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

Vihaan Pharma Ltd and its connected company Vihaan Exports Pvt Ltd are party to an arrangement declared to be an impermissible avoidance arrangement. The authority wants to tax the amounts as if the two were one taxpayer, and also treat an intermediary that only facilitated the flow of funds as non-existent. Which combination of powers under section 181 of the Income-tax Act, 2025 supports this?

Section 181 permits disregarding an accommodating party and deeming connected persons to be one and the same person. The intermediary is treated as an accommodating party and the two related companies as connected persons, so these two powers together achieve the authority's aim.

  1. AReallocation of expenditure between parties and treating the arrangement as a Special Court matter
  2. BLooking through the corporate structure only, with no power to disregard any party
  3. CDisregarding an accommodating party, and deeming connected persons to be one and the same personCorrect
  4. DTreating equity as debt, and treating a capital receipt as exempt in all cases

Explanation

Section 181(2)(c) allows disregarding an accommodating party or treating it and another party as one person, and section 181(2)(d) allows deeming connected persons to be one and the same person. The intermediary facilitating funds is an accommodating party, and the two companies are connected. Equity-debt recharacterisation does not merge persons, and no provision makes capital receipts exempt in all cases.

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