Tax Avoidance, Tax Planning, Tax Evasion & GAAR
Dear Professional Seniors & Friends,
Warm Greeting!
Here is the Next post of #MCQ on concept based practical professional knowledge on on Tax Avoidance, Tax Planning & GAAR in a unique manner to be self answered by participants. The detailed answer of these MCQs shall be posted next day for the self assessment of the participants.
MCQ 79.1: A gift from a non-relative is reported in Income Tax Return as gift from a Relative and as Agricultural Income . What kind of Transaction is it
A. Tax Avoidance
B. Tax Planning
C. Tax Evasion
D. Tax Management
MCQ 79.2: Which of the above transactions are “deemed to lack commercial substance “under Impermissible Avoidance Arrangement
A. A ltd a company located in SEZ(having tax Benefits in its income), it takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another concern for 10 Crores
B. Return is filed in Time so that it may be revised/refund is processed earlier
C. Showing Business Income as Agricultural Income
D. None of the Above
Sincere Regards
CA Sanjay Kumar Agrawal
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Answer MCQ Self Challenge # 0079
Dear Professional Seniors & Friends,
Warm Greetings!
This post of MCQ is on provisions relating to time of supply under GST in case of change in rate of tax.
Answer to MCQ 79.1: C)Tax Evasion
Answer to MCQ 79.2: A) A ltd a company located in SEZ, it takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another sister concern for 10 Cores
Practical Analysis for MCQ 79.1 :-
- There is a very thin line of Difference between Tax Planning ,Tax Avoidance, Tax Evasion-( The common thing between these is that they are done with the objective to reduce the Tax Liability)
| Tax Planning | Such Planning is with in the four corners of the Act and within the Objective of the Government. | Eg: Investment u/S 80C,Setting up of incentive project eligible for Incentive deduction u/s 10AA/35AD ETC. |
| Tax Avoidance | Such planning is with in the four corners of the Act but might not be the Objective of the Government. | Eg-Sale and lease back transactions so that depreciation is diverted but the asset remains with the assessee. |
| Tax Evasion | Such planning is not Legally permissible as it is not according to the provisions of the Act | Eg-Selling Capital Asset and Concealment of that Income |
The decisions of the supreme court are important in this regard:
- Mc Dowell & Co(SC ) , uoi Vs Azadi Bachao Andolan
- The gist of these decision is that Tax Avoidance is legally permissible but Tax Evasion is not legally permissible. Tax Avoidance should not be colourable device ( Real Transaction is something different and Transaction shown on paper is totally Different). If it is colourable device AO can lift the veil ( disallow the income) to see the real transaction and show it as Tax Evasion
- Based on the above analysis correct answer to MCQ 79.1 : C)Tax Evasion
Practical Analysis for MCQ 79.2 :-
General Anti Avoidance Rules
- Generally tax avoidance is legally permissible , if it is within the four corners of the Act, and is not a colourable device . However , many tax planning/avoidance are prima-facie in conflict with the Objectives of the Act or may be primarily designed to reduce the Tax Liability
- Impermissible Avoidance Arrangements (IAA) u/s Sec 96 means an arrangement that has main purpose to obtain Tax Benefit of Transaction that creates rights that are not ordinarily in arm’s length/Lacks commercial Substance and Results in misue of Provisions of the Act .
- U/s 97(1) a transaction shall be deemed to lack commercial substance if-
- Substance of the transaction differs significantly from its own
- The only purpose of selection of such location of asset/transaction/place benefit of any party is to obtain tax benefit and there is no substantial commercial purpose for selecting such location of Asset/ Transaction/place of Residence of any party
- Arrangement does not Significantly affect business risk/net cash outflows of any party to any party but only attributes tax benefits.
- Transaction involves round tripping , elements of offsetting or cancelling against each other.
On the Basis of Above the transaction is deemed to lack commercial substance because A ltd a company located in SEZ,(uses the benefit of its location ) it takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another sister concern for 10 Crores . Here the transaction is routed to save income Tax on transaction of Rs 10 Crore as no tax is applicable/payable on it .
- Filing Return in time – Tax Planning
- Showing business income as agricultural – Tax Evasion
- Correct Answer to MCQ 79.2 A)- A ltd a company located in SEZ, it takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another concern for 10 Crores
(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)
Sincere Regards!
CA Sanjay Kumar Agrawal
Mobile: 9810116321
To access MCQ posts regularly, please Join Telegram Channel:
https://t.me/caSanjayKumarAgrawal
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