“main purpose” would be defined only in the GAAR rules to be notified later, analysts said this would essentially mean that only of the “predominant purpose” of the arrangement is to avoid tax with no sufficient commercial rationale for the arrangement, only then would GAAR prevail over tax treaties. The threshold for GAAR to kick in has been fixed at Rs 3 crore.
The Shome panel had also suggested that capital gains tax on listed securities be abolished and securities transaction tax (STT) raised to offset any revenue loss. The panel, in its final report, made public by the finance ministry on Monday rephrased its recommendation demanding the abolition of “the tax on gains arising from transfer of securities, being equity shares or units of equity oriented mutual funds, which is subject to STT, whether in the nature of capital gains or business income, to both residents as well as non-residents.” The idea is to give the same benefit to all investors irrespective of their tax residency and the nature of income from investments. Although Chidambaram remained silent on this recommendation, experts remained hopeful that it may eventually make its way to the statute book. “Since the minister has not said anything to the contrary, we could expect a decision on this when the Union Budget for 2013-14 gets presented,” said KR Sekar, partner, Deloitte Haskins & Sells.
Importantly, Chidambaram also laid down the broad procedure for GAAR operations by proposing to set up an neutral approving panel – headed by a serving or retired high court judge and an independent expert and not restricted in strength to three as in the Finance Act – and said its views would be binding on the assessee as well the tax authorities. Pertinently, he said: “The approving panel may have regard to the period or time which the arrangements had existed...” (Mind that in the Vodafone case, the corporate structure that allowed London-headquartered telecom firm and Hong Kong-based Hutchison to clinch the deal that created Vodafone Essar in India had existed much before the 2007 transaction and the Supreme Court had stressed this while negating India's tax jurisdiction over the deal). This means that in future Vodafone-like cases, one of the criteria for deciding the taxability in India would be how long the arrangement had preexisted.
Chidambaram's statement on Monday, however, did not dwell on the other aspect the Shome committee had looked