Amended and updated notes on section 98 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to consequences of impermissible avoidance arrangement.
Chapter XA (Sections 95 to 102) of the Income Tax Act 1961 deals with the provisions related to General Anti-Avoidance Rule. Section 98 of IT Act 1961-2020 provides for consequences of impermissible avoidance arrangement.
Recently, we have discussed in detail section 97 (Arrangement to lack commercial substance) of IT Act 1961. Today, we learn the provisions of section 98 of Income-tax Act 1961. The amended provision of section 98 is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 98 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-98: Consequences of impermissible avoidance arrangement
Section 98(1) of Income Tax Act
If an arrangement is declared to be an impermissible avoidance arrangement, then, the consequences, in relation to tax, of the arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such manner as is deemed appropriate, in the circumstances of the case, including by way of but not limited to the following, namely:—
(a) disregarding, combining or recharacterising any step in, or a part or whole of, the impermissible avoidance arrangement;
(b) treating the impermissible avoidance arrangement as if it had not been entered into or carried out;
(c) disregarding any accommodating party or treating any accommodating party and any other party as one and the same person;
(d) deeming persons who are connected persons in relation to each other to be one and the same person for the purposes of determining tax treatment of any amount;
(e) reallocating amongst the parties to the arrangement—
- (i) any accrual, or receipt, of a capital nature or revenue nature; or
- (ii) any expenditure, deduction, relief or rebate;
(f) treating—
- (i) the place of residence of any party to the arrangement; or
- (ii) the situs of an asset or of a transaction,
at a place other than the place of residence, location of the asset or location of the transaction as provided under the arrangement; or
(g) considering or looking through any arrangement by disregarding any corporate structure.
Section 98(2) of Income Tax Act
For the purposes of sub-section (1),—
- (i) any equity may be treated as debt or vice versa;
- (ii) any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice versa; or
- (iii) any expenditure, deduction, relief or rebate may be recharacterised.