Approved amalgamation schemes are not colourable devices without evidence of sole tax avoidance; section 68 addition failed.

Approved amalgamation schemes are not treated as colourable devices merely because they produce tax consequences; absent material showing the scheme was devised solely for tax avoidance, the revenue cannot sustain an addition under section 68. The appellate authorities and Tribunal found no evidence that the amalgamation was tax-driven, and the approved scheme itself negatived any such inference. As the identity, creditworthiness and genuineness requirements were not established to support the addition, the deletion of the section 68 addition was upheld and no substantial question of law arose.

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Issues: Whether the approved scheme of amalgamation could be treated as a colourable device for tax avoidance so as to sustain the revenue's challenge to the deletion of the addition made under section 68 of the Income-tax Act, 1961.

Analysis: The scheme of amalgamation had already been approved by the jurisdictional High Court. On the facts recorded by the appellate authorities and the Tribunal, there was no material to show that the scheme was floated with the sole object of tax avoidance. The reasoning accepted below was that approval of the amalgamation scheme negatived any inference of a colourable device in the absence of contrary material, and the elements relevant to section 68, namely identity of the parties, creditworthiness and genuineness of the transaction, were not shown to justify the addition. The Tribunal's view was also consistent with the principle that a scheme is not invalid merely because it may have incidental tax consequences.

Conclusion: The question was answered against the revenue and in favour of the assessee. No substantial question of law arose, and the addition deleted under section 68 did not survive.

Ratio Decidendi: Mere tax benefit or incidental tax avoidance effect does not make an approved amalgamation scheme a colourable device; in the absence of material showing the scheme to be solely tax-driven, and where the statutory requirements for an addition under section 68 are not established, the addition cannot be sustained.

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