Section 97(3)

Section 97(3) — the law in short

What the courts have decided on section 97(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — section 99, section 97(3) and section 102: connected persons and the accommodating party, and how they are collapsed into one taxpayer CBDT Circulars & InstructionsCuts both ways
  The GAAR notice says a Mauritius company in my client's structure is an 'accommodating party' and that two group companies are 'connected persons'. What do those words actually mean and what follows if they are made out?
  Section 99 says that in determining whether a tax benefit exists, connected persons may be treated as one and the same person, an accommodating party may be disregarded, an accommodating party and any other party may be treated as one and the same person, and the arrangement may be considered or looked through by disregarding any corporate structure. 'Accommodating party' is defined in section 97(3) — a party whose main purpose in participating, directly or indirectly and in whole or in part, is to obtain a tax benefit for the assessee, whether or not it is a connected person; 'connected person' is defined at length in section 102(4), with a twenty per cent 'substantial interest' test in section 102(8).
• 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".

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.