The IRA had alleged that the taxpayer experienced undertaken a “bonus stripping” transaction, where by shares were being issued to the taxpayer as reward shares inside the ratio of five:1 just before being transferred to another company, allegedly for the sole reason of boasting tax losses. 

– The enterprise intent guiding a transaction could serve as potent proof which the transaction isn’t misleading or synthetic arrangement.

large Court positioned reliance on Supreme court docket’s ruling in the case of Vodafone Worldwide Holdings B.Vwherein it had been implied that the enterprise intent powering a transaction could function a powerful bit of proof the transaction isn’t a deceptive or artificial arrangement.

Seven many years Considering that the implementation of GAAR provisions, the Telengana substantial court docket recently handled among the first GAAR provision-associated cases.[1] The court docket held that the plan of transactions a taxpayer had carried out was tantamount to impermissible tax avoidance arrangements.

Together with the tax authorities predicted to become much more intense, it really is vital for taxpayers to become exceptionally careful while bringing out the business enterprise exigencies of this kind of transactions. At the same time, It's also hoped and expected that the IRA will not likely treat the rationale of the circumstance as precedent to use GAAR provisions in respectable mergers and acquisitions. It's also worthwhile to note that the courts are ever more analysing the transactions with a holistic foundation and desist from choosing circumstances in favour of taxpayers purely on technological grounds.

A transaction carried out that has a sole intent to evade tax legal responsibility could draw in applicability of anti-abuse provisions from tax authorities and courts.

earnings’s Contention it absolutely was highlighted the number of ways undertaken in speedy succession that resulted in a loss – acquisition of shares, declaration of reward shares and sale of People shares.

The scope of the above mentioned provision was prolonged to securities (apart from units) vide Finance Act 2022.

The significant court docket also observed that the taxpayer’s argument that SAAR According to segment ninety four(eight) of the IT Act need to get precedence around GAAR as invoked because of the AO is essentially flawed and lacks benefit as taxpayer itself also argued that area ninety four(8) with the IT Act does not utilize for the specifics of the case, given that the transaction was in shares and not units as expected through the said area.

Subsequently in just a brief stretch of time, the taxpayer transferred the first shares to a different company. On account of this sort of transfer, the taxpayer incurred a brief-expression funds reduction According to the provisions on the IT Act.

We rely on you'll discover this a fascinating read through. For any queries or opinions on this update, please Be at liberty to Get hold of us at

The courtroom supplemented its placement by referring into the Finance Minister’s speech while introducing the GAAR provisions, which had clarified which the applicability of GAAR or SAAR can be decided with a situation-to-case foundation.

[3] situation to carry that business enterprise intent driving a transaction could function a strong piece of evidence to ascertain click here no matter whether it was a deceptive or artificial arrangement.

The Court, nonetheless, brushed apart the taxpayer’s arguments by holding that considering that GAAR provisions start with a non-obstante clause, it should override all one other provisions. It further held that although area 94(eight) with the IT Act could implement to issuance of bonus shares in an underlying commercial substance, it wouldn't use to the instant circumstance because the complete scheme was built mostly to bypass tax obligations.