You are on page 1of 1

The most important Indian case addressing substance-over-form question is without a doubt McDowell and Co. Ltd. v.

Commercial Tax Officer. The case was about mitigation of sales tax by having the buyers separately pay excise duty, whereby such excise duty would not be included in the taxable basis for sales tax. The Supreme Court took the view that tax planning was legitimate so long as it was strictly within the four corners of the law and any colourable device or dubious methods to minimize tax incidence were not legally permissible. The judicial doctrine of Substance over Form for identifying the transactions or arrangement for application of tax laws is mandated by Honble Supreme Court of India in several cases. There is no single approach for application of the doctrine of Substance over Form. However following principles have been approved by it:(a) Lift the corporate veil where transaction is found to be sham, bogus or contrived. (b) Substance of contract (intention of contracting parties and nature of transaction) is determinative and not its form. (c) The courts can go behind documents and determine nature of transaction. (d) Document must be read as a whole; a piecemeal reading cannot bring a fair and proper construction. (e) Colourable device or dubious methods to minimize tax incidence are not legally permissible. International financial reporting standards (IFRS) mandate treatments based on the economic substance of various events and transactions rather than their legal form.