Sham and colourable tax arrangement found non-genuine; no referable question of law arose and refusal to state the case was upheld.

Arrangements for compensation on breach of managing agency and selling agency agreements were found, on the admitted facts, to be sham and colourable transactions designed to divert funds to persons controlling the assessee without income-tax liability. The claimed compensation was therefore treated as arising from a non-genuine device, and no referable question of law arose under section 66(1). The refusal to call for a statement of the case was upheld, and the appeal was dismissed.

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Issues: Whether the arrangements for payment of compensation on breach of the managing agency and selling agency agreements were sham and colourable transactions designed to extract money free of income-tax, and whether the High Court was right in refusing to call for a statement of the case.

Analysis: The agreements and the connected resolutions were found to have been framed with the object of diverting large sums out of the assessee's assets in favour of persons controlling both the assessee and the agencies, without incurring income-tax liability. On the admitted facts, the transaction lacked genuineness and was colourable in character. In that background, no question of law arose requiring a reference under section 66(1).

Conclusion: The claimed compensation was rightly treated as arising from sham and colourable arrangements, and the refusal to call for a statement of the case was upheld.

Final Conclusion: The appeal was dismissed, leaving the Revenue's position undisturbed.

Ratio Decidendi: A transaction found on the facts to be sham and colourable, devised to divert funds while avoiding tax, does not give rise to a referable question of law under section 66(1).

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