OVERVIEW OF GENERAL ANTI-AVOIDANCE … Yogesh Thar...OVERVIEW OF GENERAL ANTI-AVOIDANCE RULES ³*$$5´ Presentation by Yogesh Thar July 1, 2017 OVERVIEW NEED FOR GAAR Counteract and

The Chamber of Tax Consultants

OVERVIEW OF GENERAL ANTI-AVOIDANCE RULES

(“GAAR”)

Presentation by Yogesh Thar July 1, 2017

OVERVIEW

NEED FOR GAAR

Counteract and negate abusive tax avoidance arrangements which result in a serious loss ofrevenue to tax authorities

Codify the principle of ‘SUBSTANCE OVER FORM’

Examine cases of aggressive tax planning with use of sophisticated structures

Plugging loopholes that may result in tax avoidance

Critical examination of inbound/outbound transaction and check treaty shopping

Deterrent against use of legal constructions or transactions to violate horizontal equity

Preserve the tax base of the country from erosion

3CTC - OVERVIEW OF GAAR YOGESH A. THAR

TAX EVASION, TAX MITIGATION, TAX AVOIDANCE

Tax Evasion

Unlawful and is the result of illegality,

suppression, misrepresentation and

fraud

Prohibited by tax statute as well as judge made law (JAAR). Thus,

GAAR not relevant

Tax Avoidance

Outcome of actions taken by the assesse, none of which or combination

thereof is illegal or forbidden by the law as

such

GAAR applies if tax avoidance is the main purpose

Tax Mitigation

Situation where tax payer uses a fiscal incentive provided under the tax legislation fulfilling the

conditions and economic consequences thereto

Allowed under the tax statue itself. Ideally,

GAAR should not apply

4

Main objective

behind arrangement

is TAX

MITIGATION -

Whether GAAR

provisions apply!

Tax avoidance can

be ‘acceptable’ or

‘unacceptable’.GAAR intends to

cover only the

latter.

CTC - OVERVIEW OF GAAR YOGESH A. THAR

FRAMEWORK OF GAAR – CHAPTER X-ASection/Rules Overview

95 Applicability of GAAR

96 Impermissible Avoidance Arrangement (“IAA”)

97 Arrangement of lack commercial substance

98 Consequences of IAA

99 Treatment of connected person and accommodating party

100 Application of Chapter X-A

101 Chapter X-A to be applied in accordance with guidelines to be framed

102 Definitions

144BA Administration of GAAR

Rule 10U Exclusions from applicability of Chapter X-A

Rule 10UA Determination of consequences of IAA

Rule 10UB Notices and forms

Rule 10UC Time Limits

Circular No. 7 of 2017 FAQs on GAAR


GAAR PROVISIONS – A SNAPSHOT

Is there an ARRANGEMENT

MAIN PURPOSE of the

whole/step in/part of the arrangement

is TAX BENEFIT

Does the arrangement contain any of the

following TAINTED ELEMENTS:a) Not at ARMS’ LENGTHb) MISUSE/ABUSE of tax provisions

c) Lacks COMMERCIAL SUBSTANCE

d) Not for BONAFIDE PURPOSE

The arrangement is an IAA

The arran

gem

ent is N

OT

an IA

A

Yes

Yes

Yes

No

No

No

CONSEQUENCES*:

disregarding, combining or recharacterising any

step in/part/whole of the IAA; treating the IAA as if it had not been entered into

or carried out; disregarding any accommodating party or treating

any accommodating party and any other party as

one and the same person; deeming connected persons to be one and the same

person for the purposes of determining tax

treatment of any amount; reallocating income, expenditure, deduction, relief,

rebate;

reassigning place of residence, situs of asset or

transaction;

disregarding corporate structuring

*For this purpose equity, debt, expenses, accrual or

receipt, relief or rebate may be recharacterisedGAAR applicable subject to

exclusions under Rule 10U

GA

AR

is no

t app

licable


INTERPLAY WITH JUDICIAL ANTIAVOIDANCE RULES (“JAAR”)

Duke of Westminster vs. IRC (19 TC 490)(HC)

Avoidance of tax is not tax evasion and it carries no ignominy with it, for it is sound lawand certainly not bad morality for anybody to so arrange his affairs as to reduce the bruntof taxation to a minimum.

Followed in:

CIT vs. Keshavlal Patel (55 ITR 637)(SC);

CIT vs. A Raman and Co. (67 ITR 11)(SC);

CIT vs. B. M. Kharwar (72 ITR 603)(SC)

8

Legal effect can’t be ignored


Gregory V/S. Helvery (1935) (US Supreme Court)

9

Steps:

1. Individual owns Co. A; Co. A owns Co. B

2. Individual floats a new company – Co. C

3. Co. A transfers shares of Co. B to Co. C

4. Co. C is liquidated; Individual holds Co. B (Corporate

Reorganisation)

5. Individual sells shares of Co. B and receives cash

Individual

Co. A Co. C


Co. B

1

1

3

3

24

5

&

Origins of Anti-tax Avoidance Doctrine

Gregory vs. Helvery (1935) (US Supreme Court)(contd…)

US – Court of Appeals

Purpose of the Legislation:

o readjustment shall be undertaken for reasons germane to the conduct of the venture in hand

o To dodge the shareholders taxes is not one of the transactions contemplated as Corporate‘Reorganisation’

US – Supreme Court

Intention of the taxpayer:

o Simply an operation having no business or corporate purpose

o A mere device which put on the form of corporate reorganisation as a disguise forconcealing real character

And

Purpose of legislation: Approved Court of Appeals observations


Ramsay vs. IR (54 TC 101)(HL);

Substance over form:

‘Sham’ cases of ‘ready made schemes’ Series of inter connected transactions which were ‘self cancelling’ Loss ‘manufactured’ or ‘created’ to set off gains Several transactions – commercially inert, only fiscally active

House of Load cautioned against pre-ordained, pre-arranged

scheme having no commercial substance apart from tax avoidance

Followed in:

IRC vs. Burma Oil (54 TC 200)(HL) – case of self cancelling transactions (circular transactions)

Furniss vs. Dawson (55 TC 324)(HL) – case of transaction division (linear transactions)

11

Befitting burial of Duke of Westminister doctrine – Follows PURPOSIVE APPROACH

Emergence of FISCAL

NULLITY DOCTRINE

The tax consequences of

the interlocking,

interdependence, and pre-

determined transactions

are to be judged by

reference to their

substance.


McDowell & Co. Ltd vs. Commercial Tax Officer(154 ITR 148)(SC)

Main judgment of Ranganath Misra, J. (on behalf of Full Court)

Tax planning may be legitimate provided it is within the framework of law

Colourable devices cannot be part of tax planning it is wrong to encourage the belief that it ishonourable to avoid payment of tax by resorting to dubious methods

It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges

Supplementing decision by Chinappa Reddy, J. ( post concurrence with decision of‘majority’) Blurred distinction between “tax avoidance” and “tax evasion” Dismissed observations in Raman & Co

12

Chinappa Reddy J.’s view: Reopened debate of Ramsay vs. Duke of Westminister


UOI vs. Azadi Bachao Andolan (263 ITR 706)(SC)

An act which is otherwise valid in law cannot be treated as non est merely on the basisof some underlying motive supposedly resulting in some economic detriment orprejudice to the national interests.

Duke of Westminster principle is very much alive and kicking. A Raman’s case (supra)is very much relevant even today;

Rest of the Judges of the Constitutional Bench in McDowells (supra) did not contributeto ‘radical’ thinking of Chinappa Reddy, J.

13

Duke of Westminster doctrine resurrected


CIT vs. Walfort Share and Stock Brokers (P.) Ltd. (326 ITR 1)(SC)

After referring to case of McDowell (supra) and Azadi Bachao Andolan (supra) it washeld that a citizen is free to carry on its business within the four corners of the law.

Mere tax planning, without any motive to evade taxes through colourable devices, is notfrowned upon even by the judgment of the Supreme Court in McDowell (supra)

14

Azadi Bachao Andolan reaffirmed


Vodafone International Holdings B.V. vs. UOI (341 ITR 1)(SC)

Reaffirmed cardinal principal of Duke of Westminster - given that a document or transaction isgenuine, the court cannot go behind it to some supposed underlying substance

No conflict between McDowell (supra) and Azadi Bachao (supra)

Chinnappa Reddy, J.’s view in McDowell’s (supra) clearly only in the context of artificial andcolourable devices

‘Look at’ approach preferred over ‘Look through’ approach

Revenue can invoke 'substance over form principle' or piercing corporate veil' test only after it isable to establish on basis of facts and circumstances surrounding transaction that impugnedtransaction is a sham or tax avoidance

15

The Final Verdict!


INTERPLAY

JAAR essential involves SUBSTANCE vs. FORM

Characteristic of the scheme of GAAR reflects the principle laid down in McDowellemphasis on Substance over Form

Main Purpose + Tainted element test [Section 96(1)]

Arrangement deemed to lack commercial substance (Section 97)

GAAR codifies and gives legal recognition to JAAR

16

GAAR is extended

and codified

version of JAAR

Whether JAAR can be invoked to the extent of exclusions provided under GAAR!

Arrangements where the tax benefit in a financial year is less than threshold of Rs.3 cores;

Income accruing or arising from transfer of investments made before April 1, 2017


INTERPLAY WITH SPECIFIC ANTI-AVOIDANCE RULES (“SAAR”)

17

OVERVIEW Sections Provisions

2(22) Deeming certain transactions with

shareholders/their related parties as dividend

9 Explanation 5 – Indirect Transfer

14A Disallowance of expense in relation to exempt

income

40A(2) &

92

Expenses or payments not deductible in certain

circumstances involving related parties

50C,

50CA,

50D

Deeming sales consideration in case of transfer of

land, building, unquoted shares or where such

consideration is not ascertainable or determinable

56(2) Treating any receipt of property at NIL or

inadequate consideration as income of recipient

60 Transfer of income without transfer of assets

18

Sections Provisions

61 & 62 Taxation of revocable and irrevocable trust

64 Transfer of income by husband to wife vice versa

79 Carry forward and set off of losses in case of

change of shareholding

80IA,

80IB, 80IC

Tax Holiday – Inter company/Intra company

transfers

Chp X Transfer Pricing

93 Avoidance of income-tax by transfer of income to

non-residents through transfer of assets, rights,

interest

94 Dividend Stripping/ Bonus Stripping

94B Thin Capitalisation

94CE Secondary Adjustments, etc.


DRAFT GUIDELINES FOR GAAR IMPLEMENTATIONUNDER DIRECT TAX CODE BILL, 2010 (“DTC”)

Concerns have been raised that there could be interplay between the SAAR and GAAR.The committee examined this issue and gave the below recommendation:

19

“While SAARs are promulgated to counter a specific abusive behavior, GAARs

are used to support SAARs and to cover transactions that are not covered by

SAARs. Under normal circumstances, where specific SAAR is applicable, GAAR

will not be invoked. However, in an exceptional case of abusive behavior on the

part of a taxpayer that might defeat a SAAR……., GAAR could also be invoked.”

(Underlined for emphasis)


SHOME COMMITTEE REPORT

The report observed that the statement made by the earlier committee in the draftguidelines for DTC came under criticism. The committee stated as under

20

“It is a settled principle that, where a specific rule is available, a general rule will not

apply. SAAR normally covers a specific aspect or situation of tax avoidance and provides a

specific rule to deal with specific tax avoidance schemes. For instance, transfer pricing

regulation in respect of transactions between associated enterprises ensures determination

of taxable income based on arm‘s length price of such transactions. Here GAAR cannot be

applied if such transactions between associated enterprises are not at arm's length even

though one of the tainted elements of GAAR refers to dealings not at arm‘slength…………………………

In view of the above, the Committee recommends that that where SAAR is applicable to a

particular aspect/element, then GAAR shall not be invoked to look into that

aspect/element.”


CIRCULAR NO. 7 of 2017 dated 27/01/2017

Central Board of Direct Taxes (“CBDT”) has issued the said circular providingclarification on implementation of GAAR

21

“Question no. 1: Will GAAR be invoked if SAAR applies?

Answer: It is internationally accepted that specific anti avoidance provisions

may not address all situations of abuse and there is need for general

anti-abuse provisions in the domestic legislations. The provisions of

GAAR and SAAR can coexist and are applicable, as may be

necessary, in the facts and circumstances of the case.”

Co-existence of GAAR & SAAR depends on necessity, facts and circumstances of the case

Circular creates AMBIGUITY


ILLUSTRATION (1/2)

22

Hold Co.

Sub Co.

Sub Co. has substantial carried forward losses

where as Hold Co. is a profit making company

The scheme is a qualifying amalgamation u/s

2(1B)

Transfer exempt u/s 47(vi)

Hold Co. will be allowed to set – off the losses

u/s 72A

Predominant intention behind the arrangement is

set off of losses

Can GAAR provisions be invoked?

Merger51%


ILLUSTRATION (2/2)

23

Hold Co.

Sub Co.

Sub Co. is a trading company

It has substantial carried forward losses where as

Hold Co. is a profit making company

Sub Co. starts a new consultancy business

Sub Co. demerges trading division to Hold Co.

The scheme is a qualifying demerger u/s

2(19AA)

Transfer exempt u/s 47(vib)

Hold Co. will be allowed to set – off the losses

u/s 72A(4)


Demerger51%


INTERPLAY WITH LIMITATION OFBENEFIT CLAUSE (“LOB”) IN TREATIES

ACTION PLAN – 6 - AN OVERVIEW

Action Plan 6 provides safeguard against ‘Treaty Abuse’ and in particular ‘TreatyShopping’

Three-pronged approach recommended to address treaty shopping arrangements:

25

Clear statement of intent in tax

treaties to avoid creation of

opportunities for non-taxation or

reduced taxation through tax

evasion or avoidance, including

through treaty shopping

arrangements

Introduction of specific anti-

abuse rule, for instance, the

Limitation-of-Benefits

(“LOB”) rule, that limits

availability of treaty benefits to

entities meeting certain

conditions

Conditions based on legal

nature, ownership in, and

general activities of entity to

ensure sufficient link between

entity and State of residence

Introduction of a more general

anti-abuse rule based on the

principal purposes test

(“PPT”)


ACTION PLAN – 6 (contd…) Minimum Standard – to include in the tax treaties an express statement that common

intention is to eliminate double taxation without creating opportunities for non-taxation,tax evasion or avoidance

In order to implement the minimum standard the treaties should include

LOB

PPT

Simplified LOB supplemented by PPT


WHAT IS LOB?

It is a SAAR aimed at treaty shopping

Treaty benefits to be denied to a resident of a Contracting State who is not a ‘Qualified Person’

‘Qualified Person’ to include An individual

The State, its political subdivision, entities owned by the State

Certain charities and pension funds

Certain publically entities and their affiliates

Certain entities that meet certain ownership requirements and/or turnover requirements

Certain collective investment vehicles

Entities permitted by competent authorities

Other SAARs in treaty - Beneficial Ownership, Arms Length principles, Force of Attraction, Special relationships, alienation of shares in real estate entities, etc.


GAAR v/s TREATY

28

Article 51 – The State shall endeavor to:

(c) Foster respect for international law and

treaty obligation in the dealings of organized

peoples with one another

Constitution of India

Article 26 – Every treaty in force is binding upon

the parties to it and must be performed by them in

good faith – “PACTA SUNT SERVANDA”

Vienna Convention

Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to

the assessee even if such provisions are not beneficial to him

Section 90 (2A)


GAAR v/s TREATY (contd…)

29

Where SAAR is applicable, GAAR will not be

invoked;

In an exceptional case of abusive behavior which

might defeat SAAR, GAAR could be invoked;

DTC – Draft Guidelines

Where anti-avoidance rules are provided in a tax

treaty in the form of limitation of benefit (as in

the Singapore treaty) etc., the GAAR provisions

shall not apply overriding the treaty.

Shome Committee

Recommendations

Question no. 2: Will GAAR be applied to deny treaty eligibility in a case where there is compliance with LOB

test of the treaty?

Answer: Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance

strategies and the same are required to be tackled through domestic anti-avoidance rules. If a

case of avoidance is sufficiently addressed by LOB in the treaty, there shall not be an

occasion to invoke GAAR.

Circular No 7 of 2017 - FAQ


ANALYSIS

Section 90(2A) and 90A(2A) of the Act contain overriding provisions

Section 100 states that GAAR would apply in addition to or in lieu of any other basis oftaxation

Mere tax benefit under a tax treaty would not automatically lead to application of GAARunless other conditions prescribed u/s 96(1) are also fulfilled;

GAAR provisions are in addition to LOB or other anti-abuse provisions in DTAA


INTERPLAY WITH PRINCIPAL PURPOSETEST (“PPT”) IN ACTION PLAN – 6 OF BEPS

ARTICLE – X(7) UNDER ACTION PLAN – 6

“Notwithstanding the other provisions of this Convention, a benefit under this Conventionshall not be granted in respect of an item of income or capital if it is reasonable toconclude, having regard to all relevant facts and circumstances, that obtaining that benefitwas one of the principal purposes of any arrangement or transaction that resulted directlyor indirectly in that benefit,

unless

it is established that granting that benefit in these circumstances would be in accordancewith the object and purpose of the relevant provisions of this Convention”


ANALYSIS

33

Benefits of a tax convention should not be available

where one of the principal purposes of certain transactions orarrangements is to secure a benefit under a tax treaty

and obtaining that benefit in these circumstances would becontrary to the object and purpose of the relevant provisionsof the tax convention


PPT – BURDEN OF PROOF

Obtaining tax benefit is one of the principal purposes – Onus on the tax department

Arrangement is in accordance with the object and purpose of the treaty – Defenceavailable with the tax payer


PPT V/S. INDIAN GAAR

35

“arrangement or transaction” to include any:• Agreement

• Understanding

• Scheme

• Transaction

• Series of transactions

• Whether or not they are legally

enforceable [explained in Article X.7(9)]

X.7(9) gives an example of “arrangement”• “Where steps are taken to ensure that meetings

of the Board of Directors of a company are held

in a different country in order to claim that the

company has changed its residence”

Action Plan 6

“arrangement” means:

• Any step in, or a part or whole of any:o Transaction

o Operation

o Scheme

o Agreement

o Understanding

• Whether enforceable or not

• And includes:o Alienation of any property in such

transaction/operation/scheme/agreement/

understanding

Section 102(1) of the Act


HOW TO DETERMINE WHETHER THE PRINCIPALPURPOSE IS TO OBTAIN TREATY BENEFITS? Undertake an objective analysis of aims and objects of all persons involved in putting

arrangement / transaction in place

Why are all of them a party to it?

Conclusive proof – not required

“reasonable to conclude” after objective analysis

Looking merely at the “effect” not sufficient

What is a reasonable explanation of:

“Why you have done what you have done?” Mere denial not sufficient


How to determine Object and Purpose of relevantprovision of Treaty? Title of the Treaty

Convention between (State A) and (State B) for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and tax avoidance

Preamble of a Treaty

“Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions),”

Reading the Treaty as a whole

Commentary on Model Convention (if no reservations)


INTERPLAY BETWEEN LOB AND PPT

LOB is SAAR, PPT is GAAR

PPT supplements LOB

PPT does not restrict LOB

Even if LOB Test is passed, PPT can apply (commentary to Article X.7 – Para 4)

Example – Public listed company – Passes LOB Test but if involves in Treaty Shopping – PPTwill deny benefit


ILLUSTRATIONS

India – Ireland DTAA definition of royalty includes use of CIS equipment (excludingaircraft). Major hub for aircraft leasing business across the globe. Whether GAARapplies?

India – Philippines DTAA no separate article of FTS. Philippines is a major hub forrepairs and maintenance of plant and machinery for various equipment manufacturesacross the globe. Whether GAAR applies?

India – UK DTAA restricts the scope of FTS. It excludes managerial services. Whetherusing UK for providing managerial services could be hit by GAAR.


ILLUSTRATIONS (contd…) R. Co. for expanding its business globally has identified three different countries with

similar economic and political environments. It selects State S for setting up its businesson account of favourable treaty with State R. Will PPT apply? Expansion of business inthe principal purpose.

R. Co is a collective investment vehicle managing diversified portfolios of investmentglobally. It has significant investments in State S on account favourable treaty ondividend taxation. Whether PPT applies? The intent of treaties is to provide benefit toencourage cross border investments

Would GAAR apply if PPT is cleared?


CASE STUDIES

41

CASE STUDY (1/2)

42

A Ltd.

Mechanics :

It is proposed to covert A Ltd into a Limited Liability

Partnership – ‘LLP’ However, the turnover of the A Ltd, in one of the three

preceding previous years, exceeds the threshold limit of

Rs. 60 lakhs.

Thus, the conditions stipulated in section 47(xiiib), is

not satisfied. Thus, conversion of A Ltd into LLP would

not be regarded as exempt transfer u/s 47;

Plausible Option:

Now, A Ltd to be merged with a newly incorporated

company ‘B Ltd.’, whose turnover is below the

prescribed limit in previous three years and post merger,

B Ltd. to be converted into ‘B LLP’Can GAAR provisions be invoked?

Merger

A LLP

A Ltd. B Ltd.

A LLP

Conversion

Conversion


CASE STUDY (2/2)

43

A Ltd.

Mechanics :

It is proposed to sell the shares of “C Ltd” to another company “D Ltd”;

In case the shares of C Ltd are directly sold to D Ltd, B

Ltd would be liable to tax in the Country of

incorporation;

Plausible option :

B Ltd. is liquidated and the A Ltd being the shareholder of

B Ltd would be liable to tax u/s 46(2) of the Act ; but A

Ltd. can avail the treaty benefit and such liquidation

proceeds would be taxable in country of residence –Country A;

Subsequently, A Ltd. sells shares of C Ltd. to D Ltd.

There would be no capital gains on such transfer in India,

since A Ltd being a non-resident of India, will avail the

treaty benefit and tax on transfer, if any would be payable

in Country A, by A Ltd


100%

C Ltd.

B Ltd.

49%

Country A

India

Transfer of shares not chargeable to tax in

Country A


BURDEN OF PROOF

44

SHOME COMMITTEE REPORT

“The onus of demonstrating that -

(A) there is an arrangement, (B) the arrangement leads to a tax benefit, (C) the main purpose of thearrangement‘ is to obtain a tax benefit‘, and (D) the arrangement has one or more of the specifiedtainted elements, is on the Revenue………….

The AO is empowered to initiate GAAR proceedings only during the course of pending assessmentproceedings. He may collect all the relevant information and documents from the taxpayer about anarrangement, examine them, and then come to a finding based on facts of the case. Thereafter, heshould inform the taxpayer of his finding along with the information he possesses and his detailedreasons thereof. He should not simply ask the taxpayer as to why a particular arrangement shouldnot be treated as impermissible. In his letter to the taxpayer, he should specify in addition to thecomponents already recommended above-

(i) what is the arrangement; (ii) why it results in any tax avoidance in the case of the taxpayer;

(iii) what is the amount of likely tax benefit and how it is initially calculated;

(iv) why obtaining the tax benefit is the main purpose of the arrangement, with the detailedexplanation thereof, including full and exhaustive background information in the possession of theRevenue so that it may be presumed that the Revenue has no additional information on the matter;

(v) the show cause notice should specify what are the tainted element(s) of the arrangement;”


“MAIN PURPOSE” – S. 10A of EXCESS PROFITSTAX ACT

“10A. (1) Where the Excess Profits Tax Officer is of opinion that the main purpose forwhich any transaction or transactions was or were effected whether before or after thepassing of the Excess Profits Tax (Second Amendment) Act, 1941 was the avoidance orreduction of liability to excess profits tax, he may, with the previous approval of theInspecting Assistant Commissioner, make such adjustments as respects liability to excessprofits tax as he considers appropriate so as to counteract the avoidance or reduction ofliability to excess profits tax which would otherwise be effected by the transaction ortransactions.”


R. C. Rangaswamy Chetty (31 ITR 941)(Mad)

“The purport and scope of the phrase 'the main purpose of the transaction being theavoidance or reduction of liability to excess profits tax ' used in section 10A had been thesubject of several decisions and the following points may be taken as clearly established:

(1)The mere fact that a new business was started at a time when by such starting therewould be a reduction of liability is not by itself proof, that it was started with the mainobject of avoiding the excess profits tax liability within the meaning of section 10A. In otherwords, the point of time when these businesses are started or a transaction takes place doesnot by itself furnish proof that the transaction was effected with a sinister motive.

(2)The burden is on the Department to prove that this was the main purpose with whichthe transaction was effected.

(3)The relationship between the parties to the transaction is not by itself conclusive to provethat the motive of the actors in that transaction was the avoidance of liability.

(4)It is not sufficient if this was an incidental advantage which might have accrued to anassessee; it must be the main motive to compass which the transaction was brought about.”


SECTION 96(2)

“(2) An arrangement shall be presumed, unless it is proved to the contrary by theassessee, to have been entered into, or carried out, for the main purpose ofobtaining a tax benefit, if the main purpose of a step in, or a part of, thearrangement is to obtain a tax benefit, notwithstanding the fact that the mainpurpose of the whole arrangement is not to obtain a tax benefit.”


SECTION 144BA

(1) If, the Assessing Officer, at any stage of the assessment or reassessment proceedingsbefore him having regard to the material and evidence available, considers that it isnecessary to declare an arrangement as an impermissible avoidance arrangement and todetermine the consequence of such an arrangement within the meaning of Chapter X-A,then, he may make a reference to the 98[Principal Commissioner or] Commissioner inthis regard.


RULE 10UB

“(1) For the purposes of sub-section (1) of section 144BA, the Assessing Officer shall,before making a reference to the Commissioner, issue a notice in writing to the assesseeseeking objections, if any, to the applicability of provisions of Chapter X-A in his case.

(2) The notice referred to in sub-rule (1) shall contain the following:—(i) details of the arrangement to which the provisions of Chapter X-A are proposed

to be applied;

(ii) the tax benefit arising under the arrangement;

(iii) the basis and reason for considering that the main purpose of the identifiedarrangement is to obtain tax benefit;

(iv) the basis and the reasons why the arrangement satisfies the condition providedin clause (a), (b), (c) or (d) of sub-section (1) of section 96; and

(v) the list of documents and evidence relied upon in respect of (iii) and (iv)above.”


THANK YOU!!!

Documents

OVERVIEW OF GENERAL ANTI-AVOIDANCE … Yogesh Thar...OVERVIEW OF GENERAL ANTI-AVOIDANCE RULES ³*$$5´ Presentation by Yogesh Thar July 1, 2017 OVERVIEW NEED FOR GAAR Counteract and