9911796707
TMI Blog1989 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the partnership and entered into the partnership in his individual capacity the other two partners remaining the same. On the 15th of March, 1981 two agreements were entered into (1) between the assessee and Sashikant Himatlal Patel in his capacity as the trustee of the trust to take over from the assessee the business premises at a monthly rent of Rs. 10,000 and (2) between the said trust and one M/s. Mayonara Industrial Corporation whereunder the trust gave on sub-lease to Mayonara the said business premises at a monthly rent of Rs. 18,000. On these facts the ITO has observed as follows :-- " So the above arrangement of leasing out the property is a colourable one and not genuine. Otherwise, there would not have been any necessity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust because the assessee was in need of finance and that deposits were to be given by the trust to the assessee had not been honoured. On the other hand he has noted that M/s. Mayonara owed an amount of Rs. 63,000 for each of the assessment years 1982-83 and 1983-84 to the trust. According to him, if the transaction between the trust and Mayonara was real then no prudent businessman would allow the assessee to remain in debit balance of huge amount of nearly Rs. 63,000 but would have insisted upon a huge deposit or advance rent. 4. He has also confirmed the G.P. addition on the ground that the profit disclosed this year was low and quantity details were not maintained by the assessee. The assessee is aggrieved on both the counts. 5. On b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee must earn Rs. 18,000 and not Rs. 10,000 if it chooses so to do ? In reducing its tax liability the assessee has paid the price by foregoing part of an income which would otherwise have been the assessee's income. This brings us to the question whether the well-known decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 can be applied here. What is the scope of that decision ? What is the line which separates those cases which fall within its scope and those which fall outside it ? 8. In McDowell & Co. Ltd.'s case, the assessee was trying to reduce its sales tax liability by the mere act of entering into an agreement with the buyer of its goods transferring its excise duty liability to the buyer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " The taxpayer engaged in tax avoidance does not reduce his income or suffer a loss or incur expenditure but nevertheless obtains a reduction in his liability to tax as if he had. " The Madras High Court then observed that " this in our view, is the crux of the new approach adopted by the English Courts and approved by the Supreme Court " (at pages 282 and 283). In the present case the diversion of income is in favour of a trust, none of the beneficiaries of which are the same as the assessee. It is true that Sashikant Patel is the father of the beneficiaries but the two entities are different i.e. Sashikant Patel in his individual capacity and Sashikant Patel in his capacity as a trustee. Therefore, there is a real diversion of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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