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Major Recommendations of Expert Committee
on GAAR Accepted
The Central Government has carefully considered
the report of the Expert Committee on General Anti Avoidance Rules (GAAR) and
accepted the major recommendations of the Expert Committee with some
modifications. This was announced by the Union Finance Minstar Shri P.Chidambaram here today in a press conference. The Finance
Minister said that the following decisions
have been taken by Government in this regard:
(i) An
arrangement, the main purpose of which is to obtain a tax benefit,
would be considered as an impermissible avoidance arrangement. The
current provision prescribing that it should be “the main purpose or one of the
main purposes” will be amended accordingly.
(ii) The
assessing officer will be required to issue a show cause notice,containing reasons,
to theassessee before invoking the provisions of Chapter X-A.
(iii) The assessee shall
have an opportunity to prove that the arrangement is not an
impermissible avoidance arrangement.
(iv) The two
separate definitions in the current provisions, namely, ‘associated person’ and
‘connected person’ will be combined and there will be only one
inclusive provision defining a ‘connected person’.
(v) The Approving
Panel shall consist of a Chairperson who is or has been a Judge of a
High Court; one Member of the Indian Revenue Service not below the rank of
Chief Commissioner of Income-tax; and one Member who shall be an academic or
scholar having special knowledge of matters such as direct taxes, business
accounts and international trade practices. The current provision
that the Approving Panel shall consist of not less than three members being
Income-tax authorities or officers of the Indian Legal Service will be
substituted.
(vi) The Approving
Panel may have regard to the period or time for which the
arrangement had existed; the fact of payment of taxes by the assessee; and
the fact that an exit route was provided by the arrangement. Such
factors may be relevant but not sufficient to determine whether the
arrangement is an impermissible avoidance arrangement.
(vii) The directions issued
by the Approving Panel shall be binding on the assessee as
well as the Income-tax authorities. The current provision that
it shall be binding only on the Income-tax authorities will be modified
accordingly.
(viii) While
determining whether an arrangement is an impermissible avoidance arrangement,
it will be ensured that the same income is not taxed twice in
the hands of the same tax payer in the same year or in different assessment
years.
(ix) Investments
made before August 30, 2010, the date of introduction of the Direct Taxes
Code, Bill, 2010, will be grandfathered.
(x) GAAR will
not apply to such FIIs that choose not to take any benefit under an
agreement under section 90 or section 90A of the Income-tax Act,
1961. GAAR will also not apply to non-resident investors in FIIs.
(xi) A monetary
threshold of Rs. 3 crore of tax benefit in the
arrangement will be provided in order to attract the provisions of
GAAR.
(xii) Where
a part of the arrangement is an impermissible avoidance arrangement, GAAR will
be restricted to the tax consequence of that part which is
impermissible and not to the whole arrangement.
(xiii) Where
GAAR and SAAR are both in force, only one of them will apply to
a given case, and guidelines will be made regarding the applicability of one or
the other.
(xiv) Statutory forms
will be prescribed for the different authorities to exercise their
powers under section 144BA.
(xv) Time
limits will be provided for action by the various authorities under
GAAR.
(xvi) Section 245N(a)(iv)
that provides for an advance ruling by the Authority for Advance
Rulings (AAR) whether an arrangement is an impermissible avoidance
arrangement will be retained and the administration of the AAR will be
strengthened.
(xvii) The
tax auditor will be required to report any tax avoidance arrangement.
Source: http://pib.nic.in
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