Interpretation.

184

In this Chapter, unless the context otherwise requires,—

184(1)

“accommodating party” means a party to an arrangment, if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the assessee whether or not the party is a connected person in relation to any party to the arrangement;

184(2)

“arrangement” means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding;

184(3)

“asset” includes property, or right, of any kind;

184(4)

“benefit” includes a payment of any kind whether in tangible or intangible form;

184(5)

“connected person” means any person who is connected directly or indirectly to another person and includes,—

• (a) any relative of the person, if such person is an individual; (b) any director of the company or any relative of such director, if the person is a company;
• (c) any partner or member of a firm or association of persons or body of individuals or any relative of such partner or member, if the person is a firm or association of persons or body of individuals;
• (d) any member of the Hindu undivided family or any relative of such member, if the person is a Hindu undivided family;
• (e) any individual who has a substantial interest in the business of the person or any relative of such individual;
• (f) a company, firm or an association of persons or a body of individuals, whether incorporated or not, or a Hindu undivided family having a substantial interest in the business of the person or any director, partner, or member of the company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member;
• (g) a company, firm or association of persons or body of individuals, whether incorporated or not, or a Hindu undivided family, whose director, partner, or member has a substantial interest in the business of the person, or family or any relative of such director, partner or member;
• (h) any other person who carries on a business, if— (i) the person being an individual, or any relative of such person, has a substantial interest in the business of that other person; or (ii) the person being a company, firm, association of persons, body of individuals, whether incorporated or not, or a Hindu undivided family, or any director, partner or member of such company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member, has a substantial interest in the business of that other person;

184(6)

“fund” includes—

• (a) any cash;
• (b) cash equivalents; and
• (c) any right, or obligation, to receive or pay, the cash or cash equivalent;

184(7)

“party” includes a person or a permanent establishment which participates or takes part in an arrangement;

184(8)

“relative” shall have the meaning assigned to it in section 92(5)(g);

184(9)

a person shall be deemed to have a substantial interest in the business, if,—

• (a) in a case where the business is carried on by a company, such person is, at any time during the financial year, the beneficial owner of equity shares carrying at least 20% of the voting power; or
• (b) in any other case, such person is, at any time during the financial year, beneficially entitled to at least 20% of the profits of such business;

184(10)

“step” includes a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement;

184(11)

“tax benefit” includes,—

• (a) a reduction or avoidance or deferral of tax or other amount payable under this Act; or
• (b) an increase in a refund of tax or other amount under this Act; or
• (c) a reduction or avoidance or deferral of tax or other amount that would be payable under this Act, as a result of a tax treaty; or
• (d) an increase in a refund of tax or other amount under this Act as a result of a tax treaty; or
• (e) a reduction in total income; or
• (f) an increase in loss, in the relevant tax year or any other tax year.

184(12)

“tax treaty” means an agreement referred to in section 159(1) or (2).

Explanation

Section Summary:

Section 184 provides definitions for key terms used in the chapter of the Income Tax Act related to arrangements and tax benefits. These definitions are crucial for interpreting and applying the provisions of the chapter, particularly those dealing with tax avoidance arrangements and the identification of parties involved in such arrangements.

Key Changes:

This section introduces or clarifies definitions for terms like "accommodating party," "arrangement," "asset," "benefit," "connected person," "fund," "party," "relative," "substantial interest," "step," "tax benefit," and "tax treaty." These definitions are essential for understanding the scope and application of the chapter, especially in the context of anti-avoidance rules.

Practical Implications:

• Taxpayers and Businesses: The definitions help taxpayers and businesses identify whether they or others involved in an arrangement fall under the scope of the chapter. For example, understanding who qualifies as a "connected person" or what constitutes a "tax benefit" is critical for compliance.
• Compliance Processes: Taxpayers must ensure that their arrangements do not inadvertently fall under the definitions provided, as this could trigger scrutiny under anti-avoidance provisions.

Critical Concepts:

• Accommodating Party: A person or entity involved in an arrangement primarily to obtain a tax benefit for another party, regardless of whether they are connected to the other party.
• Arrangement: Broadly defined to include any transaction, scheme, or agreement, whether enforceable or not, and includes property transfers.
• Connected Person: Includes relatives, directors, partners, and entities with a substantial interest in the business. This definition is expansive and covers a wide range of relationships.
• Tax Benefit: Includes reductions, deferrals, or avoidance of tax, as well as increases in refunds or losses, whether under domestic law or a tax treaty.

Compliance Steps:

1. Review Arrangements: Assess whether any transactions or schemes fall under the definition of an "arrangement" as per Section 184(2).
2. Identify Parties: Determine if any parties involved qualify as "accommodating parties" or "connected persons."
3. Evaluate Tax Benefits: Analyze whether the arrangement results in a "tax benefit" as defined in Section 184(11).
4. Documentation: Maintain detailed records of all transactions and the purpose behind them to demonstrate compliance with the law.

Examples:

• Example 1: A company enters into a transaction with a subsidiary where the subsidiary incurs a loss, reducing the overall tax liability of the group. If the subsidiary is deemed an "accommodating party" and the transaction is classified as an "arrangement," the tax benefit may be scrutinized under this chapter.
• Example 2: An individual transfers property to a relative (a "connected person") at below-market value. If this transfer is part of an "arrangement" aimed at reducing taxable income, it could be subject to anti-avoidance rules.

This section lays the groundwork for interpreting and applying the chapter's provisions, ensuring clarity in identifying and addressing tax avoidance arrangements.