Section 179 — Impermissible avoidance arrangement. Successor to s.96 of the 1961 Act.
Section 179 is in Chapter XI — General Anti-Avoidance Rule, which runs from section 178 to section 184.
Sub-section (1) defines an impermissible avoidance arrangement as an arrangement whose main purpose is to obtain a tax benefit and which also satisfies at least one of four further tests: it creates rights or obligations not ordinarily created between persons dealing at arm's length; it results directly or indirectly in the misuse or abuse of the Act's provisions; it lacks commercial substance, or is deemed to lack commercial substance under section 180, in whole or in part; or it is entered into or carried out by means or in a manner not ordinarily employed for bona fide purposes. Sub-section (2) creates a presumption: if the main purpose of any step in, or part of, the arrangement is to obtain a tax benefit, the whole arrangement is presumed to have been entered into for that main purpose even though the arrangement as a whole was not, unless the assessee proves the contrary.
It supplies the definition on which the general anti-avoidance rule operates, requiring both a tax-benefit main purpose and one of four objective indicators before an arrangement can be struck at. Sub-section (2) prevents the rule being defeated by burying a tax-driven step inside an otherwise commercial transaction.
Two things have to be shown before an arrangement is impermissible: the main purpose limb and at least one of the four clauses in sub-section (1) — commercial substance alone, or an unusual manner alone, is not enough without the main purpose. Sub-section (2) reverses the practical burden: once a single step or part has a tax-benefit main purpose, the presumption runs against the arrangement as a whole and it is for the assessee to prove otherwise. That makes contemporaneous evidence of the commercial rationale of each step, not just of the transaction overall, what actually answers a challenge.
A group carries out a restructuring in several steps, one of which is an interposed share transfer whose main purpose is to obtain a tax benefit, while the commercial rationale for the restructuring as a whole is genuine. Sub-section (2) is what bites: the main purpose of that single step is enough to presume the whole arrangement was entered into for the main purpose of obtaining a tax benefit, and it is for the assessee to prove the contrary. If the arrangement also creates rights or obligations not ordinarily created between persons dealing at arm's length, or lacks commercial substance in whole or even in part under section 180, one of the four clauses in sub-section (1) is satisfied and the arrangement is impermissible. Showing that the transaction overall made commercial sense does not answer the presumption; evidence of the rationale of each step does.
This section is a definition rather than a procedure — a taxpayer meets it when an assessment invokes the general anti-avoidance rule in this Chapter and treats an arrangement as impermissible, and in the reply where the sub-section (2) presumption has to be displaced. Neither a form nor an authority is named in the text.
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
See the full 1961 to 2025 concordance.
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