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Supreme Court of India (Constitution Bench)

McDowell & Co. Ltd v. Commercial Tax Officer

[1985] 154 ITR 148 (SC)(1985) 3 SCC 230
Date of order: 17 April 1985
Appellant: McDowell & Co. Ltd
Respondent: Commercial Tax Officer
In favour of: Revenue
Legislation referred / considered
General anti-avoidance principle (now GAAR)
Headnote — editorial summary
Catchwords: Tax planning vs avoidance; colourable devices; sham transactions; precursor to GAAR
The Supreme Court distinguished legitimate tax planning from avoidance through "colourable devices" — you may arrange your affairs to reduce tax, but not through sham or dubious methods.
Judgment

What it decided

A taxpayer is free to arrange affairs to minimise tax within the law, but colourable devices and sham transactions dressed up to avoid tax will not be countenanced. The much-quoted observation warned against 'dubious methods' to dodge tax.

Why it matters

The reference point in India for the planning-vs-avoidance debate for decades.

Current status

Nuanced by Azadi Bachao Andolan and Vodafone (form of a genuine transaction is respected), and now largely codified as GAAR — which targets arrangements whose main purpose is a tax benefit and which lack commercial substance.

Status
✔ Good law — followed, not overruled
Verified against later citations. citator soon
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