2002 (10) TMI 41

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....tion Laws (Amendment) Act which introduced section 45(2) of the Income-tax Act, 1961 ?" The assessment year is 1984-85. The assessees are two, the father and the minor son. The Assesses held shares in four companies, viz., Rajalakshmi Mills Ltd., Lakshmi Mills Co. Ltd., Premier Mills Ltd., and Premier Breweries Ltd., from the year 1969. On November 9, 1983, an affidavit was filed before the Assessing Officer wherein it was declared that the shares held by them in these companies were being converted into stock-in-trade in the names of Krishnaswamy Associates and Rajesh Associates. On December 14, 1983, a company, Krishnaswamy Investments Private Ltd., was incorporated whose only shareholders were the assessee, Krishnaswamy, his wife, ....

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....ing on the affidavit that had been filed to the effect that the newly formed company had subsequently carried on business in shares. On further appeal to the Tribunal, the Tribunal restored the order of the Assessing Officer and held that the only object of the declaration was to avoid the capital gains tax, that it was a step which the assessee had chosen to introduce between the assessees and the newly formed private limited company with the sole object of avoiding capital gains tax and was clearly a colourable device which in the light of what had been laid down in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), was required to be disregarded for the purpose of ascertaining the true nature of the transaction for the pur....

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....ose of evading the liability for tax on capital gain, and for no other purpose. While the assessees no doubt had the freedom of managing their affairs in a manner which would minimise their liability for tax, that does not obligate the Revenue to refrain from examining the true character of the transactions and ignoring wholly artificial steps which are introduced solely with a view to evade tax and for no other purpose. Here the sole object of the conversion of the individual holding into stock-in-trade was merely to evade the liability for capital gains tax as those shares were, in effect, not utilised as stock-in-trade and was never intended to be so used. The company was formed immediately after that declaration and the shares transf....