TaxTMI 
TaxTMI 
2003 (12) TMI 48
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....ely on lease from the respective buyers for use in the business run by the company and they were being used as before. During the previous year, the assessee-companies paid lease rent for plant and machinery so taken back on lease and used by the companies for the purposes of their business during the relevant previous years. The company claimed lease rent paid as admissible deduction in respect of the plant and machinery taken on lease. The assessing authority disallowed the deduction to the company on the ground that the sale of the plant and machinery and taking them back immediately on lease were not bona fide transactions. The transaction is a device adopted by the company solely for reduction of taxable profit and tax thereon and as per the dictum laid down in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), the assessee is not entitled to claim deduction for such transactions. According to the assessing authority, the rent paid cannot be said to be an expenditure incurred wholly and exclusively for the purpose of the tea manufacturing business of the assessee within the meaning of section 37 of the Income-tax Act, 1961. On this count, the deductions claimed by the respo....
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....hed the conclusion that the transactions had not been effected as a colourable device, but were a genuine business arrangement entered into for the business purpose purely on business considerations. The first appellate authority allowed the deduction of the lease rent by the company. Aggrieved by the said order, the Revenue preferred appeals before the Income-tax Appellate Tribunal. The Appellate Tribunal has upheld the findings arrived at by the first appellate authority and held that the transactions entered into by the assessees were genuine and validly entered into and there 0 was no motive on the part of the assessees to defraud the Revenue. The only object of such transaction was to augment the fund which was invested by the assessees in the Unit Trust of India and that the decision of McDowell and Co. Ltd.'s case [1985] 154 ITR 148 (SC) has no application in the case. From the orders passed by the first appellate authority as well as by the Tribunal it is apparent that the findings arrived at by the appellate authority were based on materials placed on record and it has been held that the transactions of sale of plant and machinery and taking them back on lease were genuine....
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.... Westminster [1936] AC 1 (HL) and Fisher's Executars [1926] AC 395 (HL) said that: "We think that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah J., and similar observations made elsewhere." Chinnappa Reddy J., further stated that: "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or literally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it." The decision rendered by the Chinnappa Reddy J., in McDowell and Co. Ltd [1985] 154 ITR 148 (SC) came for consideration and the question arose whether the principle in Duke of Westminster [1936] AC 1 (HL), has been departed from, subsequently, by the House of Lords in England. These decisions have been considered in Union of India v. Azadi Bachao Andalan [2003] 263 ITR 706 (SC) and the court said that the majority view in McDowel....
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....er of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision such as section 460 of the Income and Corporation Taxes Act, 1970.'... Lord Oliver said: 'It is equally important to bear in mind what the case did not decide. It did not decide that a transaction entered into with the motive of minimising the subject's burden of tax is, for that reason, to be ignored or struck down. Lord Wilberforce was at pains to stress that the fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides. Nor did it decide that the court is entitled, because of the subject's motive in entering into a genuine transaction, to attribute to it a legal effect which it did not have.'...Thus, we see that even in the year 1988 the House of Lords emphasised the continued validity and application of the principle in Duke of Westminster [1936] AC 1 (HL)." In MacNiven (H.M. Inspector of Taxes) v. Westmoreland Investments Ltd. [2001] 1 All ER 865 at 877-878; [2002] 255 ITR 612 (HL), Lord Hoffmann observes: "In the Ramsay case [1982] AC 300 both Lord Wilberforce and Lord Fras....
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....e contrast is specifically between incomes which have been adjusted for inflation and those which have not. In order to know what he means by 'real', one must first identify the concept (inflation adjustment) by reference to which he is using the word. Thus in saying that the transactions in the Ramsay case were not sham transactions, one is accepting the juristic categorisation of the transactions as individual and discrete and saying that each of them involved no pretence. They were intended to do precisely what they purported to do. They had a legal reality. But in saying that they did not constitute a 'real' disposal giving rise to a 'real' loss, one is rejecting the juristic categorisation as not being necessarily determinative for the purposes of the statutory concepts of 'disposal' and 'loss' as properly interpreted. The contrast here is with a commercial meaning of these concepts. And in saying that the income-tax legislation was intended to operate 'in the real world', one is again referring to the commercial context which should influence the construction of the concepts used by Parliament." The Supreme Court, after noticing these cases at page 758 of [2003] 263 ITR has....