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

Mehta Textiles Ltd enters into a multi-step restructuring. The main purpose of the whole arrangement is commercial, but the main purpose of one step is to obtain a tax benefit. Under the Income-tax Act, 2025, what is the position on the presumption about the arrangement's main purpose?

The arrangement is presumed to have been entered into for the main purpose of obtaining a tax benefit, because one step has that purpose, even if the whole arrangement does not. The presumption is rebuttable, so the assessee can escape by proving the contrary.

  1. ANo presumption arises because the whole arrangement has a commercial main purpose
  2. BThe arrangement is conclusively treated as impermissible
  3. CThe arrangement is presumed to have a tax-benefit main purpose unless the assessee proves otherwiseCorrect
  4. DThe presumption applies only to the step and never to the arrangement

Explanation

Section 179(2) presumes that the arrangement was entered into for the main purpose of obtaining a tax benefit if the main purpose of a step or part is a tax benefit, even if the whole arrangement has no such purpose. The presumption is rebuttable by the assessee. Option A ignores the express wording.

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