Clause 124 - Interpretations in this Chapter. - Direct Taxes Code, 2010

Interpretations in this Chapter. 124. In this Chapter,— (1) "accommodating party" means a party to an arrangement who, as a direct or indirect result of his participation, derives any amount in connection with the arrangement, which shall— (a) be included in his total income which would have otherwise been included in the total income of another party; (b) not be included in his total income which would have otherwise been included in the total income of another party; (c) be treated as a deductible expenditure, or allowable loss, by the party which would have otherwise constituted a non-deductible expenditure, or non-allowable loss, in the hands of another party; or (d) result in pre-payment by any other party; (2) "arm's length price" means a price which is applied, or proposed to be applied, in a transaction between persons, enterprises or undertakings, other than associated enterprises, in uncontrolled, unrelated or independent conditions; (3) "arrangement" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes any of the above involving the alienation of property; General anti-avoidance rule. (4) "asset" includes property, or right, of any kind; (5) "associated enterprise" in relation to another enterprise, means an enterprise— (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise, and for the purposes of sub-clauses (a) and (b) above, two enterprises, shall be deemed to be associated enterprises at any time during the financial year, if they are associated with each other by virtue of— (i) one enterprise holding, directly or indirectly, shares carrying twenty-six per cent. or more of the voting power in the other enterprise; (ii) any person or enterprise holding, directly or indirectly, shares carrying twenty-six per cent. or more of the voting power in each of such enterprises; (iii) a loan advanced by one enterprise to the other enterprise and the loan constitutes fifty-one per cent. or more of the book value of the total assets of the other enterprise; (iv) one enterprise guarantees ten per cent. or more of the total borrowings of the other enterprise; (v) more than one-half of the board of directors, or members, of the governing board, or one or more executive directors, or executive members, of the governing board of one enterprise, being appointed by the other enterprise; (vi) more than one-half of the directors, or members, of the governing board, or one or more of the executive directors, or executive members, of the governing board, of each of the two enterprises, being appointed by the same person or persons; (vii) the manufacture, or processing, of any goods or articles of, or carrying on the business by, one enterprise being wholly dependent on the use of know-how, patents, copyrights, trade marks, brands, licences, franchises, or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; (viii) ninety per cent. or more of the raw materials and consumables required for the manufacture, or processing, of goods or articles carried out by one enterprise, being supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; (ix) the goods or articles manufactured, or processed, by one enterprise, being sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; (x) the services provided, directly or indirectly, by one enterprise to another enterprise or to persons specified by the other enterprise, and the amount payable and the other conditions relating thereto are influenced by such other enterprise; (xi) one enterprise being controlled by an individual, and the other enterprise being also controlled by such individual or his relative, or jointly by such individual and his relative; (xii) one enterprise being controlled by a Hindu undivided family, and the other enterprise being also controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; (xiii) one enterprise holding ten per cent., or more, interest in another enterprise being an unincorporated body; (xiv) any specific or distinct location of either of the enterprises as may be prescribed; or (xv) any other relationship of mutual interest, existing between the two enterprises, as may be prescribed; (6) "associated operation" in relation to any transfer means an operation of any kind effected by the transferor in relation to— (a) any asset transferred; (b) any asset representing, directly or indirectly, any asset so transferred; (c) the income accruing from any asset so transferred; or (d) any asset representing, directly or indirectly, the accumulation of income accruing from any asset so transferred; (7) "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 participant in an unincorporated body or any relative of such participant, if the person is an unincorporated body; (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, unincorporated body or Hindu undivided family having a substantial interest in the business of the person or any director, participant, or member of the company, body or family, or any relative of such director, participant or member; (g) a company, unincorporated body or Hindu undivided family, whose director, participant, or member have a substantial interest in the business of the person; or family or any relative of such director, participant 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, unincorporated body or Hindu undivided family, or any director, participant or member of such company, body or family, or any relative of such director, participant or member, has a substantial interest in the business of that other person; (8) "benefit" includes a payment of any kind; (9) "broken period income" shall be calculated as if the income from such securities had accrued from day to day and been apportioned accordingly for the broken period; (10) "bona fide purpose" shall not include any purpose which— (a) has created rights or obligations that would not normally be created between persons dealing at arm's length; or (b) would result, directly or indirectly, in the misuse, or abuse, of the provisions of this Code; (11) "capital sum" means— (a) any sum paid by way of a loan or repayment of a loan; or (b) any other sum paid otherwise than as income, being a sum which is not paid for full consideration in money or money's worth; (12) "connected persons" includes associated persons; (13) "enterprise" in relation to an international transaction includes— (a) a person who is, or has been, or is likely to be, engaged in any business, industrial, commercial, financial, construction, mining, research, investment or any other similar activity, whether such activity is carried on directly or through one, or more, of its units, divisions or subsidiaries, wherever located; and (b) the permanent establishment of the person referred to in sub-clause (a); (14) "funds" includes— (a) any cash; (b) cash equivalents; and (c) any right, or obligation, to receive, or pay, the cash or cash equivalent; (15) "impermissible avoidance arrangement" means a step in, or a part or whole of, an arrangement, whose main purpose is to obtain a tax benefit and it— (a) creates rights, or obligations, which would not normally be created between persons dealing at arm's length; (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Code; (c) lacks commercial substance, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which would not normally be employed for bona fide purposes; (16) "intangible property" includes know-how, patents, goodwill, copyrights, trade-marks, brand name, licences, franchises, any business or commercial rights, leasehold interest, exploration and exploitation rights, easement rights, air rights, water rights, or any other thing that derives its value from its intellectual content instead of its physical attributes; (17) "international transaction" means— (a) a transaction between two or more associated enterprises, either or all of whom is a non-resident, in the nature of— (i) purchase, sale or lease, of tangible or intangible property; (ii) supply of service; (iii) lending, or borrowing, money; (iv) any other transaction, which has a bearing on the income, loss or asset of any one or more of the enterprises; or (v) a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred, or to be incurred, in connection with a benefit, service or facility provided, or to be provided, to any one or more of the enterprises; (b) a transaction entered into by two or more persons, not being associated enterprises, if— (i) the transaction is of the nature referred to in sub-clause (a); (ii) there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise; and (iii) either, or both, of the associated enterprises is a non-resident; (18) "interest" includes dividend; (19) "lacks commercial substance"-a step in, or a part or whole of, an arrangement shall be deemed to be lacking commercial substance, if— (a) it does not have a significant effect upon the business risks, or net cash flows, of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the provisions of section 123; (b) the legal substance, or effect, of the arrangement as a whole is inconsistent with, or differs significantly from, the legal form of its individual steps; or (c) it includes, or involves— (i) round trip financing without regard to,— (A) whether or not the round tripped amounts can be traced to funds transferred to, or received by, any party in connection with the arrangement; (B) the time, or sequence, in which round tripped amounts are transferred or received; or (C) the means by, or manner in, which round tripped amounts are transferred or received; (ii) an accommodating or tax indifferent party; (iii) any element that have the effect of offsetting or cancelling each other; or (iv) a transaction which is conducted through one or more persons and disguises the nature, location, source, ownership, or control, of the fund; (20) "party" means party to the arrangement; (21) "round trip financing" includes financing in which— (a) funds are transferred among the parties to the arrangement; and (b) the transfer of the funds would— (i) result, directly or indirectly, in a tax benefit but for the provisions of section 123; or (ii) significantly reduce, offset or eliminate any business risk incurred by any party to the arrangement; (22) "safe harbour", in relation to computation of arm's length price, means circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee; (23) "similar security" means security which entitles its holder to the same rights against the same person as to capital and interest and the same remedies for the enforcement of those rights, irrespective of any difference in the— (a) total nominal amounts of the respective security; (b) form in which it is held; or (c) manner in which it can be transferred; (24) "substantial interest in the business" a person shall be deemed to have a substantial interest in the business, if— (a) in 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. (25) "tax benefit" means— (a) a reduction, avoidance or deferral of tax or other amount payable under this Code; (b) an increase in a refund of tax or other amount under this Code; (c) a reduction, avoidance or deferral of tax or other amount that would be payable under this Code but for a tax treaty; (d) an increase in a refund of tax or other amount under this Code as a result of a tax treaty; or (e) a reduction in tax bases including increase in loss, in the relevant financial year or any other financial year. (26) "transaction" in relation to an international transaction shall include an arrangement, understanding or action in concert— (a) whether or not such arrangement, understanding or action is formal or in writing; or (b) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding; (27) "transaction relating to buy and sale back of security" means a transaction where a person buys a security, and sells or transfers the same, or similar, security; (28) "transaction relating to sale and buy back of security" means a transaction where a person, being the owner of any security, sells or transfers the security, and buys back or re-acquires the same, or similar, security; (29) "transfer" in relation to any right includes the creation of a right.