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TMI BlogCurbing aggressive tax avoidance strategies : Clause 182 of the Income Tax Bill, 2025 Vs. Section 99 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ed persons and accommodating parties when determining the existence of a tax benefit. These provisions empower tax authorities to disregard artificial arrangements and pierce through complex structures designed for tax avoidance. This commentary provides a detailed analysis of Clause 182, explores its legislative intent, practical implications, and compares it with the existing Section 99, highlighting their similarities, differences, and the broader impact on tax administration and compliance. Objective and Purpose The core objective of both Clause 182 and Section 99 is to provide statutory tools for the tax authorities to counteract tax avoidance arrangements involving connected persons and accommodating parties. The legislative intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, affiliates, and family members. By aggregating the actions of connected persons, the provision seeks to prevent collusive arrangements that exploit the separateness of legal entities for tax benefit. For instance, if Company A and its wholly-owned subsidiary Company B enter into a series of transactions designed to shift profits and reduce tax liability, the tax authorities may disregard the separate legal identities and treat them as a single taxpayer. This approach aligns with the economic substance doctrine, which looks beyond the legal form to the actual substance of the transaction. b) Disregarding Accommodating Parties An "accommodating party" is an individual or entity that participates in a transaction primarily to facilitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al uses a shell company (accommodating party) to receive income and then channels it back to themselves. The authorities, applying this provision, may treat both the individual and the shell company as the same person, thereby denying any tax advantage arising from the separation. d) Disregarding Corporate Structures Clause 182(d) empowers tax authorities to "look through" or disregard corporate structures when assessing the existence of a tax benefit. This is perhaps the most far-reaching aspect, as it allows authorities to pierce the corporate veil and examine the true nature of arrangements. The provision is aimed at preventing the misuse of corporate entities to shield transactions from tax or to create artificial layers that obscu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be on commercial substance and alignment with the legislative intent. Procedurally, the invocation of GAAR, including Clause 182, typically involves a multi-layered approval process to prevent misuse. Taxpayers are given an opportunity to present their case, and decisions are subject to review by higher authorities or panels. Comparative Analysis with Section 99 of the Income-tax Act, 1961 Section 99 of the Income-tax Act, 1961, inserted by the Finance Act, 2013 (effective from April 1, 2016), is virtually identical in language and scope to Clause 182 of the Income Tax Bill, 2025. The provisions are as follows: * The parties who are connected persons in relation to each other may be treated as one and the same person; * Any accommoda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (a)-(d) in Clause 182 versus Roman numerals (i)-(iv) in Section 99. This is a stylistic change with no legal effect. * Legislative Evolution: The reiteration of Section 99's language in Clause 182 suggests that the legislature is not proposing a substantive shift in the anti-avoidance regime, but rather seeking continuity as part of a broader overhaul of the tax code. Comparative Perspective: International and Domestic The approach adopted in Clause 182 and Section 99 is consistent with international best practices in anti-avoidance legislation. Jurisdictions such as the United Kingdom (UK GAAR), Australia (Part IVA of the Income Tax Assessment Act), and Canada (General Anti-Avoidance Rule) have similar provisions allowing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by these provisions, procedural safeguards are essential to prevent arbitrary or excessive application. The Indian GAAR regime incorporates such safeguards, including: * Requirement for approval by a high-level panel before invoking GAAR; * Opportunity for the taxpayer to present their case and provide evidence of commercial substance; * Right to appeal and seek judicial review of adverse determinations. Taxpayers should maintain comprehensive documentation to substantiate the commercial rationale for their arrangements and be prepared for potential scrutiny under GAAR. Impact on Stakeholders * Businesses: Increased focus on substance in structuring transactions. Need for robust transfer pricing and related party documentatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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