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.
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.
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.
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.
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.
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.
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.
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.