RAJESH BINDAL, J. - (1.) TRIBUNAL , Chandigarh Bench 'A' (for short, 'the Tribunal') in ITA No. 1017/Chandi/1997 for the asst. yr. 1993 -94, raising the following substantial questions of law : "(i) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in deleting the disallowance of Rs. 16,48,024 made on account of interest on interest -free advances given to the sister -concern for non -business purpose ? (ii) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in law in deleting the addition on account of sales -tax subsidy of Rs. 4,56,948 claimed by the assessee as capital receipt instead of revenue receipt - The appeal is admitted for consideration of substantial questions of law, referred to above.
(2.) WITH the consent of learned counsel for the parties, we have taken the appeal on Board and heard the same for final disposal.
(3.) MORE than two decades ago, a Constitution Bench of Hon'ble the Supreme Court in McDowell and Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : AIR 1986 SC 649, while referring to earlier judgments and also laying path for departing from Westminster principle observed as under : "16. In CIT vs. A. Raman and Co. (1968) 1 SCR 10 : AIR 1968 SC 49, J.C. Shah, J. speaking for himself and Sikri and Ramaswami, JJ. repeating almost verbatim the observations in Westminster 1936 AC 1 and Fishers Executors 1926 AC 395 observed : 'Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues to arise to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the IT Act. Legislative injunction in taxing statutes may not, except on period (Pain ?) of penalty, be violated, but it may lawfully be circumvented.' The same Judge, speaking for himself, Ramaswami and Grover, JJ. in CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC) : AIR 1969 SC 812 expressly followed Westminster and observed (at p. 815) : 'The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of relationship. But the legal effect of a transaction cannot be displaced by probing into the 'substance of the transaction'.' 17. We think that time has come for us to depart from the Westminster 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 Sheatcroft 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 and 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 guileless 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 civilization.' But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster 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 recognise 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 or 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. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Ltd., In re (1977) 47 Com Cas 597 (Guj) where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. 18. It is neither fair not 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 STC 30 and Dawson (1984) 1 All ER 530, to expose the devices for what they really are and to refuse to give judicial benediction." Briefly, the facts, as are available on records, are that the respondent -assessee filed its return of income for the additions on account of disallowance of interest under s. 36(1)(iii) of the Act for interest -free advances made by the assessee to its sister -concerns for non -business purposes and treating the receipt of sales -tax subsidy by the assessee as revenue receipt as against capital receipt treated by the assessee.;