Nani Ardeshir Palkhivala fought for his country and his countrymen not only in Indian courts, but also in the international fora. His international endeavours which required painstaking research and scrupulous examining was often done free of cost. He was both, widely appreciated and credited for the work he did as an Indian representative. A brief account of this journey is elucidated below.

U. N. Special Tribunal (The Indo-Pakistan Western Boundary Case)

Palais des Nations, Geneva

Post war hostilities in 1965, Nani was asked by the Government of India to plead its case in the Indo – Pakistan Western Boundary in the Rann of Kutch. Pakistan had claimed a substantial part of the Rann and India challenged the same. The case concerned India’s integrity and Nani quickly decided that he would fight tooth and nail to defend it.

The question before the tribunal was one of finding, on the evidence placed before it, where exactly the boundary lay between India & Pakistan, in the region between Kutch and Sind. The tribunal was called upon to determine not where the boundary should lie but where in fact, on historical evidence, it lay in 1947 when the two dominions were created. India’s case, supported by maps and other historical evidence, was that the boundary had gradually got crystallized before 1870 and the position of the boundary had become clear and had been correctly delineated on the MacDonald maps published around 1870. Since the boundary was not wholly demarcated on the ground, the matter had to be decided on the historical evidence of maps and other authentic documents.

After establishing the historical background of the region, Nani went on to tear Pakistan’s argument to pieces. He told the tribunal that Pakistan’s case rested upon three theories:

(a) The General Theory of Confusion: All map makers and administrators were confused as to where the boundary laid.

(b) The Special Theory of Confusion: Certain people were especially confused on particular occasions where they treated the whole of Rann as belonging to Kutch.

(c) The Theory of Century of Error: the theory virtually suggests that, for hundred years, everybody made an error as to what precisely were the boundaries of the territory conquered by the British.

He placed special reliance on the MacDonald survey, he argued that before MacDonald one had legends masquerading as maps, but after MacDonald you had legends on maps. Nani’s performance was virtuoso, if almost the full text of Nani’s presentation had been reproduced here, it would show the minute problems he had studied (at one point referring to page numbers 12993 – 12994) and the way he presented his case. It redounded to Nani’s credit. The final Award given by the tribunal on 19th February 1968 entitled India to more than 90 per cent of the Rann of Kutch.

International Court of Justice

The Aftermath of the Pakistani Skyjacking

On 30th January, 1971, Pakistani terrorists hijacked an Indian Airlines Fokker Friendship aircraft flying from Srinagar to Jammu and forced it to land in Lahore. There were 28 passengers and four crew members onboard. One of the ‘Skyjackers’ had a grenade in his hand and threatened to use it if the plane was not diverted to Lahore while another pointed his revolver at the pilot. Having got the plane diverted to Lahore, the hijackers ordered the passengers to disembark, following which the plane was blown up right under the very nose of the Pakistani authorities. India then decided to suspend with immediate effect, the overflight of all Pakistani aircrafts, over the territory of India, until the matter was satisfactorily resolved by both governments.

Pakistan characterised the Indian action of suspending overflights as a breach of ‘International and bilateral commitments’ and complained to that effect to the International Civil Aviation Organization (ICAO). The legal commitments of the two countries in regard to overflights were embodied in the Convention of International Civil Aviation signed in Chicago in 1944, its annexe, the International Air Service Transit Agreement of 1944, the Indo-Pakistan agreement relating to air services reached in New Delhi on 23rd June, 1948 and the agreement arrived at by correspondence after the Tashkent Settlement in 1966. Charging India with a breach of these three international treaties and bilateral agreements, Pakistan proceeded to formally ask the council of the ICAO on 3rd March to declare that the Indian decision was illegal and to direct India to rescind it. Moreover, its application claimed compensation for the increase in costs due to the longer route that Pakistan planes now had to take to go to Dacca via Colombo.

Nani’s riposte was the preliminary objection that the council had no jurisdiction to deal with Pakistan’s compliant. India’s plea was that as a sovereign state it had the right to suspend the treaties under international law and well established state practice and usage. The jurisdiction of the council was only limited to one relating to ‘interpretation or application’ of the provisions of the treaties. Any other issues were outside the competence of the council. The ICAO Council however ruled against India and a month later, India appealed to the International Court of Justice at the Hague against the council’s decision. This appeal to the World Court was challenged by Pakistan.

The World Court hearing began on 20th June, 1972 with Nani as India’s chief counsel. It fell to Nani to present India’s case at the court’s three – hour opening session and thereafter. He advanced his arguments in great detail, marshalling historical facts in support.

The World Court delivered its judgment on 18th August, 1972. By 13 votes to 3 the court rejected the government of Pakistan’s objection on the competence and found that it had jurisdiction to entertain India’s appeal. However on the flipside by 14 votes to 2, it also held the council of International Civil Aviation Organization to be competent to entertain the application and complaint laid before it by the Government of Pakistan. However, the ruling on our objections will govern the council’s proceedings in the dispute from now on.

Ambassador of Washington

After the defeat of Indira Gandhi in the 1977, Shri Morarji Desai was placed on the Prime Ministerial throne. The 20 months of Emergency left Indian ambassador in Washington, Mr. Kewal Singh in bad light. In such a situation Morarji Desai rightly thought it fitting to appoint Shri Nani A. Palkhivala as the Indian Ambassador to Washington, which after much persuasion from Mr. Atal Bihari Vajpayee was taken up by Nani. On his appointment as the Indian Ambassador to the United States he resigned from the boards of all Tata companies and he rejoined them on his return in 1979.

When Nani reached Washington with Nargesh (wife) on 24th September, 1977, he could hardly have hoped to be received by President Jimmy Carter within a fortnight. Newly appointed ambassadors were often asked to wait for several weeks before being invited to present their credentials. Nani was invited to present his on 7th October, which, in its own way, was demonstrative of the respect in which he was held. The ceremony took place at the White House, and President Jimmy Carter’s reply to Nani’s credentials was:

‘… I welcome you personally, Mr. Ambassador. Your reputation in India as a champion of human rights and constitutional liberties, achieved at some personal risk at times, precedes you. I am certain that your mission will be effective and successful one and will contribute to that enhancement of our relations to which both of our countries are committed’

Nani spoke like a professional diplomat, even when asked the most embarrassing of questions, he would answer them calmly, without a trace of discomfiture. During his term as ambassador Nani accomplished the successful signing of the Delhi Declaration, in the drafting of which he played a significant role. It is not often that two countries, which are separated not only in terms of distance but also of culture and tradition and levels of economics development, feel it necessary and desirable to issue an affirmation of fundamental principles, ideals and values which they share. It must be remembered that Nani was chosen as ambassador precisely because it was hoped that he would facilitate frank discussion on vital issues at the highest level, which included nuclear proliferation, arms reduction, Pakistan and India’s non – alignment stand. In this Nani succeeded in great measure.

Nani was in constant demand during his stay in America. In his 20 months as ambassador he gave 171 lectures – an average of 2 a week. Two American universities bestowed honorary doctorates on him: Lawrence University, Wisconsin and Princeton. Princeton was the first to do so on 6th June, 1978. The citation was a fitting appraisal:

‘Defender of constitutional liberties, champion of human rights, he has courageously advanced his conviction that expediency in the name of progress, at the cost of freedom, is no progress at all, but retrogression. Lawyer, teacher, author, and economic developer, he brings to us as Ambassador of India intelligence, good humour, experience, and vision for international understanding’

 

With Sohrab P. Godrej, at the launch of the book Nani Palkhivala, Selected Writings. (1999)

“We keep on tackling breezily fifty-year problems with five-year plans, staffed by two-year officials, working with one-year appropriations, fondly hoping that somehow the laws of economics will be suspended because we are Indians”

“Bad economics may temporarily be good politics; but politics should be behind a fiscal law, and not in front of it”

“The best definition of ‘inflation’ is the simplest: When government spends more than it gets, and labour gets more than it gives, the empty feeling in your pocket is inflation.”

“You can no more expect a nation to have economic strength and growth by mere budgetary allocations than you can expect a child to grow up cultured and healthy because his father has set apart amounts to be spent on his education and medical care”

“The easy style of socialism mistakes Amiri Hatao for Garibi Hatao; it aims at leveling down and not leveling up; it is content to satisfy the pangs of envy when it cannot satisfy the pangs of hunger; and since it cannot create income or wealth, it plans for poverty and equal distribution of misery.”

“Gross national happiness should have been given priority over gross national product.”

NANI PALKHIVALA – THE ASTUTE CRITIC

“Among the nations of the world, India ranks very high in innate intelligence, but abysmally low in wisdom.”

“Indian democracy has reached its nadir because in our average politician we have a sordid amalgam of lack of intellect with lack of character and lack of knowledge.”

“We, as a nation have some fine qualities, but a sense of value of time is not one of them.”

“The bane of India is the plethora of politicians and the paucity of statesmen.”

“We have too much government and too little administration; too many public servants and too little public service; too many controls and too little welfare; too many laws and too little justice”

“Today the university student is aware

that what he knows does not count in the examination half as much as WHO he knows”

With T. Sadasivam and Bharat Ratna recipient M. Subbulakshmi at the Dadabhai Naoroji Memorial Prize Fund’s function. (1994)

“A nation progresses gloriously when knowledge and power are combined in the same individual. It faces a grave crisis when some have knowledge and others have power”

“We must get away from the fallacy of-the legal solubility of all problems.”

NANI PALKHIVALA – THE TAX CONNOISSEUR

“It is a truism, and like most truisms often forgotten, that taxes, like water, have a tendency to find the lowest level. In the last analysis, almost all taxes ultimately hit the common man.”

Delivering one of his legendary budget speeches to the multitudes gathered at Brabourne Stadium.

“Every budget contains a cartload of figures in black and white – but the stark figures represent the myriad lights and shades of India’s life, the contrasting tones of poverty and wealth, and of bread so dear and flesh and blood so cheap, the deep tints of adventure and enterprise and man’s ageless struggle for a brighter morn. “Our people, like any other, fall into three segments:

1. Those who would be honest, however heavy the burden;

2. Those who would be dishonest, however light the burden; and

3. Those (and they constitute the overwhelming majority) who are basically not dishonest but the nature of whose response to the law is conditioned by the quality of the law.

Our tax legislation ignores the first class, is preoccupied with the second, and alienates the third.”

“There are several socialist countries in the world, but India is the only country where income-tax and wealth tax can together amount to more than the total income.”

Leaving the Supreme Court with, from left, Ravinder Narain, Tehmton R. Andhyarujina and Jimm

NANI PALKHIVALA – THE CONSTITUTIONAL LEGEND

Nagesh feeding Nani a slice of cake at his 75th birthday. To his left, M. R. Pai and M. A. Rane. (1995)

“The constitution is not a jellyfish; it is a highly evolved organism. It has an identity and integrity of its own, the evocative Preamble being its identity card. It cannot be made to lose its identity in the process of amendment.”

“The Constitution was meant to impart such a momentum to the living spirit of the rule of law that democracy and civil liberty may survive in India beyond our own times and in the days when our place will know us no more.”

“The Constitution is a part of the great heritage of every Indian. Its founding fathers wanted to ensure that even while India remained poor in per capita income, it should be rich in individual freedom.”

“Ours is a noble Constitution, worked in an ignoble spirit.”

NANI PALKHIVALA – THE TRUE INDIAN

“We have millions of Bengalis, millions of Maharashtrians, millions of Tamils – but very few Indians.”

“Democracy involves the co-operation of all perceptive citizens in the active work of running the country. It means payment to the state, not only in taxes but in time and thought…”

“It is unfortunate that our government keeps the nation’s most outstanding men out, standing.”

Receiving his Doctor of Laws from William G. Bowen, President of Princeton University. (1978)

“The nagging question which will not go away is – is India a collection of communities or is it a nation? In other words, is India a state without a nation? Unfortunately, the most pronounced trait of the Indian politician is to put himself first, his own party second, and his country figures nowhere in his calculations.”

“A democracy without discipline is a democracy without a future”

“A nation’s strength lies not so much in its wealth as in its character. A nation with a future has to be a nation with character. It is when character saps that you have the phenomenon of widespread evasion.”

“Perhaps there is no other country on earth which has in such ample measure all enterprise and skills needed to create national wealth, and which takes such deliberate and endless pains to restrict and hamper its creation.”

 

Constitution

1. Right to carry on any trade or business – Article 19(1)(g)

   Restrictions to be imposed under Article 19(6) should be reasonable restrictions:

   Validity of the Bombay Lotteries and Prize Competitions Control and Tax Act 1948. The case was known as the Prize Competition’s case. Solution of a crossword puzzle in question depended on the exercise of skill. As they are business activities the protection of which is guaranteed by Article 19(1)(g). Restrictions imposed on such competitions was not reasonable.

   RMD Chamarbaugawala v. Union of India AIR 1957 SC 628, 1957 SCR 930

2. Right to carry on any trade or business – Article 19(1)(g)

   Restrictions to be imposed under Article 19(6) should be reasonable restrictions:

   Legality of gambling, betting and competition etc:-

   A competition in order to avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill.

   The scheme of our Constitution is to protect the freedom of each individual citizen to carry on his trade or business, that is done by Article 19(1)(g). This guaranteed right is however subject to Article 19(6) which protects a law which imposes reasonable restrictions in the interest of general public.

   State of Bombay v. RMD Chamarbaugawala & Ors. AIR 1957 SC 699, 1957 SCR 874

3. University has no power to impose Gujarati or Hindi or both as exclusive media of instruction and examinations

   Gujarat University and Anr. v. Sri Krishna Ranganath Mudholkar and Ors. AIR 1963 SC 703, 1963 Supp (1) SCR 112

4. Court’s jurisdiction on powers, privileges and immunities of legislative assembly under Article 194(3) of the Constitution

   Contempt of Legislative Assembly and the Assembly holding Judges of High Court, Advocate and citizen responsible for having committed its contempt under Article 143, of the Constitution of India. Special Reference of case to Supreme Court by President held that a judge of a High Court who entertains or deals with a petition challenging any order or decision of a legislature imposing any penalty or issuing any process against the individual for its contempts or for infringement of its privileges and immunities, does not commit contempt of the said legislature. Further the said legislature is not competent to the take proceeding against such a Judge. No contempt was committed.

   Under Article 143 of Constitution of India (Special Reference) AIR 1965 SC 745, (1965) 1 SCR 413

5. Reasonable classification under Article 14 of the Constitution

   Legality of Land Acquisition Act (Madras Amendment) Act 23 of 1961:

   Under Article 14 of the Constitution of India the state shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. But this does not preclude the legislature from making a reasonable classification for the purpose of legislation which must pass two tests namely.

   Classification must be based on intelligible differentia;

   The differentia must have a rational relation to the object sought to be achieved by the statute in question.

   It was held that the Land Acquisition (Madras Amendment) Act violates Article 14 as the classification sought to be made between person whose land are acquired for other public purpose has no reasonable relation to the object sought to be achieved

   I.P. Vajravelu Mudaliar v. Special Deputy Collector of Land Acquisition AIR 1965 SC 1017, (1965) 1SCR 614

6. Extend of power of the Parliament to amend the Constitution of India – Articles 13 and 368

   In view of Article 13 of the Constitution, the Parliament had no power to amend the fundamental right incorporated in Part III of the Constitution, an amendment of the Constitution can be nothing but law. On the basis of the doctrine of Prospective overruling the Constitution first Amendment Act and a few others like amendment subsequently made should not be disturbed and must be held to be valid.

   L.C. Golak Nath and Ors. v. State of Punjab AIR 1967 SC 1643, (1967)2 SCR 762

7. Fundamental Rights to Property — Articles 19 and 21 of the Constitution

   Infringement of fundamental rights of company and shareholders when a Banking Company was taken over by State. (Articles 19, 21 and 31).

   The Court struck down the nationalization of private banks. Matter was under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. The case dealt with the inter-relationship of Article 19 and Article 31 and the basic approach to construe the fundamental rights guaranteed in the different provisions of the Constitution. The ratio laid down proved to be the foundation for the most epoch-making development in the Indian Constitution law, namely, the introduction of due process in the area of personal liberty guarantee by Article 21 of the Constitution of India. Mr. Palkhivala contended that the apex court was not correct in holding in A. K. Gopalan’s case that each fundamental right was self contained. The Bank Nationalization Act was struck down by a majority of 10:1 the only dissenting judge being A. N. Ray.

   In the words of Mr. Palkhivala, the case was “very much the victory of common man.” It struck down the law nationalizing banks without payment of what the law would regard as compensation. Excluding the shares held by Government owned corporations ninety per cent of the remaining share capitals of almost all the nationalized banks were held by hundreds of thousand of middle class citizens whose hard earned savings were invested in the banks, and the entire body of investors benefited by the judgement. That decision further vindicated the ordinary citizens right to assert that every law whatever its object or subject-matter, must respect and conform to every fundamental right. The doctrine that the object and form of the State action alone determine the extent of protection that may be claimed by an individual and that the effect of the state action on the fundamental rights of the individual is irrelevant as laid down in A.K. Gopalan’s case, AIR 1950 SC 27, was finally rejected.

   Rustom Cavasjee Cooper v. Union of India (Better known as Bank Nationalisation Case) AIR 1970 SC 564, (1970) 1 SCC 248, 1970(3) SCR 530

8. Freedom of speech : Citizen and Corporations: Article 19

   Fundamental right of shareholders, editors, printers and directors in a company owning and publishing newspaper. According to K.K. Venugopal, “Nani was able to link the Government’s regulation of the allocation of the newsprint, a scarce commodity in India at the time to the freedom of speech”. Newspapers have to be left free to determine their pages, their circulation and their new editions within their quota which has been fixed fairly.

   Bennett Coleman and Co. Ltd. v. Union of India AIR 1973 SC 106, (1972) 2 SSC 788

9. Equality of opportunity in matter of employment: Article 16

   Claim of Schedule Caste and Schedule Tribe in Public employment to be considered consistently with maintenance of efficiency. Doctrine of equality, claims of other backward classes and other weaker sections to be seen with similar considerations. No period for reservation is provided. Conclusions given in the report of Backward Classes Commission cannot always be scientifically accurate. A caste can be and quite often is a social class in India and economic criteria cannot be the sole basis for determining the backward classes of citizen contemplated by Article 16(2)

   Indira Sawhney v. Union of India (Better know as Mandal Case) AIR 1993 SC 447, 1992 Supp(3) SCC 217.

10. Fundamental Right case — The basic structure of the Constitution of India cannot be amended. Article 13(4) read with Article 368

    While upholding the validity of the Constitution (24th Amendment) by which Article 13(4) was inserted, it was laid down (by majority) the principle theory that there were certain basic features of the Constitution which could not be amended under the amending law.

    Keshavand Bharati v. State of Kerala AIR 1973 SC 1461

11. Company — Deemed distribution of dividend — s. 23 or 34 and not under s. 23A of the 1922 Act [Sections 143, 104, 147 of the 1961 Act]

    The ITO reopened the assessment of Mafatlal Gagalbhai without sending a notice under s. 34 of the IT Act. He reassessed the income of Mafatlal Gagalbhai, reducing the amounts which were deemed to be distributed in respect of the ordinary shares, and included the dividends which, he held, must be deemed to have been distributed in respect of the preference share. He added a note to the order of assessment that this action was taken to give effect to the directions of the Tribunal and issued a notice of demand.

    The Court held that:

    S. 23A is a mandatory section and lays down rules of computation in computing the total income of the shareholder referred to in that section. S. 23A is a procedural section and not a charging section. No assessment could be made u/s 23A. That section does not provide for any assessment being made. It only talks of the fictional income being included in the total income of the shareholders for the purpose of assessing his total income. The assessment, therefore, has to be made under the other provisions of the Act, including sec. 34, authorizing assessments.

    CIT v. Navinchandra Mafatlal (1961) 42 ITR 53 (SC)

12. Capital gains — Chargeability [Sections 45(1), 2(29), 159, 47, 2(47), 45]

    Having regard to the definition of the expression “capital assets”, it would be wrong to read “distribution of capital assets” as meaning “distribution of sale proceeds of capital asset”. Obviously, there is a clear and vital distinction between “capital assets” and their “sale proceeds”. If capital assets are sold first and a distribution of the sale proceeds is made afterwards, then what is distributed is not capital asset but the sale proceeds thereof. Secondly, it is not acceptable that the third proviso serves no purpose if the expression “distribution of capital assets” is given its natural and plain meaning, viz., distribution in specie. The purpose of the proviso is abundantly clear if the scheme of sub–ss. (1), (2) and (3) is kept in mind. Assume that there is a distribution of capital assets in specie amongst the legatees, and one of the legatees sells the capital assets which he got in one of the ways mentioned in the third proviso, he at once becomes liable to tax on the profits made on the sale. Sub-s. (3) makes that position clear and if the proviso is read in the context of the substantive provisions of s. 12B its purpose is quite clear. The purpose is this: as long as there is distribution of the capital assets in specie and no sale, there is no transfer for the purposes of the section; but as soon as there is a sale of the capital assets and profits or gains arise there from, the liability to tax arises, whether the sale be by the administrator or the legatee. It is significant that the proviso uses the words “for the purposes of this section” and not merely sub-s. (1). On the interpretation sought to be placed on the third proviso on behalf of the appellant, the administrator will escape paying tax if he sells the capital assets; but the legatee will not escape if he sells the capital assets after having received them in specie from the administrator. This is an anomaly which is against the scheme of s. 12B. The High Court rightly held that the expression “distribution of capital assets” in the third proviso to sub-s. (1) of s. 12B of the Act means distribution in specie and not distribution of sale proceeds. The question whether the sale was voluntary or involuntary is not germane to the scheme of s. 12B. On a proper reading of the proviso, the expression “by reason of” goes with the clause relating to compulsory acquisition of property and not with the distribution of capital assets. An administrator or executor of a deceased assessee was liable to capital gains tax on sale of the capital assets, like any other assessee, if there was a profit on the sale and distribution of sale proceeds of assets. It is not exempt under third proviso to s. 12B(1) of the 1922 Act.

    James Anderson v. CIT (1960) 39 ITR 123 (SC)

13. Association of Persons [Sections 2(31), 4(1), 26]

    An AOP must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an AOP; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not. In a case before the Supreme Court there was no finding that the three widows had combined in a joint enterprise to produce income. The only finding was that they had not exercised their right to separate enjoyment, and except for receiving the dividends and interest jointly, it had been found that they have done no act which has helped to produce income in respect of the shares and deposits. On these findings, according to the Supreme Court, it could not be held that the three widows had the status of an AOP within the meaning of s. 3 of the Indian IT Act.

    Co-widows of Hindu governed by Mitakshara law having not exercised their right of separate enjoyment of assets inherited and doing nothing which would help them to produce income, they cannot be assessed as AOP

    CIT v. Indira Balkrishna (1960) 39 ITR 546 (SC)

14. Business expenditure — Capital or revenue expenditure [Sections 37, 37(1)]

    The stones are not lying on the surface but are part of a quarry from which they have to be extracted methodically and skilfully before they can be dressed and sold. These deposits are extensive, and the work of the assessee carries him deep under the earth. Such a deposit cannot be described as the stock-in-trade of the assessee, but stones detached and won can only be so described. This was a case in which the assessee had acquired an asset of an enduring character for which he had to put his hand in his pocket for a very large sum indeed. He paid ₹ 96,000 down, but for the rest he asked for easy terms. The amount paid every month was not in any sense a payment for acquisition of the right from month to month. It is obvious that the monthly payments of ₹ 1,666-10-8 did not represent the lease amount for a month. It was really the entire sum chopped into small payments for his convenience. Nor can the amount be described as a business expense, because the outgoings every month were not to be taken as spent over purchase of stones but in discharge of the entire liability of the jagir. In this case the assessee acquired by his long, term lease a right to win stones, and the leases conveyed to him a part of land. The stones in situ were not his stock-in-trade in a business sense but a capital asset from which after extraction he converted the stones into his stock-in-trade. The payment, though periodic in fact, was neither rent nor royalty but a lump payment in instalments for acquiring a capital asset of enduring benefit to his trade. In this view of the matter, the High Court was right in treating the outgoings as on capital account. Expenditure incurred in acquisition of mines for quarrying stones is not an allowable revenue expenditure even if the consideration is paid in instalments.

    Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC)

15. Business income — Computation [Section 28(i)]

    Shares held as investments converted into stock-in-trade and sold in pursuance of trading activity. Profit is the difference between actual sale proceeds and market value on the date of conversion

    Per S. K. Das, J. (Majority View)

    The basis must be the ordinary commercial principles on which actual profits are computed. Normally the commercial profits out of the transaction of sale of an article must be the difference between what the article cost the business and what it fetched on sale. So far as the business or trading activity was concerned, the market value of the shares as on 1st April, 1945, was what it cost the business. There is no question of a notional sale here. The High Court did not create any legal fiction of a sale when it took the market value as on 1st April, 1945, as the proper figure for determining the actual profits made by the assessee. That the assessee later sold the shares in pursuance of a trading activity was not in dispute; that sale was an actual sale and not a notional sale; that actual sale resulted in some profits. The only fair measure of assessing trading profits in such circumstances is to take the market value at one end and the actual sale proceeds at the other, the difference between the two being the profit or loss, as the case may be. In a trading or commercial sense this seems to accord more with reality than with fiction.

    The difference between the original cost and the market value as on the date of conversion of asset into stock-in-trade was not taxable as capital gain either.

    CIT v. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC)

16. Business expenditure — Capital or revenue expenditure — Mining lease of limestone quarries — Payment of royalty [Sections 37, 37(1)]

    Under the arrangement, read with the Rajasthan Minor Mineral Concession Rules, 1955, the assessee was certainly entitled to go upon the land, win the raw material and had some rights to build premises for the purpose of winning the lime. But it is also clear that the assessee could not carry away any other mineral which might be found in the mine, and further he was obliged to allow other lessees of other minerals to go on the land and win their minerals. Thus there is no doubt that the assessee did derive an advantage by having entered into this arrangement. There is no payment once for all; it is a yearly payment of dead-rent and royalty. It is true if a capital sum is arrived at and payment is made every year by chalking out the capital amount in various instalments, the payment does not lose its character as a capital payment if the sum determined was capital in nature. But it is an important fact in this case that it is a case of an annual payment of royalty or dead-rent. No lump sum payment was ever settled or paid.

    The reason why royalty has to be allowed as revenue expenditure must be the relation which the royalty has to the raw material which is going to be excavated or extracted. The more you take the more royalty you pay, and the minimum payment or the dead-rent also had the same characteristic, i.e., it is an advance payment in respect of certain amount of raw material to be excavated.

    It is not the law that, in every case, if an enduring advantage is obtained, the expenditure for securing it must be treated as capital expenditure.

    The royalty payment is not a direct payment for securing an enduring advantage; it has relation to the raw material to be obtained. Ordinarily, a mining lease provides for a capital sum payment; but the fact that there is no lump sum payment here cannot by itself lead to the conclusion that yearly payments to be made under the mining lease have relation to the acquisition of the advantage. No material has been placed on the record to show that any part of the royalty must, in view of the circumstances of the case, be treated as premium and be referable to the acquisition of the mining lease.

    The royalty payment, including the dead-rent, have relation only to the lime deposits to be got. Therefore, the yearly payment should be treated as revenue expenditure.

    Yearly amount paid as royalty for mine had relation to the raw material to be obtained and was not referable to the acquisition of the mining lease and hence allowable expenditure.

    Gotan Lime Syndicate v. CIT (1966) 59 ITR 718 (SC)

17. Accounts — Method of accounting — Assessee an advocate following cash method [Sections 4, 5, 14, 28(i), 56]

    Business income must be received, while the business is carried on.

    Assessee who was practising as an advocate appointed as High Court judge—Past outstandings in discontinued profession, received at the time when he was the judge—Taxability under s.10(1) of IT Act, 1922—Receipts squarely falling under the head‘’ Profits or gains from business or profession’’ – As assessee was not carrying profession in the year of receipt of old outstandings, such receipts not taxable under s. 10(1)— Such receipts not to be brought under the residuary head ‘’Income from other sources’’ and subject to tax under s.12, merely because the receipts escaped being taxed under s. 10.

    Nalinikant Ambalal Mody v. CIT (1966) 61 ITR 428 (SC)

18. Business expenditure—Bonus—Liability stated in profit and loss account [Sections 10(2), 207, 208, 209, 210, 211]

    Business expenditure could be claimed on estimate basis, if the liability has accrued – Liability for bonus, could be reasonably estimated.

    Provisions are charges against profits for anticipated losses and contingencies and, therefore, to be taken into account against gross receipts in P & L a/c and the balance sheet—Reserves are appropriation of profits, the assets by which they are represented being retained to form part of the capital employed in the business.

    Metal Box Company of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC)

19. Deduction under s. 15C of 1922 Act (s. 80J of 1961 Act) [Section 80J(1)]

    Reconstructions of business – Expansion of business

    “Reconstruction of business already in existence” — New unit established by assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence—To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking—Further the new units are independent as the business of old can be carried on without them—Assessee manufacturing boilers, machinery parts, wagons etc., establishing steel foundry division and jute mill division—Goods manufactured in both these divisions used as intermediate products in the existing divisions—Assessee entitled to relief under s. 15C.

    Textile Machinery Corporation Ltd. v. Commissioner of Income Tax (1977) 107 ITR 195 (SC)

20. Capital gains—Applicability of s. 52(2) [Sections 45, 52(2)]

    Unless there is some evidence to show, that the assessee has received more than the document price, the market value concept u/s. 52(2) cannot be invoked.

    The burden of proving understatement of consideration lies on Revenue—But extent of understatement need not be shown—Once understatement is proved Revenue may adopt fair market value as actual consideration received—CBDT Circulars—Aid in construction of statute—Circulars are in the nature of contemporanea expositio—Furnish legitimate aid in construction of statutory provision—Also bind the course of action of Revenue

    K.P. Varghese v. Income Tax Officer & Anr. (1981) 131 ITR 597 (SC)

    Editorial Note — Shri Nani A. Palkhivala has appeared in more than 400 landmark cases which are reported in various journals. Shri Ajay R. Singh and Shri Paras S. Savla, Advocates have summarised 20 landmark cases, under the guidance of Shri V. H. Patil, Advocate.

Source: 3rd Nani Palkhivala National Tax Moot Court competition 28th-30th September 2006

Publications for sale

Sr. No.	Name of Publication		Rate (₹)
		Edition	Members	Non-Members	Courier Charges per copy
1.	Reassessment Law, Procedure & Practice (Practical Guide)	Dec., 2020	Free	–	100.00
2.	151 Landmark Judgment of the Honorable Supreme Court	Oct., 2020	Free	–	100.00
3.	Vivad Se Vishwas Act, 2020	May, 2020	295.00*	590.00*	–
4.	GAAR General Anti-Avoidance Rules	Dec., 2019	640.00	720.00	100.00
5.	311 – Frequently Asked Questions on Survey – Direct Taxes	Dec., 2018	600.00	675.00	100.00

Notes: 1. The above publications are available for sale; those who desire to buy may contact the office of the Federation.

2. Local/Outstation members not collecting from office are requested to add courier charges, as mentioned above.
3. Please draw Cheque/Draft in favour of “All India Federation of Tax Practitioners” payable at Mumbai.

* Including GST

When I was approached by the Moot Court Association to pen a message for the 10th edition of the Nani Palkhivala Moot Court Competition, I must confess I was at once both delighted and shocked. Delighted because of how successful something we started during my tenure as General Secretary of the Moot Court Association has been, and shocked because it was a not-so-subtle reminder of my ever advancing age. There were plenty of naysayers and doubters as we set out on this challenging and pioneering enterprise 10 years ago. However, with the help of the ITAT Bar Association, the AIFTP and, in particular, Mr. K. Sivaram’s ceaseless efforts, we were able to establish a competition that provides students with a unique opportunity to hone their tax-law skills. My best wishes and hearty congratulations on this wonderful landmark!

Shreyas Shridhar, General Secretary – 2004

In my year we interacted with Mr. B. A. Palkhivala, brother of Late Mr. Nani Palkhivala who very graciously permitted us to go through his personal photographs of Mr. Nani Palkhivala and publish some of them in our souvenir.

Also, for the first time we started giving each competing team their score sheet immediately after their round was complete, to ensure complete transparency and help the team before they progressed into the next round.

Persis Sidhva, General Secretary – 2008

Dignitaries on the dais – Seen from left to right Mr. R. B. Malik, Principal, Government Law College, Mumbai, Dr. K. Shivaram, Chairman, Palkhivala Foundation & Research Committee, Mr. Arun Sathe, President, ITAT Bar Association, Hon’ble Mr. H. L. Karwa, President, ITAT, Hon’ble Mr. D. Manmohan, Vice President (MZ), ITAT, Mr. S. K. Poddar, National President, AIFTP, Prof. Sanjay Kadam, Chairman, Moot Court Association, GLC and Mr. Raghav Dev Garg, General Secretary, Moot Court Association, GLC.

Hon’ble Mr. D. Karunakara Rao, Member, ITAT, Hon’ble Mr. H. L. Karwa, President, ITAT & Hon’ble Mr. Sanjay Garg, Member, ITAT.

Hon’ble Mr. P. M. Jagtap, Member, ITAT, Hon’ble Mr. D. Manmohan, Vice President (MZ), ITAT & Hon’ble Mr. Amit Shukla, Member, ITAT.

There is no greater joy in the organization of a moot court competition than seeing it unfold in the real world tax tribunals before member judges of the ITAT themselves. In 2009, we were faced with several impediments in putting together this moot which caused us to shift the dates of the moot to the month of December that year. But the challenge bought out the best not only in our core committee but in the entire association which was able to pull off a memorable competition and pay a fitting tribute to the great Mr. Nani Palkhivala. Undoubtedly, the never say die attitude of the association and each members dedication to our goal is my biggest take away from ITAT 2009.

Pranay Aggarwal & Shanelle Irani
General Secretary & Asst. General Secretary – 2009

With the growing popularity of the moot and the support of the ITAT Bar, the competition witnessed participation of 26 teams from across the country, an all-time-high for the competition. In order to ensure that deserving teams qualify for the finals, we introduced a quarter-final round for the first time (to be judged by senior tax practitioners) and revamped the scoring system. The finals were decorated with the opulence of the Y. B. Chavan Auditorium and the brilliance of Justice B. N. Srikrishna presiding over the Bench.

Raunak Shah and Rubin Vakil
General Secretary & Asst. General Secretary – 2010

Being the 8th edition of the Competition and the 150th year of the Bombay High Court, the Competition was at its grandest and I was truly fortunate to have been General Secretary that year. The participants even got the opportunity to interact with Mr. Nishith Desai himself. The highlight however was the final round between NLSIU, Bangalore and RMLNLU, Lucknow who faced a stellar bench of Justice Mohit Shah, Chief Justice, Bombay High Court, Justice D. Y. Chandrachud and Justice R. M. Savant. In all, memories of those 3 days will remain with me through my life!

Komal Modi
General Secretary-2011

Our experience of organizing the Nani Palkhivala Moot in the year 2012 was extremely satisfying and rewarding specially in terms of the increased participation in the years’ research paper competition. Highest number of research paper entries were recorded in the year 2012 undoubtedly translating into an unbelievable level of interest in the field of “General Anti Avoidance Rules – An Indian And International Perspective” from across the country. All in all, it has been an honour for to be at the threshold of organising a prestigious moot and we hope to imbibe some of the qualities of Mr. Palkhivala

Ayushi Anandpara & Madhavi Doshi
General Secretary & Asst. General Secretary – 2012

….10 Years and Counting

Source: Souvenir-(AIFTP & ITAT Bar Association) – 2013

His Excellency K. Sankaranarayn, Governor of Maharashtra

“Moot Courts are an integral part of law student’s learning process. Moot Court Competition prepares students for working in real court conditions. The lawyer’s skills, professional ethics, confidence and advocacy that they acquire in the process keep them in good stead in their life and professional career. The present competition is unique in as much as it is the country’s only moot court competition on the subject of Taxation”

Honourable Shri Kapil Sibal, Minister Communication and IT & Law and Justice Government of India

“Moot Court Competitions are an ideal platform for young students to attempt tacking the intricacies of the subject and court craft. Besides acquiring a through knowledge of tax law, these are an excellent opportunity to develop advocacy skills and professional ethics”

Honouarble Mr. Justice Rajesh Bindal, Judge, Punjab & Haryana High Court

“Mr. Palkhivala had a deep respect, indeed reverence, for both the Constitution and for the cardinal principles embeded in it. His initial forte was commercial and tax law.

The culmination of Palkhivala’s success before the Honourable Supreme Court came in famous Keshvananda Bharti v. The State of Kerala. Thee moot court competition has the distinction of being India’s first and only moot court competition based exclusively on the subject of taxation”

Honourable Justice Mr. R. V. Easwar, Judge, High Court Delhi

“Right from its first year, I have had the privilege of being associated with the competition.

The late Nani Palkhivala, besides being a legal legend, stood ethics and values in the legal profession and in the judiciary. He practiced what he preached. His contribution to the character building of the nation was significant.

I would exhort and earnestly opened to the participants in the Moot Court Competition to attempt to follow the ideals set by Nani Palkhivala. The legal profession to day is in need of youngsters driven by high moral principals who can carry forward the legacy handed down by persons like Nani Palkhivala, M. C. Setalvad Sir Alladi Krishnaswany Iyer and others”

Honourable Shri H. L. Karwa, President, ITAT

“Shri Nani A. Palkhivala was a legend in the field of Direct Taxes and Constitutional law. He is remembered for his persuasive arguments, decent and dignified presentation and lucid language. It is said that he achieved these qualities through hard work. Soli J. Sorabji & Arvind P. Dattar in their book titled “Nani Palkhivala – The Court Room Genius “highlights the “Innate talent, Palkhivala undoubtedly had, but extraordinary hard Work was a greater factor that contributed to his success. “The Income Tax Appellate Tribunal Bar Association, Mumbai is paying befitting tribute to its Past President by organising Palkhivala Memorial National Tax Moot Court Competition as it provides an opportunity to young students to learn and demonstrate their skills in court craft”

Shri Arun P. Sathe, Senior Advocate, Bombay High Court, President ITAT Bar Association Mumbai

“As far as our Association is concerned Mr. Palkhivala was the great pillar of strength and he was President of our Bar till he was alive. His contribution to the field of law and /or otherwise was very great, particularly in defending the democratic and fundamental rights of the people of India. Whatever he preached he practiced.

He was one of the most important stalwarts who fought the Emergency during 1975. He was not only an eminent Tax Counsel but was a great fighter for the rule of law and democracy. He saw to it that was done during the Emergency of curtailing the fundamental rights and defending the Constitution of India was being undone by fighting the case of Minerva Mills in the Supreme Court after emergency was over

Shri S. K. Poddar, Advocate, High Court Ranchi, National President AIFTP

“Having witnessed Moot Court Competition in past. I am convinced that this project is great help and learning for the participants. The standard of deliberation which has been witnessed in Moot Court Competition is second to none and it shows that future of legal profession in thee filed of taxation is very bright and we will be definitely able to see the young boys and girls following the path and wisdom of great Nani Palkhivala to reach new heights and we will be proud of them having involved themselves in profession specially in taxation.”

Nani Palkivala-The Court room Genius, Soli J. Sorabji, Former Attorney-General of India, Senior Advocate, Supreme Court of India, Arvind P. Dattar, Senior Advocate, Madras High Court (Seventh Reprint, 2016) Page No. 5

“Apart from the ‘stream of opportunities’ Palkhivala had certain outstanding qualities both innate and cultivated, that were vital ingredients of his phenomenal success. In several interviews, the qualities that were repeatedly highlighted were as follows:

(i) Single minded determination to succeed;

(ii) Capacity for hard work;

(iii) Time management;

(iv) Concentration;

(v) Speed reading;

(vi) Continuous self-Improvement;

(vii) Clear strategy and persuasive style of advocacy;

(viii) No gossip

Source: Souvenir – (AIFTP & ITAT Bar Association)-2012

Honourable Justice Mr. Mohit S. Shah, Chief Justice, High Court of Bombay

“Late Mr Nani Palkhivala devoted his professional practice to the field of Direct Tax laws. Mr. Nani Palkhivala was legend in the field of Income Tax and Constitutional law. He was also Professor at the Government Law College. One of the objects of the Nani Palkhivala Memorial National Tax Moot Court Competition is to bring awareness amongst law students about the values and ethics practiced by late Mr. Nani Palkhivala before the ITAT and Courts. I hope the students will follow these values and ethics in letter and spirit. Over and above, this is an educational programme for over all development of students”

Honouarble Shri Salman Khurshid, Minster of law & Justice Government of India.

“The professional and intellectual contribution of Shri N. A. Palkhivala in the filed of tax laws and the immense service rendered by him to the nation as a constitutional lawyer will always be remembered with gratitude and admiration. Moot Court Competitions area an ideal platform for young students to attempt tackling the intricacies of the subject and Court craft. Besides acquiring a thorough knowledge of tax law, these are an excellent opportunity to develop advocacy skills and professional ethics. The experience will prepare them to work as part of the Tax Bar of International Standard”

Honourable Shri. H. L Karwa, President, ITAT

“Late Shri Nani Ardeshir Palkivala was the President of the Income Tax Appellate Tribunal Bar Association from 1968 to 2002. Shri Nani Palkhivala fought for his country and his countrymen not only in Indian Courts but also in International Forums. He is a legend in the filed of Income tax and Constitutional law. He was a former Professor and student of the Government law College, Mumbai. The Moot Court Competition is a fitting tribute to his legacy.”

Dr. K. Shivaram, Senior Advocate, Bombay High Court, President, ITAT Bar Association Mumbai

“Nani A. Palkhivala – A Legend of tax profession – The object of the Nani A. Palkhivala Memorial National Tax Moot Court Competition is to make aware the contribution of late Shri N. A. Palkhivala in the process of nation building, and to encourage the young law students to enter the filed of tax litigation practice”

Shri S. K. Poddar, Advocate, High Court of Jharkhand (Ranchi) National President AIFTP

“The standard of argument which was advanced by the participating teams from 26 different colleges, the preparation of the paper book and presentation of arguments and submissions for and against made us feel that the upcoming lawyers are being trained to achieve great success in their profession.”

Nani Palkhivala – Tax Redefined

With the unsurpassable nature of sheer advocacy demonstrated by Nani Palkhivala there seems to be no doubt that he was genetically coded to be an outstanding lawyer. His meteoric rise as an advocate coupled with a lasting impact he has had on law as an institution is probably unparalleled in the legal history of the country. Innate talent Nani Palkhivala undoubtedly had but extraordinary hard work was a greater factor that contributed to his success. Nani Palkhivala valued time and his ambition inculcated a limitless inner energy that kept him going.

His knowledge of accountancy, quick grasp and analytical abilities enabled him to handle the intricacies of tax laws. He seemed to have a natural affinity inclination to these cases. Appearing in some of the landmark cases and putting forth novel arguments each time he has most definitely contributed to shaping the destiny of our country in more ways than one.

When one speaks about the growth of income tax it is needless to say that Nani Palkhivala must be mentioned. The two are synonymous and one would wonder where tax would stand if their paths had not collided. That explains the magnitude of his impact in the sphere of taxation amongst multiple others. The two have evolved almost simultaneously, together having contributed immeasurably to the country. It has therefore most definitely been a two way influence. Nani Palkhivala and his works continue to be an authority on tax in India and will continue so for years to come.

The Law and Practice of Income Tax

The ‘Law and Practice of Income Tax’ has through its several editions, established itself as the most definitive work on the subject of Income Tax. Its primary focus has been the exposition of the principles governing Income Tax Law and keeping up with the multiplicity of amendments right up to the present.

Palkhivala reached the pinnacle of success very early in his prolific career as a legal luminary. He realised early that there was no good book on Income Tax, and set about writing one as early as. The famous book co-authored by with his mentor Sir Jamshedji Beharamji Kanga, running into several editions has completely changed the take on income tax in the country and created a standard in itself.

Nani Palkhivala wrote the book by systematically examining every relevant reported case and making extracts and notes on them. His way of compiling the commentary was extremely methodical, lucid and systematic and great attention was paid to detail. He insisted upon meticulous cross-checking of references. His ability to evaluate the tax policies, study and scrutinize the reforms is unmatchable and clearly brought out in his book. The preface of each edition was unique and engaging. He protested over the ‘chronic tinkering’ of the Act and lamented that it has twisted out of shape and lost its direction.

The last passage of the last preface written by Nani Palkhivala reads:

“Every Government has a right to levy taxes. But no Government has the right, in the process of extracting tax, to cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of the palpable injustice.”

In the preface to various editions of his commentary on Income Tax, Palkhivala laments on the fact that the amendments to our tax laws and consequences therein are not given much heed. He strongly criticised unjust policies and unfair strategies put forth by the Government. It is indeed sad that his criticisms made over the years have more or less been in vain.

Chief Justice Chagla while hearing income tax references referred to it as “The Book”; and often when a ticklish question of law arose on which precedents were silent, he would ask, ‘What does the book say?’ The Highest Taxed Nation, published a fortnight before the presentation of the 1965-66 Budget in Parliament, compelled the Government to redraft part of the Budget on an emergency basis simplifying the maddeningly complicated tax-structure, and later to bring down the tax rates from the vertiginous heights.

Famous Speeches

It’s unbelievable to imagine that Nani Palkhivala as a child would struggle to say even a few words when years later his post budget speeches kept 100,000 people spellbound at Brabourne stadium in Mumbai. Palkhivala made his first budget speech in 1957 and has been a critic of innumerable amendments and policies related to tax laws ever since.

Palkhivala utilised these opportunities to reach out to the layman who would come from places just to hear him speak. His speeches had a profound, lasting impact on those who heard him. He would address pressing issues pertaining to the budget post its announcement. Being so well versed with the subject it was not surprising that he was able to capture the attention of the audiences instantaneously. He delivered his speeches extempore, having an effect manifold.

His historic speeches since 1957 have drawn national attention and only an extra-ordinary human being could make something as dry as budget so meaning and attract the tremendous audience he did. The far-reaching and percolating effect of his views have been massive and unparalleled and even to the present day are considered and looked upon with great amount of reverence and admiration. He was truly an inspiration, an institution within himself. Dr. William Emerson, a collateral of the famous American writer, observed that if such a speech was given in the USA, people would hold discussions for days on the points made and newspapers would carry articles about them. When Nani spoke, the venue itself became the parliament of the people.

Famous Income Tax Cases

Although Nani Palkhivala’s contribution to Constitutional Law is immense, he shot to national fame at a young age only as a Tax Lawyer. The cases that Nani Palkhivala has been a part of have seen new principles being laid down, judgements of the court being recognised as landmark verdicts and many decisions affirmed by the Supreme Court.

Palkhivala’s involvement in tax cases is immense and spans across five decades, from 1945-1995. He has during his lifetime witnessed the Income Tax Act of 1921 consisting of just 100 sections grow to the Income Tax Act of 1961, consisting of almost 300 sections including the multiple amendments therein.

1. In 1977, Palkhivala argued an important case on accrual of income. It all began with signing of agreement on June 22, 1955 in the United States. The American company was to receive 3% of the net sales as technical fees under the agreement. The Madras High Court held that the agreement clearly established a ‘business connection between the two companies’. Therefore, the fees could be taxable as accruing or arising from such business connection and were liable to tax under Section 41(1)(c) and Section 42 of 1922 Act. Palkhivala appeared for the American company in the Supreme Court and assailed the High Court order, he further went on to argue that even if there was a ‘business connection’, the High Court failed to examine the question of apportionment under Section 42(3) of the Act. Agreeing with Palkhivala’s submissions, the Supreme Court found that the High Court had wrongly confirmed the demand based upon ‘business connection’ when this ground was never raised before the Tribunal or lower authorities. It also held that no part of activity has been carried on by the American company in India as no income accrued or arose within the Indian territory as argued by Palkhivala.

2. An important case under Section 52 was Imperial Chemical Industries Ltd. (ICI) v. CIT, where ICI was a multinational incorporated in the United Kingdom and the assessee was its 100% Indian subsidiary. English company advancing large loans to its 100% Indian subsidiary and the loan amounts were then used to subsidiary shares of three Indian companies. This was done with the approval of the Reserve Bank of India and the concerned Department of the Government of India. The Indian subsidiary transferred all its shareholdings in the three companies to the parent English company at par value or face value. The Income Tax Department sought to invoke Section 52 alleging that the transfer of shares by the Indian company to the parent was effected with the object of evading or reducing the liability to pay capital gains tax. Palkhivala appeared for the assessee in the Supreme Court and argued that the intention or the object to avoid or reduce liabilities to capital gains were questions of fact and did not depend on inference of facts from evidence or material before the Tribunal. When the transaction was entered into in 1953 and approved by the statutory authorities, the intention was to make investments in India and it was felt that the best way was through a 100% Indian subsidiary. The Supreme Court took a practical view and accepted the arguments of Palkhivala, it also observed that merely because the amount involved was large that would not justify a reference on a question of law.

3. The levy of additional income tax was questioned before the Bombay High Court in CIT v. Khatau Makanji Spinning and Weaving Company Ltd. the company had paid dividend from the profits of the earlier years as the profits of the relevant assessment year were not adequate. Palkhivala argued that the additional income tax could be levied only with reference to the total income of that previous year. This argument was accepted by Chief Justice Chagla who ruled that the Finance Act, 1953 had ‘misfired’ by not providing that the accumulated profits would also be treated as part of the total income of the previous year. This judgement was affirmed by the Supreme Court which also held that Parliament had failed to suitably draft the provisions of the Finance Act, 1953.

4. An interested case that dealt with the consequences of devaluation was CIT v. Tata Engineering and Locomotives Company Ltd. Telco had earned commission of USD 36,123 in foreign exchange and also received about USD 9,000 as reimbursement of expenses that was incurred in India for an American company. These amounts were permitted to be retained in the US for purchase of capital goods. The rupee was devalued in 1949, thus, a surplus of ₹70,147 resulted on account of devaluation and the question was whether the surplus was a trading profit or an accretion to the capital account. Palkhivala argued that Telco was not a dealer in foreign exchange and the amount had not been retained for revenue purposes instead it had been retained on capital account and to acquire a capital asset. Hence, any profit made on realisation is capital appreciation, even though the foreign currency may have been originally acquired as a revenue receipt. Justice Sikri observed that the act of retaining money in dollars was only on capital account. Once this amount was retained abroad for purchase of capital equipment, it was an independent transaction and a first step to acquiring capital goods and any surplus arising as a result of devaluation would be only on capital account and not liable to tax.

5. Dilip Kumar Roy was a well known singer and a writer of books on religion and philosophy. He received cash gifts from his devotees which were sought to be taxed. Palkhivala raised three main arguments, firstly, that singing bhajans and writing books on philosophy was not a vocation at all. Secondly, he argued that the amounts in question were not amounts received as payment for conducting vocation or business, rather they were received as gifts for personal esteem and veneration. Lastly, that the amounts received by the assessee are impressed with the character of trust. The last two ingenious arguments were accepted by the Bombay High Court and it was held that there was no taxability on these amounts.

6. In CIT v. ED Sheppard,the Bombay High Court had to decide whether the compensation paid to an employee on his leaving service could be liable to income tax under the head of ‘profits in lieu of salary’. Sheppard’s employment with the firm had to be terminated and he received shares of the company as compensation. Palkhivala argued that the shares received were for loss of employment and loss of future prospects. The Court agreed with Palkhivala and held that the payment, was in fact, a payment of compensation and not a distribution of profits in lieu if salary. The Court said that in the ultimate analysis, it had to decide whether this receipt was one of capital or revenue in nature and since it was not a revenue receipt, it could not be taxable under the head ‘salaries’ as argued by Palkhivala.

Dignitaries on the Dais – seen from left to right : Prof. Sanjay Kadam, Chairman, Moot Court Association, GLC; Mr. Arun Sathe Vice President, ITAT Bar Association, Dr. K. Shivaram, President, ITAT Bar Association & Chairman, Palkhivala Foundation & Research Committee; Hon’ble Mr. H. L. Karwa, President, ITAT, Hon’ble Mr. D. Manmohan, Vice President (Mumbai Zone), ITAT, Mr. S. K. Poddar, National President, AIFTP; Mr. R. B. Malik, Principal, Government Law College, Mumbai and Ms. Madhavi Doshi, Asst. General Secretary, Moot Court Association, GLC.

Judges for the finals – Seen from left to right : Hon’ble Mr. Justice R. D. Dhanuka, Hon’ble Mr. Justice R. Y. Ganoo, & Hon’ble Mr. Justice N. M. Jamdar, Judges of Bombay High Court.

Hon’ble Judges of Bombay High Court presenting Winner Trophy to law student of Gujarat National Law University, Gandhinagar.