An impermissible avoidance arrangement is the one that attracts general anti-avoidance measures as per the GAAR provisions. Such arrangements are purposefully designed by the entities/persons to avoid a tax.
As per the DTC provisions and amendment by the government after Shome Committee recommendations, an arrangement becomes impermissible avoidance arrangement if it has two conditions:
(1) the main purpose of which is to obtain a tax benefit.
(2) it is an arrangement, to obtain a tax benefit, with either of the following conditions:
(a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
(b) results, directly or indirectly, in the misuse, or abuse, of the provisions of DTC;
(c) lacks commercial substance partly or wholly; or
(d) is not for bona fide business purposes (bona fide means with good intentions).
The DTC comprehensively defines ‘impermissible avoidance arrangement’, ‘tax benefit’, ‘commercial substance’, ‘bona fide business purposes’ etc.
