Section 95

Section 95 — the law in short

What the courts have decided on section 95, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Hinduja Global Solutions Ltd v PCIT — Chapter X-A invoked on an NCLT-sanctioned demerger: Rule issued because no appeal lies, and the s.144BA reference, the directions and the assessments stayed High CourtHelps taxpayerNo later treatment found
  The department has invoked GAAR on a demerger that the NCLT sanctioned after notice to the income-tax authorities, and s.72A(4) expressly allowed the loss to move with the undertaking. I have no right of appeal against the reference or the directions. What can I actually do?
  You go to the High Court under Article 226, and the Bombay High Court has said in terms that the absence of an appeal is itself a reason to entertain the writ. On 19 December 2025 it issued Rule on a petition challenging a s.144BA reference dated 31 March 2025 and directions dated 30 October 2025 invoking Chapter X-A on an NCLT-sanctioned demerger, recording that it was "mindful of the fact that there is no provisions for an Appeal for impugning the reference ... or the directions ... invoking the provisions of Chapter X-A of the IT Act". It found a strong prima facie case and granted interim relief staying the reference, the directions and the assessment proceedings for AYs 2022-23 and 2023-24. Two arguments carried that interim finding: that Chapter X-A could never have been invoked once a competent authority, the NCLT, had sanctioned the demerger after notice to the income-tax authorities who raised no objection; and that s.72A(4) expressly permits the transfer of accumulated loss and unabsorbed depreciation of the demerged undertaking, so that what the Act itself allows cannot be an impermissible avoidance arrangement.
• Vedanta Holdings Mauritius II Ltd v CIT (International Taxation)-3 — an Approving Panel order under GAAR stayed by the Delhi High Court, with the Revenue filing its own writ against the same order High CourtHelps taxpayerNo later treatment found
  The Approving Panel has issued its order and s.144BA(14) says no appeal lies. Will a High Court actually stay a Panel order, and does the same bar stop the department from challenging a Panel order it dislikes?
  It will entertain the writ, and on this occasion it stayed the Panel's order — but by consent, not on a contested application. On 17 December 2025 the Delhi High Court issued notice in two writ petitions directed against a single order of the Approving Panel dated 28 November 2025 under the General Anti Avoidance Rule, by which the reference made by the Commissioner of Income Tax (International Taxation)-3, New Delhi under s.144BA(4) dated 26 May 2025 had been upheld; and it directed that "In the meantime, by concurrence of ld. Counsels, the impugned order and the consequent assessment proceedings shall remain stayed till the next date of hearing" — the stay was therefore made on the concurrence of counsel on both sides, and the order is not authority that a contested stay would be granted. The striking feature is who filed the second petition: W.P.(C) 19105/2025 was filed by the Assistant Commissioner of Income Tax, International Tax Circle 3(1)(1), Delhi against the same Panel order. Because s.144BA(14) binds "the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him" as well as the assessee, and bars any appeal under the Act, the department is in the same position as the taxpayer: if it wants to impugn a Panel direction it must also go by writ.
• Ayodhya Rami Reddy Alla v PCIT High CourtHelps departmentUnder appeal
  The AO invoked GAAR even though a specific anti-avoidance section covers my transaction. Can he do that?
  Yes, on this ruling. Chapter X-A is not shut out because a specific anti-avoidance rule occupies part of the field: s.95(1) opens with a non-obstante clause, which displaces the usual presumption that the special provision excludes the general one, so GAAR can supersede a SAAR. The Court also refused to interfere at the initiation stage because s.144BA gives the assessee a reference to the Principal Commissioner and the Approving Panel.
• Manipal Education and Medical Group India Pvt Ltd v ACIT — where the s.148 reassessment falls, the s.144BA(1) and (2) GAAR notices issued inside it fall with it as consequential High CourtHelps taxpayerNo later treatment found
  The GAAR reference in my case was made inside a reassessment. If I succeed in getting the s.148A(d) order and the s.148 notice set aside, do the s.144BA notices go too, or do I have to fight them separately?
  They go with it. In a writ petition in which the Revenue itself accepted, through the Additional Solicitor General, that the matter should be remanded to the stage before the s.148 notice because the principles of natural justice had been violated, the Karnataka High Court set aside the s.148A(d) order and the s.148 notice, both dated 31 March 2022, and then quashed "all actions initiated pursuant to the above under Section 142(2A), Section 144BA(1) and Section 144BA(2) of the Act, being consequential" — naming a notice dated 21 March 2023, an order dated 30 March 2023, a notice dated 24 March 2023 for invocation of Chapter X-A and a further notice dated 26 April 2023. The matter was remanded to the Assessing Officer to begin again from the s.148A(b) stage, with thirty days to reply, and all contentions of both parties kept open.
• Statutory position — Chapter X-A applies only from AY 2018-19, and Rule 10U's three-crore threshold and the grandfathering of investments made before 1 April 2017 CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer says my client's 2015 restructuring is an impermissible avoidance arrangement. Can GAAR reach an arrangement entered into before it came into force, and is there a monetary floor below which it simply does not apply?
  Chapter X-A applies in respect of any assessment year beginning on or after 1 April 2018 — that is, from AY 2018-19 — under s.95(2). Rule 10U(2) then makes the Chapter apply to an arrangement irrespective of when it was entered into, so long as the tax benefit is obtained on or after 1 April 2017; but Rule 10U(1)(a) takes out any arrangement where the tax benefit in the relevant assessment year, in aggregate to all parties, does not exceed three crore rupees, and Rule 10U(1)(d) read with the exception in Rule 10U(2) takes out income from the transfer of investments made before 1 April 2017.
• Statutory position — the GAAR procedure: section 144BA, Rules 10UB and 10UC, and the Approving Panel whose direction binds both sides CBDT Circulars & InstructionsCuts both ways
  My client has received a notice under Chapter X-A saying his arrangement may be an impermissible avoidance arrangement. What is the procedure from here, who actually decides, and can I appeal the decision?
  GAAR cannot be applied by the Assessing Officer on his own. He must refer the matter to the Principal Commissioner or Commissioner under s.144BA(1) in Form No. 3CEG after first putting a written notice to the assessee under Rule 10UB(1); the Principal Commissioner then issues his own notice under s.144BA(2) giving the assessee up to sixty days to object and a hearing, and either drops the matter in Form No. 3CEH or refers it to the Approving Panel in Form No. 3CEI. The Approving Panel's direction under s.144BA(6) is binding on the assessee and on the Commissioner and his subordinates, and s.144BA(14) bars any appeal under the Act against that direction — the only route against it is a writ.
• Statutory position — section 98 and Rule 10UA: what the department may actually do once an arrangement is declared impermissible CBDT Circulars & InstructionsCuts both ways
  If the Approving Panel declares my client's arrangement impermissible, what consequences can the Assessing Officer impose, and can he recast the whole structure or only the offending part?
  Section 98(1) lets the consequences be determined 'in such manner as is deemed appropriate' and gives a non-exhaustive list of seven powers, including disregarding, combining or recharacterising any step; treating the arrangement as if it had not been entered into; disregarding an accommodating party; treating connected persons as one person; reallocating receipts and expenditure among the parties; relocating the residence of a party or the situs of an asset or transaction; and looking through any corporate structure. Section 98(2) adds that equity may be treated as debt or vice versa, capital may be treated as revenue or vice versa, and any expenditure, deduction, relief or rebate may be recharacterised — but Rule 10UA confines the consequences to the offending part where only a part of the arrangement is declared impermissible.
• Statutory position — sections 100 and 101: Chapter X-A applies in addition to or in lieu of any other basis, and only in accordance with prescribed guidelines CBDT Circulars & InstructionsCuts both ways
  Can the department run GAAR and a specific anti-avoidance provision on the same transaction, and is there anything that limits how GAAR is applied?
  Section 100 provides that the provisions of Chapter X-A shall apply in addition to, or in lieu of, any other basis for determination of tax liability — so GAAR is not an alternative of last resort and can be invoked alongside, or instead of, a specific charging or anti-avoidance provision. Section 101 provides that the Chapter shall be applied in accordance with such guidelines and subject to such conditions as may be prescribed, and it is under that section that rules 10U to 10UC are made.
• Statutory position — s.102: "tax benefit", "arrangement", "step", "party" and "benefit" — the definitions that decide whether Chapter X-A can start at all CBDT Circulars & InstructionsCuts both ways
  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".
• Statutory position — s.144BA(15) to (21) and the Explanation: who sits on the Approving Panel, the powers it borrows from the Advance Rulings Authority, and the two things that stop its six-month clock CBDT Circulars & InstructionsCuts both ways
  My case is going to the Approving Panel. Who actually sits on it, what powers does it have over me, how long is its term, and can the six months it has to decide be extended?
  The Approving Panel is not a departmental committee. By s.144BA(15) the CENTRAL GOVERNMENT constitutes one or more Panels, each of three members including a Chairperson, and by s.144BA(16) "the Chairperson of the Approving Panel shall be a person who is or has been a judge of a High Court", with one member from the Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner of Income-tax and one member "an academic or scholar having special knowledge of matters, such as direct taxes, business accounts and international trade practices". By s.144BA(19) the Panel has, in addition to its own powers, "the powers which are vested in the Authority for Advance Rulings under section 245U". Its term is ordinarily one year, extendable up to three years (s.144BA(17)). The six-month period in s.144BA(13) is subject to an Explanation that excludes two things — time taken on an exchange-of-information reference under s.90 or s.90A, capped at one year, and any period during which the Panel's proceeding is stayed by a court order or injunction — with a proviso that if fewer than sixty days remain after that exclusion, the period is extended to sixty days.
• Statutory position — s.95: the gateway into Chapter X-A, the years it reaches, and the Explanation that lets the department attack one STEP of an otherwise genuine transaction CBDT Circulars & InstructionsCuts both ways
  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?
  Section 95(1) is the gateway, and it does two things: it opens with "Notwithstanding anything contained in the Act", so Chapter X-A overrides the rest of the Act, and it allows an arrangement to be "declared to be an impermissible avoidance arrangement" with the tax consequences then determined under the Chapter. Section 95(2) confines the whole Chapter to "any assessment year beginning on or after the 1st day of April, 2018" — that is AY 2018-19 onwards, and nothing earlier. The Explanation is the sting: the Chapter "may be applied to any step in, or a part of, the arrangement as they are applicable to the arrangement", so the officer does not have to condemn your whole transaction; he can isolate one step inside it.
• Statutory position — s.96: what makes an arrangement impermissible — the main-purpose test, the four tainted elements, and the s.96(2) presumption that shifts the burden onto you CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — s.97: when an arrangement is DEEMED to lack commercial substance, what round trip financing means, and the three facts that s.97(4) says are never sufficient CBDT Circulars & InstructionsCuts both ways
  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?
  Lack of commercial substance is not an open-ended commercial judgment; s.97(1) is a closed list of four deeming limbs. An arrangement is DEEMED to lack commercial substance if (a) its substance or effect as a whole is inconsistent with, or differs significantly from, the form of its individual steps or a part; or (b) it involves or includes round trip financing, an accommodating party, elements that have the effect of offsetting or cancelling each other, or a transaction conducted through one or more persons that disguises the value, location, source, ownership or control of the funds; or (c) it involves the location of an asset, of a transaction or of the place of residence of a party without any substantial commercial purpose other than obtaining a tax benefit; or (d) it does not have a significant effect on the business risks or net cash flows of any party apart from the effect attributable to the tax benefit. Section 97(4) then says in terms that three matters — how long the arrangement has existed, the fact that taxes were paid under it, and the fact that it provides an exit route — "may be relevant but shall not be sufficient".
• Statutory position — Rule 10U: the exclusions a cross-border case must clear first — the Foreign Institutional Investor and offshore-derivative carve-outs, and how the three crore rupee tax benefit is actually computed CBDT Circulars & InstructionsCuts both ways
  Before I argue the merits of a GAAR notice for a foreign investor, which exclusions in Rule 10U do I have to run, and how is the three crore rupee tax benefit figure arrived at?
  Rule 10U(1) takes four classes of case outside Chapter X-A altogether. Clause (a) is the monetary floor: the Chapter does not apply to an arrangement where the tax benefit in the relevant assessment year arising "in aggregate, to all the parties to the arrangement" does not exceed three crore rupees. Clause (b) excludes a Foreign Institutional Investor that is an assessee under the Act, that "has not taken benefit of an agreement referred to in section 90 or section 90A", and that has invested in listed or unlisted securities in accordance with the SEBI (Foreign Institutional Investors) Regulations, 1995. Clause (c) excludes a non-resident in relation to an investment made by him "by way of offshore derivative instruments or otherwise, directly or indirectly, in a Foreign Institutional Investor". Clause (d) grandfathers income from the transfer of investments made before 1 April 2017. Rule 10U(3)(iv) then tells you how to quantify the tax benefit for the clause (a) threshold: for sub-clauses (a) to (e) of s.102(10) 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 referred to therein been the total income".
• Statutory position — s.153 Explanation 1(xi): the limitation clock stops from the day the GAAR reference reaches the Commissioner until his direction or the Panel's comes back, and then never leaves less than sixty days CBDT Circulars & InstructionsCuts both ways
  A reference under s.144BA has been made in my case and months have gone by. Does the ordinary time limit for completing the assessment keep running while the Approving Panel sits on it?
  No. Clause (xi) of Explanation 1 to s.153 excludes from the limitation period "the period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Principal Commissioner or Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order under sub-section (5) of the said section is received by the Assessing Officer". The clock therefore stops on receipt of the Assessing Officer's reference and restarts only when the outcome — the Commissioner's own direction under s.144BA(3), the Approving Panel's direction under s.144BA(6), or the Commissioner's order under s.144BA(5) dropping the matter — reaches the Assessing Officer. The proviso that follows the Explanation then gives the officer at least sixty days: if what is left after the exclusion is less than sixty days, the remaining period is extended to sixty days.
• Statutory position — s.90(2A): the treaty does not save you from GAAR, because Chapter X-A applies "even if such provisions are not beneficial" to the assessee CBDT Circulars & InstructionsCuts both ways
  My client is a treaty resident and the treaty plainly gives him the better of it. The department is invoking Chapter X-A anyway. Can it, when s.90(2) says the more beneficial provision applies?
  It can, and s.90(2A) is the provision that says so. Section 90(2) is the ordinary rule that where India has a treaty, the provisions of the Act apply "to the extent they are more beneficial to that assessee". Section 90(2A) then reads: "Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him." So the treaty override that normally protects a non-resident is expressly switched off for Chapter X-A, and the fact that a Chapter X-A determination leaves the taxpayer worse off than the treaty is not an answer to it.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.