TMI Blog1996 (5) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... d again under s. 143(1) allowing continuation of registration under ss. 184(7) of the Act. 2.1 On 21st April, 1984, relevant to asst. yr. 1985-86 for which the accounting year ended on 30th April, 1984, the following changes took place amongst the partners: "ABC Trust No. 14 Sold its 20% share with goodwill of Rs. 1,400 to Two S.S. Associates ABC Trust No. 21 Sold its 20% share with goodwill of Rs. 1,400 to Two Akash Associates Darshan Bipin Trust Sold its 15% share with goodwill of Rs. 1,050 to A.P. Eight Associates Arun Family Trust Sold its 15% share with goodwill of Rs. 1,050 to A.P. Three Associates Shona Trust Sold its 15% share with goodwill of Rs. 2,100 to Associates 3 Associate The profit arising as on 30th April, 1984, was first credited to the accounts of old trust partners and on the same day respective trust partners in their own capital account debited profit amounts of the new respective AOP partners to whom they had sold their partnership shares and accordingly all the new AOPs partners were paid their respective share of profit. The members of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove conclusion, the learned AO relied upon the judgment of the Supreme Court in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC)and held that the trusts and AOPs were subterfuges and sham and the entire exercise was undertaken and executed for the purpose of avoidance of payment of tax in the hands of the assessee-firm which has been claimed as a registered firm comprising of the aforesaid five AOPs. He, therefore, treated the firm as URF. 3. On appeal, the learned CIT(A) confirmed the action of the AO observing as under: "On careful consideration of the facts and circumstances of the case, I am of the view that this is a case where paper entities were created in the chamber of a tax consultant and these entities are bogus and sham having no business purpose whatsoever. They stand between the real owner of the business and the State exchequer in the matter of payment of taxes on the income earned. One would merely look at the peculiar names given to the trusts and the AOPs as also to the investment companies to come to the irresistible conclusion that the tax consultant ran out of decent names as popularly in vogue in the commercial wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Banyan Berry vs. CIT (1996) 131 CTR (Guj) 127 wherein it has been held that every legitimate and genuine act on the part of the taxpayer resulting in reduction of tax liability cannot be treated as device for avoidance of tax. Heavily relying upon the aforesaid judgment of the jurisdictional High Court, the learned counsel for the assessee submitted that the whole arrangement entered into between the trustees of the trust who originally constituted the firm and the five AOPs was genuine one and should not have been treated by the Revenue for avoidance of tax on the part of the assessee. 5. Shri K.V. Trivedi, the learned Departmental Representative, strongly supported the orders of the authorities below. He submitted that deliberate creation of the trust and AOPs and transfer of the business by the trusts to the AOPs at a nominal consideration merely through book entry was a colourable device and such a device has been disapproved by the Tribunal in the following decisions: (1) ITO vs. Samir Builders (1988) 68 CTR (Trib) (Ahd) 9 : (1987) 23 ITD 570 (Ahd) (2) Atman Trust vs. IAC (1989) 31 ITD 315 (Ahd) (3) Neo Trust vs. IAC (1993) 47 TTJ (Ahd) 83 : (199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip and Whereas the then partners were so in their representative capacity of trustees of various trusts and Whereas the said trustees being partners in their representative capacity for the reasons known to them have conveyed, transferred and assigned their right, title and interest in the firm to the partners of First to Fifth Part hereto and Whereas the parties hereto desired to have themselves recognised as partners in their respective representative capacity and Whereas the parties hereto desired to approve and record the terms and conditions under which the said business of partnership is to be continued and" A perusal of the partnership deed reveals that nowhere the names and addresses of the members of the AOPs were mentioned. Under the circumstances it is held that there was neither any dissolution of the original firm constituted of five trusts nor valid constitution of the new firm constituted of five AOPs and the whole arrangement was made by deliberate creation of trusts and AOPs and transfer of business by the trustees to the AOPs at a nominal consideration merely through book entries to by pass the amendment brought on the statute w.e.f. asst. yr. 1985- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissolution deed as a mere device to avoid tax by treating the realisation of actionable claim as the business to be carried on by the firm by placing reliance on the decision of Supreme Court in the case of McDowell Co. Ltd. vs. CTO. After going through the terms and conditions of the dissolution deed, the Hon'ble High Court of Gujarat held that it was "lawful, valid and bona fide dissolution" and that every legitimate and genuine act on the part of the taxpayer resulting in reduction of tax liability cannot be treated as device for avoidance of tax. It was further held that McDowell Co. Ltd. vs. CTO has not affected the freedom of citizen to plan his business affairs within the framework of law unless they may properly be called a subterfuge. Obviously the facts of the case before us are distinguishable. As held supra there was neither valid deed of dissolution nor bona fide deed of partnership. The trusts as well as AOPs were mere subterfuges and the entire exercise was undertaken and executed for the purpose of avoidance of payment of taxes in the hands of the assessee which has been claimed as a registered firm comprising of the aforesaid five AOPs each having two membe ..... 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