which 100% depreciation was permitted and took the same assets on lease
and claimed a deduction for the lease rent. The claim was disallowed by
the AO & CIT (A) on the ground that the transactions were a “sham”
though this was reversed by the Tribunal. On appeal by the department,
HELD, dismissing the appeal:
(i) The fact that the machinery was an integral part of the boilers and
continued with the assessee even after the sale is irrelevant because
the assessee received the sale consideration and paid the lease rental.
The mere reduction of tax liability is not conclusive of an arrangement
being a “sham” or a “device”.
(2) The principle that an assessee is entitled to arrange his affairs
to reduce tax liability, without violating the law has been approved by
the Supreme Court in A. Raman 67 ITR 11 and Azadi Bachao Andolan 263
ITR 706 and the contrary observations in McDowell 154 ITR 148 are not
the ratio of that judgement.
(3) The words “device” or “sham” cannot be used to defeat the effect of
a legal situation.