited by either party before it.. In the present facts, the decision of the Supreme Court in Sumati Dayal (supra) was cited only for the purpose of reiterating the well settled/established position of law. Surrounding circumstances and human probabilities are to be taken into account while considering the evidence produced before the Tribunal to examine the genuineness of the case. Counsel for the Appellant also relied upon a decision of this court in CIT Vs. Jamnadevi Agarwal reported in 328 ITR 656   to contend that this Court has not applied the decision of the Supreme Court in the matter of Sumati Dayal (supra) in the above case as the documentary evidence produced before the authorities, conclusively proved that there was no question of introducing unaccounted money, as the transaction of sales took place at the rates prevailing on that date in the stock market. The aforesaid decision in the matter of Jamnadevi (supra) proceeded on its own facts and the decision of the Supreme Court was held to be inapplicable in the factual context existing in that case. However, the decision of the Supreme Court in the matter of Sumati Dayal (supra) would be applicable, when ever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality by looking at the surrounding circumstance and applying the test of human probabilities. A reference to the decision in Sumati Dayals case on a principle of law cannot be said to have caused prejudice to the Appellant. This conclusion is based while proceeding on an assumption that the aforesaid decision of the Supreme Court was not cited and/or referred to during the course of the hearing leading to the order dated 6 April 2010. In view of the above, no substantial question as framed at (i) above arises in the presentSo far as the principle laid down in the matter of Omar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. However we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term losses and taking all the evidence together including the surrounding circumstances reached a finding that the purchase and sale of shares is not genuine. So far as the decision of the Supreme Court in Vodafone International (dated 20 January 2012) is concerned, the Court considered its decisions in the matters of McDowell reported in (1985) 3 SCC 230  , Azadi Bachao reported in (2004) 10 SCC 1     and the MathuramAgarwal reported in (1999) 8 SCC 667     and concluded that where the transaction is not genuine but a colourable device there could be no question of tax planning. The Supreme Court in the aforesaid case after considering the aforesaid two decisions concluded as follows:The majority judgment in McDowell held that tax planning may be legitimate provided it is within the framework of lawIn the latter part of para 45, it held that colourable device 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 on this aspect one of us, Chinappa 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. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to legitimate avoidance of tax liability (Paras17 and 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the Westminster and tax avoidancethese are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between Mcdowell and Mathuram Agarwal.15 The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of McDowell (supra), Azadi Bachao (supra) and Mathuram Agarwal (supra). In the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities came to a finding that the same was not genuine. So far as the question Nos.(ii), (iii) (iv) and (v) are concerned, we hold that these are pure questions of facts and as there are concurrent finding of the authorities below, no question of law arises for this Court to interfere.16 So far as Question No.(vi) is concerned, the issue of guarantee loss was raised for the first time in appeal before CIT (Appeal) and both the CIT (Appeal) and the Tribunal also found that the claim for loss is not genuine. However, the Appellant is correct in contending that even a single transaction could be in the nature of trade. However, on examination of surrounding circumstances and the parties involved viz. the G.K. Rathi group and its close relationship with the Appellant, it was concluded that the transaction was not genuine. The Tribunal is entitled to look at the surrounding circumstances and to human probabilities to test the evidence led before it. However, while testing the evidence the Tribunal must correctly look at all the evidence and the surrounding circumstances to decide the issue. We find that the Tribunal has considered the fact that for the earlier year Rs.6/crores was assessed to tax but held that there is no evidence to show that any attempt was made to recover the amounts from Geekay Exim (India) ltd. when in fact evidence was placed before the Tribunal by the Appellant of suits being filed by the Appellant against Geekay Exim (India) Ltd. However what is the nature of suits and for what amounts etc is something which has not been examined. The Tribunal in its order amongst other factors has also taken into account the fact that ever since 1947 when the Appellant company was incorporated it had never issued any Guarantee and therefore, the deduction of business loss of Rs. 105/crores for providing guarantees by the CIT (Appeal) was upheld by the Tribunal. To our mind, the fact that the Appellant did not do the business of providing guarantees earlier will not prohibit the assessee from providing guarantees during the relevant assessment year. The Memorandum of Association of the Appellant company does provide as one of its objects for providing guarantees in respect of loans advanced to other parties. There were other reasons for which the Tribunal and the CIT did not accept the business loss of Rs.105/crores emerging from the Appellants business from providing guarantees. The surrounding circumstances can be looked at, but not without considering the evidence led by the party in support of its stand. In this case, the Tribunal has not considered the evidence of suit etc. being filed by the Appellant before rejecting its claim for loss only on the basis of surrounding circumstances. In view of the above, so far as the question No.(vi) is concerned, it would be proper to remand the matter to the Tribunal to reconsider the issue and pass an appropriate orders thereon.17. So far as the Question No.(vii) is concerned, we are of the view the same does not arise as all the authorities including the Tribunal have considered all the evidence produced before them and on appreciation of facts have come to a conclusion which is a possible conclusion. Therefore, question No.(vii) also does not arise.