Applicability of General Anti-Avoidance Rule.—Notwithstanding
anything contained
in
the Act, an arrangement entered into by an assessee may be declared to be an impermissible
avoidance arrangement and the consequence in relation to tax arising there from
may be determined subject to the provisions of this Chapter.
Explanation.—For the removal of doubts,
it is hereby declared that the provisions of this
Chapter
may be applied to any step in, or a part of, the arrangement as they are
applicable to the arrangement.
96. Impermissible avoidance arrangement.—(1)
An impermissible avoidance Arrangement means an arrangement, the main purpose
or one of the main purposes of which is to obtain a tax benefit and it—
(a) creates
rights, or obligations, which are not ordinarily created between persons
dealing at arm's length;
(b) results,
directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
(c) lacks commercial substance or is
deemed to lack commercial substance under section97, in whole or in part; or
(d) is entered into, or carried out, by
means, or in a manner, which are not ordinarily employed for bona fide purposes.
(2)
An arrangement shall be presumed to have been entered into, or carried out, for
the main purpose of obtaining a tax benefit, if the main purpose of a step in,
or a part of, the arrangement is to obtain a tax benefit, notwithstanding the
fact that the main purpose of the whole arrangement is not to obtain a tax
benefit.
97. Arrangement to lack commercial substance.—(1)
An arrangement shall be deemed to
lack
commercial substance if—
(a) the substance or effect of the
arrangement as a whole, is inconsistent with, or differs
significantly
from, the form of its individual steps or a part; or
(b) it involves or includes—
(i) round trip financing;
(ii) an accommodating party;
(iii) elements that have effect of
offsetting or cancelling each other; or
(iv) a transaction which is conducted
through one or more persons and disguises the value, location, source,
ownership or control of funds which is the subject matter of such transaction;
or
(c) it involves the location of an asset
or of a transaction or of the place of residence of any party which is without
any substantial commercial purpose other than obtaining a tax benefit (but for
the provisions of this Chapter) for a party.
(2)
For the purposes of sub-section (1), round
trip financing includes any arrangement in which, through a series of
transactions—
(a) funds are transferred among the
parties to the arrangement; and
(b) such transactions do not have any
substantial commercial purpose other than obtaining the tax benefit (but for
the provisions of this Chapter), without having any regard to—
(A) whether or not the funds involved in
the round trip financing can be traced to any funds transferred to, or received
by, any party in connection with the arrangement;
(B) the time, or sequence, in which the
funds involved in the round trip financing are transferred or received; or
(C) the means by, or manner in, or mode
through, which funds involved in the round trip financing are transferred or
received.
(3)
For the purposes of this Chapter, a party to an arrangement shall be an
accommodating party, if the main purpose of the direct or indirect
participation of that party in the arrangement, in whole or in part, is to
obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter)
for the assessee whether or not the party is a connected person in relation to any
party to the arrangement.
(4)
The following shall not be taken into account while determining whether an
arrangement lacks commercial substance or not, namely:—
(i) the period of time for which the
arrangement (including operations therein) exists;
(ii) the fact of payment of taxes, directly
or indirectly, under the arrangement;
(iii) the fact that an exit route (including
transfer of any activity or business or operations) is
provided
by the arrangement.
98. Consequence of impermissible avoidance arrangement.—(1)
If an arrangement is declared to be an impermissible avoidance arrangement,
then the consequences, in relation to tax, of the arrangement, including denial
of tax benefit or a benefit under a tax treaty, shall be determined, in such
manner as is deemed appropriate, in the circumstances of the case, including by
way of but not limited to the following, namely:—
(a) disregarding, combining or
recharacterising any step in, or a part or whole of, the impermissible
avoidance arrangement;
(b) treating the impermissible avoidance
arrangement as if it had not been entered into or carried out;
(c) disregarding any accommodating party
or treating any accommodating party and any other party as one and the same
person;
(d) deeming persons who are connected
persons in relation to each other to be one and the same person for the
purposes of determining tax treatment of any amount;
(e) reallocating amongst the parties to
the arrangement—
(i) any accrual, or receipt, of a capital
or revenue nature; or
(ii) any expenditure, deduction, relief or
rebate;
(f) treating—
(i) the place of residence of any party to
the arrangement; or
(ii) the situs of an asset or of a transaction, at a place other than the place
of residence, location of the asset or location of the transaction as provided
under the arrangement; or
(g) considering or looking through any
arrangement by disregarding any corporate structure.
(2)
For the purposes of sub-section (1),—
(i) any equity may be treated as debt or vice versa;
(ii) any accrual, or receipt, of a capital
nature may be treated as of revenue nature or vice versa; or
(iii) any expenditure, deduction, relief or
rebate may be recharacterised.
99. Treatment of connected person and accommodating party.—For
the purposes of this
Chapter,
in determining whether a tax benefit exists—
(i) the parties who are connected persons
in relation to each other may be treated as one
and
the same person;
(ii) any accommodating party may be
disregarded;
(iii) such accommodating party and any other
party may be treated as one and the same person;
(iv) the arrangement may be considered or
looked through by disregarding any corporate structure.
100.
Application of Chapter.—The
provisions of this Chapter shall apply in addition to, or in lieu of, any other
basis for determination of tax liability.
101.
Framing of guidelines.—The
provisions of this Chapter shall be applied in accordance with such guidelines
and subject to such conditions and the manner as may be prescribed.
102.
Definitions.—In
this Chapter, unless the context otherwise requires,—
(1) "arrangement" means any step
in, or a part or whole of, any transaction, operation, scheme, agreement or
understanding, whether enforceable or not, and includes the alienation of any
property in such transaction, operation, scheme, agreement or understanding;
(2) "asset" includes property,
or right, of any kind;
(3) "associated person", in
relation to a person, means—
(a) any relative of the person, if the
person is an individual;
(b) any director of the company or any
relative of such director, if the person is a company;
(c) any partner or member of a firm or
association of persons or body of individuals or any relative of such partner
or member if the person is a firm or association of persons or body of
individuals;
(d) any member of the Hindu undivided
family or any relative of such member, if the person is a Hindu undivided
family;
(e) any individual who has a substantial
interest in the business of the person or any relative of such individual;
(f) a company, firm or an association of
persons or a body of individuals, whether incorporated or not, or a Hindu
undivided family having a substantial interest in the business of the person or
any director, partner, or member of the company, firm or association of persons
or body of individuals or family, or any relative of
such
director, partner or member;
(g) a company, firm or association of
persons or body of individuals, whether incorporated or not, or a Hindu
undivided family, whose director, partner, or member have a substantial
interest in the business of the person, or family or any relative of such
director, partner or member;
(h) any other person who carries on a
business, if—
(i) the person being an individual, or any
relative of such person, has a substantial interest in the business of that
other person; or
(ii) the person being a company, firm,
association of persons, body of individuals, whether incorporated or not, or a
Hindu undivided family, or any director, partner or member of such company,
firm or association of persons or body of individuals or family, or any
relative of such director, partner or member, has a substantial interest in the
business of that other person;
(4) "benefit" includes a payment
of any kind whether in tangible or intangible form;
(5) "connected person" means any
person who is connected directly or indirectly to another person and includes associated
person;
(6) "fund" includes—
(a) any cash;
(b) cash equivalents; and
(c) any right, or obligation, to receive,
or pay, the cash or cash equivalent;
(7) "party" means any person
including a permanent establishment which participates or takes part in an
arrangement;
(8) "relative" shall have the
meaning assigned to it in the Explanation
to clause (vi) of
subsection (2) of section 56;
(9) a person shall be deemed to have a
substantial interest in the business, if—
(a) in a case where the business is carried
on by a company, such person is, at any time during the financial year, the
beneficial owner of equity shares carrying twenty per cent or more, of the
voting power; or
(b) in any other case, such person is, at
any time during the financial year, beneficially entitled to twenty per cent or
more, of the profits of such business;
(10) "step" includes a measure or
an action, particularly one of a series taken in order to deal with or achieve
a particular thing or object in the arrangement;
(11) "tax benefit" means—
(a) a reduction or avoidance or deferral
of tax or other amount payable under this Act; or
(b) An increase in a refund of tax or
other amount under this Act; or
(c) A reduction or avoidance or deferral
of tax or other amount that would be payable under this Act, as a result of a
tax treaty; or
(d) An increase in a refund of tax or
other amount under this Act as a result of a tax treaty; or
(e) A reduction in total income including
increase in loss, in the relevant previous year or any other previous year.
(12) "tax treaty" means an
agreement referred to in sub-section (1) of section 90 or subsection (1) of
section 90A.’
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