Finance Bill 2012 Amendments FM has deferred GAAR by a year giving some relief to investors

The Finance Minister (FM) Pranab Mukherjee on Monday made certain changes to the Finance Bill, 2012. The most important of these changes was the deferment of the implementation of General Anti-Avoidance Rule (GAAR) by a year to April 1, 2013..The Finance Minister (FM) Pranab Mukherjee on Monday made certain changes to the Finance Bill, 2012. The most important of these changes was the deferment of the implementation of General Anti-Avoidance Rule (GAAR) by a year to April 1, 2013..“To provide more time to both taxpayers and the tax administration to address all related issues, I propose to defer the applicability of the GAAR provisions by one year,” Mukherjee said..Bar & Bench spoke to Khaitan & Co Direct Tax Executive Director Daksha Baxi on the impact of this deferment. . Baxi said, “This will provide some relief and scope for the tax payers to examine the robustness of their structures from the perspective of substance and accord them the ability to remove any weaknesses, where possible”..“In any case, this deferment reduces the panic that the wide language of the GAAR as it was proposed in theoriginal Finance Bill had created”, Baxi added..Baxi further said, “This one year time should give the government time to train tax officers in implementing the GAAR”..Another major amendment, which has given a big relief to all investors, is that the onus of proving tax avoidance has been shifted to the tax authorities, reversing the Budget proposal, which had placed the onus on the taxpayer..Baxi too agreed that the decision to shift the burden of proof is a welcome move..Baxi said, “The fact that the tax officers have to make a case for invoking GAAR would mean that frivolousinvocation would not happen. At the minimum, all the requirements for invocation of GAAR will need to be seen to have been satisfied”..On the issue of implementation of this provision of onus of proof Baxi said, “This will certainly be a challenge. It would mean that the tax officer would make inquires and require the tax payer to provide whatever information he needs to make a case. One would think that this would take the form of a show cause notice under which the tax officer would need to be given all the information and reasoning behind any structure or arrangement or a series of transaction”..Further, as per the amendments introduced by the FM, the GAAR panel will now have an independent member, an officer of the level of joint secretary or above from the law ministry, to give approvals for invoking GAAR and to ensure objectivity and transparency..The taxpayer has been also been granted the right to approach the Authority of Advance Ruling (AAR) for a ruling on whether GAAR provisions are applicable as determined by the taxmen. The original Bill did not have this provision..Investors must now wait until a committee headed by the Director General of Income Tax and convened by the Finance Ministry comes out with the rules and guidelines for the GAAR provisions. The committee report is due by the end of May this year..The FM also clarified doubts on the retrospective amendments related to capital gains on the sale of assets located in India through indirect transfers abroad..The FM confirmed that the proposed retrospective amendment of income tax laws will not override Double Taxation Avoidance Agreements with 82 countries. He added that the proposed retrospective changes in tax rules will not be used to reopen cases where assessment orders have already been finalized..However, it is unlikely that this clarification will really help Vodafone and other similar cases..All these and other amendments have been passed by the Lok Sabha on Tuesday and will now be put before the Rajya Sabha. Once the Bill gets Presidential Assent, the same will be incorporated in the Income Tax Act, 1961.