The GAAR notice says a Mauritius company in my client's structure is an 'accommodating party' and that two group companies are 'connected persons'. What do those words actually mean and what follows if they are made out?
Section 99 says that in determining whether a tax benefit exists, connected persons may be treated as one and the same person, an accommodating party may be disregarded, an accommodating party and any other party may be treated as one and the same person, and the arrangement may be considered or looked through by disregarding any corporate structure. 'Accommodating party' is defined in section 97(3) — a party whose main purpose in participating, directly or indirectly and in whole or in part, is to obtain a tax benefit for the assessee, whether or not it is a connected person; 'connected person' is defined at length in section 102(4), with a twenty per cent 'substantial interest' test in section 102(8).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2018-04-01, reported as Income-tax Act, 1961, sections 97(3), 99 and 102. It bears on section 99, section 97, section 97(3), section 102, section 102(4), section 102(7), section 102(8), section 98, section 56(2)(vi), section Rule 10U of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
Section 99 is the provision that turns a multi-entity structure into a single taxpayer, and it operates at the threshold — 'in determining whether a tax benefit exists' — not merely at the consequences stage. That timing matters: the collapse of connected persons happens before the three-crore threshold in rule 10U(1)(a) is tested, and rule 10U(1)(a) itself aggregates the tax benefit across all parties to the arrangement, so a structure that looks small entity-by-entity can cross the threshold once section 99 is applied. The definition of accommodating party in section 97(3) is deliberately wide in two ways that are usually missed: participation may be 'direct or indirect', and 'in whole or in part', so a party that has a genuine commercial role can still be an accommodating party as to part; and it expressly does not matter whether the party is connected to anyone. Conversely, the definition is a purpose test — the main purpose of the party's participation must be to obtain a tax benefit for the assessee — so a party with an independent commercial reason for being in the structure is not an accommodating party merely because its presence has a tax effect. On the connected-person side, section 102(4) is a list, and the twenty per cent beneficial-ownership or profit-entitlement test in section 102(8) is the gate through which most of the limbs pass; 'relative' takes its meaning from the Explanation to section 56(2)(vi). Note that the same two concepts reappear on the consequences side in section 98(1)(c) and (d), so a finding under section 99 has a direct downstream effect.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 99 provides that for the purposes of Chapter X-A, in determining whether a tax benefit exists, (i) the parties who are connected persons in relation to each other may be treated as one and the same person; (ii) any accommodating party may be disregarded; (iii) the accommodating party and any other party may be treated as one and the same person; and (iv) the arrangement may be considered or looked through by disregarding any corporate structure. Section 97(3) provides that for the purposes of the Chapter a party to an arrangement shall be an accommodating party if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of the Chapter) for the assessee, whether or not the party is a connected person in relation to any party to the arrangement. Section 102(4) defines 'connected person' as any person who is connected directly or indirectly to another person, and includes eight enumerated categories covering relatives of an individual; directors of a company and their relatives; partners or members of a firm, association of persons or body of individuals and their relatives; members of a Hindu undivided family and their relatives; individuals having a substantial interest in the business of the person and their relatives; entities having a substantial interest in the business of the person, and their directors, partners or members and their relatives; entities whose director, partner or member has a substantial interest in the business of the person; and any other person carrying on a business in which the person, or specified associates of the person, has a substantial interest. Section 102(8) deems a person to have a substantial interest in a business if, where the business is carried on by a company, he is at any time during the financial year the beneficial owner of equity shares carrying twenty per cent or more of the voting power, and in any other case if he is at any time during the financial year beneficially entitled to twenty per cent or more of the profits of the business. Section 102(7) adopts the meaning of 'relative' in the Explanation to clause (vi) of sub-section (2) of section 56.
Statutory position — no holding is asserted; this entry reproduces statutory text. In determining whether a tax benefit exists under Chapter X-A, connected persons may be treated as one person, an accommodating party may be disregarded or merged with another party, and any corporate structure may be looked through; 'accommodating party' is a main-purpose test under section 97(3) that does not require connection, and 'connected person' is the enumerated definition in section 102(4) resting in most limbs on the twenty per cent substantial-interest test in section 102(8).
The three concepts are built to work together. Section 97(1)(b)(ii) makes the involvement of an accommodating party one of the deeming grounds on which an arrangement lacks commercial substance; section 97(3) defines the term; section 99 then permits that party to be disregarded or merged when the existence of a tax benefit is being determined; and section 98(1)(c) permits the same operation at the consequences stage. The definition in section 97(3) is a purpose test attached to the party's participation, not to the arrangement as a whole, which is why it can bite on part of a party's role and why connection is expressly made irrelevant. Section 102(4) takes the opposite drafting approach — an open opening line ('connected directly or indirectly') followed by an inclusive list — so the list does not exhaust the concept but supplies the tests that will usually be applied, and section 102(8) supplies the arithmetic for the limbs that turn on substantial interest. Because section 99 operates 'in determining whether a tax benefit exists', the collapse of persons is logically anterior to the quantification of the tax benefit under section 102(10) and to the three-crore threshold in rule 10U(1)(a).
For the purposes of this Chapter, a party to an arrangement shall be an accommodating party, if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the assessee whether or not the party is a connected person in relation to any party to the arrangement.
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Handle my notice → Ask a CA on WhatsAppSection 99 says that in determining whether a tax benefit exists, connected persons may be treated as one and the same person, an accommodating party may be disregarded, an accommodating party and any other party may be treated as one and the same person, and the arrangement may be considered or looked through by disregarding any corporate structure. 'Accommodating party' is defined in section 97(3) — a party whose main purpose in participating, directly or indirectly and in whole or in part, is to obtain a tax benefit for the assessee, whether or not it is a connected person; 'connected person' is defined at length in section 102(4), with a twenty per cent 'substantial interest' test in section 102(8). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 99, section 97, section 97(3), section 102, section 102(4), section 102(7), section 102(8), section 98, section 56(2)(vi), section Rule 10U of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, sections 97(3), 99 and 102. Section 99 is the provision that turns a multi-entity structure into a single taxpayer, and it operates at the threshold — 'in determining whether a tax benefit exists' — not merely at the consequences stage. That timing matters: the collapse of connected persons happens before the three-crore threshold in rule 10U(1)(a) is tested, and rule 10U(1)(a) itself aggregates the tax benefit across all parties to the arrangement, so a structure that looks small entity-by-entity can cross the threshold once section 99 is applied. The definition of accommodating party in section 97(3) is deliberately wide in two ways that are usually missed: participation may be 'direct or indirect', and 'in whole or in part', so a party that has a genuine commercial role can still be an accommodating party as to part; and it expressly does not matter whether the party is connected to anyone. Conversely, the definition is a purpose test — the main purpose of the party's participation must be to obtain a tax benefit for the assessee — so a party with an independent commercial reason for being in the structure is not an accommodating party merely because its presence has a tax effect. On the connected-person side, section 102(4) is a list, and the twenty per cent beneficial-ownership or profit-entitlement test in section 102(8) is the gate through which most of the limbs pass; 'relative' takes its meaning from the Explanation to section 56(2)(vi). Note that the same two concepts reappear on the consequences side in section 98(1)(c) and (d), so a finding under section 99 has a direct downstream effect. If it applies to you, the first step is this: Test any 'accommodating party' allegation against section 97(3) as a purpose test: identify what the party's participation was for, and whether the MAIN purpose of that participation, directly or indirectly, was to obtain a tax benefit for the assessee.
Section 99 provides that for the purposes of Chapter X-A, in determining whether a tax benefit exists, (i) the parties who are connected persons in relation to each other may be treated as one and the same person; (ii) any accommodating party may be disregarded; (iii) the accommodating party and any other party may be treated as one and the same person; and (iv) the arrangement may be considered or looked through by disregarding any corporate structure. Section 97(3) provides that for the purposes of the Chapter a party to an arrangement shall be an accommodating party if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of the Chapter) for the assessee, whether or not the party is a connected person in relation to any party to the arrangement. Section 102(4) defines 'connected person' as any person who is connected directly or indirectly to another person, and includes eight enumerated categories covering relatives of an individual; directors of a company and their relatives; partners or members of a firm, association of persons or body of individuals and their relatives; members of a Hindu undivided family and their relatives; individuals having a substantial interest in the business of the person and their relatives; entities having a substantial interest in the business of the person, and their directors, partners or members and their relatives; entities whose director, partner or member has a substantial interest in the business of the person; and any other person carrying on a business in which the person, or specified associates of the person, has a substantial interest. Section 102(8) deems a person to have a substantial interest in a business if, where the business is carried on by a company, he is at any time during the financial year the beneficial owner of equity shares carrying twenty per cent or more of the voting power, and in any other case if he is at any time during the financial year beneficially entitled to twenty per cent or more of the profits of the business. Section 102(7) adopts the meaning of 'relative' in the Explanation to clause (vi) of sub-section (2) of section 56. The matter was decided on 2018-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. In determining whether a tax benefit exists under Chapter X-A, connected persons may be treated as one person, an accommodating party may be disregarded or merged with another party, and any corporate structure may be looked through; 'accommodating party' is a main-purpose test under section 97(3) that does not require connection, and 'connected person' is the enumerated definition in section 102(4) resting in most limbs on the twenty per cent substantial-interest test in section 102(8).
The three concepts are built to work together. Section 97(1)(b)(ii) makes the involvement of an accommodating party one of the deeming grounds on which an arrangement lacks commercial substance; section 97(3) defines the term; section 99 then permits that party to be disregarded or merged when the existence of a tax benefit is being determined; and section 98(1)(c) permits the same operation at the consequences stage. The definition in section 97(3) is a purpose test attached to the party's participation, not to the arrangement as a whole, which is why it can bite on part of a party's role and why connection is expressly made irrelevant. Section 102(4) takes the opposite drafting approach — an open opening line ('connected directly or indirectly') followed by an inclusive list — so the list does not exhaust the concept but supplies the tests that will usually be applied, and section 102(8) supplies the arithmetic for the limbs that turn on substantial interest. Because section 99 operates 'in determining whether a tax benefit exists', the collapse of persons is logically anterior to the quantification of the tax benefit under section 102(10) and to the three-crore threshold in rule 10U(1)(a). In the words reproduced by the source cited on this page: "For the purposes of this Chapter, a party to an arrangement shall be an accommodating party, if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the assessee whether or not the party is a connected person in relation to any party to the arrangement."
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Income-tax Act, 1961, sections 97(3), 99 and 102. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 99, section 97, section 97(3), section 102, section 102(4), section 102(7), section 102(8), section 98, section 56(2)(vi), section Rule 10U, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. In determining whether a tax benefit exists under Chapter X-A, connected persons may be treated as one person, an accommodating party may be disregarded or merged with another party, and any corporate structure may be looked through; 'accommodating party' is a main-purpose test under section 97(3) that does not require connection, and 'connected person' is the enumerated definition in section 102(4) resting in most limbs on the twenty per cent substantial-interest test in section 102(8). It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 99, section 97, section 97(3), section 102, section 102(4), section 102(7), section 102(8), section 98, section 56(2)(vi), section Rule 10U of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not concede the point because the party is unconnected — section 97(3) expressly applies 'whether or not the party is a connected person in relation to any party to the arrangement'. Where only part of a party's participation is said to be accommodating, hold the department to that part: section 97(3) operates 'in whole or in part', and rule 10UA then confines the consequences to the part declared impermissible. Test any 'connected person' allegation against the specific limb of section 102(4) relied on, and where it depends on substantial interest, against the twenty per cent thresholds in section 102(8) measured at any time during the financial year — beneficial ownership of equity shares carrying twenty per cent or more of voting power for a company, or beneficial entitlement to twenty per cent or more of the profits in any other case. For 'relative', go to the Explanation to clause (vi) of section 56(2), which section 102(7) adopts. Work out the effect of a section 99 collapse on the rule 10U(1)(a) three-crore threshold before arguing the threshold, because the aggregation runs across all parties to the arrangement. If the department has applied section 98(1)(c) or (d) at the consequences stage, check that the underlying section 97(3) or section 102(4) finding was actually made and recorded, and not assumed.
Still good law. This is the statutory text, not a decision about it, and nothing on this page is a holding. Sections 97, 99 and 102 have each been read on a current consolidation, and s.99 has been cross-read against an older one, the two differing only in the opening word of clause (iii). That is the whole of the corroboration. Later treatment has not been checked. No decision construing 'accommodating party' or 'connected person' under Chapter X-A has been searched for, and none is asserted to exist. A practitioner meeting a Chapter X-A notice should not take the absence of authority on this page as evidence that there is none. Two structural points go to how the sections are used. Section 99 is a deeming provision that operates 'for the purposes of this Chapter', so it does not travel outside Chapter X-A and cannot be used to attribute a party's position to another person for any other purpose. And s.102 is the definition section for the Chapter; it contains no definition of 'impermissible avoidance arrangement' itself, which is in s.96, so a notice that recites s.102 for that expression has gone to the wrong place. Two further checks a reader should make for his own year. The Chapter operates through Rule 10U, which carries the exclusions and the monetary threshold, and the rule as it stands for the year in issue should be read alongside the sections. And for a tax year governed by the Income-tax Act 2025 the successors of ss.96 to 102 should be identified before any of this is relied on; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
A TEXTUAL NOTE ON SECTION 99, CLAUSE (iii). Current consolidations print 'the accommodating party and any other party may be treated as one and the same person', whereas an older consolidation prints 'such accommodating party and any other party...'. The current wording is what is used on this page. Nothing turns on the difference, but a reader comparing two copies should expect it. A NOTE ON SECTION 102. The current text ends at clause (11), which defines 'tax treaty'. No clause (12) exists in it; the clauses run (1) to (11) in sequence. Anyone looking for a clause (12) of s.102 is looking for something that is not there. WHERE THE DEFINITIONS ACTUALLY SIT, because Chapter X-A is spread across several sections and a notice will often cite the wrong one. Section 96 defines an impermissible avoidance arrangement; s.97 defines when an arrangement lacks commercial substance, with s.97(3) supplying the round-trip and accommodating-party language; s.98 sets out the consequences once an arrangement is declared impermissible; s.99 is the deeming provision for connected persons and accommodating parties; and s.102 is the definition section, with s.102(4), (7) and (8) carrying the definitions of 'connected person', 'party' and 'relative'. Section 102 contains no definition of 'impermissible avoidance arrangement' at all. ONE CROSS-REFERENCE WORTH KEEPING IN VIEW. The definition of 'relative' in s.102 borrows from the Explanation to clause (vi) of s.56(2), so the family tree that decides a gift case decides a connected-person case too. That is wider than practitioners expect, and it is the limb on which a connected-person allegation is most often made out on the facts. ON THE DEEMING IN SECTION 99, which is the section this entry is named for. It operates 'for the purposes of this Chapter' and it does three things: it treats any party to an arrangement and a connected person as one and the same person; it disregards any accommodating party; and it permits the accommodating party and any other party to be treated as one and the same person. None of that travels outside Chapter X-A, and none of it can be used to attribute a party's position to another person for any other purpose in the Act. WHAT THIS ENTRY IS NOT. It is not a decision and it asserts no holding. It reproduces the statutory text and explains how the sections fit together. The thresholds and exclusions that decide whether Chapter X-A can be invoked at all are in Rule 10U and are not set out here; read the rule as it stands for the year in issue before answering a notice on the strength of anything on this page. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. In determining whether a tax benefit exists under Chapter X-A, connected persons may be treated as one person, an accommodating party may be disregarded or merged with another party, and any corporate structure may be looked through; 'accommodating party' is a main-purpose test under section 97(3) that does not require connection, and 'connected person' is the enumerated definition in section 102(4) resting in most limbs on the twenty per cent substantial-interest test in section 102(8).
TaxSphere, “Statutory position — section 99, section 97(3) and section 102: connected persons and the accommodating party, and how they are collapsed into one taxpayer”, https://taxnotice.vittsphere.com/caselaw/case/section-99-connected-person-and-accommodating-party-under-chapter-x-a/ (validity last checked 2026-09-08)
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The Commissioner says my structure "lacks commercial substance". What does that phrase actually mean in the Act, and does it help me that the structure has been in place for years, has paid tax, and has a normal exit route?
The Assessing Officer has written that he proposes to invoke Chapter X-A. Which provision actually gives him that power, from which assessment year does it bite, and can he pick on a single step of a transaction that as a whole was done for real commercial reasons?
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The Commissioner's notice under s.144BA(2) says my arrangement is an impermissible avoidance arrangement. What exactly does the Revenue have to establish, and who has to prove what?
