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Analysis of the GAAR provisions
The provisions relating to GAAR appear in Chapter X-A (sections 95 to 102)
the Act. The provisions allow the tax authority to, notwithstanding anything
4.2 The provisions give a wide definition of the term ‘arrangement’. An ‘arrangement’ means any step in or a part or whole of any transaction, operation, scheme, agreement or understanding, whether enforceable or not. It also includes the alienation of any property in such a transaction etc. The onus of proving that there is an impermissible avoidance arrangement is on the Revenue.
4.3 An ‘arrangement’ would be an ‘impermissible avoidance arrangement’ if,
(a) its main purpose is to obtain a ‘tax benefit’, and,
(b) it also has one of the following characteristics:
(i) it creates rights and obligations, which are not normally created
between parties dealing at arm’s length;
(ii) it results in misuse or abuse of the provisions of the tax law;
(iii) it lacks commercial substance;
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(iv) it is carried out by means or in a manner which is normally not
employed for an authentic (bona fide) purpose.
A ‘tax benefit’ has been defined to mean
(i) a reduction or avoidance or deferral of tax or other amount payable under
the Act or as a result of a tax treaty;
(ii) an increase in a refund of tax or other amount that would be payable
under the Act or as a result of tax treaty; or
(iii) a reduction in total income including an increase in loss.
The term “tax benefit” would be the benefit, quantified in terms of tax liability, arising to any party to the arrangement on account of such arrangement.
4.4 The onus of proving that
(A) there is an arrangement,
(B) the arrangement leads to a ‘tax benefit’,
(C) the main purpose or one of the main purposes of the ‘arrangement’
is to obtain a ‘tax benefit’, and
(D) the arrangement has one of the characteristics listed at (i) to (iv) at
(b) of 4.3 above
is on the revenue.
(Source : GAAR Committee Report)
Recommendations of Shome Committee:
Draft Recommendations : These will be updated after complete report of Committee is published