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Analysis of GAAR Provisions and Recommendations of the Shome Committee

by

Rajesh Goyal

Analysis of the GAAR provisions

4.1 The provisions relating to GAAR appear in

Chapter X-A (sections 95 to 102) of the Act. The

provisions allow the tax authority to, notwithstanding

anything contained in

the Act, declare an arrangement which the

assessee has entered into, as an impermissible

avoidance arrangement. Once an arrangement hasbeen declared as an impermissible avoidance

arrangement, the consequence as regards the tax

liability would also be determined.

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 arms length;

(ii) it results in misuse or abuse of the provisions of the tax law;

(iii) it lacks commercial substance;

(iv) it is carried out by

means or in a manner which is normally notemployed for an

authentic (bona fide)purpose.

A tax benefit has been defined to

AR-Analysis -Shome Committee http://www.allbankingsolutions.com/Banking-Tutor/GAAR-Analysis.htm

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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 bepayable

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

(A) NEWS FOR GAAR : (1st October, 2012) Final guidelines for GAAR by month-end (October,

2012), says Chidambaram

(B) News for GAAR : (17th November, 2012) : GAAR Amendments Finalized and waiting PMO

approval : FM P. Chidambaram

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