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Section 98, 99, 101, 102 of Income Tax Act

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June 21, 2022

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6 mins read

Section 98, 99, 101, 102 of Income Tax Act

Section 98 of Income Tax Act

Consequences of Impermissible Avoidance Arrangement

Section 98 prescribes that if an arrangement is declared as an impermissible avoidance arrangement (“IAA”) there would be denial of the tax benefit or denial of the tax treaty benefit. Section 90(2A) of the Act specifically provides that GAAR provisions will override tax treaty provisions.

Various actions that can be taken by tax authorities in such a case are as under :

  • disregarding, combining or recharacterizing any step in, or a part of or whole of IAA;
  • treating IAA as if it had not been entered into or carried out;
  • disregarding any accommodating party or treating any accommodating party and any other party as one and the same person;
  • deeming persons who are connected persons in relation to each other to be one and the same person for the purposes of determining tax treatment of any amount;
  • Reallocating amongst the parties to the arrangement —
    1. any accrual, or receipt, of a capital nature or revenue nature; or
    2. any expenditure, deduction, relief or rebate;
  • Treating –
    1. the place of residence of any party to the arrangement; or
    2. the situs of an asset or of a transaction, at a place other than the place of residence, location of the asset or location of the transaction as provided under the arrangement; or
    3. considering or looking through any arrangement by disregarding any corporate structure.

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Section 99 of Income Tax Act

Treatment of Connected Person and Accommodating Party

In case of accommodating parties, connected person etc., the tax authorities can : –

  • Treat the parties, who are connected persons in relation to each other as one and the same person;
  • Disregard any accommodating party ;
  • Treat the accommodating party and any other party as one and the same person ;
  • Disregarding any corporate structure to consider or looked through an arrangement ;

Section 101 of Income Tax Act

Non – applicability of GAAR provision

Section 101, through rules 10U to rule 10UC, provides for non-applicability of GAAR provision in certain cases as under : –

  • Arrangement where the tax benefit arising in aggregate to all concerned parties does not exceed three crores
  • Foreign Institutional Investor (FII), who is an assesse under IT Act and : –
    1. Does not takes benefit of Treaty or agreement in section 90 or section 90A; and
    2. Invests in listed securities, or unlisted securities, with prior permission of the competent authority, under applicable SEBI regulations to such investments.
  • Certain non-resident in relation to investment made by them in offshore derivative instrument.
  • Income of any person from transfer of investments made before the 1st day of April, 2017. However, GAAR provision shall apply to any arrangement, in respect of the tax benefit obtained from arrangement on or after the 1st day of April, 2017, irrespective of the date on which the arrangement was entered into.

Section 102 of Income Tax Act

Section 102 provides definitions of term “arrangement, asset, benefit, connected person, fund, party, relative, substantial interest, step, tax benefit etc. as used in GAAR chapter.

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Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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