Article
GAAR in practice: Lessons from Ayodhya Rami Reddy Alla and Anvida Bandi
By Bhavana Kulluru and Venkat Ramanan
One of the major global criticisms of General Anti-Avoidance Rules (‘GAAR’) is the broad discretionary power it confers upon the tax authorities, which at times is prone to be misused, because of which several questions continue to spark debate. Where does legitimate tax planning end and tax avoidance begin? Can GAAR be invoked even when a Specific Anti-Avoidance Rule (‘SAAR’) applies? The line, though drawn in law, often blurs in practice. The article in this issue of Direct Tax Amicus discusses how the GAAR framework has recently seen its application tested by the Telangana High Court through two consequential, yet contrasting, rulings. According to the authors, while it is possible that a bonus stripping transaction may, in certain cases, be viewed as lacking commercial substance, the application of GAAR must be undertaken with care and a holistic view of the transaction. The objective should be to curb abusive practices, not to penalise legitimate tax planning.
Notifications & Circulars
- Exemption under Section 10(46) to specified entities for specified incomes – Notifications issued
- Exemption under Section 10(46A)(b) to specified entities – Notifications issued
- Timelines for filing various audit reports for FY 2024-25 extended
- Waiver of interest payable under Section 220(2) due to late payment of demand – Order under Section 119 issued
Ratio decidendi
- Deduction of interest expense allowed against interest income, as there existed clear nexus of investment – Rotation of loan is not material – ITAT Mumbai
- Deemed income on purchase of property – Benefit under Section 50C(2) when taken will bar assessee from further benefit under third proviso to Section 50C – ITAT Mumbai
- No liability to deduct TDS under Section 194H on payment gateway charges sans principal-agent relationship – ITAT New Delhi
- Forex fluctuation gain is capital receipt, as underlying expenditure for acquiring capital asset – ITAT New Delhi
- Entering into collaborations with foreign institutions does not constitute violation of Section 11 – ITAT Mumbai
- Mentioning of ‘Marwari’ community cannot be regarded as a contravention of Section 13(1)(b) – ITAT Mumbai
- Sub-contracting, Support services provided by a foreign company does not constitute a PE in India – ITAT New Delhi