CPT V24P7-Art1 (Content).pmd - Taxmann
CPT V24P7-Art1 (Content).pmd - Taxmann CPT V24P7-Art1 (Content).pmd - Taxmann
Direct Tax Laws both. The first issue, which arose, was whether the word ‘individual’ in the provision meant only the male and not the female of the species, particularly because of use of the word ‘wife’ in juxtaposition ? Supreme Court held in 1950’s in the case CIT v. Sodra Devi [1957] 32 ITR 615 that in section 16(3) the word ‘individual’ connotes only a male, thus, granting immunity to female taxpayers from the operation of the anti-avoidance provision. This must not have been a deliberate intention of the Legislature, but only inadvertent mistake in drafting. The Legislature did not react immediately. The mistake was corrected only in the Income-tax Act, 1961, with effect from 1-4-1962, by using the word ‘spouse’ in place of ‘wife’. An interesting issue regarding applicability of clause (b) of section 16(3) arose before the Supreme Court in 1952 in the case of CIT v. Manilal Dhanji [1962] 44 ITR 876. A taxpayer, to avoid application of the above provision, settled some assets in trust for the benefit of his minor child with the direction to the trustee that the income arising from the transferred assets should be accumulated by the trustee during the minor status of the child and paid to him in a lump sum after he attains majority. The taxpayer contended before the Court that section 16(3)(b) would not be applicable as the child did not have any right to receive any income from the transferred assets during his minor status. Revenue argued that the income from the transferred assets was held by the trustee when the child was minor for his benefit, which was paid to him on attaining maturity. Supreme Court held that a person could be taxed on the income from assets transferred for the benefit of his wife or minor child, provided that in the year of account she or he derived some benefit under the transfer, either income should be received or accrued or any beneficial interest in the income acquired in the relevant year of account, and, accordingly, the provision of section 16(3) will not be applicable. Legislature did not react in this case also. The omission was corrected only in the Income-tax Act, 1961 by qualifying the 630 August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 10 word ‘transferred’ by the words ‘directly or indirectly’ and ‘benefit’ by the words ‘immediate or deferred’. Taking recourse to the provisions of the Hindu law, another tax planning exercise came into vogue. A taxpayer, to avoid the provisions of section 64 of I.T. Act, 1961, would not transfer directly or indirectly any asset to his spouse or minor children. Instead, he would throw his separate property into the common hotchpot of the Hindu undivided family consisting of himself, his wife and minor children to blend it with the H.U.F property. The property and its income would henceforth belong to the H.U.F. The H.U.F could thereafter undergo a partition of its property including the property thrown into the common hotchpot distributing it among the individual, his wife and minor children. As held by the Supreme Court in 1965 in the cases of CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637 and CIT v. M.K. Streman/ Manilal Virchand [1965] 56 ITR 62, neither the act of throwing separate property by an individual in the common stock of an H.U.F of which he is a coparcener nor the subsequent partition of H.U.F property amount to transfer of property nor the provisions of section 64 apply to such transactions. Here again the Legislature did not react immediately, but introduced sub-section (2) of section 64 by the Amendment Act of 1970 with effect from 1-4-1971 to neutralize such tax planning undertaken after 1-1-1970. 6.6 Retrospective amendments to neutralize Judicial decisions - Since 1998, there have been a large number of retrospective amendments mainly to neutralize judicial decisions of the High Courts and below, the most notable of them being introduction of section 14A with retrospective effect from 1-4-1962, which sought to neutralize the decision of the Supreme Court in the case of CIT v. Indian Bank Ltd. [1965] 56 ITR 77, rendered in 1965, to the effect that in computation of taxable business income, all expenses incurred for the purpose of business should be allowable as deduction including expenditure incurred in the course of business
for earning tax exempt income. However, subsequently, a proviso was introduced to prohibit reopening of completed assessments for the assessment years up to A.Y. 2000-01 so as to omit retrospective operation of the provision. CONCLUDING REMARKS 7. Apart from retrospective clarificatory amendments resulting from judicial decisions which are obviously against legislative intentions or suffer from a lacuna or are deficient in drafting of law, there are borderline cases where the provisions of the law are not clear and unambiguous or the law does not literally cover the planned transactions undertaken to circumvent the provisions. (perhaps Vodafone International Holdings B.V. case (supra) falls in this category. Legislature while drafting section 9 of I.T. Act, 1961 which is modelled on section 42 of the I.T. Act, 1922 might not have foreseen such an affront on the provision by the taxpayers). • DT - Secs. 2(14), 2(47), 9(1), 16(3), 64 & 195(1) ���������������� lis A suit, actions, controversy, dispute fraus omnia vitiat Fraud vitiates everything seisin The possession of land or chattels by one having title thereto For a long time, the literal school of interpretation of statute was widely prevalent in India. The fact that the judges must give effect to the clear and unambiguous words of the Statute and should not look at the substance of the transaction was accepted by the taxpayers and Revenue alike. Justice Krishna Iyer and Justice Chinnappa Reddy and some other judges brought the concept of purposive interpretation of statute to India. The decisions of the House of Lords in W.T. Ramsay Ltd. (supra) and other cases in 1980’s were discussed in the Indian decisions in ‘80’s and ‘90’s. But the issue died down with the decision of the Supreme Court in Azadi Bachao Andolan case (supra). But Revenue still yearns for judicial decisions on the lines of Ramsay or for the attitude of Justice Chinnappa Reddy and Justice Krishna Iyer towards tax avoidance. Most probably the above psyche of the Revenue provoked the retrospective, and not prospective, amendments to Income-tax Act. sine anno Without date sub poena Under a penalty ••• ipse dixit Dogmatic statement resting on bare authority August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 11 631
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- Page 7 and 8: INTRODUCTION Vodafone story - 1. On
- Page 9 and 10: and the capital gains on transfer o
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- Page 27 and 28: Taxing the Expenditure on Litigatio
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- Page 37 and 38: Court and if such party is still ag
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- Page 43 and 44: This article aims to study various
- Page 45 and 46: The true profits of the insurance b
- Page 47 and 48: expenditure or allowance which is n
- Page 49 and 50: the same have not yet been adopted
- Page 51 and 52: 48. General Insurance Corpn. of Ind
- Page 53 and 54: of income as declared by the assess
- Page 55 and 56: NGOs undertake many kinds of charit
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for earning tax exempt income. However,<br />
subsequently, a proviso was introduced to<br />
prohibit reopening of completed assessments<br />
for the assessment years up to A.Y. 2000-01<br />
so as to omit retrospective operation of the<br />
provision.<br />
CONCLUDING REMARKS<br />
7. Apart from retrospective clarificatory<br />
amendments resulting from judicial decisions<br />
which are obviously against legislative intentions<br />
or suffer from a lacuna or are deficient in<br />
drafting of law, there are borderline cases where<br />
the provisions of the law are not clear and<br />
unambiguous or the law does not literally<br />
cover the planned transactions undertaken to<br />
circumvent the provisions. (perhaps Vodafone<br />
International Holdings B.V. case (supra) falls in<br />
this category. Legislature while drafting section<br />
9 of I.T. Act, 1961 which is modelled on section<br />
42 of the I.T. Act, 1922 might not have foreseen<br />
such an affront on the provision by the taxpayers).<br />
• DT - Secs. 2(14), 2(47), 9(1), 16(3), 64 & 195(1)<br />
����������������<br />
lis A suit, actions, controversy, dispute<br />
fraus omnia vitiat Fraud vitiates everything<br />
seisin The possession of land or chattels by<br />
one having title thereto<br />
For a long time, the literal school of interpretation<br />
of statute was widely prevalent in India. The<br />
fact that the judges must give effect to the<br />
clear and unambiguous words of the Statute<br />
and should not look at the substance of the<br />
transaction was accepted by the taxpayers and<br />
Revenue alike. Justice Krishna Iyer and Justice<br />
Chinnappa Reddy and some other judges brought<br />
the concept of purposive interpretation of statute<br />
to India. The decisions of the House of Lords<br />
in W.T. Ramsay Ltd. (supra) and other cases in<br />
1980’s were discussed in the Indian decisions<br />
in ‘80’s and ‘90’s. But the issue died down<br />
with the decision of the Supreme Court in<br />
Azadi Bachao Andolan case (supra). But Revenue<br />
still yearns for judicial decisions on the lines<br />
of Ramsay or for the attitude of Justice Chinnappa<br />
Reddy and Justice Krishna Iyer towards tax<br />
avoidance. Most probably the above psyche of<br />
the Revenue provoked the retrospective, and<br />
not prospective, amendments to Income-tax<br />
Act.<br />
sine anno Without date<br />
sub poena Under a penalty<br />
•••<br />
ipse dixit Dogmatic statement resting on bare<br />
authority<br />
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 11<br />
631
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