The department says I obtained a "tax benefit" from an "arrangement". Where are those words defined, how wide are they, and does an increase in my carried-forward loss count?
Section 102 is the definition section for the whole Chapter, and its two most important entries are drafted as wide as they could be. "Tax benefit" in s.102(10) is an INCLUSIVE definition — the section says "includes" — and its six sub-clauses cover a reduction, avoidance or deferral of tax or other amount payable under the Act; an increase in a refund; the same two things where they arise as a result of a tax treaty; a reduction in total income; and an increase in loss — each of them "in the relevant previous year or any other previous year". An increase in loss therefore is a tax benefit even in a year in which no tax was payable at all. "Arrangement" in s.102(1) means "any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not", and includes the alienation of property in it, and "step" in s.102(9) includes "a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement".
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2018-04-01, reported as Section 102 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-102-1 (heading "Definitions", Year: 2013) and confirmed clause for clause against section 102 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/170188709/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-102 (Year: 2012). It bears on section 102, section 102(1), section 102(3), section 102(6), section 102(9), section 102(10), section 102(11), section 95, section 96, section 97, section Rule 10U of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
The definitions are where the Chapter is won or lost before the merits start. First, "includes" rather than "means": the Finance Act 2012 version of the definition opened "tax benefit means" and had five sub-clauses; the version in force opens "tax benefit includes" and has six, having split the old fifth sub-clause into "a reduction in total income" and "an increase in loss". The consequence is that the six sub-clauses are illustrative, not exhaustive, so an argument that a particular advantage falls outside all six will not by itself defeat the Chapter. Second, the words "in the relevant previous year or any other previous year" mean the benefit does not have to arise in the year under assessment; a deferral into a later year is expressly a tax benefit. Third, the width of "arrangement" — "whether enforceable or not", and expressly including a single step — is what allows the Explanation to s.95 and the presumption in s.96(2) to operate at step level. There is no requirement of a legally binding document. Fourth, and often decisive on the threshold, Rule 10U(3)(iv) tells you HOW to quantify the tax benefit for the three crore rupee exclusion: for sub-clauses (a) to (e) it is the amount of tax, and for sub-clause (f), an increase in loss, it is the tax that would have been chargeable had the increase in loss been the total income. That cross-reference to "clause (10) of section 102" and to "sub-clause (f)" is itself confirmation that the numbering in force is the Finance Act 2013 numbering set out here. Fifth, "party" in s.102(6) INCLUDES a permanent establishment, so a PE can be a party to an arrangement in its own right; and "benefit" in s.102(3) includes a payment of any kind, tangible or intangible.
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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The clauses of section 102 relied on in this entry, as transcribed from the departmental page stamped Year 2013 and matched word for word against section 102 of the Finance Act, 2013, read: "102. In this Chapter, unless the context otherwise requires,— (1) \"arrangement\" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding; (2) \"asset\" includes property, or right, of any kind; (3) \"benefit\" includes a payment of any kind whether in tangible or intangible form; ... (5) \"fund\" includes— (a) any cash; (b) cash equivalents; and (c) any right, or obligation, to receive or pay, the cash or cash equivalent; (6) \"party\" includes a person or a permanent establishment which participates or takes part in an arrangement; (7) \"relative\" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of section 56; (8) a person shall be deemed to have a substantial interest in the business, if,— (a) in a case where the business is carried on by a company, such person is, at any time during the financial year, the beneficial owner of equity shares carrying twenty per cent or more, of the voting power; or (b) in any other case, such person is, at any time during the financial year, beneficially entitled to twenty per cent or more, of the profits of such business; (9) \"step\" includes a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement; (10) \"tax benefit\" includes,— (a) a reduction or avoidance or deferral of tax or other amount payable under this Act; or (b) an increase in a refund of tax or other amount under this Act; or (c) a reduction or avoidance or deferral of tax or other amount that would be payable under this Act, as a result of a tax treaty; or (d) an increase in a refund of tax or other amount under this Act as a result of a tax treaty; or (e) a reduction in total income; or (f) an increase in loss, in the relevant previous year or any other previous year; (11) \"tax treaty\" means an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A."
Not a judgment. The statutory position is that "tax benefit" in s.102(10) is an inclusive and not an exhaustive definition, covering reduction, avoidance or deferral of tax or other amount payable, an increase in a refund, both of those where they arise as a result of a tax treaty, a reduction in total income and an increase in loss, in the relevant previous year or any other previous year; that "arrangement" in s.102(1) extends to any step in, or part or whole of, any transaction, operation, scheme, agreement or understanding whether enforceable or not; that "step" is separately defined in s.102(9); that "party" in s.102(6) includes a permanent establishment; and that "benefit" in s.102(3) includes a payment of any kind, tangible or intangible.
Not a judgment; no judicial reasoning is stated for the section itself.
(1) "arrangement" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding;
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Handle my notice → Ask a CA on WhatsAppSection 102 is the definition section for the whole Chapter, and its two most important entries are drafted as wide as they could be. "Tax benefit" in s.102(10) is an INCLUSIVE definition — the section says "includes" — and its six sub-clauses cover a reduction, avoidance or deferral of tax or other amount payable under the Act; an increase in a refund; the same two things where they arise as a result of a tax treaty; a reduction in total income; and an increase in loss — each of them "in the relevant previous year or any other previous year". An increase in loss therefore is a tax benefit even in a year in which no tax was payable at all. "Arrangement" in s.102(1) means "any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not", and includes the alienation of property in it, and "step" in s.102(9) includes "a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement". This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 102, section 102(1), section 102(3), section 102(6), section 102(9), section 102(10), section 102(11), section 95, section 96, section 97, section Rule 10U of the Income Tax Act 1961. It is reported as Section 102 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-102-1 (heading "Definitions", Year: 2013) and confirmed clause for clause against section 102 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/170188709/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-102 (Year: 2012). The definitions are where the Chapter is won or lost before the merits start. First, "includes" rather than "means": the Finance Act 2012 version of the definition opened "tax benefit means" and had five sub-clauses; the version in force opens "tax benefit includes" and has six, having split the old fifth sub-clause into "a reduction in total income" and "an increase in loss". The consequence is that the six sub-clauses are illustrative, not exhaustive, so an argument that a particular advantage falls outside all six will not by itself defeat the Chapter. Second, the words "in the relevant previous year or any other previous year" mean the benefit does not have to arise in the year under assessment; a deferral into a later year is expressly a tax benefit. Third, the width of "arrangement" — "whether enforceable or not", and expressly including a single step — is what allows the Explanation to s.95 and the presumption in s.96(2) to operate at step level. There is no requirement of a legally binding document. Fourth, and often decisive on the threshold, Rule 10U(3)(iv) tells you HOW to quantify the tax benefit for the three crore rupee exclusion: for sub-clauses (a) to (e) it is the amount of tax, and for sub-clause (f), an increase in loss, it is the tax that would have been chargeable had the increase in loss been the total income. That cross-reference to "clause (10) of section 102" and to "sub-clause (f)" is itself confirmation that the numbering in force is the Finance Act 2013 numbering set out here. Fifth, "party" in s.102(6) INCLUDES a permanent establishment, so a PE can be a party to an arrangement in its own right; and "benefit" in s.102(3) includes a payment of any kind, tangible or intangible. If it applies to you, the first step is this: Before arguing anything else, quantify the tax benefit on the footing prescribed by Rule 10U(3)(iv), because if the aggregate for all the parties in the relevant assessment year does not exceed three crore rupees the Chapter cannot be applied at all.
The clauses of section 102 relied on in this entry, as transcribed from the departmental page stamped Year 2013 and matched word for word against section 102 of the Finance Act, 2013, read: "102. In this Chapter, unless the context otherwise requires,— (1) \"arrangement\" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding; (2) \"asset\" includes property, or right, of any kind; (3) \"benefit\" includes a payment of any kind whether in tangible or intangible form; ... (5) \"fund\" includes— (a) any cash; (b) cash equivalents; and (c) any right, or obligation, to receive or pay, the cash or cash equivalent; (6) \"party\" includes a person or a permanent establishment which participates or takes part in an arrangement; (7) \"relative\" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of section 56; (8) a person shall be deemed to have a substantial interest in the business, if,— (a) in a case where the business is carried on by a company, such person is, at any time during the financial year, the beneficial owner of equity shares carrying twenty per cent or more, of the voting power; or (b) in any other case, such person is, at any time during the financial year, beneficially entitled to twenty per cent or more, of the profits of such business; (9) \"step\" includes a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement; (10) \"tax benefit\" includes,— (a) a reduction or avoidance or deferral of tax or other amount payable under this Act; or (b) an increase in a refund of tax or other amount under this Act; or (c) a reduction or avoidance or deferral of tax or other amount that would be payable under this Act, as a result of a tax treaty; or (d) an increase in a refund of tax or other amount under this Act as a result of a tax treaty; or (e) a reduction in total income; or (f) an increase in loss, in the relevant previous year or any other previous year; (11) \"tax treaty\" means an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A." 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. Not a judgment. The statutory position is that "tax benefit" in s.102(10) is an inclusive and not an exhaustive definition, covering reduction, avoidance or deferral of tax or other amount payable, an increase in a refund, both of those where they arise as a result of a tax treaty, a reduction in total income and an increase in loss, in the relevant previous year or any other previous year; that "arrangement" in s.102(1) extends to any step in, or part or whole of, any transaction, operation, scheme, agreement or understanding whether enforceable or not; that "step" is separately defined in s.102(9); that "party" in s.102(6) includes a permanent establishment; and that "benefit" in s.102(3) includes a payment of any kind, tangible or intangible.
Not a judgment; no judicial reasoning is stated for the section itself. In the words reproduced by the source cited on this page: "(1) "arrangement" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding;"
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Section 102 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-102-1 (heading "Definitions", Year: 2013) and confirmed clause for clause against section 102 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/170188709/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-102 (Year: 2012). 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 102, section 102(1), section 102(3), section 102(6), section 102(9), section 102(10), section 102(11), section 95, section 96, section 97, 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. Not a judgment. The statutory position is that "tax benefit" in s.102(10) is an inclusive and not an exhaustive definition, covering reduction, avoidance or deferral of tax or other amount payable, an increase in a refund, both of those where they arise as a result of a tax treaty, a reduction in total income and an increase in loss, in the relevant previous year or any other previous year; that "arrangement" in s.102(1) extends to any step in, or part or whole of, any transaction, operation, scheme, agreement or understanding whether enforceable or not; that "step" is separately defined in s.102(9); that "party" in s.102(6) includes a permanent establishment; and that "benefit" in s.102(3) includes a payment of any kind, tangible or intangible. It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 102, section 102(1), section 102(3), section 102(6), section 102(9), section 102(10), section 102(11), section 95, section 96, section 97, 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. Where the alleged benefit is an increased loss rather than reduced tax, do not argue that no tax was avoided. Sub-clause (f) covers it, and Rule 10U(3)(iv)(b) tells you to value it as the tax on that increase treated as total income. Resist any attempt to treat the six sub-clauses as a closed list in the Revenue's favour AND resist treating them as a closed list in your own favour — the word is "includes", and that cuts both ways. When the Revenue describes the "arrangement", check what it has actually identified. Section 102(1) permits it to be a single step, but the officer must still say which step, because the s.96 tests and the s.98 consequences have to be applied to whatever he has identified. If a permanent establishment is involved, note that s.102(6) makes it a party in its own right — which matters for the aggregation of the tax benefit across "all the parties to the arrangement" under Rule 10U(1)(a).
Still good law. The Finance Act 2013 text is the one in force so far as I could establish: it is printed on a departmental page stamped Year 2013, matches the substituting Finance Act provision clause for clause on an independent site, and is the numbering to which Rule 10U(3)(iv) cross-refers. Suffixes above /w/section-102-1 were not probed, so a later version cannot be excluded on this evidence. The conflict with a fragment of the Supreme Court's judgment in the Tiger Global appeal, which reproduces the superseded 2012 numbering, is set out in the editor note and has not been resolved; a reader relying on clause numbers should take them from the Finance Act 2013 text. No other check of judicial treatment was made. 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 CONFLICT THE READER SHOULD KNOW ABOUT. Two departmental pages print different section 102s: /w/section-102 (heading "Definitions", Year: 2012) prints the Finance Act 2012 text in which "associated person" is clause (3), "step" is clause (10) and "tax benefit" is clause (11) and is defined by the word "means" with five sub-clauses; /w/section-102-1 (same heading, Year: 2013) prints the Finance Act 2013 text set out in this entry, in which "connected person" is clause (4), "step" is clause (9) and "tax benefit" is clause (10) and is defined by the word "includes" with six sub-clauses. The 2013 numbering is the one in force, and that is established independently in two ways: section 102 of the Finance Act, 2013 at indiankanoon.org/doc/170188709/ matches the departmental Year 2013 page clause for clause; and Rule 10U(3)(iv), which I read on the departmental rule page and again in the Supreme Court's judgment in The Authority for Advance Rulings v Tiger Global International II Holdings, refers to "clause (10) of section 102" and to its "sub-clause (f)" — a sub-clause that exists only in the 2013 text. AGAINST that, a fragment of the same Supreme Court judgment, retrieved through indiankanoon's /docfragment/ route on the phrase "step" includes a measure or an action, reproduces section 102 with "step" at clause (10) and "tax benefit" at clause (11) opening with the word "means" — that is, the superseded Finance Act 2012 text. I read that only as a fragment and did not read the surrounding pages of the judgment, so I cannot say whether the judgment sets the 2012 text out as history or reproduces it in error; but a practitioner who takes the numbering from that judgment will cite the wrong clause. The `decided_on` value 2018-04-01 is NOT the commencement of s.102: it is the first day of the first assessment year to which s.95(2) applies the Chapter. The definition of "connected person" in s.102(4) is already covered in this library by the entry on section 99 and connected persons, and is not restated here. 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.
Not a judgment. The statutory position is that "tax benefit" in s.102(10) is an inclusive and not an exhaustive definition, covering reduction, avoidance or deferral of tax or other amount payable, an increase in a refund, both of those where they arise as a result of a tax treaty, a reduction in total income and an increase in loss, in the relevant previous year or any other previous year; that "arrangement" in s.102(1) extends to any step in, or part or whole of, any transaction, operation, scheme, agreement or understanding whether enforceable or not; that "step" is separately defined in s.102(9); that "party" in s.102(6) includes a permanent establishment; and that "benefit" in s.102(3) includes a payment of any kind, tangible or intangible.
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