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TMI BlogClarifications on implementation of GAAR provisions under the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the comments of the Working Group and the following clarifications are issued: Question no. 1: Will GAAR be invoked if SAAR applies? Answer: It is internationally accepted that specific anti avoidance provisions may not address all situations of abuse and there is need for general anti-abuse provisions in the domestic legislation. The provisions of GAAR and SAAR can coexist and are applicable, as may be necessary, in the facts and circumstances of the case. Question no. 2: Will GAAR be applied to deny treaty eligibility in a case where there is compliance with LOB test of the treaty? Answer: Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued by way of bonus issuances so long as the original securities are acquired prior to 01 April, 2017 (ii) shares issued post 31 March, 2017, on conversion of Compulsorily Convertible Debentures, Compulsorily Convertible Preference Shares (CCPS), Foreign Currency Convertible Bonds (FCCBs), Global Depository Receipts (GDRs), acquired prior to 01 April, 2017; (iii) shares which are issued consequent to split up or consolidation of such grandfathered shareholding? Answer: Grandfathering under Rule 10U(1)(d) will be available to investments made before 1 st April 2017 in respect of instruments compulsorily convertible from one form to another, at terms finalized at the time of issue of such instruments. Shares brought into existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as explicitly and adequately considered the tax implication while sanctioning an arrangement, GAAR will not apply to such arrangement. Question no. 9: Will a Fund claiming tax treaty benefits in one year and opting to be governed by the provisions of the Act in another year attract GAAR provisions? An example would be where a Fund claims treaty benefits in respect of gains from derivatives in one year and in another year sets-off losses from derivatives transactions against gains from shares under the Act. Answer: GAAR provisions are applicable to impermissible avoidance arrangements as under section 96 . In so far as the admissibility of claim under treaty or domestic law in different years is concerned, it is not a matter to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement lacks commercial substance. Question no. 13: It may be ensured that in practice, the consequences of a transaction being treated as an 'impermissible avoidance arrangement' are determined in a uniform, fair and rational basis. Compensating adjustments under section 98 of the Act should be done in a consistent and fair manner. It should be clarified that if a particular consequence is applied in the hands of one of the participants, there would be corresponding adjustment in the hands of another participant. Answer: Adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner. In the event of a particular consequence being applied in the hands of one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one year and facts and circumstances remain the same, as per the principle of consistency, GAAR will not be invoked for that arrangement in a subsequent year. Question no. 16: No penalty proceedings should be initiated pursuant to additions made under GAAR at least for the initial 5 years. Answer: Levy of penalty depends on facts and circumstances of the case and is not automatic. No blanket exemption for a period of five years from penalty provisions is available under law. The assessee, may at his option, apply for benefit u/s 273A if he satisfies conditions prescribed therein. (Dr. O. N. Supriya Rao) Under Secretary to the Government of India - Circular - Trade Notice - Public Notice - Instructions - Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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