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TMI BlogGeneral Anti-Avoidance Rule (GAAR)X X X X Extracts X X X X X X X X Extracts X X X X ..... licable from AY 2018-19. This section starts with a non-obstante clause which means, if there is a conflict with provisions in ither sections, then this section prevail over other conflicting provisions. The provisions of GAAR override the provisions of Double Taxation Avoidance Agreement (DTAA). Impermissible Avoidance Arrangement Section 96 Section 96 of the Act defines the meaning of impermissible avoidance arrangement. As per the said section an arrangement is impermissible avoidance arrangement if its main purpose is to obtain a tax benefit ( Main Purpose Test ) and it satisfies one or more of the conditions mentioned in clause (a) to (d) viz. Arrangement creates rights or obligations which are not ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FAQs dealing with various issues relating to GAAR as under: 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 are required to be tackled throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 1st 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 existence by way of split or consolidation of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 decided through GAAR provisions. Question no. 10: How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the participants as a result of GAAR, corresponding adjustment in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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