Whether tax planning is a commercial decision or tax evasion?

Sanjiv Kumar Chaudhary – [2021] 129 taxmann.com 237 (Article)

While dealing with the tax avoidance schemes, it has been observed that at times there is thin line between ‘Tax Planning’, Tax Avoidance’ and Tax Evasion’. While ‘tax Planning‘ is considered legitimate and ‘Tax Evasion’ is forbidden, it is the ‘Tax avoidance’ largely where there has been prolonged litigation. The Courts have dealt with these aspects not only under the domestic tax law but also under the international tax laws. This, at times, has resulted into long-drawn litigation on determination of whether a transaction/arrangement is a colourable device or a sham transaction.

The controversy in the last six decades [since the inception of the Income-tax Act, 1961(the Act)] with respect to tax avoidance has not receded. A recent decision of the Mumbai Tribunal in the case of Swiss Reinsurance Co. Ltd v. Dy. CIT [IT Appeal No. 6531 (Mum.) of 2021, dated 20-7-2021] dealt with the issue of eligibility of set off or carry forward of long term capital loss under the provisions of the Act, resulting from a sale of shares of an Indian company by a foreign company. The Mumbai Tribunal held that sale of shares of an Indian company by a foreign company is not a sham transaction and therefore long-term capital loss on such transaction is eligible for carry forward and set off against future capital gains.

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