Discuss whether the provisions of General Anti-Avoidance Rules can be invoked in the following scenarios: (i) Red Ltd., an Indian company,…
CA Final · Direct Tax Laws and International Taxation · PYQS · January 2026
Discuss whether the provisions of General Anti-Avoidance Rules can be invoked in the following scenarios: (i) Red Ltd., an Indian company, incorporates Brown Ltd., as a wholly owned subsidiary in country Y, a no-tax jurisdiction. Brown Ltd. is engaged in manufacturing of cement, raw material for which is available at a lower price in Country Y. Brown Ltd. has not paid any dividend to Red Ltd.
Suggested Answer and Working Notes:
(i) In Country Y, the raw material is available at lower price and incorporation of Brown Ltd., a wholly owned subsidiary in Country Y, to reduce the cost of manufacturing of cement does not lack commercial substance even if Country Y is a no-tax jurisdiction. Further, the main purpose of the arrangement is not to obtain tax benefits, GAAR would not be attracted even if Brown Ltd. has not paid any dividend to Red Ltd.
Topics: Tax Planning, Tax Avoidance & Tax Evasion
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