1. A brief precursor
The issue regarding whether a route adopted by a taxpayer qualifies as methodology of tax planning, tax avoidance or tax evasion has been an aspect that has haunted various courts in India. While the taxpayer has sought to reduce his tax liability, arguably through bona fide ‘tax planning’ tools, the argument of the department has pivoted around the ‘tool’ being a device of tax avoidance. From the angle of the department; it has been their contention that such stratagem ought to be ferreted by the courts. The Honourable Supreme Court has been faced with this controversy a number of times, arguably dating back to its judgment in the case of McDowell & Co Limited Vs CTO [1985] 154 ITR 148.
From the angle of first principles, it would augur well to recall the landmark decision in the case of Inland Revenue Commissioner Vs Duke of Westminster [1939] AC 1 where it was held that unless a subject falls clearly within the letter of the law, it would be totally inapposite for the Crown to recover taxes from the said subject. On the contrary, if a person clearly fell within the letter of the law, he must be taxed however great the hardship may appear to the judicial mind to be.
The freedom to arrange one’s affairs having regard to the letter of the law, so as to not attract taxes, apart from being accepted by the Courts in England was accepted by a few courts in India including by the Honourable Gauhati High Court in the case of George Williamson (Assam) Limited (2004) 265 ITR 626.
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