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2012 (9) TMI 768 - AT - Income TaxComputation of long term capital gains - dubious method of declaration and payment of dividend to avoid payment of tax on LTCG by the assessee - Held that:- It is important to bear in mind uncontroverted claim of the assessee that there were sufficient reserves and surplus, which were eligible for distribution as 'dividend', and the NIPL had sufficient cash balances as well. The nature of amounts distributed as dividend has not been altered as a result of, what the revenue authorities describe as, colourable device to evade taxes. As decided in Azadi Bachao Andolan's case(2003 (10) TMI 5 - SUPREME COURT) "nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act". - Undoubtedly, the course adopted by the assessee was tax advantageous inasmuch as if NIPL, assessee's wholly owned subsidiary, was not to distribute dividend and sell the shares without this exercise, the tax outgo would have been ₹ 94 lakhs more than under the present arrangement, but then every tax advantageous action or inaction cannot be treated as a colourable device unless such an action or inaction is not bonafide, it conceals the true nature of transaction or is an exercise without any commercial justification. Thus distribution of dividend by NIPL, prior to sale of its shares by the assessee, even though tax advantageous cannot be termed as a colourable device or sham transaction and the receipt of these dividends cannot be recharacterized as sale consideration of shares in the hands of the assessee - in favour of assessee.
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