Income Tax Act, 2025
Section 3: Ins. by s. 26, ibid. (w.e.f. 12015).
3. Ins. by s. 26, ibid. (w.e.f. 12015).
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(d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed
for bona fide purposes.
(2) An arrangement shall be presumed, unless it is proved to the contrary by the assessee, to have
been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a
step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main
purpose of the whole arrangement is not to obtain a tax benefit.
97. Arrangement to lack commercial substance.—(1) An arrangement shall be deemed to lack
commercial substance, if—
(a) the substance or effect of the arrangement as a whole, is inconsistent with, or differs
significantly from, the form of its individual steps or a part; or
(b) it involves or includes—
(i) round trip financing;
(ii) an accommodating party;
(iii) elements that have effect of offsetting or cancelling each other; or
(iv) a transaction which is conducted through one or more persons and disguises the value,
location, source, ownership or control of funds which is the subject matter of such transaction; or
(c) it involves the location of an asset or of a transaction or of the place of residence of any party
which is without any substantial commercial purpose other than obtaining a tax benefit (but for the
provisions of this Chapter) for a party; or
(d) it does not have a significant effect upon the business risks or net cash flows of any party to
the arrangement apart from any effect attributable to the tax benefit that would be obtained (but for
the provisions of this Chapter).
(2) For the purposesof sub-section (1), round trip financing includes any arrangement in which,
through a series of transactions—
(a) funds are transferred among the parties to the arrangement; and
(b) such transactions do not have any substantial commercial purpose other than obtaining the
tax benefit (but for the provisions of this Chapter),
without having any regard to—
(A) whether or not the funds involved in the round trip financing can be traced to any funds
transferred to, or received by, any party in connection with the arrangement;
(B) the time, or sequence, in which the funds involved in the round trip financing are transferred
or received; or
(C) the means by, or manner in, or mode through, which funds involved in the round trip
financing are transferred or received.
(3) For the purposes of this Chapter, a party to an arrangement shall be an accommodating party, if
the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in
part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the
assessee whether or not the party is a connected person in relation to any party to the arrangement.
(4) For the removal of doubts, it is hereby clarified that the following may be relevant but shall not be
sufficient for determining whether an arrangement lacks commercial substance or not, namely:—
(i) the period or time for which the arrangement (including operations therein) exists;
(ii) the fact of payment of taxes, directly or indirectly, under the arrangement;
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(iii) the fact that an exit route (including transfer of any activity or business or operations) is
provided by the arrangement.
98. Consequences of impermissible avoidance arrangement.—(1) If an arrangement is declared to
be an impermissible avoidance arrangement, then, the consequences, in relation to tax, of the
arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such
manner as is deemed appropriate, in the circumstances of the case, including by way of but not limited to
the following, namely:—
(a) disregarding, combining or recharacterising any step in, or a part or whole of, the
impermissible avoidance arrangement;
(b) treating the impermissible avoidance arrangement as if it had not been entered into or carried
out;
(c) disregarding any accommodating party or treating any accommodating party and any other
party as one and the same person;
(d) deeming persons who are connected persons in relation to each other to be one and the same
person for the purposes of determining tax treatment of any amount;
(e) reallocating amongst the parties to the arrangement—
(i) any accrual, or receipt, of a capital nature or revenue nature; or
(ii) any expenditure, deduction, relief or rebate;
(f) treating—
(i) the place of residence of any party to the arrangement; or
(ii) thesitus of an asset or of a transaction,
at a place other than the place of residence, location of the asset or location of the transaction as
provided under the arrangement; or
(g) considering or looking through any arrangement by disregarding any corporate structure.
(2) For the purposes of sub-section (1),—
(i) any equity may be treated as debt or vice versa;
(ii) any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice
versa; or
(iii) any expenditure, deduction, relief or rebate may be recharacterised.
99. Treatment of connected person and accommodating party.—For the purposes of this Chapter,
in determining whether a tax benefit exists,—
(i) the parties who are connected persons in relation to each other may be treated as one and the
same person;
(ii) any accommodating party may be disregarded;
(iii) the accommodating party and any other party may be treated as one and the same person;
(iv) the arrangement may be considered or looked through by disregarding any corporate
structure.
100. Application of this Chapter.—The provisions of this Chapter shall apply in addition to, or in
lieu of, any other basis for determination of tax liability.
101. Framing of guidelines.—The provisions of this Chapter shall be applied in accordance with
such guidelines and subject to such conditions, as may be prescribed.
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is entered into, or carried out, by means, or in a manner, which are not ordinarily employed
for bona fide purposes.
An arrangement shall be presumed, unless it is proved to the contrary by the assessee, to have
been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a
step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main
purpose of the whole arrangement is not to obtain a tax benefit.
97. Arrangement to lack commercial substance.—
An arrangement shall be deemed to lack
commercial substance, if—
the substance or effect of the arrangement as a whole, is inconsistent with, or differs
significantly from, the form of its individual steps or a part; or
it involves or includes—
round trip financing;
an accommodating party;
elements that have effect of offsetting or cancelling each other; or
a transaction which is conducted through one or more persons and disguises the value,
location, source, ownership or control of funds which is the subject matter of such transaction; or
it involves the location of an asset or of a transaction or of the place of residence of any party
which is without any substantial commercial purpose other than obtaining a tax benefit (but for the
provisions of this Chapter) for a party; or
it does not have a significant effect upon the business risks or net cash flows of any party to
the arrangement apart from any effect attributable to the tax benefit that would be obtained (but for
the provisions of this Chapter).
For the purposesof sub-section
funds are transferred among the parties to the arrangement; and
such transactions do not have any substantial commercial purpose other than obtaining the
tax benefit (but for the provisions of this Chapter),
without having any regard to—
whether or not the funds involved in the round trip financing can be traced to any funds
transferred to, or received by, any party in connection with the arrangement;
the time, or sequence, in which the funds involved in the round trip financing are transferred
or received; or
the means by, or manner in, or mode through, which funds involved in the round trip
financing are transferred or received.
For the purposes of this Chapter, a party to an arrangement shall be an accommodating party, if
the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in
part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the
assessee whether or not the party is a connected person in relation to any party to the arrangement.
For the removal of doubts, it is hereby clarified that the following may be relevant but shall not be
sufficient for determining whether an arrangement lacks commercial substance or not, namely:—
the period or time for which the arrangement (including operations therein) exists;
the fact of payment of taxes, directly or indirectly, under the arrangement;
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the fact that an exit route (including transfer of any activity or business or operations) is
provided by the arrangement.
98. Consequences of impermissible avoidance arrangement.—
If an arrangement is declared to
be an impermissible avoidance arrangement, then, the consequences, in relation to tax, of the
arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such
manner as is deemed appropriate, in the circumstances of the case, including by way of but not limited to
the following, namely:—
disregarding, combining or recharacterising any step in, or a part or whole of, the
impermissible avoidance arrangement;
treating the impermissible avoidance arrangement as if it had not been entered into or carried
out;
disregarding any accommodating party or treating any accommodating party and any other
party as one and the same person;
deeming persons who are connected persons in relation to each other to be one and the same
person for the purposes of determining tax treatment of any amount;
reallocating amongst the parties to the arrangement—
any accrual, or receipt, of a capital nature or revenue nature; or
any expenditure, deduction, relief or rebate;
treating—
the place of residence of any party to the arrangement; or
thesitus of an asset or of a transaction,
at a place other than the place of residence, location of the asset or location of the transaction as
provided under the arrangement; or
considering or looking through any arrangement by disregarding any corporate structure.
For the purposes of sub-section
any equity may be treated as debt or vice versa;
any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice
versa; or
any expenditure, deduction, relief or rebate may be recharacterised.
99. Treatment of connected person and accommodating party.—For the purposes of this Chapter,
in determining whether a tax benefit exists,—
the parties who are connected persons in relation to each other may be treated as one and the
same person;
any accommodating party may be disregarded;
the accommodating party and any other party may be treated as one and the same person;
the arrangement may be considered or looked through by disregarding any corporate
structure.
100. Application of this Chapter.—The provisions of this Chapter shall apply in addition to, or in
lieu of, any other basis for determination of tax liability.
101. Framing of guidelines.—The provisions of this Chapter shall be applied in accordance with
such guidelines and subject to such conditions, as may be prescribed.
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