CA Kuldeep Maloo

General Anti-Avoidance Rules has been introduced as a result of  Ruling in the case of VODAFONE by the Apex Court. The implication of this is that the Income-tax department will have powers to deny tax benefit if a transaction was carried out exclusively for the purpose of avoiding tax.

For example, if a company is setting up in Gulf Country with the sole intention of claiming exemption from capital gains tax, now the tax department have the right to deny the claim for exemption provided under DTAA. However in the case of McDowell Ltd the Supreme Court, empowers the department to look through sham transactions devised for avoiding tax. The tax department at present is restrained by the apex court’s own order in the case of Azadi Bachao Andolan in which it held that a certificate of residence from Mauritius authorities is sufficient proof for the taxpayer to claim capital gains tax exemption provided under the India-Mauritius tax treaty. 

A very liberal view on such kind of transactions taken by the Supreme Court in its recent order in the Vodafone tax case, put further restraint on the tax department from taking action against transactions suspected to have been devised for the purpose of avoiding tax.

Incorporation of GAAR in the Income-tax Act now provides more freedom to the tax authorities to deal with same kind of transactions.

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