GAAR

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GAAR

  1. 1. General Anti-Avoidance Rule (GAAR) Roshankumar S Pimpalkarroshankumar.2007@rediffmail.com
  2. 2. General Anti-Avoidance RuleWhile going through the newly introduced GAAR by our belovedFinance Minister, who is now the President of the country, I had thefeeling that the name of the rule is in itself wrong. It should have been“Hitler Rule” or “I CAN DO ANYTHING” rule.The most common term that I came across in this rule is “whether ornot”. These three words give immense power to income tax officer (ITO)to blame anyone of tax avoidance. This rule clearly says that anyarrangement or any part of an arrangement could be considered asimpermissible avoidance arrangement. The ITO can disregard theperiod for which the transaction was in existence, which means they candig up any transaction from anywhere. They can raise suspicion aboutany arrangement or any party “whether or not” the tax has been paid.There are provisions in this rule which allows the ITO to change thenature of anything without any reason. The ITO can treat any capitalreceipt or capital expenditure as revenue receipt or revenue expenditureand vice-versa. The ITO can deem any equity as debt or vice-versa. Twoparties may be treated as one. They can deem that the location of a partyor an asset at any place, which means if any asset, any non-living asset,which is actually situated in, say, New York the ITO can deem that it islocated at any other place. Now I don’t understand how come they makerules to deny the reality.Consider the following provision of GAAR “An arrangement shall bedeemed to lack commercial substance if it involves or includes- a) Round trip financing; b) An accommodating party; c) Elements having effect of offsetting or cancelling each other; or d) A transaction which is conducted through one or more persons and disguises the value, location, source, ownership or control of funds which is the subject matter of such transaction.For the purpose of this section round trip financing includes any arrangementin which, through a series of transaction- 1. Funds are transferred among the parties to the arrangement; androshankumar.2007@rediffmail.com
  3. 3. 2. Such transactions do not have any substantial commercial purpose other than obtaining the tax benefitWithout having any regard to- A. Whether or not the funds involved in the round trip financing can be traced to any funds transferred to, or received by, any party in connection with the arrangement; B. The time, or sequence, in which the funds involved in the round trip financing are transferred or received; or C. The means by, or manner in, or mode through, which funds involved in the round trip financing are transferred or received.”Here I don’t have any problem with the entire section except for thehighlighted part, according to which, even if the ITO cannot trace thefunds to any party it can still claim that the transaction is in the nature ofround trip financing.I think that the verdict given by the court on Vodafone’s case hurt theego of our Finance minister because of which he came up with such adevilish rule. May be through this rule the Finance minister wants togive a message that“The finance minister of this country has the unlimited power to changethe entire law. The finance minister is above any court of law.”roshankumar.2007@rediffmail.com

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