In the following independent circumstances, discuss whether the provisions of GAAR would be applicable: R Inc., a company incorporated in Country M,…
CA Final · Direct Tax Laws and International Taxation · MTP · May 2026
In the following independent circumstances, discuss whether the provisions of GAAR would be applicable: R Inc., a company incorporated in Country M, holds 1200 equity shares in PSI Ltd., an Indian listed entity since 1.4.2016. On 1.5.2025, PSI Ltd. issued 1200 bonus shares to R Inc. As per the treaty between India and Country M, the capital gain is taxable in the country where the transferor of shares is a resident. The tax laws of Country M, exempt capital gains. R Inc. sells all the shareholding in PSI Ltd. on 1.1.2026 and earned a capital gain of 5 crores.
Suggested Answer and Working Notes:
In case of investment made prior to 1.4.2017, income arising from transfer thereof would not be subject to GAAR. Accordingly, income from transfer of shares acquired on 1.4.2016 by R Inc. would not attract GAAR. If the original shares are acquired before 1.4.2017, but bonus shares are issued after that date, GAAR provisions would not be attracted on transfer of such bonus shares also.
Topics: Provisions to Counteract Unethical Tax Practices
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