Section 96(1) — the law in short
What the courts have decided on section 96(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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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.
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.