2. General Anti-Avoidance Rule
While going through the newly introduced GAAR by our beloved
Finance Minister, who is now the President of the country, I had the
feeling that the name of the rule is in itself wrong. It should have been
โHitler Ruleโ or โI CAN DO ANYTHINGโ rule.
The most common term that I came across in this rule is โwhether or
notโ. These three words give immense power to income tax officer (ITO)
to blame anyone of tax avoidance. This rule clearly says that any
arrangement or any part of an arrangement could be considered as
impermissible avoidance arrangement. The ITO can disregard the
period for which the transaction was in existence, which means they can
dig up any transaction from anywhere. They can raise suspicion about
any arrangement or any party โwhether or notโ the tax has been paid.
There are provisions in this rule which allows the ITO to change the
nature of anything without any reason. The ITO can treat any capital
receipt or capital expenditure as revenue receipt or revenue expenditure
and vice-versa. The ITO can deem any equity as debt or vice-versa. Two
parties may be treated as one. They can deem that the location of a party
or 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 is
located at any other place. Now I donโt understand how come they make
rules to deny the reality.
Consider the following provision of GAAR โAn arrangement shall be
deemed 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 arrangement
in which, through a series of transaction-
1. Funds are transferred among the parties to the arrangement; and
roshankumar.2007@rediffmail.com
3. 2. Such transactions do not have any substantial commercial purpose other
than obtaining the tax benefit
Without 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.โ
Here I donโt have any problem with the entire section except for the
highlighted part, according to which, even if the ITO cannot trace the
funds to any party it can still claim that the transaction is in the nature of
round trip financing.
I think that the verdict given by the court on Vodafoneโs case hurt the
ego of our Finance minister because of which he came up with such a
devilish rule. May be through this rule the Finance minister wants to
give a message that
โThe finance minister of this country has the unlimited power to change
the entire law. The finance minister is above any court of law.โ
roshankumar.2007@rediffmail.com
