CMA Final · Direct Tax Laws and International Taxation · GAAR
Once an arrangement is declared an impermissible avoidance arrangement, which consequence is a permitted GAAR consequence?
Permitted consequences include disregarding or combining steps in the arrangement and recharacterising equity as debt or the reverse. GAAR works by denying the tax benefit through such adjustments, not by prosecution, PAN cancellation or declaring the arrangement void under company law.
- ADisregarding or combining any step, or recharacterising equity as debt or the reverseCorrect
- BImposing prosecution automatically on all parties
- CCancelling the taxpayer's PAN
- DTreating the arrangement as void under company law
Explanation
Consequences are determined by way of denying tax benefit, including disregarding or combining steps, treating parties as one, reallocating income or deductions, recharacterising equity and debt, and looking through the arrangement. Prosecution, PAN cancellation and company-law voidness are not GAAR consequences.
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