“substance over form”
The decision most relied on for substance over form is McDowell & Co. Ltd. v. CTO (154 ITR 148), cited in 741 judgments on BharatTax.
Leading authorities on substance over form
The Supreme Court held that while legitimate tax planning is permissible, transactions structured as a "colourable device" or "subterfuge" solely to avoid tax are impermissible. It mandates a judicial shift to look beyond the form to the substance of a transaction, allowing the lifting of the corporate veil in tax evasion arrangements.
Tax planning is legitimate only if it is within the framework of law. Colourable devices cannot be part of tax planning, and it is wrong to encourage avoiding tax through dubious methods.
The assessee must explain the nature and source of any sum credited in their accounts, including bank statements, and mere book entries or banking channels without financial capacity are insufficient to prove genuineness under Section 68. The case also holds that wrong quoting of a section is not fatal to proceedings, emphasizing substance over form.
Income tax authorities cannot deduce the nature of a document from purported intention, go behind the document, consider the substance over form, or rewrite it merely to suit the revenue's purpose.
The entry in the books of accounts is not determinative of the true nature of a transaction for income tax purposes; the substance of the transaction, rather than its accounting treatment, governs its taxability and deductibility.
The ordinary principles of commercial accounting should be applied for ascertaining profits and gains, provided they do not contradict the Income-tax Act.
An assessee is entitled to credit for TDS even if the certificate is issued in the name of a joint venture or related party, provided the income to which the TDS relates is offered by the assessee. This principle emphasizes looking at the substance of the transaction over strict adherence to the name on the TDS certificate.
The Supreme Court holds that courts must look beyond the form to the substance of a transaction to discover the true state of affairs, especially when ingenuity is used to avoid tax and welfare legislations.
