Arrangement to lack commercial substance - (New) Section 180(1)(b) / (Old) Section 97(1)(b)

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....nd Trip Financing has been defined under section 180(2). • The round trip financing includes any arrangement in which, through a series of transactions • (a) funds are transferred among the parties to the arrangement; and • (b) such transactions do not have any substantial commercial purpose other than obtaining the tax benefit (but for the provisions of this Chapter), • without having any regard to- • (A) whether or not the funds involved in the round trip financing can be traced to any funds transferred to, or received by, any party in connection with the arrangement; • (B) the time, or sequence, in which the funds involved in the round trip financing are transf....

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....includes the alienation of any property in • such transaction, • operation, • scheme, • agreement or • understanding; Under Section 97(1)(b) of the Income Tax Act, 1961 [ Upto 31.03.2026 ] Another alternate condition of an impermissible avoidance arrangement is that the arrangement lacks commercial or is deemed to lack commercial substances in whole or in part. An arrangement shall be deemed to lack commercial substance if it satisfies any of the conditions mentioned in clauses (i) to (iv). (i) Round Trip Financing [ Section 97(1)(b)(i) ] An arrangement shall be deemed to lack commercial substance, if it involves or includes round trip f....

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....gement involves round tripping of funds even though the funds emanating from Indco are not traced back to Indco in this case. Hence, the arrangement may be deemed to lack commercial substance. Consequently, in the case of Indco, Subco may be disregarded and the interest income may be taxed in the hands of Indco. (ii)  Use of an Accommodating Party [Section 97(1)(b)(ii) ] An arrangement that includes an accommodating party is deemed to lack commercial substance. The phrase "accommodating party" has been further defined as under section 97(3) For the purposes of this Chapter, a party to an arrangement shall be an accommodating party, if the main purpose of the direct or indirect participation of that party....

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....in LTJ; (ii) there is a closely held company Subco in LTJ which is a wholly owned subsidiary of another closely held Indian company Indco; (iii) Subco has reserves and, if it provides a loan to Indco, it may be treated as deemed dividend under section 2(22)(e) of the Act. (iv) Subco makes a term deposit with X Ltd. bank and X Ltd. bank based on this security provides a back to back loan to Indco. Say, India-LTJ tax treaty provides that interest payment to a LTJ banking company is not taxable in India. Can this be examined under GAAR? Interpretation - This is an arrangement whose main purpose is to bring money out of reserves in Subco to India without payment of due taxes. The tax benefit is ....