Impermissible avoidance arrangement [ Section 96 ] - Income Tax - Ready Reckoner - Income Tax

Impermissible avoidance arrangement (IAA) [ Section 96 ] (1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and0 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 section 97 , 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, unless it is proved to the contrary by the assessee, 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. The purpose test of obtaining tax benefit and tainted element test under clause (a) to (d) of section 96 are both conditions are satisfying an impermissible avoidance arrangement. The term of tax benefit has been defined in section 102(10) includes,- (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; or (f) an increase in loss, in the relevant previous year or any other previous year. The tainted element test requires that the arrangement should have one or more specified tainted elements mentioned at clauses (a) to (d) of section 96. (For more detail refer this chapter )