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?
Section 96(1) is a two-limb test and BOTH limbs must be satisfied. The arrangement must be one "the main purpose of which is to obtain a tax benefit", AND it must additionally have at least one of four tainted elements — rights or obligations not ordinarily created between persons dealing at arm's length; misuse or abuse of the provisions of the Act; lacking or deemed to lack commercial substance under s.97, in whole or in part; or being entered into or carried out by means or in a manner not ordinarily employed for bona fide purposes. Section 96(2) then supplies a presumption that works against you: if the main purpose of a STEP in, or a part of, the arrangement is to obtain a tax benefit, the whole arrangement is presumed to have been entered into for that main purpose — "unless it is proved to the contrary by the assessee" — even though the main purpose of the whole arrangement was not a tax benefit.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2018-04-01, reported as Section 96 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-96-1 (heading "Impermissible avoidance arrangement", Year: 2013) and confirmed word for word against section 96 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/171144547/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-96 (Year: 2012). It bears on section 96, section 96(1), section 96(2), section 95, section 97, section 98, section 100, section 102, section 144BA of the Income Tax Act 1961, in How Tax Law Is Read, Assessment & Scrutiny and Evidence & Burden of Proof matters.
Four points decide these cases. First, "the main purpose", not "a purpose": the Finance Act 2012 version of s.96(1) read "the main purpose or one of the main purposes of which is to obtain a tax benefit", and those five extra words were dropped when the Chapter was substituted. The version in force asks for THE main purpose, which is a materially higher threshold, and a departmental case built on showing that tax was ONE of several purposes does not meet the section as enacted. Second, the two limbs are cumulative — the word between the main-purpose limb and the four tainted elements is "and". An arrangement that is tax-driven but arm's length, commercially substantial, bona fide and involving no misuse of the Act is not caught, however much tax it saves. Third, the four tainted elements are alternatives among themselves (the list ends "; or"), so the Revenue needs only one; and the third of them incorporates the whole of s.97, which is where most of the real fighting happens. Fourth, s.96(2) is the provision that costs taxpayers cases. It is a rebuttable presumption, and the burden of rebutting it is placed expressly on the assessee; but note that the Finance Act 2012 version contained no words of rebuttal at all, so the words "unless it is proved to the contrary by the assessee" were a taxpayer-favourable addition and should be used as such. Read with the Explanation to s.95, which allows the Chapter to be applied to a single step, s.96(2) is how a tax-motivated step inside an otherwise commercial transaction pulls the whole arrangement into the Chapter.
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 96, as transcribed from the departmental page stamped Year 2013, reads: "96. (1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it— (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm's length; (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act; (c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. (2) 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, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit." The Finance Act 2012 version, read on the departmental page stamped Year 2012, opened "An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it—", and its sub-section (2) contained no words allowing the presumption to be rebutted.
Not a judgment. The statutory position is that an arrangement is an impermissible avoidance arrangement only if BOTH limbs of s.96(1) are satisfied — the main purpose of the arrangement is to obtain a tax benefit, and it exhibits at least one of the four tainted elements in clauses (a) to (d); that clause (c) imports the whole of s.97; and that by s.96(2) an arrangement is presumed to have been entered into for the main purpose of obtaining a tax benefit where the main purpose of a step in or part of it was to obtain a tax benefit, that presumption operating notwithstanding that the main purpose of the whole arrangement was not a tax benefit, and being rebuttable only by proof to the contrary by the assessee.
Not a judgment; no judicial reasoning is stated for the section itself.
(2) 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, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit.
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Handle my notice → Ask a CA on WhatsAppSection 96(1) is a two-limb test and BOTH limbs must be satisfied. The arrangement must be one "the main purpose of which is to obtain a tax benefit", AND it must additionally have at least one of four tainted elements — rights or obligations not ordinarily created between persons dealing at arm's length; misuse or abuse of the provisions of the Act; lacking or deemed to lack commercial substance under s.97, in whole or in part; or being entered into or carried out by means or in a manner not ordinarily employed for bona fide purposes. Section 96(2) then supplies a presumption that works against you: if the main purpose of a STEP in, or a part of, the arrangement is to obtain a tax benefit, the whole arrangement is presumed to have been entered into for that main purpose — "unless it is proved to the contrary by the assessee" — even though the main purpose of the whole arrangement was not a tax benefit. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 96, section 96(1), section 96(2), section 95, section 97, section 98, section 100, section 102, section 144BA of the Income Tax Act 1961. It is reported as Section 96 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-96-1 (heading "Impermissible avoidance arrangement", Year: 2013) and confirmed word for word against section 96 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/171144547/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-96 (Year: 2012). Four points decide these cases. First, "the main purpose", not "a purpose": the Finance Act 2012 version of s.96(1) read "the main purpose or one of the main purposes of which is to obtain a tax benefit", and those five extra words were dropped when the Chapter was substituted. The version in force asks for THE main purpose, which is a materially higher threshold, and a departmental case built on showing that tax was ONE of several purposes does not meet the section as enacted. Second, the two limbs are cumulative — the word between the main-purpose limb and the four tainted elements is "and". An arrangement that is tax-driven but arm's length, commercially substantial, bona fide and involving no misuse of the Act is not caught, however much tax it saves. Third, the four tainted elements are alternatives among themselves (the list ends "; or"), so the Revenue needs only one; and the third of them incorporates the whole of s.97, which is where most of the real fighting happens. Fourth, s.96(2) is the provision that costs taxpayers cases. It is a rebuttable presumption, and the burden of rebutting it is placed expressly on the assessee; but note that the Finance Act 2012 version contained no words of rebuttal at all, so the words "unless it is proved to the contrary by the assessee" were a taxpayer-favourable addition and should be used as such. Read with the Explanation to s.95, which allows the Chapter to be applied to a single step, s.96(2) is how a tax-motivated step inside an otherwise commercial transaction pulls the whole arrangement into the Chapter. If it applies to you, the first step is this: Make the Revenue plead both limbs separately. Ask which of the four clauses of s.96(1) — (a), (b), (c) or (d) — is relied on, and on what material. A notice that asserts tax avoidance without identifying a tainted element does not state a case under the section.
Section 96, as transcribed from the departmental page stamped Year 2013, reads: "96. (1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it— (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm's length; (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act; (c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. (2) 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, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit." The Finance Act 2012 version, read on the departmental page stamped Year 2012, opened "An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it—", and its sub-section (2) contained no words allowing the presumption to be rebutted. 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 an arrangement is an impermissible avoidance arrangement only if BOTH limbs of s.96(1) are satisfied — the main purpose of the arrangement is to obtain a tax benefit, and it exhibits at least one of the four tainted elements in clauses (a) to (d); that clause (c) imports the whole of s.97; and that by s.96(2) an arrangement is presumed to have been entered into for the main purpose of obtaining a tax benefit where the main purpose of a step in or part of it was to obtain a tax benefit, that presumption operating notwithstanding that the main purpose of the whole arrangement was not a tax benefit, and being rebuttable only by proof to the contrary by the assessee.
Not a judgment; no judicial reasoning is stated for the section itself. In the words reproduced by the source cited on this page: "(2) 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, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit."
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Section 96 of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-96-1 (heading "Impermissible avoidance arrangement", Year: 2013) and confirmed word for word against section 96 of the Finance Act, 2013 (Act 17 of 2013) at indiankanoon.org/doc/171144547/; the superseded Finance Act 2012 text read on incometaxindia.gov.in/w/section-96 (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 96, section 96(1), section 96(2), section 95, section 97, section 98, section 100, section 102, section 144BA, 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 an arrangement is an impermissible avoidance arrangement only if BOTH limbs of s.96(1) are satisfied — the main purpose of the arrangement is to obtain a tax benefit, and it exhibits at least one of the four tainted elements in clauses (a) to (d); that clause (c) imports the whole of s.97; and that by s.96(2) an arrangement is presumed to have been entered into for the main purpose of obtaining a tax benefit where the main purpose of a step in or part of it was to obtain a tax benefit, that presumption operating notwithstanding that the main purpose of the whole arrangement was not a tax benefit, and being rebuttable only by proof to the contrary by the assessee. It arises in How Tax Law Is Read, Assessment & Scrutiny and Evidence & Burden of Proof matters, on section 96, section 96(1), section 96(2), section 95, section 97, section 98, section 100, section 102, section 144BA 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. Attack the main-purpose limb on the words actually in force. The test is THE main purpose. Assemble the contemporaneous commercial record — board minutes, valuation reports, lender or regulator correspondence, the scheme papers — to show the dominant purpose was commercial. If the Revenue relies on s.96(2), identify precisely which STEP it says was tax-motivated, and then discharge the burden on that step: the sub-section makes the presumption rebuttable and puts the rebuttal on you, so it must be met with evidence and not with submissions. If clause (c) is relied on, go straight to s.97 — including s.97(4), which says that the period the arrangement existed, the fact that taxes were paid under it, and the fact that it provided an exit route may be relevant but are NOT sufficient to establish lack of commercial substance. If clause (b) — misuse or abuse of the provisions of the Act — is relied on where the Act itself expressly permitted what you did, say so in terms. That was the contention on which the Bombay High Court found a strong prima facie case for interim relief in Hinduja Global Solutions Ltd v PCIT on 19 December 2025, where s.72A(4) expressly allowed the transfer of accumulated loss on a demerger. The Court recorded it as the petitioner's contention and decided nothing on it; it is an argument worth making, not a holding to cite.
Still good law. The text is current so far as I could establish: it is the Finance Act 2013 substituted text, printed on a departmental page stamped Year 2013 and confirmed against the substituting Finance Act provision itself on an independent site. The only later departmental suffix probed, /w/section-96-2, turned out to be the 1961 super-tax section, so no post-2013 version of s.96 was found; higher suffixes were not probed and a later version cannot be excluded on this evidence. No check of judicial treatment of the section was made beyond the decisions named in the editor note. 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.
The change from the Finance Act 2012 text is established from two year-stamped departmental pages: /w/section-96 (heading "Impermissible avoidance arrangement", Year: 2012) prints "an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit" and a s.96(2) presumption with NO words permitting rebuttal, while /w/section-96-1 (same heading, Year: 2013) prints "an arrangement, the main purpose of which is to obtain a tax benefit" and a s.96(2) presumption qualified by "unless it is proved to the contrary by the assessee". The Year 2013 text is confirmed word for word on an independent route — indiankanoon's text of section 96 of the Finance Act, 2013 at /doc/171144547/, which is the substituting provision itself. The page /w/section-96-2 is a different section altogether (Year: 1961, "Total income for super-tax") and must not be used. The `decided_on` value 2018-04-01 is NOT the commencement of s.96: it is the first day of the first assessment year to which s.95(2) applies the Chapter. I could not verify on a government page the date the substituted Chapter itself came into force. I did not check judicial treatment of s.96 beyond the Telangana High Court common order of 7 June 2024 (already in this library) and the two interim orders cited in this batch. 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 an arrangement is an impermissible avoidance arrangement only if BOTH limbs of s.96(1) are satisfied — the main purpose of the arrangement is to obtain a tax benefit, and it exhibits at least one of the four tainted elements in clauses (a) to (d); that clause (c) imports the whole of s.97; and that by s.96(2) an arrangement is presumed to have been entered into for the main purpose of obtaining a tax benefit where the main purpose of a step in or part of it was to obtain a tax benefit, that presumption operating notwithstanding that the main purpose of the whole arrangement was not a tax benefit, and being rebuttable only by proof to the contrary by the assessee.
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