CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business
A company sets up a shell subsidiary in a low-tax jurisdiction with no staff, premises or business activity, only to book profits there and obtain a tax benefit. If the arrangement is declared an impermissible avoidance arrangement, which consequence is expressly permitted under the Income-tax Act, 2025?
The Act permits treating the residence of a party or the situs of an asset or transaction at a place other than that shown in the arrangement. Closure of the entity and automatic prosecution are not listed consequences, and the consequences are not limited to foreign tax.
- ATreating the place of residence of the party or the situs of the transaction at a place other than that shown in the arrangementCorrect
- BMandatory closure of the subsidiary
- CAutomatic prosecution of all directors
- DDisallowance of only the tax paid abroad, with no other consequences
Explanation
The consequences listed include treating the residence of any party, or the situs of an asset or transaction, at a place other than that provided under the arrangement. The list is not exhaustive, but closure of the entity and automatic prosecution are not listed. Limiting the consequence to foreign tax is wrong because the consequences are broader.
Did you get it right without looking?
One question tells you little. A timed set on Tax Planning and Location of Business shows your real accuracy, how long you take and where you lose marks.
More Tax Planning and Location of Business questions
- Konark Hospitals Ltd sets up a new 120-bed hospital. Machinery costing Rs. 2 crore was acquired new. Previously used machinery transferred f…
- Anvika Ltd routes funds through three group entities, and the money returns to Anvika Ltd after a series of transfers that serve no purpose …
- Kapoor Industries Ltd sets up a subsidiary in a low-tax jurisdiction and books its sales there. The subsidiary has no staff, premises or bus…
- Under the Income-tax Act, 2025, where an arrangement is declared an impermissible avoidance arrangement, which of the following is among the…
- Once an arrangement is declared an impermissible avoidance arrangement, which of the following may be done in determining the tax consequenc…
- Hind Textiles Ltd sets up a subsidiary in a low-tax country. The subsidiary has no staff or premises, and the only reason for choosing that …