Rajesh Bindal, J.

1. The Revenue has filed the present appeal against order dated 27.2.2004, passed by the Income-tax Appellate Tribunal, Chandigarh Bench `A (for short, `the Tribunal) in I.T.A. No. 1017/CHANDI/97 for the assessment year 1993-94, raising the following substantial questions of law:

(i) Whether on the facts and circumstances of the case, the Hon ble Income Tax Appellate Tribunal was right in deleting the disallowance of Rs. 16,48,024/- made on account of interest on interest free advances given to the sister concern for non-business purpose ?

(ii) Whether on the facts and circumstances of the case, the Hon ble Income-tax Appellate Tribunal was right in law in deleting the addition on account of sales tax subsidy of Rs. 4,56,948/- claimed by the assessee as capital receipt instead of revenue receipt ?

2. The appeal is admitted for consideration of substantial questions of law, referred to above.

3. With the consent of learned Counsel for the parties, we have taken the appeal on Board and heard the same for final disposal.

4. More than two decades ago, a Constitution Bench of Hon ble the Supreme Court in McDowell & Company Limited V. Commercial Tax Officer, while referring to earlier judgments and also laying path for departing from Westminster principle observed as under:

16. In Commr. of Income-tax, Gujarat V. A. Raman & Co. , J.C. Shah, J. speaking for himself and Sikri and Ramaswami, JJ. repeating almost verbatim the observations in Westminster (1936 AC I) and Fishers Executors (1926 AC 395) observed: Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues to arise to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Incometax Act. Legislative injunction in taxing statutes may not, except on period (Pain ?) of penalty, be violated, but it may lawfully be circumvented.

The same judge, speaking for himself, Ramaswami and Grover, JJ. in Commr. of Income-tax, Gujarat V. Kharwar expressly followed.

Westminster and observed (at p.815): The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction.

17. We think that time has come for us to depart from the Westminster principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare State like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Sheatcroft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skillful advisers on the other side. Then again there is the `sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guileless good citizens from those of the `artful dodgers. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said, "Taxes are what we pay for civili