General Anti Avoidance Rules GAAR may be applicable if A tax officer believes that the main purpose ...........

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General Anti-Avoidance Rules (GAAR) may be applicable if

A tax officer believes that the main purpose or one of the main purposes of a transaction arrangement is to obtain a tax benefit
A foreign investment has been made with the main aim of expanding the business of its subsidiaries domestically
A corporation has not cleared its tax liabilities since several financial years

Select the correct answer using the codes below.

1 and 2 only

1 only

2 and 3 only

1 and 3 only

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Explanation:

'The objective of the GAAR provisions is to codify the doctrine of 'substance overform ' where the real intention of the parties and purpose of an arrangement is taken into account for determining the tax consequences, irrespective of the legal structure of the concerned transaction or arrangement. It essentially comes into effect where an arrangement is entered into with the main purpose or one of the main purposes of obtaining a tax benefit and which also satisfies at least one of the following four tests:

The arrangement creates rights and obligations that are not at arm's length,

it results in misuse or abuse of provisions of tax laws,

lacks commercial substance or is deemed to lack commercial substance, or

it is not carried out in a bona fide manner.

Such a transaction can be declared as impermissible under the avoidance arrangement.