The IRA experienced alleged the taxpayer had undertaken a “reward stripping” transaction, wherever shares have been issued to the taxpayer as bonus shares from the ratio of 5:1 prior to currently being transferred to a different enterprise, allegedly for the sole function of saying tax losses. 

for that reason, the taxpayer claimed that since the legislature had exclusively excluded the applicability of bonus-stripping-similar provisions to shares within the ambit of SAAR provisions, the IRA could not try to prevent the losses arising from the reward-stripping underneath GAAR provisions. The taxpayer relied about the observations made by the Shome Committee, which was constituted to finalise the tips for GAAR provisions. The committee experienced specially recommended not invoking GAAR provisions where SAAR provisions had been relevant.

Thereafter, in A different ten times with the said reward issuance, the taxpayer bought this kind of shares to another entity (“PQR”) and claimed a brief-expression capital lack of INR 4,620 million. contemplating XYZ funded the purchase thing to consider of PQR, the court docket held that this was round-tripping of money as the thing to consider that the taxpayer experienced at first paid XYZ was then routed again towards the taxpayer as a result of PQR. 

He has become contributing published content articles to various reputed journals and publishers. He has also been Portion of the committees which structured many of the most reputed taxation moot court docket competitions in India. He is often arrived at at [email protected]

The taxpayer contended that GAAR provisions shouldn't be invoked once the transaction is covered underneath the particular Anti-Avoidance procedures (“SAAR”) beneath the IT Act. It submitted that portion ninety four(eight) from the IT Act specifically prevented taxpayers from declaring losses arising on account of bonus stripping (i.e., sale of shares quickly after the reward issuance to the purposes of proclaiming losses), however the mentioned provision restricts its scope to mutual funds[two] and doesn't prolong to shares.

7 years since the implementation of GAAR provisions, the Telengana higher Court just lately handled among the first GAAR provision-relevant circumstances.[1] The courtroom held the plan of transactions a taxpayer experienced undertaken was tantamount to impermissible tax avoidance arrangements.

higher court docket final decision has all over again highlighted the value of retaining contemporaneous documentation to establish company rationale and business material for endeavor any transaction.

The scope of the above provision was prolonged to securities (aside from models) vide Finance Act 2022.

The higher courtroom also noticed that the taxpayer’s argument that SAAR According to part 94(eight) from the IT Act should consider priority around GAAR as invoked with the AO is basically flawed and lacks advantage as taxpayer itself also argued that portion 94(eight) on the IT Act isn't going to implement on the specifics of the situation, given that the transaction was in shares instead of units as required by the claimed portion.

– By virtue with the non obstante clause below portion ninety five(1) in the ITA addressing the applicability from the GAAR, the provisions of Chapter X-A get overriding impact above and earlier mentioned the opposite current provisions of regulation.

Considering the above mentioned, the taxpayer argued that area ninety four(eight) in the website IT Act will not be relevant on transfer of shares to the year into consideration and accordingly, what has not been particularly incorporated as a result of SAAR cannot be indirectly integrated by making use of GAAR.

The industrial motive behind a transaction typically reveals the legitimate mother nature of the transaction. even so, the stress of proof was around the profits to establish any fiscal misconduct. In contrast, segment 96(two) on the IT Act places this duty around the taxpayer and necessitates the taxpayer to disprove the presumption of the tax avoidance scheme.

[three] situation to hold that enterprise intent at the rear of a transaction could function a strong bit of proof to ascertain irrespective of whether it had been a deceptive or artificial arrangement.

Thereafter, in An additional ten times through the reported bonus issuance, the taxpayer offered this kind of shares to a different entity (“PQR”) and claimed a short-time period funds lack of INR four,620 million. thinking of XYZ funded the purchase thought of PQR, the Court held this was round-tripping of money because the thought which the taxpayer had originally compensated XYZ was then routed back for the taxpayer through PQR.