Substance-over-form principle governs arrangements lacking commercial substance under GAAR and focuses on economic reality over legal form.

Arrangement lacking commercial substance under GAAR is governed by the substance-over-form principle, under which the substance or effect of the arrangement as a whole is compared with the form of its individual steps or part. The focus is on economic reality rather than legal documentation, and an arrangement lacks commercial substance when the actual commercial result differs significantly from what the formal structure suggests. The provision codifies the doctrine that tax consequences should follow the true legal relationship and not merely the outward form.

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