The Commissioner of Income Tax Vs. Punjab State Electricity Board - Court Judgment

Excerpt:
- administrative law - government contract: [vijender jain, c.j., rajive bhalla & sury kant, jj] government contract rejection of highest bid challenge as to held, state has no dominus status to dictate unilateral terms and conditions when it enters into contract. its actions must be reasonable, fair and just in consonance with rule of law. as a necessary corollary thereto, state cannot refuse to confirm highest bid without assigning any valid reason and/or by giving erratic, irrational or irrelevant reasons. the state is free to enter into a contract just like any other individual and the contract shall not change its legal character merely because other party to contract is state. though no citizen possesses a legal right to compel state to enter into a contract, yet latter can neither pick and choose any person arbitrarily for entering into such agreement nor can it discriminate between persons similarly circumstanced. similarly, where breach of contract at hands of state violates fundamental rights of a citizen or its refusal to enter into a contract is contrary to statutory provisions or public duty, judicial review of such state action is inevitable. likewise, if state enters into a contract in consonance with article 299 rights of the parties shall be determined by terms of such contract irrespective of fact that one of the parties to it is a state or a statutory authority. for these precise reasons the equitable doctrine of promissory estoppel has been made applicable against the government, as against any other private individual, even in cases where no valid contract in terms of article 299 was entered into between the parties. hence, if government makes a representation or a promise and an individual alters his position by acting upon such promise, the government may be required to make good that promise and shall not be allowed to fall back upon the formal defect in the contract, though subject to well known limitations like larger public interest. the state, thus, has no dominus status to dictate unilateral terms and conditions when it enters into contract and its actions must be reasonable, fair and just and in consonance with rule of law. as a necessary corollary thereto state cannot refuse to confirm highest bid without assigning any valid reason and/or by giving erratic, irrational or irrelevant reasons. -- consumer protection act, 1986 [c.a. no. 68/1986]. articles 14 & 300a: government contract noon-acceptance of highest bid held, it does not result in taking away right to property of highest bidder highest bid, per se, unless it is accepted by competent authority, and consequential sale certificate is issued, does not grant the highest bidder right to property of type which is protected under article 300a right to property is limited to confer highest bidder the right to challenge action of appropriate authority in refusing to accept highest or other bids. [air 1984 p&h 282 (fb) explained] articles 14 & 226: government contract rejection of highest bid held, highest bidder has locus standi to maintain writ petition and assail action of state government or its authorities by contending that his bid has been turned down for arbitrary, illegal or perverse reasons however in such matters, heavy onus would like on petitioner bidder to establish his allegations as state action shall always be presumed to be in accordance with law - it cannot be said that any and every attempt of tax planning is illegal/illegitimate or that every transaction or arrangement which is perfectly permissible under the law, having the effect of reducing the tax burden on the assessee cannot simply be discarded because it is the businessman/assessee who is to take a decision in view of its business expediency.adarsh kumar goel, j. 1. the revenue has preferred this appeal under section 260a of the income tax act, 1961 (for short, 'the act) against the order of the income tax appellate tribunal, chandigarh bench 'b', chandigarh dated 30.9.2008 passed in ita no. 111/chd/2008 for the assessment year 199697, proposing to raise following substantial question of law:whether on the facts and in the circumstances of the case, the itat is legally correct in holding that in the present case, no colourable device has been adopted by the assessee, even when the intention of the assessee behind drafting the agreements between the assessee and the financial institution was to reduce the tax liability artificially of both the parties and as such the ratio of the decision of the hon'ble apex court in the case of mc dowell ltd. v. cto : [1985]154itr148(sc) has wrongly been interpreted.2. the assessee is punjab state electricity board, who sold energy saving devices on which 100% depreciation was permitted under section 32 of the act read with rule 5 of the income tax rules, 1962 (for short, 'the rules) and the same assets were taken on lease and deduction was sought for lease money. this deduction was disallowed on the ground that the transactions entered into by the assessee were sham transactions. the cit (a) dismissed the appeal but the tribunal upheld the plea of the assessee. the relevant observations are as under:it cannot be said that any and every attempt of tax planning is illegal/illegitimate or that every transaction or arrangement which is perfectly permissible under the law, having the effect of reducing the tax burden on the assessee cannot simply be discarded because it is the businessman/assessee who is to take a decision in view of its business expediency. as far as the reliance by the learned sr. dr on the decision of the hon'ble apex court in the case of mc dowell & co ltd. v. cto : [1985]154itr148(sc) , wherein it was held that the tax planning may be legitimate provided it is within the frame work of law and colourable device cannot be part of tax planning, we are of the humble opinion, that the facts of the aforesaid judicial pronouncements may not help the revenue because in the present appeal, no colourable device has been adopted by the assessee and even the learned assessing officer has not brought on record any evince even to suggest that the tax planning of the assessee is not within the permissible limit or any colourable device has been adopted by the assessee. in such a situation, the decision of the hon'ble gauhati high court in the case of cit v. george williamsons (assam) ltd. clear supports the case of the assessee wherein various judicial pronouncements has been considered including the case of mc dowells (supra). in the light of aforesaid facts and judicial pronouncements, we have not found any infirmity in the impugned order, consequently all these six appeal of the revenue are having no merit, consequently dismissed.3. only contention raised by the learned counsel for the revenue is that the machinery was integral part of the boilers and the same continued to be with the assessee inspite of sale. the fact remains that the sale consideration was received by the assessee and lease rental was paid by the assessee. merely because tax liability was reduced could not be conclusive of arrangement being sham of a device. as regards observations of the hon'ble supreme court in mc dowel, supra, the matter has been explained in subsequent judgments including in uoi v. azadi bachao andolan, air 2004 sc 107. reiterating the view that the assessee was entitlted to arrange his affiars to reduce tax liability, without violating the law, it was observed in azadi bachao andolan, supra that the principle laid down in irc v. duke of west minister (1936) aci was still valid.4. it was further observed that the above principle had been approved in india in judgment of the hon'ble supreme court in cit v. a. raman & co., : [1968]67itr11(sc) and observations of chinnappa reddy, j. in mc dowel could not be treated as ratio of the judgment in view of opinions of majority to the effect:tax planning may be legitimate provided it is within the framework of law. colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. it is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.5. the hon'ble supreme court affirmed the view taken by the madras high court in mv valliapappan v. ito : [1988]170itr238(mad) and gujrat high court in berry v. cit : [1996]222itr831(guj) . reference was also made to judgment in cwt v. arvind narottam : [1988]173itr479(sc) and mathuram aggarwal v. state of m.p. : air2000sc109 . it was further observed that words 'device' or 'sham' could not be used to defeat the effect of a legal situation. 6. in view of the finding recorded by the tribunal in the facts of this case, no substantial question of law arises. 7. the appeal is dismissed.