Where arrangement of assessee to
avoid payment of tax did not contravene any statutory provision and was
achieved within four corners of law, it couldn’t be found fault with
In
the instant case the assessee was holding shares in BFSL, which had
purchased 15 acres of land from assessee. The assessee sold its
shareholding in BFSL for a certain consideration to DLF through Stock
Exchange after paying STT and claimed exemption from gain on sale of
shares under
section 10(38). The AO held that sale of shares by assessee was a
colourable device and that virtually the immovable property had been
transferred to DLF and assessee was liable to tax on short-term capital
gain on sale of immovable property. Further, the CIT (A) and the
Tribunal upheld the order of the AO.
The High Court held in favour of assessee as under:
1)
Every taxpayer is entitled to arrange his affairs so that his taxes
would be as low as possible and that he is not bound to choose that
pattern which will replenish the treasury. If the taxpayer is in a
position to carry through a transaction in two alternative ways, one of
which will result in liability to tax and the other will not, he would
at liberty to choose the latter one and would do so effectively in the
absence of any specific tax avoidance provision;
2)
If BFSL had sold the property by executing a registered sale deed and
received the sale consideration, then it
ought to have paid capital gains on the said consideration. All the
authorities were carried away by this aspect of the matter and because
the Department was deprived of the tax, they had come to the conclusion
that it was a colourable device and tax planning to avoid payment of
taxes;
3)
The assessee by resorting to such tax planning had taken advantage of
the benefit of the loopholes in the law, which had endured to his
benefit. After seeing how this loophole had been exploited within four
corners of the law,
it was open to the Parliament to amend the law plugging the loopholes;
4)
However, by any judicial interpretation one couldn’t read into the
section, which was not intended to by the Parliament at the time of
enacting this provision. If the shareholder chose to transfer the land
to the purchaser of the shares, it would be a legal transaction, in law,
and merely because it was able to avoid payment of tax, it couldn’t be
said to be a colourable device or a share transaction;
5)
The finding of the assessing authority that it was a transfer of
immovable property was contrary to law and material on record.
Unfortunately, three authorities committed the very same mistake which
was illegal, contrary to settled legal position and, therefore, required
to be set aside - BHORUKA ENGINEERING INDS. LTD. V. DY.CIT (2013) 36 taxmann.com 82 (Karnataka)
No comments:
Post a Comment