SC says ' Look At ', not 'Look Through'; Has McDowell been buried forever?

Rate this story:

The Supreme Court judgment in Vodafone tax case has discussed various concepts like tax planning & tax evasion, lifting of corporate veil and importance of FDI but the one theme that stands out is the virtual re-affirmation of 'form over substance' principle laid down by SC in Azadi Bachao. So has the apex court finally settled the tax planning vs tax avoidance debate? Does the 'Look At' principle mean that the Revenue has to strictly go by the Form? Has the SC taken the promised 'middle path' between McDowell & Azadi ? Finally, will this SC decision stand the test of time or will the sword of a larger bench always hang over the Vodafone decision?


Mr T. P. Ostwal
T.P Ostwal & Associates, Chartered Accountants

In my opinion the form theory has prevailed in India unlike economic distance in the developed world. With this decision one thing must be said that it brings certainty in interpreting statutes which has been found to be grossly abused in the country across the board. The interpretation of section 9(1) brings clarity and hence no room of doubt is left. For such an interpretation Govt only should be blamed for the simple reason that they brought about the changes in the DTC which was one of the reasons ,in my opinion ,and most important one ,to interpret the existing section correctly by the S.C. In my opinion if one goes by form theory then same conclusions need to be reached .There Is no scope for the other interpretation. As far as look through approach on the ground of substance and not on the basis of law is concerned I believe, on the S.C's decision ,there can not be any other view possible now as they had all facts before them and they have decided based on the same . In my personal opinion time and again the matters have been argued before this court regarding the controversies of Azadi v/s McDowell. I fail to understand any logic of this controversy , as both are decisions based on different facts and there is no overlap. I don't think one can say that the S.C has finally settled the controversy of tax planning and tax avoidance , it will be revisited before the said court on different facts again and again and again. Finally I do not know whether the decision has long lasting impact or new battlefield will begin after GAAR is introduced in the tax laws or the laws are amended to take right to tax such transactions. Govt will have to balance between taxing statute and foreign investment policy. It would be absurd to see laws changing to take taxing rights from such transactions when India had been liberal on taxing capital gains on various type of transactions under domestic laws and under the treaty .and as such we have the provisions like dividend distribution tax which already make the transactions costlier. Where the companies convert the dividends in capital gains without distributing the profits there could be changes brought to tackle the problem rather than taxing capital gains.