1. A Comparative Analysis of GAAR Provisions Existing Provisions par rapport à Proposed Amendments in Finance Bill 2013 & Shome Committee Recommendations T P Ostwal 1T P Ostwal & Associates PANEL DISCUSSION “The amendments proposed in Finance Bill 2013 ‐ 14” Indian Merchants’ Chamber 21 March 2013

2. Applicability of GAAR Provisions Existing provisions :- Assessment year 2014-15 Proposed Amendment :- Deferment by 2 years i.e. Effective from Assessment year 2016-17 Shome Committee Recommendation :- Deferment by 3 years i.e. Effective from Assessment year 2017-18 2T P Ostwal & Associates21 March 2013

3. Impermissible avoidance arrangement u/s 96(1) Existing provisions :- An arrangement is considered as impermissible avoidance arrangement if the “main purpose or one of its main purpose” is to obtain a tax benefit. Proposed Amendment :- An arrangement, the “main purpose” of which is to obtain a tax benefit will be considered as impermissible avoidance arrangement. Shome Committee Recommendation :- Accepted 3T P Ostwal & Associates21 March 2013

4. Onus of initiating and demonstrating existence of impermissible avoidance arrangement u/s 96(2) Existing provisions :- Onus of initiating and demonstrating that there is an impermissible avoidance arrangement would rest with the Revenue department. Proposed Amendment :- Requirement of detailed reasoning by the Assessing Officer in the show cause to the assessee to prove that the arrangement is not an impermissible avoidance arrangement. Shome Committee Recommendation :- Accepted 4T P Ostwal & Associates21 March 2013

5. Sec 97(4) - Factors in determining whether an arrangement lacks commercial substance or not Existing provisions :- While determining whether or not an arrangement lacks commercial substance, the period or time for which the arrangement (including operations therein) exists, payment of taxes and provisions of exit are not considered. Proposed Amendment :- These factors may be relevant, but shall not be sufficient for determining whether or not the arrangement lacks commercial substance. Shome Committee Recommendation :- Accepted 5T P Ostwal & Associates21 March 2013

6. New Insertion of Sec 97(1)(d) – Additional condition for determining whether an arrangement lack commercial substance Proposed Amendment :- "an arrangement shall be deemed to be lacking commercial substance if – it does not have a significant effect upon the business risks, or net cash flows of any party involved with the arrangement apart from having any effect attributable to the tax benefit that would be obtained (but for the provisions of the section)". Shome Committee Recommendation :- Accepted. The Committee noted that the earlier version of GAAR in the DTC Bill 2009 and 2010 defined the commercial substance as mentioned above. The Committee observed that besides having a commercial purpose, the taxpayer should also have commercial substance in the arrangement, which means a change in the economic position of the taxpayer by altering the business risks or net cash flows. 6T P Ostwal & Associates21 March 2013

7. 7T P Ostwal & Associates Definition of Connected Person u/s 102(5) Existing provisions :- "Connected Person" u/s 102(5) to include any person who is connected directly or indirectly with another person and includes the associated person. Shome Committee Recommendation :- The Committee recommended that the definition of connected person may be restricted only to "associated person" under Section 102 and "associated enterprise" under Section 92A. Proposed Amendment :- The two separate definitions in the existing provisions and based on recommendations, namely, "associated person" and "connected person" are combined into one inclusive provision defining a "connected person". 21 March 2013 Text of Definition

8. 8T P Ostwal & Associates Sec 144BA – Approving Panel Existing provisions :- [Sec 144BA (14) ] Approving Panel would consist not less than three members, out of which income-tax authorities not below the rank of Commissioner; and an officer of the Indian Legal Service not below the rank of Joint Secretary to the Government of India. Shome Committee Recommendation :- Approving Panel should consist of five members including Chairman. Further: Chairman - Retired HC Judge; Two members from outside Government and persons of eminence drawn from the fields of accountancy, economics or business, with knowledge of the matters pertaining to Income Tax; and Two members – (a) Chief Commissioners of income tax; or (b) one Chief Commissioner and one Commissioner. Proposed Amendment :- [Sec 144BA (15) & (16)] The Approving Panel shall consist of three members: Chairman - Retired HC Judge; One Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income Tax; and One Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. 21 March 2013

9. 9T P Ostwal & Associates Sec 144BA – Directions by Approving Panel Existing provisions :- [Sec 144BA (10) ] Directions issued by the Approving Panel shall be binding only for the Income Tax authorities. Shome Committee Recommendation :- The directions issued by the Approving Panel to be binding on Revenue as well as taxpayer Proposed Amendment :- [Sec 144BA (14)] The directions issued by the Approving Panel under sub-section (6) shall be binding on— (i) the assessee; and (ii) the Commissioner and Income-tax authorities & No appeal under the Act shall lie against such directions 21 March 2013

10. 10T P Ostwal & Associates Sec 144BA – Term of Approving Panel Proposed Amendment :- Term of the Approving Panel to be one year (extendable to three years)

11. 21 March 201311T P Ostwal & Associates Section 144C(14A) - Provisions pertaining to reference to dispute resolution panel not applicable for impermissible avoidance arrangement Section 246A – Order passed under GAAR cannot be appealed before the Commissioner of Income Tax (Appeals) Section 253 – Order can be appealed only ITAI Section 245N / 245R – Advance ruling by authority whether an arrangement undertaken by the assessee (whether resident or non-resident) is an impermissible arrangement (w.e.f. 1 April 2015) Procedural provisions relating to mechanism of GAAR

12. 12T P Ostwal & Associates Recommendations accepted by Govt (Ministry of Finance) which may be incorporated in the Guidelines for administration of GAAR based on the Press Release on 14 th January 2013 Investments made before August 30, 2010, the date of introduction of theDirect Taxes Code, Bill, 2010, will be grandfathered. GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs. A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other. (contd)…. 21 March 2013

13. 13T P Ostwal & Associates Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement. Time limits will be provided for action by the various authorities under GAAR. The tax auditor will be required to report any tax avoidance arrangement. Recommendations accepted by Govt (Ministry of Finance) which may be incorporated in the Guidelines for administration of GAAR based on the Press Release on 14 th January 2013 21 March 2013

14. 14T P Ostwal & Associates List of Recommendations not accepted by Govt (Ministry of Finance) Abolition of capital gains tax on listed securities Illustrative cases specifically excluded from GAAR’s ambit or a negative list for the purpose of invoking GAAR 21 March 2013

15. T HANK Y OU T. P. Ostwal & Associates CHARTERED ACCOUNTANTS 4 th Floor, Bharat House, 104 Mumbai Samachar Marg, fort, MUMBAI-400001. Tel No.: +91-22-40693900 Fax No.: +91-22-40693999 Mobile:+919004660107 Email: fca@vsnl.com 21 March 201315T P Ostwal & Associates

16. 16T P Ostwal & Associates Definition of Connected Person u/s 102(5) as per Finance Bill 2013 “connected person” means any person who is connected directly or indirectly to another person and includes,— (a)any relative of the person, if such person is an individual; (b) any director of the company or any relative of such director, if the person is a company; (c) any partner or member of a firm or association of persons or body of individuals or any relative of such partner or member, if the person is a firm or association of persons or body of individuals; (d) any member of the Hindu undivided family or any relative of such member, if the person is a Hindu undivided family; (e) any individual who has a substantial interest in the business of the person or any relative of such individual; (f) a company, firm or an association of persons or a body of individuals, whether incorporated or not, or a Hindu undivided family having a substantial interest in the business of the person or any director, partner, or member of the company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member; (CONTD)….. ( 21 March 2013

17. 17T P Ostwal & Associates (CONTD)…. (g) a company, firm or association of persons or body of individuals, whether incorporated or not, or a Hindu undivided family, whose director, partner, or member has a substantial interest in the business of the person, or family or any relative of such director, partner or member; (h) any other person who carries on a business, if— (i) the person being an individual, or any relative of such person, has a substantial interest in the business of that other person; or (ii) the person being a company, firm, association of persons, body of individuals, whether incorporated or not, or a Hindu undivided family, or any director, partner or member of such company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member, has a substantial interest in the business of that other person; 21 March 2013 Definition of Connected Person u/s 102(5) as per Finance Bill 2013 BACK