Question

Q5 Krishna, an assessee, was a wealthy man earning huge income by way of dividend and interest. He formed three Private Companies and agreed with
each to hold a bloc of investment as an agent for them. The dividend and interest income received by the companies was handed back to Krishna as a pretended loan. This way, Krishna divided his income into three parts in a bid to reduce his tax liability. decide, for what purpose the three companies were established? whether the legal personality of all the three companies may be disregarded.​

Answer 1

The companies were established to avoid legal responsibility for payment of tax. Yes, the legal personality of all three companies will be disregarded.

Explanation:

Krishna was earning huge income through dividend and interest , so to avoid his tax liability he formed three companies to transfer his incomes and receive them back as pretended loan. the three companies were established with the purpose to avoid taxes, these sham companies did no legal work and only existed on paper. so, the legal personality of these three companies will be disregarded and the companies and their owner Krishna will be treated as one and same person because of lifting of corporate veil

corporate veil is a invisible legal curtain that separates company from its owners , but this veil may be lifted in case of fraud, tax evasion, and enemy character. in this case, the company and the owners will be treated as one and same person and the legal personality of the three companies will be disregarded.