MCQ Challenge On Tax Avoidance, Tax Planning. Tax Evasion & GAAR

MCQ SELF CHALLENGE #0079 ON TAX AVOIDANCE, TAX PLANNING, TAX EVASION & GAAR

Dear Professional Seniors & Friends,

Warm Greetings!

Here is the Next post of #MCQ on concept-based practical professional knowledge on Tax Avoidance. Tax Planning & GAA in a unique manner to be self-answered by participants. The detailed answers to these MCQs shall be posted the next day for the self-assessment of the participants.

Feel free to consult our chartered accountant firm in India for any further queries or tax related support.

MCQ 79.1: A gift from a non-relative is reported in the Income Tax Return as a gift from a Relative and as Agricultural Income. What kind of Transaction is it

A. Tax Avoidance

B. Tax Planning

C. Tax Evasion

D. Tax Management

MCQ 79.2: Which of the above transactions are "deemed to lack commercial substance "under impermissible Avoidance Arrangement

A. A ltd a company located in SEZ (having tax Benefits in its income). It takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another concern for 10 Crores

B. Return is filed in Time so that it may be revised/refund is processed earlier

C. Showing Business Income as Agricultural Income

D. None of the Above

Answer MCQ Self Challenge # 0079

This post of MCQ is on provisions relating to time of supply under GST in case of change in rate of tax.

Answer to MCQ 79.1:

C) Tax Evasion

Practical Analysis for MCQ 79.1

• There is a very thin line of difference between Tax Planning Tax Avoidance Tax Evasion- The common thing between these is that they are done with the objective of reducing Tax Liability)

Tax Planning

Such Planning is within the four corners of the Act and within the Objective of the Government

Eg: Investment u/s

80C Setting up of incentive project eligible for incentive deduction u/s 10AA/35AD ETC.

Tax Avoidance

Such planning is within the four corners of the Act but might not be the Objective of the Government.

Eg: Investment u/s

Sale and lease back transaction so that depreciation is diverted but the asset remains with the assessee.

Tax Evasion

Such planning is not Legally permissible as it not according to the provisions of the Act

Eg: Investment u/s

Selling Capital Asset and Concealment of that income

The decisions of the Supreme Court are important in this regard

• Mc Dowell & Co(SC), uol Vs Azadi Bachao Andolan
• The gist of this decision is that Tax Avoidance is legally permissible but Tax Evasion is not legally permissible. Tax Avoidance should not be colorable device (Real Transaction is something different and Transaction shown on paper is totally Different). If it is colorable device AO can lift the veil (disallow the income) to see the real transaction and show it as Tax Evasion
• Based on the above analysis correct answer to MCQ 791. C)Tax Evasion

Answer to MCQ 79.2:

A) A Ltd a company located in SEZ, takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another sister concern for 10 Cores

Practical Analysis for MCQ 79.2

General Anti-Avoidance Ruins

• Generally, tax avoidance is legally permissible, if it is within the four corners of the Act and is not a colorable device. However, many tax planning/avoidance are prima-facie in conflict with the Objectives of the Act or may be primarily designed to reduce the Tax Liability
• Impermissible Avoidance Arrangements (IAA) u/s Sec 96 means an arrangement that has main purpose of obtaining Tax Benefit of Transaction that creates rights that are not ordinarily in arm's length/Lacks commercial Substance and Results in misuse of Provisions of the Act.
• U/s 97(1) a transaction shall be deemed to lack commercial substance if-

1 Substance of the transaction differs significantly from its own.

2. The only purpose of selection of such location of asset transaction/place tenant of any party is to obtain a tax benefit and there is no substantial commercial purpose for selecting such location of Asset Transaction/place of Residence of any party.

3. Arrangement does not Significantly affect business risk/net cash outflows of any party to any party but only attributes tax benefits.

4. Transaction involves round-tripping elements of offsetting or canceling against each other.

On the Basis of Above the transaction is deemed to lack commercial substance because A Ltd a company located in SEZ. uses the benefit of its location) it takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another sister concern for 10 Crores. Here the transaction is routed to save income Tax on transaction of Rs 10 Crore as no tax is applicable/payable on it.

• Filing Return in time - Tax Planning
• Showing business income as agricultural-Tax Evasion
• Correct Answer to MCQ 79.2.A) Altd a company located in SEZ. It takes a plant on Rent from Sister Concern for Rs 3 Crores and gives it on Rent to another concern for 10 Crores

(Disclaimer: The objective of the MCC post is just to discuss the concept. It may happen by a change of facts, the answer may be different. Please do not treat this as a professional opinion: you can definitely have your own opinion.)

Sincere Regards!

CA Sanjay Kumar Agrawal

Mobile: 9810116321