Tax Planning And The Doctrine Of Substance Over Form

Adv Sherry Samuel Oommen: This article is authored by Adv Sherry Samuel Oommen. Adv Oommen, who specializes in constitution, tax and corporate laws has also cleared the final exams of the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India and the Institute of Company Secretaries of India. He has also completed his Masters Degree in Commerce, apart from obtaining a Post Graduate Diploma in Business and Corporate Laws from Symbiosis Pune. 

- Sherry Samuel Oommen

1. Introduction

The phrases “tax avoidance”, “tax planning”, “tax evasion”, and "substance over form" have been interchangeably used to defend suitable positions since the past immemorial. Quite akin to the adage, beauty lies in the eyes of the beholder. This dispute which continues today will indeed remain an issue for the future as well.

Tax Evasion 

To put this article in perspective, tax evasion in my view is clearly illegal as it consists of wilful violation or circumvention of the tax laws to minimize tax liability. The taxpayer breaches the relevant law knowing very well that his conduct is contumacious and is in actual knowledge of this proposed wrongdoing. This could happen when an assessee deliberately fails to report an item in the income-tax return or knowingly claims a deduction to which he is indeed aware that he is not entitled to or consciously omits to supply information even where there lies a devout duty to furnish. It could also apply to a situation where an assessee fails to clarify an issue, which the tax department requires him to do so. In these cases, there is an element of wilfulness, dishonesty or contemptuous conduct, or even absence of honest belief. In essence, if a taxpayer cannot display that he had an honest belief that he was not liable to tax or liable to lower tax, then prima-facie would fall within the realm of tax evasion. This doctrine was well-expounded by the Hon’ble Delhi High Court in the case of Shiv Raj Gupta [2015] 372 ITR 337.

Tax Planning