Anti-avoidance power applies to gratuitous share transfers used to reduce excess profits tax liability.

A gratuitous transfer of shares that formed part of a scheme reducing excess profits tax liability was treated as falling within the anti-avoidance power under section 10A of the Excess Profits Tax Act, 1940, because material existed to support the officer's opinion that the main purpose was tax avoidance or reduction. The opinion itself was not open to challenge under section 66 of the Income-tax Act. The Tribunal was also entitled to disregard an earlier administrative finding, since it was based on different facts and was not shown to be binding or to operate as res judicata. Both issues were decided against the assessee and in favour of the Revenue.

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Issues: (i) Whether a gratuitous transfer of shares, which had the effect of reducing excess profits tax liability, attracted section 10A of the Excess Profits Tax Act, 1940. (ii) Whether the Tribunal was competent in law to disregard the Appellate Assistant Commissioner's earlier decision in the circumstances of the case.

Issue (i): Whether a gratuitous transfer of shares, which had the effect of reducing excess profits tax liability, attracted section 10A of the Excess Profits Tax Act, 1940.

Analysis: Section 10A empowered the Excess Profits Tax Officer to make adjustments where he formed the opinion, on material before him, that the main purpose of a transaction was avoidance or reduction of excess profits tax. The existence of circumstances justifying that opinion was sufficient, and the opinion itself was not open to challenge under section 66 of the Income-tax Act. The transfer of shares, together with the subsequent increase in capital, was treated as part of a scheme reducing the taxable liability.

Conclusion: The question was answered in the affirmative, against the assessee.

Issue (ii): Whether the Tribunal was competent in law to disregard the Appellate Assistant Commissioner's earlier decision in the circumstances of the case.

Analysis: The earlier decision was not shown to be binding or res judicata. The earlier finding proceeded on a different factual basis, whereas the present finding was that the shares belonged to the managing director alone and the transfer was gratuitous. A prior administrative finding on different facts did not preclude the Tribunal from reaching its own conclusion.

Conclusion: The question was answered in the affirmative, against the assessee.

Final Conclusion: Both referred questions were decided against the assessee, and the reference was answered in favour of the Revenue.

Ratio Decidendi: Where material exists to justify the tax officer's opinion that a transaction was effected mainly to avoid or reduce excess profits tax, the statutory anti-avoidance power may be invoked, and a prior finding on different facts does not operate as res judicata.

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