The Supreme Court of Canada indicated inter alia if the transaction escapes the application of certain provisions in a manner that defeats the object , spirit or purpose of a provision it constitutes abusive tax avoidance . ( Canada Trustco)

This can be straight applied in Vodafone case. It took the controlling interest in HEL through a coloured instrument in an offshore deal to defeat the spirit of the tax laws that indicates that capital gain tax is payable for windfall gains from assets in India. The offshore transaction is also intended to escape the provisions of law by Vodafone , citing lack of jurisdiction over such offshore transaction. The law doesn’t intend so. No specific intention is indicated in the tax laws or  provide  specific relief to transactions through coloured  devices. If Vodafone had registered a subsidiary here in India  and then bought the stake of HEL it wouldn’t have claimed no tax liability for the same assets in India which have had  a windfall gain.

Thus the offshore deal was clearly done  to defeat  the object  and spirit of the tax law in India on capital gains. The SC should have taken this simple aspect of the spirit of the tax law when the letters carry a grey area ,in matters of abusive tax avoidance transactions , issued a verdict citing balance of convenience and did justice to the exchequer and enabled it to receive the revenue that accrued to it  legitimately.

If the Corporates can muscle through the spirits of fair legislation with their financial and legal clouts, the Legislaure cannot be blamed for making laws with retroactive provisions to give effect to the spirit of the Law. SC should  have avoided this unfair and unpleasant outcome . The spirit of the law should have prevailed where the letter was   being used to create a smokescreen .