Views expressed by smaller bench of a SC in case of Azadi Bachao Andolan on tax avoidance are binding on the HC

Views expressed by smaller bench of a Supreme Court in the case of Azadi Bachao Andolan on tax avoidance are binding on the High Courts because it has interpreted the decision of the larger bench in the case of McDowell & Company. Accordingly, the transactions was not a colourable transaction.

Recently, the Calcutta High Court in the case of Oberoi Hotels Pvt. Ltd. (ITA No. 13 of 2001) (Judgment date: 17 March 2011) held that since the decision of a two bench judge of a Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) has interpreted the decision of a five bench judge of a Supreme Court in the case of M/s. McDowell & Company Ltd. v. Commercial Tax Officer (1985) 3 SCC 230 (SC) the views expressed in the decision of Azadi Bachao Andolan are binding on the High Courts even if it was rendered by smaller bench of the Supreme Court.

Accordingly, the High Court following the decision of the Supreme Court in the case of Azadi Bachao Andolan held that the transaction entered by the taxpayer cannot be considered as a colourable transaction and the taxpayer was eligible to set-off the short term capital loss against the long term capital gains.

Facts of the case

Shri Krishna Bottlers (Vijayawada) Pvt. Ltd. (M/s SKB) held a license from PepsiCo Inc. USA, for use of the trademark Pepsi cola, Lehar, Mirinda, etc. in relation to beverage products to be bottled, sold distributed and marketed in the some parts of the State of Andhra Pradesh.

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