Harjinder Singh* & Dr. Divya S. Khurana**
ABSTRACT:
Tax avoidance is as old as human civilization. The Black's Law1 Dictionary states that tax avoidance is the "minimization of one's tax liability by taking advantage of legally available tax planning opportunities". It is said that tax evasion is an offence and tax avoidance isan art. Justice O. Chinnappa Reddy2 calls it the “art of dodging tax without breaking the law”; though most often treated legally tenable, tax avoidance, however, like tax evasion has similar economic consequences such as seriously undermining the achievements of the public finance objective of collecting revenues in an efficient, equitable and effective manner. Sectors that provide a greater opportunity for tax avoidance tend to cause distortions in the allocation of resources. Since the better-off sections are more endowed to resort to such practices, tax avoidance also leads to cross-subsidization of the rich. Therefore, there is a strong general presumption in the literature on tax policy that all tax avoidance, like tax evasion, is economically undesirable and inequitable. On considerations of economic efficiency and fiscal justice, a taxpayer should not be allowed to use legal constructions or transactions to violate horizontal equity. The judiciary in India has evolved certain judicial principles with tendency to interpret the tax statutes by strict construction to allow tax planning for mitigation or escapement of tax liability called tax avoidance as long as it is not inconsistent with the letter of the law. However, at the same time, the courts are not oblivious of the changes in socio-economic conditions in the country which is manifest in their attitude involving multitude of cases wherein they have come heavily on transactions entered solely to avoid taxes lacking any commercial exigency or prudence. Tax avoidance, while legitimate, can be seen as aggressive when it involves using financial instruments and arrangements not intended as, or anticipated by, governments as a vehicle for tax advantage. For example, the use of overseas tax havens. Avoiding tax and bending the rules of the tax system is not illegal unlike tax evasion; it is operating within the letter, but perhaps not with the spirit of the law. This paper examines the overall judicial attitude towards the same enunciated through various judgments from time to time and the way tax avoidance jurisprudence has evolved in India by drawing abundantly from the English jurisprudence on the subject with occasional tilt from textual to purposive approach in conformity with the ever increasing menace of tax avoidance.
