Section 184: interpretation - key definitions for the GAAR chapter

Introduction

This interpretation section supplies the meanings used in the GAAR chapter. Several terms are broader than their everyday sense, so the definition must be checked before applying the tests in sections 179–183.

In particular, “connected person” covers specified personal, organisational and business relationships; “tax benefit” includes both immediate and later-year effects.

Key takeaways

Accommodating party, arrangement and asset

• "Accommodating party" means a party to an arrangement whose direct or indirect participation, in whole or part, has as its main purpose obtaining a tax benefit (but for Chapter XI) for the assessee, whether or not that party is a connected person to any other party.
• "Arrangement" means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether or not enforceable, and includes alienation of property in such a transaction, operation, scheme, agreement or understanding.
• "Asset" includes property, or right, of any kind.
• "Benefit" includes a payment of any kind, whether in tangible or intangible form.

Connected person

"Connected person" means a person connected directly or indirectly to another person, and includes:

• any relative, if the person is an individual;
• any director of the company, or their relative, if the person is a company;
• any partner or member of a firm/AOP/BOI, or their relative, if the person is a firm, AOP or BOI;
• any member of the HUF, or their relative, if the person is a Hindu undivided family;
• any individual with a substantial interest in the person's business, or their relative;
• a company, firm, AOP/BOI (incorporated or not) or HUF with a substantial interest in the person's business, or any director/partner/member of it, or their relative;
• a company, firm, AOP/BOI (incorporated or not) or HUF whose director, partner or member has a substantial interest in the person's business, or their relative;
• any other person carrying on a business, where the individual (or their relative) or the company/firm/AOP/BOI/HUF (or its director/partner/member, or their relative) has a substantial interest in that other person's business.

Fund, party, relative and step

• "Fund" includes cash, cash equivalents, and any right or obligation to receive or pay cash or a cash equivalent.
• "Party" includes a person or a permanent establishment that participates or takes part in an arrangement.
• "Relative" has the meaning assigned to it in Section 92(5)(g).
• "Step" includes a measure or an action, particularly one in a series taken to deal with or achieve a particular thing or object in the arrangement.

Substantial interest in a business

A person is deemed to have a substantial interest in a business if: where the business is carried on by a company, that person is, at any time during the financial year, the beneficial owner of equity shares carrying at least 20% of the voting power; or in any other case, that person is, at any time during the financial year, beneficially entitled to at least 20% of the profits of the business.

Tax benefit and tax treaty

"Tax benefit" includes:

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

Tax treaty

"Tax treaty" means an agreement referred to in Section 159(1) or (2).

Step-by-step flow for using the Section 184 definitions

1. 1

   Is there an "arrangement"?

   Clause (2): any step in, or part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, including alienation of property in it.

2. 2

   Who are the parties, and are any of them connected persons?

   A party includes a person or a permanent establishment that takes part (clause (7)). Clause (5) lists connected persons, many of which depend on relatives (as defined in Section 92(5)(g)) and on substantial interest.

   • Substantial interest needs checking: Apply clause (9): at least 20% voting power in a company, or at least 20% of profits in other cases, at any time during the financial year.
   • Relationship is clear: Go to the next step.
3. 3

   Is any party an accommodating party?

   Clause (1): a party whose participation has as its main purpose obtaining a tax benefit for the assessee, whether or not it is a connected person.

4. 4

   What is the tax benefit?

   Clause (11) includes reduction, avoidance or deferral of tax (including by a tax treaty), an increase in refund, a reduction in total income, or an increase in loss in the relevant or any other tax year.

Glossary

Substantial interest

At least 20% of voting power (company) or at least 20% of profits (other cases), at any time during the financial year.

Fund

Cash, cash equivalents, and any right or obligation to receive or pay them.

Party

A person or a permanent establishment that takes part in an arrangement.

Tax treaty

An agreement referred to in Section 159(1) or (2).

Frequently asked questions