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CMA Final · Direct Tax Laws and International Taxation · GAAR

GAAR is being applied to an arrangement. Which of the following statements is correct regarding the interaction of GAAR with tax treaties and the grandfathering of investments?

GAAR may be invoked even when a tax treaty applies, because it can apply notwithstanding the treaty. However, investments made before 1 April 2017 are grandfathered, so income from their transfer is outside GAAR. The other statements deny the treaty override or the grandfathering.

  1. AGAAR can apply even where the arrangement is covered by a tax treaty, but it does not apply to income from transfer of investments made before 1 April 2017Correct
  2. BGAAR can never override a treaty benefit
  3. CGAAR applies to investments made before 1 April 2017 as well, on the income of any year
  4. DGAAR applies only to arrangements involving a non-resident with a treaty

Explanation

GAAR provisions apply to the assessee whether or not a treaty benefit is claimed, and the Act allows GAAR to be applied notwithstanding a treaty. Investments made before 1 April 2017 are grandfathered, so GAAR does not apply to income from their transfer. The other options deny the treaty override or the grandfathering, or wrongly confine GAAR to non-residents.

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