What the courts have decided on section 96(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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AAR v Tiger Global International II Holdings
Supreme CourtHelps departmentNo later treatment found
I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
Yes. A Tax Residency Certificate is a necessary eligibility requirement under s.90(4) but is not sufficient or conclusive evidence of residence, beneficial ownership or entitlement to treaty benefits, and the authorities may examine the substance of the arrangement. The Supreme Court set aside the High Court's judgment, restored the AAR's rejection and held the gains taxable in India.
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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.
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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.
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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.
