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CS Professional · Advanced Direct Tax Laws and Practice · Transfer Pricing and General Anti Avoidance Rules (GAAR)

Alpha Ltd routes a loan through a conduit entity to obtain a tax benefit, and the arrangement is declared impermissible. Which consequence under Section 181 would allow the tax authority to ignore the conduit's presence in the arrangement?

The authority may disregard the accommodating party, or treat it and another party as one and the same person. Section 181(2)(c) provides this consequence, which suits a conduit entity inserted only to obtain a tax benefit.

  1. ADisregarding any accommodating party or treating it and any other party as the same personCorrect
  2. BExtending the validity of the arrangement for five years
  3. CReducing the tax rate applicable to Alpha Ltd
  4. DDeclaring an agreement void ab initio under the advance pricing provisions

Explanation

Section 181(2)(c) allows disregarding an accommodating party or treating it and another party as one and the same person. The conduit is an accommodating party in such a structure. The other options have no basis in Section 181.

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