On appeal by the assessee, HELD allowing the appeal:
(i) In Azadi Bachao Andolan 263 ITR 706 (SC) it was held that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and earn any disqualification. It was held that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the revenue. The aforesaid view looks to be the correct view. Applying the principles of Azadi Bachao Andolan, as the transaction of purchase of units has been held to be genuine by the Tribunal and the basic object of purchasing the units was to earn dividends, which are tax free u/s 80-M and to sell the units by suffering losses, it cannot be concluded by any stretch of imagination that the assessee used any colourable devise, particularly when Parliament has incorporated s. 94 (7) w.e.f. 1.4.2002 to recognize and regulate the purchase and sale of units and the dividends/income received from such units. (Wallfort Share & Stock Brokers 310 ITR 421 (Bom) followed);
(ii) The argument of the revenue based on McDowell & Co cannot be accepted because the judgment rendered therein by Justice Chinnappa Reddy has been explained in detail by the later judgment in Azadi Bachao Andolan. It is well settled that if a smaller Bench of the Supreme Court has later on explained its earlier larger Bench then the later judgment is binding on the High Court. (Precedents referred to). Accordingly, the view expressed in Azadi Bachao Andolan has to be accepted as binding and it cannot be said that the principle of law laid down by the House of Lords in Duke of Westminster as applied in Azadi Bachao Andolan is no longer applicable. Moreover, no such principles having been laid down in the majority judgment in McDowell & Co.
