The Commissioner Of Income Tax, Patiala v. M/S Punjab State Electricity Board, Patiala

I.T.A. No. 227 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A. No. 227 of 2009 DATE OF DECISION: 9.7.2009 The Commissioner of Income Tax, Patiala ..........Appellant Versus M/s Punjab State Electricity Board, Patiala..........Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Mr. Rajesh Katoch, Advocatefor the appellant. **** ADARSH KUMAR GOEL, J. (Oral) 1.The revenue has preferred this appeal under Section 260A ofthe Income Tax Act, 1961 (for short, “the Act) against the order of theIncome Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh dated30.9.2008 passed in ITA No. 111/Chd/2008 for the assessment year 1996-97, proposing to raise following substantial question of law:- “Whether on the facts and in the circumstances of thecase, the ITAT is legally correct in holding that in thepresent case, no colourable device has been adopted bythe assessee, even when the intention of the assesseebehind drafting the agreements between the assesseeand the financial institution was to reduce the tax liabilityartificially of both the parties and as such the ratio of thedecision of the Hon'ble Apex Court in the case of McDowell Ltd. Vs. CTO (154 ITR 148) (SC) has wrongly been interpreted”. 2.The assessee is Punjab State Electricity Board, who soldenergy saving devices on which 100% depreciation was permitted underSection 32 of the Act read with rule 5 of the Income Tax Rules, 1962 (forshort, “the rules) and the same assets were taken on lease and deductionwas sought for lease money. This deduction was disallowed on the groundthat the transactions entered into by the assessee were sham transactions.The CIT (A) dismissed the appeal but the Tribunal upheld the plea of theassessee. The relevant observations are as under:- “It cannot be said that any and every attempt of taxplanning is illegal/illegitimate or that every transaction orarrangement which is perfectly permissible under thelaw, having the effect of reducing the tax burden on theassessee cannot simply be discarded because it is thebusinessman/assessee who is to take a decision in viewof its business expediency. As far as the reliance by thelearned Sr. DR on the decision of the Hon'ble ApexCourt in the case of Mc Dowell & co Ltd. Vs. CTO (154ITR 148) (SC), wherein it was held that the tax planningmay be legitimate provided it is within the frame work oflaw and colourable device cannot be part of taxplanning, we are of the humble opinion, that the facts ofthe aforesaid judicial pronouncements may not help theRevenue because in the present appeal, no colourabledevice has been adopted by the assessee and even thelearned Assessing Officer has not brought on record anyevince even to suggest that the tax planning of theassessee is not within the permissible limit or anycolourable device has been adopted by the assessee. In such a situation, the decision of the Hon'ble GauhatiHigh Court in the case of CIT Vs. George Williamsons(Assam) Ltd. (265 ITR 626) clear supports the case ofthe assessee wherein various judicial pronouncementshas been considered including the case of Mc Dowells(supra). In the light of aforesaid facts and judicialpronouncements, we have not found any infirmity in theimpugned order, consequently all these six appeal of theRevenue are having no merit, consequently dismissed.” In such a situation, the decision of the Hon'ble GauhatiHigh Court in the case of CIT Vs. George Williamsons(Assam) Ltd. (265 ITR 626) clear supports the case ofthe assessee wherein various judicial pronouncementshas been considered including the case of Mc Dowells(supra). In the light of aforesaid facts and judicialpronouncements, we have not found any infirmity in theimpugned order, consequently all these six appeal of theRevenue are having no merit, consequently dismissed.” 3.Only contention raised by the learned counsel for the revenueis that the machinery was integral part of the boilers and the samecontinued to be with the assessee inspite of sale. The fact remains thatthe sale consideration was received by the assessee and lease rental waspaid by the assessee. Merely because tax liability was reduced could notbe conclusive of arrangement being sham of a device. As regardsobservations of the Hon'ble Supreme Court in Mc Dowel, supra, the matterhas been explained in subsequent judgments including in UOI Vs AzadiBachao Andolan, AIR 2004 SC 107. Reiterating the view that theassessee was entitlted to arrange his affiars to reduce tax liability, withoutviolating the law, it was observed in Azadi Bachao Andolan, supra thatthe principle laid down in IRC Vs. Duke of West Minister, (1936) ACI wasstill valid. 4.It was further observed that the above principle had beenapproved in India in judgment of the Hon'ble Supreme Court in CIT Vs. A.Raman & Co., (1968) 67 ITR 11 and observations of Chinnappa Reddy, J.in Mc Dowel could not be treated as ratio of the judgment in view ofopinions of majority to the effect:- “Tax Planning may be legitimate provided it is within theframework of law. Colourable devicescannot be part of tax planning and it is wrong to encourage or entertainthe belief that it is honourable to avoid the payment oftax by resorting to dubious methods. It is the obligationof every citizen to pay the taxes honestly withoutresorting to subterfuges. 5.The Hon'ble Supreme Court affirmed the view taken by theMadras High Court in MV Valliapappan Vs. ITO, (1988) 170 ITR 238 andGujrat High Court in Berry Vs. CIT, (1996) 222ITR 831. Reference wasalso made to judgment in CWT Vs. Arvind Narottam (1988) 173 ITR 479and Mathuram Aggarwal Vs. State of M.P., (1999) 8 SCC 667. It wasfurther observed that words “device” or “sham” could not be used to defeatthe effect of a legal situation. 6.In view of the finding recorded by the Tribunal in the facts ofthis case, no substantial question of law arises. 7.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 09, 2009pooja (DAYA CHAUDHARY)JUDGE Note:-Whether this case is to be referred to the Reporter .......Yes/No