Telangana High Court: Tax Evasion Through Colorable Devices Is Not Legitimate Tax Planning

The Telangana High Court has ruled that the use of colorable devices to evade taxes cannot be considered legitimate tax planning. The court emphasized that while tax planning within the legal framework is permissible, deceptive methods to avoid tax obligations are unacceptable. This ruling was in the context of a case involving the issuance of bonus shares by Ramky Estate and Farms Limited (REFL) to reduce the face value of its shares, leading to a short-term capital loss for the petitioner. The court referenced the Supreme Court's decision in McDowell & Co. Ltd. v. CTO, reinforcing that transactions solely designed to avoid taxes, devoid of commercial substance, are impermissible. The petitioner’s arguments that the transactions fell under Section 94(8) of the Income Tax Act were dismissed. The court concluded that the arrangement was a deliberate misuse of the Act’s provisions, amounting to an impermissible avoidance agreement under Section 96, thus falling under the purview of General Anti-Avoidance Rules (GAAR) in Chapter X-A of the Income Tax Act.

For more details, you can read the full article on LiveLaw [here](https://www.livelaw.in/high-court/telangana-high-court/colourable-devices-evade-tax-planning-telangana-high-court-260149).