Earlier in the middle of 2013, the then UPA-2 succumbed to the dissensions amongst the investors to defer General Anti-Avoidance Rules or GAAR by two years. What had been codified in 2012 to become effective in 2013 was suddenly clothed in Government’s ‘realization’ of administrative preparedness to cope with. Smelt Fishy!!! Interestingly, GAAR was meant to empower the Government to declare any arrangement as an Impermissible Avoidance Arrangement (IAA), which was set up with discerning where the main motive was obtaining a tax benefit. What transpired in the budget 2013 was government’s exercise to narrow down the scope of IAA to accommodate GAAR, and thus losing any steam of stringency, which investors were crying out loud that GAAR came along with. Moreover, if there is a commercial substance (“Intentionality”, “Significant on Business Risks, and/or Net Cash Flows”), then provisions of GAAR could be non-interfering, thus making the entire arrangement conducive for investments. If the Finance Act 2013 added language in relation to availing treaty benefits, it remains to be seen if this language will be utilized in denying treaty benefits to bona fide users, which in fact is a classic language in avoiding the invocation of this denial. I say this, since the Committee invested with the responsibility to scrutinize GAAR cases would no doubt have their opinions curtailed and cut under the double blades of investor friendliness and malleable abuse of Direct Taxes Code.
Fast forward to the current times, and this is what is transpiring: In other words, ambiguities in it could very well decide the future of investments in India, and the ambiguities lie with defining the “proper” “commercial substance” usage.
AltExploit 