In the following independent circumstances, discuss whether the provisions of GAAR would be applicable: (I) Alphabet Inc., a company incorporated in…

(I) 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 Alphabet 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. (II) An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and also, inter alia, lacks commercial substance or is deemed to lack commercial substance. An arrangement is deemed to lack commercial substance if it involves, inter alia, round tripping of funds. In this case, the arrangement of routing money through wholly owned subsidiary Nice Ltd. in Country Z, a low tax jurisdiction, to an Indian company (Never Ltd.) involves round tripping of funds even though funds emanating from Yes Ltd. are not traced back to Yes Ltd. The alternate course available in this case is direct advance to Never Ltd. an Indian company, in which case the interest income would have been chargeable to tax in the hands of Yes Ltd. Therefore, the agreement is deemed to lack commercial substance as it involves round tripping of funds. Also, its main purpose is to obtain tax benefit and there is no other activity in Company Nice Ltd. However, if the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed ₹ 3 crore, then, GAAR provisions would not be invoked.