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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Hind Textiles Ltd. locates a unit in a tax-incentive zone and argues that the arrangement cannot lack commercial substance because it has paid taxes on the arrangement's profits and has existed for six years. Under the Income-tax Act, 2025, what is the correct position?

The duration of the arrangement and payment of taxes may be relevant but are not sufficient to determine whether an arrangement lacks commercial substance. They are neither conclusive proof nor irrelevant, so Hind Textiles cannot rely on them alone to defeat the test.

  1. AThese facts are conclusive proof of commercial substance
  2. BThese facts may be relevant but are not sufficient to decide the questionCorrect
  3. CThese facts are irrelevant and must be ignored
  4. DThese facts shift the burden to the department for the first ten years

Explanation

The Act says the period of existence, the fact of payment of taxes and the availability of an exit route may be relevant but shall not be sufficient for determining lack of commercial substance. So they are neither conclusive nor wholly irrelevant. The ten-year burden shift is not in the text.

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