Deferral to 2016 is welcome, but GAAR still needs clarity

The finance ministry has announced its much-awaited approach in relation to the final GAAR report submitted by the expert review committee headed by Dr Parthasarathi Shome via a press release. The matter is far too complex to be de-coded through a simple statement or press release. The nature of the GAAR framework, the current chapter-XA of the Income-tax Act 1961, the final report from the review committee and the press release cannot be interpreted harmoniously. However, given that certain benevolent statements have been made in recent months on the twin issues of GAAR and indirect transfers, the press release has been widely read in a manner beneficial to the taxpayer.

Deferral of the applicability of GAAR provisions to April 1, 2016, is clearly the bigger piece of the entire story. However, by April 2016, the current GAAR framework will be 4-5 years old and will definitely need a review before it is actually implemented. It is a matter of relief that GAAR will be applied to arrangements where their main purpose and not ‘one of the main purposes’ is tax avoidance. GAAR implications will be restricted to only the impermissible part and not the whole of the transaction/arrangement. Show-cause notices from the tax officer will contain reasons for a possible GAAR examination. Further, taxpayers will get an opportunity to prove that the proposed arrangement/transaction is

... contd.