GAAR to be effective from 2016-17 - No Retro Effect
THE principle of GAAR was incorporated in the Direct Taxes Code, which was introduced as a Bill in Parliament on August 30, 2010.
Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled "General Anti- Avoidance Rule?. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014.
A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr. Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation.
Government has released the final report of the Committee yesterday. Government has decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).
The Shome Committee had recommended, GAAR should be deferred for 3 years. But the year, 2016-17, should be announced now, so that it could apply from A.Y. 2017-18. Pre-announcement is a common practice internationally, in today's global environment of freely flowing capital.
No retrospective application of GAAR: The Committee observed, "Certain apprehensions were raised about retrospective application of GAAR. It was feared that GAAR provisions may be applied retrospectively if they are considered to be procedural provisions and not substantive in nature. Considering those apprehensions, the Committee is of the view that it may be clarified as under-
"GAAR shall apply only to the income received, accruing or arising, or deemed to accrue or arise, to the taxpayers on or after date of affectivity of GAAR provisions. In other words, GAAR will apply to income of the previous year relevant to assessment year from which GAAR provisions become effective and subsequent years".