Examine in brief the doctrine of "form and substance" in the context of tax planning under the Income Tax Act, 1961. Support your answer with the decided court cases explaining the principle of form and substance which w

The following are certain principles enunciated by the Courts on the question as to whether it is the form or substance of a transaction, which will prevail in Income-tax matters. (i) It is well settled that when a transaction is arranged in one form known to law, it will attract tax liability whereas, if it is entered into in another form which is equally lawful, it may not. In considering whether a transaction attracts tax or not, the form of the transaction put through is to be considered and not the substance. However, this rule applies only to genuine transactions. [ Motor and General Stores (P) Ltd. vs. CIT (1967) 66 ITR 692 (AP) ] (ii) True legal relation is the crucial element for taxability. The true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction. It is open for the authorities to pierce the corporate veil and look behind the legal facade at the reality of the transaction. The taxing authority is entitled as well as bound to determine the true legal relation resulting from a transaction. (iii) Substance is relevant and not the form: a) In the case of an expenditure, the mere fact that the payment is made under an agreement does not preclude the department from enquiring into the actual nature of the payment [ Swadeshi Cotton Mills Co. Ltd. vs. CIT (1967) 63 ITR 57 (SC) ] b) In order to determine whether a particular item of expenditure is of revenue or capital nature, the substance and not merely the form should be looked into. [ Assam Bengal Cement Co Ltd. vs. CIT (1955) 27 ITR 34 (SC) ]