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CA Final · Direct Tax Laws & International Taxation · Tax Planning, Tax Avoidance and Tax Evasion

A part of an arrangement entered into by Sundaram Holdings Ltd is declared to be an impermissible avoidance arrangement. Under Rule 127 of the Income-tax Rules, 2026, how are the tax consequences determined?

The consequences are determined with reference only to the part of the arrangement that has been declared an impermissible avoidance arrangement. The rest of the arrangement is not affected by the declaration, as Rule 127 of the Income-tax Rules, 2026 provides in relation to section 181.

  1. AWith reference to such part onlyCorrect
  2. BWith reference to the entire arrangement, treating all steps as tainted
  3. COnly with reference to the last step of the arrangement
  4. DOnly by disregarding the corporate entity of Sundaram Holdings Ltd

Explanation

Rule 127, made for the purposes of section 181, says that where a part of an arrangement is declared an impermissible avoidance arrangement, the tax consequences are determined with reference to that part only. Extending them to the whole arrangement contradicts the rule.

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