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No GAAR on Income from Deals before August 2010

The General Anti-Avoidance Regulations (GAAR) issued by the Central Board of Direct Taxes (CBDT) provide for grandfathering — in other words, income from investments entered into before a certain date will not be covered by the new rules.

Income accruing or arising to any person from 'transfer of investments' made before August 30, 2010 shall not be covered by GAAR provisions.

"The rules draw a distinction between grandfathering of income from investments as distinct from grandfathering of arrangements," points out Sudhir Kapdia, tax leader, EY.

The rules add that GAAR shall apply to any 'arrangement' irrespective of the date on which has been entered into, in respect of tax benefits obtained from such arrangements on or after April 1, 2015 (GAAR is effective from FY2015-16).

"Thus investment income which is in the nature of dividend, interest, capital gains relating to investments made before August 30, 2010 will be protected and will not be subject to GAAR. On the other hand, income from any other noninvestment arrangement, say a 30-year long-term lease of any asset, shall not enjoy such protection, if such arrangement is tainted and attracts GAAR," explains Kapadia

The rules also specify that where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only. Relevant forms have also been notified by the CBDT.

The Shome Committee, which was set up to examine the provisions of GAAR and give its suggestions, had in its report suggested this distinction. It had stated: "All investments (though not arrangements) made by a resident or non-resident which are existing as on the date of commencement of GAAR should be grandfathered so that on exit (sale of such investments), GAAR provisions are not invoked and tax benefit is not denied."

However, grandfathering of an arrangement existing as on the date of introduction of GAAR would confer protection in perpetuity which is not desirable, the committee had added.

Times of India, 27-09-2013, New Delhi

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