Income Tax: Recommendations Of Expert Committee On GAAR

Profession:Vaish Associates Advocates

Edited by Hitender Mehta General Anti-avoidance Rules (GAAR) were introduced in the Income Tax Act, 1961 by the Finance Act, 2012 to apply with effect from April 1, 2013. Subsequently, based on numerous representations, an Expert Committee was constituted by the Prime Minister to advise on roadmap for implementing GAAR. The said Committee has made several far reaching recommendations in its report, some of which are summarized as follows: Implementations of GAAR may be deferred by 3-years. GAAR approving panel should consist of 5 members, with a Chairman being a retired High Court judge, and 2 independent representatives comprising prominent personalities from the field of finance and accounting. A negative list of transactions should be prescribed wherein GAAR will not be invoked. This will ensure that genuine forms of tax planning and tax savings scheme are protected. It is recommended that Circular no. 789 should be reinstated and if a Mauritian company possesses valid Tax Residency Certificate (TRC), treaty benefit should not be denied. Where specific anti-avoidance rules apply, GAAR should not be invoked. In order to invoke GAAR, monetary threshold of ' 3 crore should be applied, i.e. transactions leading to a tax benefit of upto ' 3 crore should be excluded from the ambit of GAAR. Tax collections from GAAR should not be reckoned as part of targets for the field officers and jurisdictional commissioners by virtue of which department would not invoke GAAR to meet tax collection targets. A distinction should be made between tax mitigation and tax avoidance; where a tax payer has a choice of adopting a method to pay less tax, he should be permitted to do so, unless it's not a commercially driven transaction/ action. Tax treaties should not be overridden by GAAR. Foreign Institutional Investors (FIIs) should not be taxed on gains from sale of listed securities, whether short-term or long-term gains. GAAR should not be invoked in respect of intra-group transactions which, if cumulatively considered, are tax neutral. Where GAAR is invoked, corresponding adjustments should be allowed to other taxpayers. All existing investments should be grandfathered and excluded from applicability of GAAR. GAAR should not apply where a resident of a country holds a valid TRC and is not hit by Limitation on Benefits clause, wherever such clause exists in a Treaty. Due weightage should be given to tenure of arrangements, payment of taxes and option to exit in deciding whether a transaction lacks commercial substance, while invoking GAAR. Comments: The recommendation to postpone implementation of GAAR for 3 years is welcome, as the...

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