The GAAR report was submitted on 1 September 2012 to the finance
minister of India by the Shome Committee constituted by the Central
Board of Direct Taxes, after the approval of Prime Minister of India.
The committee in its report has tried to create a balance in between the
investors being invited to the country and protection of the tax base
from tax avoidance and evasion, using aggressive tax planning. The major
findings of the GAAR’s committee to create a balance in between the
investors and chances of tax avoidance and evasion includes:
1. Tax Evasion, Tax Mitigation and Tax Avoidance
2. Overcharging Principle Applicability of GAAR
3. Monetary Threshold
4. Arm’s Length Test
5. Test to Misuse or Abuse the Provisions of Act
6. Factors for determination of Commercial Substance
7. Grandfathering of existing Investments
8. GAAR will not override the CBDT circular 789 of 2000 with respect to the tax-treaty in between India and Mauritius
9. GAAR
will not be applicable at places where so ever anti-avoidance
provisions are in existence in the treaty of tax and any type of
anti-avoidance rule exists in the Act
10. Impermissible Avoidance arrangements
11. Tax abolition in cases of gains that rises out by the transfer of listed securities
12. Foreign Institutional Investors
13. Corresponding adjustments
14. Implementation of the Onus on the revenue authority
15. Tax Withholding
16. Definition of the term Connected Person
17. Constitution of approval panel
18. Time limit for GAAR provisions
19. AAR to pass ruling within 6 months
20. Prescription of Statutory forms
21. Implementation issue
22. Reporting requirements
The committee in its findings has stated that the GAAR guidelines
should be introduced in the country at the time of economic stability.
Hence, it has recommended the postponement of its implementation by 3
years. Committee’s recommendation also states about the implementation
of the findings with complete spirit and has laid emphasis on transition
period of the taxpayers and preparedness of the administrators. To
provide clarity on GAAR’s applicability provisions in different
situations 27 illustrations were made and are mentioned under different
conditions like:
1. Tax Mitigation- GAAR can’t be invoked
2. Tax Avoidance- SAAR is applicable hence GAAR is not invoked
3. Court Approved Amalgamations or demergers
4. Tax Avoidance- GAAR invoked
5. Tax Evasion can directly be dealt of law without invoking the GAAR
Following the Finance Act 2012, the introduction of the General
Anti-Avoidance Rules (GAAR) was done into the Income Tax Act, 1961. The
committee briefly analysed the provisions of GAAR as per the inputs
available from stakeholders and following the recommendations made the
amendments in the Act were made for finalization of the guidelines for
the Income Tax Rules, 1962.
Shome’s Committee:
The expert committee on GAAR (General Anti-Avoidance Rules) was
constituted under the Chairmanship of Dr. Parthasarsthi Shome with
members, namely Shri N. Rangachary (Former Chairman of IRDA and CBDT),
Dr. Ajay Shah (Prof. NIPFP) and Shri Sunil Gupta (Joint Secretary-Tax
Policy and Legislation, Department of Revenue) for undertaking the
consultations of stakeholders and finalization of guidelines for GAAR.
The main objective of the committee was to get feedbacks from the
stakeholders and prepare new guidelines or to amend the previous
guidelines after examining the things finely.The committee was
constituted by the Central Board of Direct Taxes after being approved by
the Prime Minister of India.
The committee formed referred to following terms:
• To receive feedback from both public and stakeholders on the
Guideline of GAAR mentioned on the website of Government of India.
• To
rework on the guidelines following the feedback received and examining
the same and then publish the same in form of second draft
• To find out and finalise, guidelines along with an road-map for implementation of GAAR and submit it to the government
Analysis of the GAAR provisions:
The provisions for the GAAR are mention in Chapter X-A (Section 95 to
102) of the Act. Presented provisions allow the authority of tax,
despite of containing anything in the Act with clear declaration on the
arrangements made for assesses (estimated value, nature or extent of
amount of the fine) that has entered into the impermissible avoidance
arrangement to face the consequences with regard to the tax liability
determined by the arrangement.
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