Judgment :- 1. This revision petition is filed by the revenue challenging the order of the Karnataka Appellate Tribunal (Sales Tax), which has set aside the order of the First Appellate Authority holding that proviso to Section (5) (3) (a) of the Karnataka Sales Tax Act, is not attracted. This revision pertains to assessment years 1991-92. 1992-93 and 1993-94. 2. The facts of the case leading up to the filing of this appeal are that the respondent-assessee, Videocon International Limited, is a Private Limited Company, engaged in the manufacture of colour television sets in the State of Karnataka and also sales of other electronic goods like washing machines, video cassette recorders, video cassette players, black and white television sets, mixes, air coolers, air conditioners, audio equipment etc., after purchasing the same from local registered dealers and from outside the State. The assessee is having branches at Hubli and Mangalore in Karnataka and all over India outside the State of Karnataka. The assessee is the user of the brand name, ‘VIDEOCON’ for the sale of its manufactured products, namely. Colour televisions manufactured at its manufacturing unit located at Giddenahalli, Attibele Hobli, Anekal Taluk, Bangalore District. The assessee is a selling distributor of Videocon products inside the State of Karnataka. 3. The assessee filed annual return in Form No.4 for three year. In the said return for the year 199192 they have shown taxable turnover as Rs. 13,46,16,042-67, for the year 1992-93 – Rs. 8,15,61,685-00 and for the year 1993-94 – Rs. 5,50,78,225-00. However the Assessing Authority has determined the taxable turnover as for the year 1991-92 – Rs. 25,69,40,113-00, for the year 1992-93 – Rs. 26,48,88,014-13 and for the year 1993-94 – Rs. 30,74,57,495-98. Aggrieved by the same, the assessee preferred appeals under Section 20 of the Karnataka Sales Tax Act. (for short, hereinafter referred to as “the Act”). All the three appeals came to be dismissed affirming the assessment orders. An appeal was filed before the Tribunal against the said two orders. 4. The case of the assessee is that the assessee’s claim for exemption as second and subsequent dealer in respect of sales tax suffered on electronic and electrical goods has been rejected without reference to the assessee’s claim that the assessee purchased the said goods from other registered dealers and the said selling dealers are very much in existence having collected the single point tax. The reason given by the Assessing Authority in justification of the rejection of claims of second sale are baseless and merely on assumption which are not supported by any material on record. The authorities below very grossly erred in applying the provisions of third proviso to Section 5(3)(a) of the Act and erred in treating the second schedule goods sold by the assessee as the first sale. Therefore, they contended among other grounds that the orders passed by the assessing authority as well as the appellate authority is liable to be set aside. 5. The Tribunal by a very lengthy order has held that proviso to Section 5 (3)(a) of the Act is not attracted to the facts of this case, as the assessee is not the proprietor of the trade mark and was not selling the said goods on account of being the proprietor of the trade mark. In so far as the year 1991-1992 is concerned it held that the assessment order is barred by limitation and the return of turnover declared as per the annual turnover has to be accepted with liberty to take suitable action in accordance with law. Aggrieved by the same, the revenue is in appeal. 6. The Learned Government Advocate, assailing the impugned order of the Tribunal contended that the brand owner – trade make owner, Videocon India, a Partnership Firm, is not getting anything in turn by allowing the manufactures to use their trade mark in the name of the company nor in allowing them to sell the products with the trade mark. A careful analysis of the material on record clearly shows that the trade mark owner. Videocon India has permitted the manufacturers to use the trade mark without consideration who in turn sell the manufactured goods with the trade mark to the assessee for a bare minimum cost and it is the assessee who sells those products at a multiple cost and, therefore the clear intention to evade tax could be gathered. In those circumstances, the third proviso to Section 5(3) (a) applies and the sale by the assessee which is second sale is to be treated as first sale. That is what precisely the assessing officer and the first Appellate Authority have done. In those circumstances, the third proviso to Section 5(3) (a) applies and the sale by the assessee which is second sale is to be treated as first sale. That is what precisely the assessing officer and the first Appellate Authority have done. The Tribunal without proper appreciation of the facts on record as well as the law on the point committed a serious error interfering with the said assessment orders and in holding that the third proviso to Section 5(3) (a) is not attracted to the facts of the case and, therefore, the additions made by the authority are illegal. Therefore, he submits a case for interference is made out. 7. Learned senior counsel appearing for the assessee on the other hand submitted that as long as the manufacturers have sold the product to the assessee who in turn have paid tax for the first sale and unless the said sale transaction is shown to be sham and when the said sale is not in favour of the proprietor of the trade mark, the third proviso to Section 5 (3)(a) is not attracted as rightly held by the Tribunal. Therefore, he submits no case for interference is made out. In fact, he also submitted for the assessment year 1994-95 onwards the department has accepted the stand of the assessee and on that basis assessment orders are passed. Therefore, he submits there is no merit in this revision. 8. In the light of the aforesaid facts and the rival contentions, the questions of law that arises for our consideration is Whether the third proviso to Section 5(3)(a) of the Act is attracted to the facts of this case? 9. As set out above the facts are not in dispute. The trade mark, ‘VIDEOCON’ is owned by Videocon India, a Partnership Firm. The said Partnership Firm in turn has granted licences to the following:- 1. M/s. Rajakumar Engineering (P) Limited, Bangalore, Mangalore and Hubli. 2. M/s. Pinnacle Exports (P) Limited. Bangalore. 3. M/s. Videocon VCR Limited. Bangalore. 4. M/s. Videocon India, Bangalore, Mangalore and Hubli. 5. M/s. Malani Aqua Temp Private Limited, Bangalore. 6. M/s. Videocon India, Bangalore and Hubli. 7. M/s. Bombay Coolers (P) Limited, Bangalore, Mangalore and Hubli. 8. M/s. Videocon Appliance Limited, Bangalore, Mangalore and Hubli. Those companies are manufacturing various electrical and electronic products under the brand name VIDEOCON. Bangalore. 4. M/s. Videocon India, Bangalore, Mangalore and Hubli. 5. M/s. Malani Aqua Temp Private Limited, Bangalore. 6. M/s. Videocon India, Bangalore and Hubli. 7. M/s. Bombay Coolers (P) Limited, Bangalore, Mangalore and Hubli. 8. M/s. Videocon Appliance Limited, Bangalore, Mangalore and Hubli. Those companies are manufacturing various electrical and electronic products under the brand name VIDEOCON. Some of them are Private Limited Companies and some of them are Public Limited Companies. After manufacturing those products it is not in dispute they have sold the products to the assessee. On such sales, they have paid tax under the Act which is also not in dispute. After purchase of these goods, the assessee has sold the goods to other dealers. In the series of sales, the sale by the assessee to other dealers is the second sale which under the Act as the law stood on the date of sales was not taxable. It is also on record that the assessee has spent huge amounts for the purpose of advertisement of these products under the brand name, VIDEOCON. The price at which the assessee has sold these products is comparatively high when compared with the cost at which it was purchased. It is in this factual background it was contended by the state that on account of the difference in the price of the goods sold by the assessee and the manufacturers and in order to reduce the tax liability this arrangement is made by the Proprietor of Videocon trade mark namely, Videocon India Limited and, therefore, this second sale by the assessee is to be treated as first sale as per proviso to Section 5(3)(a) and tax is to be paid on the said amount. It is in this background, it is necessary to look into the third proviso to Section 5(3)(a) on which reliance is placed. “ 5. Levy of tax on sale to purchase of goods.- (1) Every dealer shall pay for each year tax on his taxable turnover at the rate of twelve percent at the point of first sale. * * * * * * * * (3) Notwithstanding anything contained in sub-section (1). The tax under this Act shall be levied. “ 5. Levy of tax on sale to purchase of goods.- (1) Every dealer shall pay for each year tax on his taxable turnover at the rate of twelve percent at the point of first sale. * * * * * * * * (3) Notwithstanding anything contained in sub-section (1). The tax under this Act shall be levied. Provided further that where any goods liable to tax goods liable to tax under this Act are produced to manufactured by a dealer with the name to trade mark registered under the Trade and Merchandise Marks Act. 1958 (Central Act 43 of 1958). Of any other dealer and which are not used by the latter as raw materials. Component parts to packing materials as defined under the explanation to Section 5-A, the sale of such goods by the dealer who has produced or manufactured to the dealer who is the brand name or trade mark holder, shall not be deemed to be, but the subsequent sale of such goods by the dealer having the right either as proprietor or otherwise to use the said name to the trade mark, either directly or through another, on his own account or on account of others shall be deemed to be the sale by the first dealer liable to tax under this Section. illustration:- ‘A’ has registered a trade mark for manufacture of certain goods. He gets the said goods manufactured by ‘B’ under the said trade mark. The sale by ‘B’ to ‘A’ of the said goods is not the first sale but the sale by ‘A’ or by any other person on his account is the first sale. (b) in the case of purchased of any of the goods mentioned in column (2) of the Third Schedule, at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said schedule, on the dealer liable to tax under this Act, on his taxable turnover of purchases in each year relating to such goods.” 10. A careful examination of the aforesaid provision makes it clear that when goods liable to tax are produced or manufactured by a dealer with the name or trade mark of any other dealer and which are not used by the latter, the sale of such goods by the dealer who has produced or manufactured to the dealer who is the brand name or trade make holder shall not be deemed to the first sale. It is the subsequent sale of such goods by the dealer having the right either as proprietor or otherwise to use the said name or trade mark, either directly or through another, on his own account or on account of others shall be deemed to be the sale by the first dealer liable to tax under this Section. The illustration to the said Section makes the position very clear. It is only those sales by the manufacturers who utilise the trade mark and then sell the products to the proprietor of the trade mark, then only it is the second sale by such proprietor which is to be treated as the first sale for the purpose of tax under Section 5 of the Act. In this case admittedly the proprietor of the trade mark is a Partnership Firm under the name of Videocon India. The seven manufacturers are the seven producers of various goods using the trade mark VIDEOCON which they have obtained under a licence agreement. They manufacture goods under the trade mark Videocon and thereafter they are not selling those products to the Proprietor of the trade mark. They are selling to a public limited company in which the Public Corporations like LIC, HDFC, etc., have substantial interest. Therefore, when there are three legal entities and not two legal entities as contemplated under the proviso as well as the illustration, the aforesaid provision is not attracted to the facts of this case. 11. Without disputing the aforesaid factual position it was contended on behalf of the revenue that the Court has to lift the veil and appreciate the undisputed facts. The proprietor of the trade mark ‘VIDEOCON’ is manufacturing black and while TVs that too in a very small number. All their products are manufactured by these manufacturers. 11. Without disputing the aforesaid factual position it was contended on behalf of the revenue that the Court has to lift the veil and appreciate the undisputed facts. The proprietor of the trade mark ‘VIDEOCON’ is manufacturing black and while TVs that too in a very small number. All their products are manufactured by these manufacturers. Though there is a licence agreement, it is without any consideration and all these manufacturers supply the manufactured products to the assessee who is acting for and on behalf of the proprietor of the trade mark. It is the assessee who spends money for advertisement which ensures to the benefit of the manufacturer as well as the proprietor of the Trade mark and it is the assessee who is making huge profit and because of the huge expenditure incurred by the assessee, the profit margin is set off and the assessee is gaining advantage and reducing the liability to pay tax. Therefore, he submits if the facts are properly appreciated in the right perspective, it is a clear case of evasion of the tax and the Court should not permit such an act. In support of his contention he relied on a Constitution Bench judgment of the Apex Court in the case of Mcdowell & Company Limited vs Commercial Tax Officer (1985 STC VO.59 277) and in particular relied on the judgment of Chinnappa Reddy.J, to the following effect:- “We think that time has come for us to depart from the Westminster (1936) AC 1 principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J., and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is “the large hidden loss” to the community (as pointed out by Master Wheatcraft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer his perhaps not so skilful, advisers on the other side. Then again there is the “sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it”. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the “artful dodgers”. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said: “Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civiliza6tion.” But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster [1936] AC I and the alluring logic of tax avoidance. We now live in a welfare state whose financial needs, if backed by the law, have to be respected and met. We must recognize that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally to liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it” 12. Reliance was also placed on the judgment of the Apex Court in Wood Polymer Limited VS Bengal Hotels Limited [(1970) 40 COM CAS 597] where it was held as under:- “ It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of ”emerging” techniques of interpretation was done in Ramsay [1982] AC 300. Burma Oil (1982). It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of ”emerging” techniques of interpretation was done in Ramsay [1982] AC 300. Burma Oil (1982). Simon’s TC 30 and Dawson [1984] I All ER 530 to expose the devices for what they really are and to refuse to give judicial benediction.” 13. Relying on this passage it was contended that time has come to depart from the principle of Westminster and the Courts have to find out whether the transaction is really a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. ENGLISH VIEW 14. Prior to the Second World War, the decision in IRC-Vs-Duke of Westminster [(1936) AC 4 (HL)] was holding the field. However, it was thought that there was a radical departure in fiscal jurisprudence by the English Courts as evidenced in W.T. Ramsay Ltd., Vs- JRC [(1982) AC 300] Inland Revenue Commissioners –Vs-Burman Oil Company Ltd., [(1982) STC 30] & Furniss –Vs-Dawson [(1984) 1 All ER 530]. But from a catena of subsequent cases, it is clear that Duke of Westminster still holds the field. A reference to the relevant cases is made in the following paragraphs. 15. In IRC V/s. Fisher’s Executors (1926) AC 395 at page 412 (HL) it is opined as follows: “My Lords, the highest authorities have always recognized that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed terms or of any expressed terms of any omissions that he can find in his favour in taxing Acts. In so doing, he neither comes under liability nor incurs blame.” As Lord Atkin pointed out in Duke of Westminster’s case (1936) AC 1 (HL); (1935) 19 TC 490, 511). “I do not use the words device in any sinister sense; for it has to be recognized that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. “I do not use the words device in any sinister sense; for it has to be recognized that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. The only function of a court of law is to determine the legal result of his dispositions so far as they affect tax.” Lord Tomin said:- “There may, of course, be cases where documents are not bona fide nor intended to be acted upon, but are only used as a cloak to conceal a different transaction”. 16. Similar views were expressed by Lord Tomin in IRC V/s. Duke of Westminster (1936) AC 1 (HL); 19 TC 490, 520 (HL) which reflected the prevalent attitude towards tax avoidance: “Every Man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however, unappreciative the Commissioners of Inland Revenue or his fellow tax payers may be in his ingenuity, he cannot be compelled to pay an increased tax.” 17. Infact, in English Law also, in the case of Sherdly-Vs.- Sherdley [(1980 ALL ER 202] the following passage has the effect of reiterating the principles of Duke of Westminster:- “ The basic proposition is that any taxpayer is entitled so to order his affairs that his liability to tax is as law as possible (IRC v Duke of Westminster (1936) AC I: (1935) ALL ER 259). However, he is not entitled to pretend so to order his affairs by entering into a sham transaction, and if he does so, the Inland Revenue can call on the Commissioners and, ultimately, the Courts to declare that it is a sham transaction, and, as such, is to be disregarded.” 18. In Craven V/s. White (1988) 3 All ER 495 (HL), Lord Keith of Kinkel says, with reference to the trilogy of the aforesaid cases. In Craven V/s. White (1988) 3 All ER 495 (HL), Lord Keith of Kinkel says, with reference to the trilogy of the aforesaid cases. “The court must first construe the relevant enactment in order to ascertain its meaning; it must then analyse the series of transactions in question, regarded as a whole, so as to ascertain its true effect in law; and finally it must apply the enactment as construed to the true effect of the series of transactions and so decide whether to not the enactment was intended to cover it. The most important feature of the principle is that the series of transactions is to be regarded as a whole. In ascertaining the true legal effect of the series it is relevant to take into account, if it be the case, that all the steps in it were contractually agreed in advance to had been determined on in advance by a guiding will which was in a position, for all practical purposes, to secure that all of them were carried through to completion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax. The principle does not involve, in my opinion, that it is part of the judicial function to treat as nugatory any step whatever which a taxpayer may take with a view to the avoidance to mitigation of tax. It remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision such as section 460 of the Income and Corporation Taxes Act, 1970. Lord Oliver says: “It is equally important to bear in mind what the case did not decide. It did not decide that a transaction entered into with the motive of minimizing the subject’s burden of tax is. For that reason, to be ignored to stuck down. Lord Oliver says: “It is equally important to bear in mind what the case did not decide. It did not decide that a transaction entered into with the motive of minimizing the subject’s burden of tax is. For that reason, to be ignored to stuck down. Lord Wilberforce was at pains to stress that the fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides (see (1981) 1 ALL ER 865 at 871: [1982] AC 300 at 323). For did it decide that the court is entitled, because of the subject’s motive in entering into a genuine transaction, to attribute to it a legal effect which it did not have. Both Lord Wilberforce and Lord Fraser emphasis the continued validity and application of the principle of IRC V/s.Duke of Westminster (1936) AC 1 ; (1935) ALL ER Rep.259, a principle which Lord Wiilberforce described as ‘cardinal principle’. What it did decide was that, that cardinal principle does not, where it is plain that a particular transaction is but one step in a connected series of interdependent steps designed to produce a single composite overall result, compel the court to regard it as otherwise than what it is, that is to say merely a part of the composite whole.” Lord Oliver observes: “My Lords, for my part I find myself unable to accept that Dawson either established to can properly be used to support a general proposition that any transaction which is effected for the purpose of avoiding tax in a contemplated subsequent transaction and is therefore ‘planned’ is, for that reason, necessarily to be treated as one with that subsequent transaction and as having no independent effect even where that is realistically and logically impossible.” Continuing, Lord Oliver observes: “Essentially, Dawson was concerned with a question which is common to all successive transactions where an actual transfer of property has taken place to a corporate entity which subsequently carries out a further disposition to an ultimate disponee. The question is: when is a disposal within the terms of the statue? To give to that question the answer ‘when, on an analysis of the facts, it is seen in reality to be a different transaction altogether’ is well within the accepted canons of construction. The question is: when is a disposal within the terms of the statue? To give to that question the answer ‘when, on an analysis of the facts, it is seen in reality to be a different transaction altogether’ is well within the accepted canons of construction. To answer it ‘when it is effected with a view to avoiding tax on another contemplated transaction’ is to do more than simply to place a gloss on the words of the statute. It is to add a limitation to qualification which the Legislature itself has not sought to express and for which there is not context in the statuate. That however, desirable it may seem, is legislate, not to construe, and that is something which is not within judicial competence. I can find nothing in Dawson or in the cases which preceded it which causes me to suppose that was what this House was seeking to do.” 19. While referring to the case of Duke of Westminster in Macniven (Inspector of Taxes) – Vs.- Westmoreland Investments Ltd., [(2001) 1 ALL ER 865], Lord Hoffman observed as follows:- “In the Ramsay case both Lord Wilberforce and Lord Fraser of Tullybelton, who gave the other principle speech, were careful to stress that the House was not departing from the principle in IRC C.Duke of Westminster, (1936) AC 1, (1935) All ER Rep 259. There has nevertheless been a good deal of discussion about how the two cases are to be reconciled. How, if the various juristically discrete acquisitions and disposals which made up the scheme were genuine, could the House collapse them into a composite self-cancelling transaction without being guilty of ignoring the legal position and looking at the substance of the matter? My Lords, I venture to suggest that some of the difficulty which may have been felt in reconciling the Ramsay case with the Duke of Westminster’s case arises out of an ambiguity in Lord Tomlin’s statement that the Courts cannot ignore the ‘the legal position’ and have regard to ‘the substance of the matter’. If ‘the legal position’ is that the tax is imposed by reference to a legally defined concept, such as stamp duty payable on a document which constitutes a conveyance on sale, the Court cannot tax a transaction which uses no such document on the ground that it achieves the same economic effect. If ‘the legal position’ is that the tax is imposed by reference to a legally defined concept, such as stamp duty payable on a document which constitutes a conveyance on sale, the Court cannot tax a transaction which uses no such document on the ground that it achieves the same economic effect. On the other hand, if the legal position is that tax is imposed by reference to a commercial concept, then to have regard to the business ‘substance’ of the matter is not a ignore the legal position but to give effect to it. The speeches in the Ramsay case and subsequent cases contain numerous references to the ’real’ nature of the transaction and to what happens in ‘the real world’. These expressions are illuminating in their context, but you have to be careful about the sense in which they are being used. Otherwise you land in all kinds of unnecessary philosophical difficulties about the nature of reality and, in particular, about how a transaction can be said not to be a ‘sham’ and yet be ‘disregarded’ for the purpose of deciding what happened in the ‘the real world’. The point to hold on to is that something may be real for one purpose but not for another. When people speak of something being a ‘real’ something, they mean that it falls within some concept which they have in mind, by contrast with something else which might have been thought to do so, but does not. When an economist says that real incomes with imaginary incomes. The contrast is specifically between incomes which have not. In order to know what he means by ‘real’, one must first identify the concept (inflation adjustment) by reference to which he is using the word. Thus in saying that the transaction in the Ramsay case were not sham transactions, one is accepting the juristic categorization of the transactions as individual and discrete and saying that each of them involved no pretence. They were intended to do precisely what they purported to do. They had a legal reality. But in saying that they did not constitute a ‘real’ disposal giving rise to a ‘real’ loss, one is rejecting the juristic categorization as not being necessarily determinative for the purposes of the statutory concepts of ‘disposal’ and ‘loss’ as properly interpreted. The contrast here is with a commercial meaning of these concepts. They had a legal reality. But in saying that they did not constitute a ‘real’ disposal giving rise to a ‘real’ loss, one is rejecting the juristic categorization as not being necessarily determinative for the purposes of the statutory concepts of ‘disposal’ and ‘loss’ as properly interpreted. The contrast here is with a commercial meaning of these concepts. And in saying that the income-tax legislation was intended to operate ‘in the real world’, one is again referring to the commercial context which should influence the construction of the concepts used by Parliament.” 20. Thus even in the year 2001 the House of Lords emphasized the continued validity and application of the principle in Duke of Westminster’s case. AMERICAN JURISPRUDENCE 21. The situation in the United States is reflected in the following passage from American Jurisprudence (American Jurisprudence [1973] second edition, volume 71): “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes. To altogether to avoid them, by means which the law permits, cannot be doubted. A tax-saving motivation does not justify the taxing authorities or the courts in nullifying or disregarding a taxpayer’s otherwise proper and bona fide choice among courses of action, and the State cannot complain, when a taxpayer resorts to a legal method available to him to compute his tax liability, that the result is more beneficial to the taxpayer than was intended. It has even been said that it is common knowledge that not infrequently changes in the basic facts affecting liability to taxation are made for the purpose of avoiding taxation, but that where such changes are actual and not merely simulated, although made for the purpose of avoiding taxation. Thus, a man may change his residence to avoid taxation, or change the form of his property by putting his money into non-taxable securities, or in the form of property which would be taxed less, and not be guilty of fraud. On the other hand, if a taxpayer at assessment time converts taxable property into non-taxable property for the purpose of avoiding taxation, without intending a permanent change, and shortly after the time for assessment has passed, reconverts the property to its original form, it is a discreditable evasion of the taxing laws, a fraud, and will not be sustained.” 22. On the other hand, if a taxpayer at assessment time converts taxable property into non-taxable property for the purpose of avoiding taxation, without intending a permanent change, and shortly after the time for assessment has passed, reconverts the property to its original form, it is a discreditable evasion of the taxing laws, a fraud, and will not be sustained.” 22. Several judgments of the U.S. courts are in respect of the proposition that motive of tax avoidance is irrelevant in consideration of the legal efficacy of a transactional situation (see in this connection Gregory V. Helvering 293 US 465,469,55 S.Ct. 226, 267, 78 L.Ed.566,97 ALR 1335; Helvering V. St.Louis Trust Company 296 US 48,56 S.Ct.78, 80L; Becker V. St. Louis Union Trust Company 296 US 48,56 ct.78, 80L). 23. Tosimilar effect are the following observations of the U.S. court in Perry R. Bas V. Commissioner of Internal Revenue [1968] US 50 TC 595; “We infer than Stantus was created by petitioners with a view to reducing their taxes through qualification of the corporation under the convention. The test, however, is not the personal purpose of a taxpayer in creating a corporation. Rather, it is whether that purpose is intended to be accomplished through a corporation carrying out substantive business functions. If the purpose of the corporation is to carry out substantive business functions, or if it in fact, engages in substantive business activity, it will not be disregarded for Federal tax purpose.” INDIAN VIEW 24. Avoidance of tax i.e., reduction of tax by lawful means is not regarded as an instance of tax evasion though in the early years of the last century it was regarded as an instance of tax evasion. Following the English decision, the Apex Court in the case of Jiyaji Rao Cotton Mills – Vs. – CIT AND CEPT [(1958) 34 ITR 888 (SC)] held that every person is entitled to so arrange his affairs as to avoid taxation but the arrangement should be real and genuine and not a sham to make-believe. 25. Following the English decision, the Apex Court in the case of Jiyaji Rao Cotton Mills – Vs. – CIT AND CEPT [(1958) 34 ITR 888 (SC)] held that every person is entitled to so arrange his affairs as to avoid taxation but the arrangement should be real and genuine and not a sham to make-believe. 25. The Supreme Court in case of Commissioner of Income-Tax, West Bengal – Vs.- Calcutta Discount Co., Ltd., ( AIR 1961 SC 372 ) while dealing with the similar circumstances held that: Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. 26. In India, the Courts have made a clear distinction between Tax evasion and Tax Avoidance. In the case of tax evasion, the Apex Court has held that the Courts would have to pierce the corporate veil and to find out the economic realities behind the legal façade. A corporate entity can be disregarded if it is used for tax evasion or to circumvent tax obligation vide CIT-Vs.- Sri Meenakshi Mills Ltd., [(1967) 63 ITR 609 (SC)]. 27. However, significant important observations in this regard are to be found in case of The Commissioner of Income-Tax, Gujarat – Vs.- M/s. A.Raman and Co., ( AIR 1968 SC 49 ), wherein, it has been held as under:- The plea raised by the Income-tax Officer is that income which could have been earned by the assesses was not earned, and a part of that income was earned by the Hindu undivided families. That according to the Income-tax Officer was brought about the ”a subterfuge to contrivance”. Counsel for the Commissioner contended that if by resorting to a “device to contrivance”, income which would normally have been earned by the assessee is divided between the assessee and another person, the Income-tax Officer would be entitled to bring the entire income to tax as if it had been earned by him. But the law does not oblige a trader to make the maximum profit that he can out of his trading transaction. But the law does not oblige a trader to make the maximum profit that he can out of his trading transaction. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment a case for commencing a proceeding for reassessment under Section 147 (1) (b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to device to divert the income before it accrues to arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully by circumvented.” 28. In the case of Calcutta Discount Co., Ltd.,-Vs.- Income Tax Officer [(1973) 91 ITR 8], it has been held that if the assessee had arranged in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. 29. In case of Commissioner of Wealth-Tax-II, Ahmedabad- Vs.- Arvind Narottam [(1988) 173 ITR 479 (SC)], the Supreme Court held as under: “But the question which many ordinary taxpayers very often, in a country of shortages with ostentatious consumption and deprivation for the large masses ask, is, does he with taxes buy civilization or does he facilitate the waste and ostentation of the few. Unless waste and ostentation in Government spending are avoided to eschewed, no amount of moral sermons would change people’s attitude to tax avoidance. In any event, where the true effect on the construction of the deeds is clear, appeal to discourage tax avoidance is not a relevant consideration”. 30. In the case of Union of India & Ors. Unless waste and ostentation in Government spending are avoided to eschewed, no amount of moral sermons would change people’s attitude to tax avoidance. In any event, where the true effect on the construction of the deeds is clear, appeal to discourage tax avoidance is not a relevant consideration”. 30. In the case of Union of India & Ors. – Vs.- Playworld Electronics Pvt., Ltd., [ (1989) 3 SCC 181 ] while holding that colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by dubious methods, the Apex Court also proceeded to add that it is also true that in order to create an atmosphere of tax compliance, taxes must be reasonably collected and when collected should be utilitzed properly and not wasted. 31. Thereafter, another Constitution Bench of the Apex Court in the case of Mathuram Agrawal Vs. State of Madhya Pradesh [ (1999) 8 SCC 667 ] held at para 12 as under:- “The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous, In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in plain language. It is not the economic results sought to be obtained by making the provisions which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Word cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature.” 32. In fact, the said question arose for consideration before the Apex Court in the case for Union of India and Another Vs Azadi Bachao Andolan and Another [ AIR 2004 SC 1107 ]. Learned senior counsel for the respondent relied upon the said judgment to content that the opinion of Chinnappa Reddy J has been watered down. In the aforesaid decision, after referring to the entire catena of cases up-to-date including the aforesaid Constitution Bench judgment as well as the opinion expressed in the said judgment by Justice Chinnappa Reddy, the Apex Court held as under:- “146. In the aforesaid decision, after referring to the entire catena of cases up-to-date including the aforesaid Constitution Bench judgment as well as the opinion expressed in the said judgment by Justice Chinnappa Reddy, the Apex Court held as under:- “146. With respect, therefore, we are unable to agree with the view that Duke of Westminster is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, and we agree with respect. In our view, the principle in Duke of Westminster is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah, J. in CIT V. Raman are very much relevant even today.” “153. The Constitution Bench reiterated the observations in Bank of Chettinad Ltd.,V. CIT, quoting with approval the observations of Lord Russell of Killowen in IRC V. Duke of Westminster and the observations of Lord Simonds in Russell V. Scott.” “We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents.” Though the words: “sham” and “device” were loosely used in connection with the incorporation under the Mauritius law, we deem it fit to enter a caveat here. These words are not intended to be used as magic mantras or catch-all phrases to defeat or nullify the effect of a legal situation.” 33. From the aforesaid it is clear that there is no inconsistency to deviation in the approach to the interpretation of the taxation law in England, America as well as in India. It is now well settled that a citizen is entitled to arrange his affairs as not to attract taxes imposed by the State, so far as he can do so within the law. Every man is entitled to order his affairs in such a manner that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure the said result, his ingenuity is to be respected and he cannot be compelled to pay an increased tax. Every man is entitled to order his affairs in such a manner that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure the said result, his ingenuity is to be respected and he cannot be compelled to pay an increased tax. He may legitimately claim the advantage of any express terms or of any omissions that he can find in his favour in taxing statutes. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized. The law does not oblige a trader to make the maximum profit that he can out of his trading transactions. The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them, by means which the law permits, cannot be doubted. The basic proposition underlining this taxation law is that any tax payer is entitled so as to order his affairs in such a manner as to see that his liability to tax is as low as possible. If the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision. The fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides. Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement should be real and genuine and not a sham to make-believe. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Colourable devices cannot be part of tax planning. A tax-saving motivation does not justify the taxing authorities or the courts in nullifying or disregarding a taxpayer’s otherwise proper and bona fide choice among courses of action. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. Colourable devices cannot be part of tax planning. A tax-saving motivation does not justify the taxing authorities or the courts in nullifying or disregarding a taxpayer’s otherwise proper and bona fide choice among courses of action. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. Tax planning may be legitimate provided it is within the framework of law. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. 34. In so far as the observations of Justice Chinnappa Reddy.J., that time has come for us to depart from the Westminster [1936] AC I principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah.J., and similar observations made elsewhere is answered by the Apex Court in the case of Union of India- vs-Azadi Bachao Andolan [ AIR 2004 SC 1107 ] as under para 146 and 154: “146. With respect, therefore, we are unable to agree with the view that Duke of Westminster is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, and we agree with respect. In our view, the principle in Duke of Westminster is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah. J. in CIT v. Raman are very much relevant even today”. “154. It thus appears to us that not only is the principle in Duke of Westminster alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell.” 35. In the light of the aforesaid discussions and the observation of the Apex Court emphatically in Azadi Bachao Andolan’s case, as long as the arrangement of the assessee to avoid payment of tax do not contravene any statutory provision and is within the four corners of law, it cannot be found fault with. The transactions referred to are neither sham to unreal. The transactions referred to are neither sham to unreal. Though we could see that these three companies are floated with the intention of avoiding payment of tax, as long as the said act is within the frame work of law and is not a sham transaction, the benefit of the law or loopholes in the law would enure to the benefit of the assessee. After seeing how this loophole has been exploited within the four corners of law, the Parliament has promptly now amended the law plugging the loophole. Therefore, by any judicial interpretation we cannot read it into the section which was not intended by the Parliament at the time of enacting this provision. Therefore, the order passed by the Tribunal in consonance with the law of the land. The substantial question of law raised in this appeal is answered against the revenue and in favour of the assessee. 36. In so far as the assessment year 1991-92 is concerned, the Tribunal without proper application of mind has held the said assessment order is barred by limitation. It is not in dispute that there was an order for deferment under Section 12(6) of the Act which saved limitation and, therefore, that portion of the order of the Tribunal is liable to be set aside and in favour of the revenue. As the Tribunal has remanded the matter back to the assessing officer for re-assessment after careful scrutinizing the factual aspects of the case, in doing so the assessing officer shall not take into consideration the third proviso to Section 5(3)(a) of the Act again and is at liberty to pass appropriate orders excluding the said portion. Ordered accordingly.