(ii) Yellow Ltd. (an Indian company) is a wholly owned subsidiary of Pink Ltd., a company incorporated in Country H. Pink Ltd. gave a loan to Yellow…
CA Final · Direct Tax Laws and International Taxation · PYQS · January 2026
(ii) Yellow Ltd. (an Indian company) is a wholly owned subsidiary of Pink Ltd., a company incorporated in Country H. Pink Ltd. gave a loan to Yellow Ltd. during the FY 2024-25. The DTAA between India and Country H gives the exclusive right to tax interest to the resident state. Country H provides tax exemption of interest receivable by a resident company from any entity in which the resident company holds not less than 10% of equity shares. Pink Ltd. does not have a PE in India. Yellow Ltd. is able to claim interest deduction from its total income and thus, enjoyed a tax benefit of 1.50 crores in India. Pink Ltd. also earned a tax benefit equivalent of 2 crores in Country H.
Suggested Answer and Working Notes:
(ii) For GAAR provisions to be invoked, the tax benefits arising from the transaction to all the parties together should be more than 3crores. The application of tax laws is jurisdiction specific and hence what can be seen and examined is the tax benefit enjoyed in Indian jurisdiction due to the arrangement or part of the arrangement. Thus, in the present case, since tax benefit in Indian jurisdiction does not exceed 3crores, GAAR cannot be invoked.
Topics: Tax Planning, Tax Avoidance & Tax Evasion
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