Moot Memo On GAAR Provision

4TH THE CHAMBER OF TAX CONSULTANTS
NATIONAL ONLINE MOOT COURT COMPETITION, 2020

TC-B
BEFORE
THE HON’BLE HIGH COURT BOMBAY
IN THE PROCEEDING BETWEEN
SINGHANIA PVT. LTD. (SPL)……………………………….………...……. PETITIONERS
V.
INCOME TAX DEPT.……………………………………………………. ….. RESPONDENT
MOST RESPECTFULLY SUBMITTED
COUNSEL APPEARING ON BEHALF OF THE RESPONDENT
-MEMORIAL ON BEHALF OF RESPONDENT-
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE I

TABLE OF CONTENTS
LIST OF ABBREVIATIONS ......................................................................................................... IV

TABLE OF AUTHORITIES .......................................................................................................... VI
STATEMENT OF JURISDICTION .................................................................................................. X
STATEMENT OF FACT ............................................................................................................... XI
MEASURES AT ISSUE .............................................................................................................. XIII
SUMMARY OF PLEADINGS ...................................................................................................... XIV
LEGAL PLEADINGS .....................................................................................................................1
1. THE WRIT PETITION FILED BEFORE THE HIGH COURT IS NOT MAINTAINABLE. .................1
A. THAT EXISTENCE OF AN EFFICACIOUS ALTERNATIVE REMEDY WOULD BAR THE
INSTITUTION OF THE WRIT. ..................................................................................................1
I. THAT APPEAL U/S 246A INCOME TAX ACT, 1961 IS THE ADEQUATE REMEDY ............2
II. THAT THE JURISDICTION OF THE COURT HAS BEEN WRONGLY INVOKED. ...................2
B. THAT THE PCIT HAD ALREADY STATED THAT GRANDFATHERING RULES UNDER
10U(1)(d) OF GAAR PROVISIONS SHALL NOT APPLY HERE....................................................3
I. RULE 10U (2) .............................................................................................................3
II. GAAR INVOKED ..........................................................................................................4
C. THAT THERE IS COMPLIANCE WITH THE PROCEDURES OF GAAR. ...................................4
I. THAT A.O. HAS FOLLOWED THE DUE PROCEDURE AS PER THE RULE 10UB (1). ..........4
II. THAT A.O HAS FULLY COMPLIED WITH THE RULE 10UB (2) OF THE PROVISION. ........5
2. THE SAID ARRANGEMENT COMES UNDER THE PURVIEW OF IMPERMISSIBLE AVOIDANCE
ARRANGEMENT AS PER § 96(1) OF THE INCOME TAX ACT,1961. .........................................6
A. THAT IT RESULTS IN THE MISUSE AND ABUSE OF THE PROVISIONS................................6
I. ALTERNATIVE ARRANGEMENT ...................................................................................7
II. INTERPLAY OF GAAR PROVISIONS ..............................................................................7
B. THAT IT LACKS COMMERCIAL SUBSTANCE U/S 97 IN ITS PART. ......................................8
I. CONDITIONS IN WHICH ‘FORM’ APPEARS MORE IMPORTANT THAN ‘SUBSTANCE’. ......8
II. ROUND TRIP FINANCING........................................................................................... 10
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE II

C. THAT THE ARRANGEMENT WAS CARRIED OUT WITH MALAFIDE INTENTION OF

OBTAINING THE TAX-BENEFIT. ........................................................................................... 12
3. THE BUY-BACK SCHEME WAS INTRODUCED TO ESCAPE TAX LIABILITY. .......................... 12
A. THAT THE BUY-BACK SCHEME WAS INTRODUCED TO AVOID TAX. .............................. 12
B. THAT IT IS A COLORABLE DEVICE................................................................................ 13
I. THAT IT IS SANS COMMERCIAL RATIONALE. ............................................................. 14
II. THAT IT WAS ENTERED ONLY TO REAP TAX BENEFITS. ............................................ 15
C. THAT THE PETITIONERS HAVE NOT APPROACHED THE COURT WITH CLEAN HANDS..... 16
PRAYER .................................................................................................................................... 19
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE III

LIST OF ABBREVIATIONS
AO Assessing Officer
AIR All India Report
All Allahabad
AP Andhra Pradesh
Bom Bombay
Cal Calcutta
CIT Commissioner of Income Tax
Co. Company
CTR Currency Transaction Reports
CBDT Central Board of Direct Taxes
Cri. Criminal
Del Delhi
DTR Daily Tax Report
DDT Dividend Distribution Tax
GAAR General Anti-Avoidance Arrangement
HC High Court
IT Act Income Tax Act
ITAT Income Tax Appellate Tribunal
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE IV

ITO Income Tax Officer
ITR Income Tax Report
ITD Income Tax Tribunal Decisions
Kar Karnataka
Ltd. Limited
PCIT Principle Commissioner of Income Tax
Pvt. Private
P&H Punjab & Haryana
SPL Singhania Private Limited
SC Supreme Court
SCC Supreme Court Cases
U/S Under Section
UOI Union of India
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE V

TABLE OF AUTHORITIES
I. CASES
1. ACIT v. Banswara Syntex Ltd .................................................................................................... 2

2. Agricultural and Processed Food Products v. Oswal Agro Furane and ors., ................................ 18
3. Ajanta Pharma Ltd v. ACIT ........................................................................................................ 2
4. Avenue Realities and Developers Private Limited vs. Appropriate Authority of IT Department . 19
5. Babu Lal v. Director of Income Tax .......................................................................................... 18
6. Baywest Power and Energy P Ltd v. ACIT .................................................................................. 2
7. Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue ........................................ 6
8. Bhagwant Kishore Sud v. ITAT .................................................................................................. 1
9. Chandi Ram v. ITO..................................................................................................................... 2
10. Chandra Lakshmi Tempered Glass Co Pvt Ltd v. ACIT............................................................... 2
11. Commissioner of Income Tax v. Electronic Research Ltd. & Anr .............................................. 19
12. Commissioner of Income Tax v. M/S. Abhinandan Investment Ltd ........................................... 15
13. Commissioner of Income Tax v. Walfort Shares and Stock Brokers Pvt. Ltd. ............................ 14
14. Dalip Singh v. State of U.P. and ors .......................................................................................... 18
15. Fisher Xomox Sanmar Ltd v. ACIT............................................................................................. 2
16. G. Jayshree and ors. v. Bhagwandas S. Patel and ors. ................................................................ 18
17. G.K.N. Driveshafts (India) Ltd. v. ITO........................................................................................ 2
18. Groupe Industrial Marcle Dassault ............................................................................................ 14
19. Harbhajan Singh v. Bansal, ITO .................................................................................................. 2
20. Inland Revenue Commissioners v. Burmah Oil Co Ltd .............................................................. 10
21. Jagneswar Day and Bibah Ranjan Day v. ITO ............................................................................. 2
22. JCIT & Ors. v. Kalanithi Maran & Anr ....................................................................................... 2
23. K.D. Sharma v. Steel Authority of India Ltd. and ors................................................................. 18
24. Kapur Sons Steels Pvt Ltd v. ACIT ............................................................................................. 2
25. Madhya Pradesh v. ITO .............................................................................................................. 1
26. Mc Dowell & Company Limited v. The Commercial Tax Officer.............................................. 13
27. Prestige Lights Ltd. v. State Bank of India ................................................................................ 18
28. S.P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by LRs. and ors., ...................... 18
29. S.P. Chengalvaraya Naidy vs. Jagannath ................................................................................... 18
30. Sable Waghire Trust v. Achyuta Rao........................................................................................... 1
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VI

31. Sunil Poddar and others v. Union Bank of India ........................................................................ 18

32. UoI and ors. v. Muneesh Suneja ................................................................................................ 18
33. V. Chandrasekaran v. Administrative Officer ............................................................................ 17
34. Vodafone International Holdings B.V v. UOI, ........................................................................... 15
II. STATUTES
1. Income Tax Act,1961.................................................................................................................. 1

2. Income Tax Assessment Act 1936 ............................................................................................. 10
3. The Constitution of India, 1950 ................................................................................................... 2
III. OTHER AUTHORITIES
1. Deloitte, General Anti-Avoidance Rules (GAAR) India and International Experience

(March 2017) ................................................................................................................. 16
2. Devarshi Mukhopadhyay, looking “Through” to a Commercial Rationale:” Reviewing
GAAR Implications of DIT v. Copal Research and Ors., 4.2 NLIU LR (2015) 46.......... 14
3. Dhruva Advisors, Year in Review 2015 ......................................................................... 15
4. Final Report on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961 Expert
Committee (2012).......................................................................................................... 13
5. Financial Report on General Anti Avoidance Rules (GAAR) In the Income Tax Act, 1961
........................................................................................................................................8
6. General Anti Avoidance Rule GAAR An Indian and International Perspective ................9
7. Inder Chand Jain, Doctrine of Clean Hands in Taxation Proceedings, TaxGuru (Complete
Tax Solution) 28th July, 2015 ......................................................................................... 17
8. J.G. Head, ‘Capital gains Taxation-An Economist’s Perspective’ (1984) 1 Australian Tax
Forum 148 .......................................................................................................................7
9. James Coleman, Tax Avoidance and Interpretation of §s BG-1 and GA-1 of the Income
Tax Act 2007, 2nd Edition. Public Rulings Unit, Office of the Chief Tax Counsel, (2013).
........................................................................................................................................6
10. OECD, International Tax Avoidance and Evasion, Double Taxation Conventions and the
Use of Base Companies, Issues in International Taxation, No. 1, OECD, Paris, 1987 ......9
11. Royal Commission on Taxation (Carter Commission), 1966 .......................................... 13
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VII

12. Thajaswini C.B. and Shambhavee H.M. The GNLU Journal of Law, Development and
Politics, ‘Substance-Over-Form Doctrine: Reshaping India's Corporate Tax Regime’ ......8
13. The Law Journal Reports. (1857). United Kingdom: E.B. Ince. Volume 26 .....................9
14. Thelawreviews.co.uk. The Corporate Tax Planning Law Review. ....................................9
15. Vishnu. General Anti Avoidance Rule (GAAR). PRS India. 2013 ...................................8
IV. RULES
1. Income Tax Rules, 1962 ........................................................................................................... 16
V. BOOKS
1. Alexander Rust, Claus Staringer, Jeffrey Owens, Josef Schuch, Michael Lang, Pasquale Pistone.
GAARs A Key Element of Tax Systems in the Post-BEPS World. ISBN:9789087223588,
9087223587. Publisher: IBFD (2016). ....................................................................................... 11
2. Arthur M. Borden, Joel A. Yunis. Going Private. ISBN:9781588520159, 1588520153. Publisher:
ALM Media Properties, 2020 .................................................................................................... 11
3. D.D. Basu, Commentary on The Constitution of India, Lexis Nexis (8th Ed., 1989) .................... 3
4. Girish Ahuja and Ravi Gupta. Simplified Approach to Corporate Tax Planning and Management,
Wolters Kluwer India Pvt. Ltd., 21st ed., Pg. 254., (2018) ........................................................... 6
5. Girish Ahuja, Concise Commentary on Income Tax, 2Oed (2 Vol). ISBN:9789389335729,
9389335728 Format: E-book Publisher :Wolters Kluwer India Pvt Ltd........................................ 8
6. Godbole, Prasad G. Mergers, Acquisitions and Corporate Restructuring, 2nd Edition.
ISBN:9789325964556,. Page count: 565. Publisher: VIKAS Publishing House Pvt. Ltd ............ 11
7. H.M. Seervai, Constitutional Law of India, Universal Law Publication Co. (4th Ed. 1991). ......... 3
8. Host Books. 2020. Rule - 10U, Application of General Anti Avoidance Rule .............................. 8
9. Host Books. 2020. Rule - 10U, Application of General Anti Avoidance Rule - Host books .......... 3
10. Rishi Kapadia. GAAR- Shades of Substance, Format: E-book Publisher: Wolters Kluwer India Pvt.
Ltd., (ISBN:9789386691903, 9386691906) ................................................................................. 8
11. Sampath Iyengar, Law of Income Tax 10174, Bharat Law House Pvt. Ltd. (12th ed. 2012) ......... 1
12. Victor Thuronyi. Tax Law Design and Drafting: Volume 1 By 1996 ISBN:9781455221523,
145522152X: E-book Publisher: International Monetary Fund See Pg. 226 ................................. 9
VI. FOREIGN CASES
1. Coates v. Arundale Properties Ltd ............................................................................................. 15
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VIII

2. Companlia General de Tabacos de Filipians v. Collector of Internal Tax Revenue ..................... 13

3. Federal Commissioner of Taxation v. Spotless Services Ltd ...................................................... 10
4. Federal Commissioner of Taxation v. Spotlight Stores Pty Ltd .................................................. 10
5. Gregory v. Helvering, ................................................................................................................. 9
6. Hart v. Federal Commissioner of Taxation ................................................................................ 10
7. IRS v. Cm Holdings .................................................................................................................. 10
8. Knetch v. United States ............................................................................................................. 15
9. Lupton v. F.A. and B.A. Ltd...................................................................................................... 15
10. Overseas Container (Finance) Ltd. v. Stoker (Inspector of Taxes) .............................................. 15
11. WT Ramsay Ltd. v. IRC ............................................................................................................. 9
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE IX

STATEMENT OF JURISDICTION
The Respondent have the honor to submit before the Hon’ble High Court of Bombay, the
memorandum for the respondent in response to the petition filed by the petitioner under Article
226 of the Constitution of India, 1950.
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE X

STATEMENT OF FACT
I. INTRODUCTION OF BUY-BACK SCHEME
The three directors namely Asha, Lata and Hafiz holding 1/3 rd of shares in Singhania Pvt. Ltd
(SPL) were involved in the business manufacturing steel products. Due to the downward trend of
profitability over the last 3yrs, Hafiz who wanted to reduce his exposure in the business came up
with the proposal of buy-back scheme by utilizing the entire profits for the year instead of
distributing dividend as usual. As per the buy-back scheme, SPL proposed to buy-back 1,12,500
equity shares@ INR 8178 per shares (i.e., a total consideration of 92 crores). The necessary
conditions and procedures read with the applicable rules as mandated by the Companies Act 2013,
were duly satisfied. And no dispute arose for the same.
II. TAX LIABILITY DISCHARGED ON SPL
As per the provisions U/S 115QA of the Income Tax Act, 1960(Hereinafter referred as the Act),
the amount that SPL received on the issue of the buy-back of shares [INR 1800 per share for
1,12,500 shares i.e., 20.25 crores] was exempt in the hands of the shareholders’ U/S 10(34A),
making their total taxable income INR 5 crores each.
III. GENERAL ANTI-AVOIDANCE AGREEMENT (GAAR)
The Assessing Officer observed that SPL had bought back the equity shares instead of distributing
dividend. Hence for the purpose of scrutiny assessment, he issued a notice to the assesses U/S
143(2) of the Act. Thereafter, for the purpose of invoking the GAAR under chapter X-A of the
Act, he issued a notice as per the Rules 10UB (1) of the Income Tax Rules, 1962(Hereinafter
referred as the Rules). The notice alleged the assesses to have obtained a tax benefit of 16.40
crores. It had enquired about the reasons why the said arrangement of buy-back should not be
declared to be Impermissible Avoidance Arrangement U/S 95(1) of the Act.
IV. OBJECTIONS AND REASONING BY THE ASSESSES
The Assessing officer had not mentioned about the reasons and basis for considering that the main
purpose of the arrangement was to obtain tax-benefit making him liable to not follow the Rule
10UB (2). Buy-back scheme was floated to achieve a strategic and commercial objective. Also,
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XI

the assesses objected by saying that as per the Circular No. 7 of 2017, GAAR would not interplay
with the rights of the tax-payers. Furthermore, as per the circular, GAAR provisions would not be
applicable to them as they had bought the equity shares before April 2017(Grandfathering Rule).
V. PRINCIPLE COMMISSIONER OF INCOME- TAX (PCIT)
The AO did not dispose-off the objections raised by the assesses and referred the matter to the
PCIT. As per § 144BA (2) of the act, the PCIT stated that considering that Hafiz wanted to reduce
his exposure to the business rather than obtaining tax-benefit, Asha and Lata had no intention to
do so, yet they went for buy-back. He also stated that the AO had minutes and meeting(MOM) of
the 1st Board meeting along with the financial statements of SPL. He declared that Grandfathering
Rule won’t be applicable for buy-back scheme.
The assesses objected by saying that they have diligently discharged their tax-liability and § 96(1)
of the act is not attracted. Also, they stressed on their agenda of was to facilitate Hafiz to invest in
SPL, and buy-back was done for a commercial substance. AO didn’t raise objections on the same.
PCIT further referred the matter to the Approving Panel.
VI. APPROVING PANEL (AP)
The AP said that the consideration which was received by the assesses in the form of buy-back
should be considered equivalent to dividend. It also relieved SPL from paying any further amount
as they had paid more tax as DDT through buy-back than it would have otherwise in case of
Dividend Distribution. It directed the assesses to pay income-tax U/S 115BBDA of the Act @10%
of the dividend received from SPL.
VII. HIGH COURT
Aggrieved by the above directions, the assesse has approached to this Hon’ble court whereby, it
was submitted that neither the AO nor the PCIT had established their liability as U/S 96(1). The
Assessing Officer failed to comply with provisions contained in Rule 10UB (2) as well as to give
benefit of Rule 10U(1)(d) and went on to make reference to the PCIT without disposing off the
objections filed by the assesses in response to notice issued as per Rule 10UB (1). Now, this
court shall further hear the matter.
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XII

MEASURES AT ISSUE
1. WHETHER THE WRIT PETITION IS MAINTAINABLE BEFORE THE HIGH COURT
OF BOMBAY.
2. WHETHER THE SAID ARRANGEMENT COMES UNDER THE PURVIEW OF
IMPERMISSIBLE AVOIDANCE ARRANGEMENT AS PER § 96(1) OF THE INCOME
TAX ACT,1961.
3. WHETHER THE BUY-BACK SCHEME WAS INTRODUCED TO ESCAPE TAX
LIABILITY.
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XIII

SUMMARY OF PLEADINGS
1. WHETHER THE WRIT PETITION FILED BEFORE THE HIGH COURT IS

MAINTAINABLE.
It is humbly submitted that the writ petition filed by the petitioner is not maintainable. Firstly, the
existence of an efficacious alternative remedy in the Income Tax Act would oust the petitioner
from filing the writ petition. Secondly, the grandfathering rule of GAAR provision shall not apply
in the present case. Thirdly, all the procedure by the AO & PCIT is within the ambit of Procedures
establish in GAAR and therefore the writ will not be maintainable on this regard.
2. WHETHER THE SAID ARRANGEMENT COMES UNDER THE PURVIEW OF

IMPERMISSIBLE AVOIDANCE ARRANGEMENT AS PER § 96(1) OF THE
INCOME TAX ACT,1961.
It is humbly submitted that the said arrangement comes under the purview of Impermissible
Avoidance Arrangement as per § 96(1) of the Income Tax Act, 1961. The petitioners have misused
the provisions of § 155QA, by floating a scheme of buy-back which clearly lacks commercial
substance. Following the past practice, the company had called for auditing the financial
statements and then declare dividend, but instead buy-back was declared by the company having
no commercial objective for two of its shareholders (Asha and Lata). It is the principle of General
Anti-Avoidance Arrangement, that even if one of the part of the arrangement lacks commercial
substance, whole arrangement should be considered to lack commercial rationale. Lacking of
Commercial Rationale would indicate that they had mala fide interest. And hence, all the elements
of § 96(1) i.e., (a), (b), (c), (d) is fulfilled making it an Impermissible Avoidance Arrangement.
3. WHETHER THE BUY-BACK SCHEME WAS INTRODUCED TO ESCAPE TAX

LIABILITY.
It is humbly submitted that the buy-back scheme was introduced to escape tax liability. Firstly,
the scheme though legitimate was adopted by exploiting tax laws for their own advantage. Thus,
it comes under the purview of tax avoidance. Secondly, it is a colorable device as the parties has
chosen to conceal the true legal relation resulting from transaction. Thirdly, the scheme lacks
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XIV

commercial rationale as the transaction is merely a charade to reap tax benefits with no other
motivation. Fourthly, the petitioner has not approached the court with clean hands as he owes a
duty to the court to bring out all the facts but he has not told all the facts to the court.
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XV

LEGAL PLEADINGS
1. THE WRIT PETITION FILED BEFORE THE HIGH COURT IS NOT
MAINTAINABLE.
It is most humbly submitted before this Hon’ble High Court that the writ filed in this court is not
maintainable as [A] there existed an efficacious alternative remedy. Further, [B] the PCIT had
already stated that Grandfathering Rules under 10U(1)(d) of GAAR provisions shall not apply
here. And also, [C] A.O has complied with the provisions contained in Rule 10UB (2) of the said
act.
A. THAT EXISTENCE OF AN EFFICACIOUS ALTERNATIVE REMEDY

WOULD BAR THE INSTITUTION OF THE WRIT.
A writ is an extraordinary relief, 1 granted only upon the exhaustion of an existing alternative
remedy2 in a statute. In the case of Madhya Pradesh v. ITO,3 the Supreme Court has held that,
when there existed an adequate alternative remedy, then the writ petition would be dismissed by
the court in limine.
Even if, the petitioners were not satisfied with the directions of Approving Panel, they should have
appealed U/S 246A of the Income Tax Act, 1961. In the present case, the petitioners have not
exercised their, [i] alternative relief of appeal as granted in the § 246A of the Income Tax Act,
1961. Also, [ii] the jurisdiction of the court has been wrongly invoked.
1
Sampath Iyengar, Law of Income Tax 10174, Bharat Law House Pvt. Ltd. (12 th ed. 2012).
2
Income Tax Act,1961 §154; § 263
3
Madhya Pradesh v. ITO, (1965) 67 ITR 637 (SC); Also see, Bhagwant Kishore Sud v. ITAT, (1999) 240 ITR 688;
Sable Waghire Trust v. Achyuta Rao, (1999) 240 ITR 688 (Bom).
MEMORIAL ON BEHALF OF THE RESPONDENT PAGE 1

i. THAT APPEAL U/S 246A INCOME TAX ACT, 1961 IS THE ADEQUATE
REMEDY
A writ petition for reassessment proceedings is not maintainable, as it can be challenged in appeal
and revision as provided in the Act.4 With respect to notice issued by IT Authorities, the Court will
not address the question of limitation, as it can be raised only before the necessary tax authorities. 5
In the present case, the writ petition is filed without exercising the remedy available in the
governing statute. Therefore, it is submitted that on the existence of an alternate remedy 6 the
validity of the notice and reference by the reasonable authority cannot be challenged by way of a
writ petition and it should be dismissed.
ii. THAT THE JURISDICTION OF THE COURT HAS BEEN WRONGLY

INVOKED.
In the case of G.K.N. Driveshafts (India) Ltd. v. ITO,7 as per which the only option open to the
assesses is to exhaust the statutory remedy under the Act. Further, it is contended that a writ in
exercise of the power under Article 2268 of the Constitution is discretionary and extraordinary,
that too, when a complete mechanism for efficacious remedy is provided under the statute, more
so, a fiscal one.9 In a writ of Certiorari, the Court is concerned with the decision making process
adopted by an authority, rather than the decision itself. Such a writ cannot be issued to cure all the
defects even assuming they are available on record. Till the assessment order is passed, the
proceedings are under adjudication.
4
Income Tax Act, 1961 § 246A; Harbhajan Singh v. Bansal, ITO (1999) 235 ITR 431; Jagneswar Day and Bibah
Ranjan Day v. ITO, (1998) 233 ITR 416 (Gau); Kapur Sons Steels Pvt Ltd v. ACIT, (2004) 266 ITR 478 (P&H).
5
Chandra Lakshmi Tempered Glass Co Pvt Ltd v. ACIT (1997) 225 ITR 199 (HP); Chandi Ram v. ITO (1997) 225
ITR 611 (Raj).
6
Fisher Xomox Sanmar Ltd v. ACIT, (2007) 294 ITR 620 (Mad); Ajanta Pharma Ltd v. ACIT, (2007) 295 ITR 218
(Bom); Baywest Power and Energy P Ltd v. ACIT, (2009) 296 ITR 532 (Mad).
7
G.K.N. Driveshafts (India) Ltd. v. ITO (2003) 1 SCC 72; ACIT v. Banswara Syntex Ltd. [2005] 272 ITR 642
(Raj).
8
The Constitution of India, 1950
9
JCIT & Ors. v. Kalanithi Maran & Anr. Writ Appeal No. 347 of 2014.

The Apex Court has adjudicated over the issue that the HC is justified in interfering with the orders
passed by the PCIT in exercise of its jurisdiction under Art. 22610 when an equally alternate
efficacious remedy was available to the assesses under the Act in negative. 11
In the instant case, the writ has been filed at a premature stage, where the rights and liabilities are
still to be crystallized. Therefore, the writ petition will not be entertained if an effective remedy is
available to the aggrieved person.
B. THAT THE PCIT HAD ALREADY STATED THAT GRANDFATHERING

RULES UNDER 10U(1)(d) OF GAAR PROVISIONS SHALL NOT APPLY
HERE.
Rules of 10U(1)(d) of GAAR provisions are not applicable in the present case, as the
Grandfathering Rule, will only be applicable in the case of transfer of any investment/shares and
not buy-back.12 Also, [i] Rule 10U(1)(d) of the GAAR provisions should be read with the Rule
10U(2), [ii]and therefore, the arrangement entered into by them attracts the provisions of GAAR
to be invoked.
i. RULE 10U (2)
As per this Rule, it is mentioned that grandfathering does not exempt the entire arrangement from
the applicability of GAAR, irrespective of the date on which it has been entered into13 in respect
of the tax benefit obtained from the arrangement on or after the [1st day of April, 2017].”14Hence,
Rule 10U(1)(d) of the GAAR provisions should read with Rule 10U(2).
10
Supra Note 9.
11
D.D. Basu, Commentary on The Constitution of India, Lexis Nexis (8th Ed., 1989); H.M. Seervai, Constitutional
Law of India, Universal Law Publication Co. (4th Ed. 1991).
12
¶ 13(iv), Pg. 4 of the Moot Proposition
13
Id.
14
Host Books. 2020. Rule - 10U, Application of General Anti Avoidance Rule - Host books. [online]
Available at: https://www.hostbooks.com/in/all-rules/rule-10u-application-general-anti-avoidance-
rule/#:~:text=(2)%20Without%20prejudice%20to%20the,day%20of%20April%2C%202017%5D. [Accessed on 26th
August 2020 at 7:48 PM]

ii. GAAR INVOKED
The PCIT has already mentioned that a part of the arrangement lacked commercial substance. The
petitioners had obtained tax benefit 15 from the impermissible arrangement. The PCIT also
interpreted the fact that although, it is assumed that the scheme of buy-back was floated on the
proposal of Hafiz for facilitating him to reduce his exposure. Buy-back could have floated for the
40% of his share. Instead of this alternative, the petitioners went for buy-back of shares of Asha
and Lata as well, who had no evident interest of disinvestment of their shares in SPL.16 This clearly
indicates the lack of commercial substance on the part of Asha and Lata and therefore, this
arrangement invokes the provision of GAAR.
C. THAT THERE IS COMPLIANCE WITH THE PROCEDURES OF GAAR.
In the case at hand, [i] The A.O has followed the due procedure by serving a notice to the assesses
which is as per the Rule 10UB (1)17 of the Income Tax Act, 1961. [ii] The A.O. also has fully
complied with the Rules 10UB (2)18 of the act and it contains all the reasons to believe the main
purpose of identified arrangement is tax benefit. It is also pertinent to mention that the [iii] Circular
no. 7 of 2017 by CBDT should be read with the rule 10U (2) which the petitioner has failed to
comply and there arises no benefit of Rule 10U (1)(d).
i. THAT A.O. HAS FOLLOWED THE DUE PROCEDURE AS PER THE RULE
10UB (1).
Rule 10U(1)(a) has provided that if the tax benefit is Rs. 3 crores or less, then GAAR provisions
shall not apply. CBDT has stated in its circular no. 7 dated 27.1.2017 that benefit has to be seen
“assessment year specific”. It means that if the benefit during the specific year is Rs. 3 crores or
less, GAAR will not apply.
15
¶ 10, Pg.3 of the Moot Proposition
16
¶ 13(ii), Pg.4 of the Moot Proposition
17
Income Tax Act, 1961 Chapter X of GAAR Provisions
18
Id.

In the present case the tax benefit in the FY 2018-19 to all the party was exceeding the limitation
of 3 Crore.19 Therefore, the A.O. had the reason to consider the impugned arrangement to be in
the ambit of obtaining tax benefit.
ii. THAT A.O HAS FULLY COMPLIED WITH THE RULE 10UB (2) OF THE
PROVISION.
The assesses file was selected for scrutiny and it was found upon that instead of distributing
dividends and opined that the same was with the sole motive of reducing tax out go. 20 The A.O.
issued a notice to the assesse under rule 10UB(1) with compliance of provisions of rule 10UB(2)
where it followed all the five sub-rules. The notice contains the details of the arrangement to which
the provisions of Chapter X-A are proposed to be applied;21 the tax benefit arising under the
arrangement22 (i.e, tax paid by the assesses on buy-back scheme was INR 16.71 crores as against
the tax that they would have paid i.e., an amount of 32.57 crores in case Dividend was Distributed,
hence making the tax benefit obtained by them to be 15.86 crores); Hence, submission from the
assesse that rules of 10UB(2) is not complied is totally frivolous.
Therefore, it is humbly submitted before the Hon’ble Court that the instant writ petition is not
maintainable as the due procedure was followed by the A.O and PCIT against the motive to evade
the tax liability by the SPL. Also, statutory redressal mechanism is available to the Petitioner
through appeal and revision. Moreover, there has been no violation of the principles of natural
justice; hence, the petition should be dismissed.
19
¶ 8, Pg.2 of the Moot Proposition.
20
¶9, Pg.2 of the Moot Proposition
21
¶10, Pg.2&3 of the Moot Proposition. Also, Rule 10UB(i) of the Moot Proposition
22
¶ 10, Pg.3(the table) of the Moot Proposition. Also, Rule 10UB(2)(ii) of the Moot Proposition

2. THE SAID ARRANGEMENT COMES UNDER THE PURVIEW OF
IMPERMISSIBLE AVOIDANCE ARRANGEMENT AS PER § 96(1) OF THE

INCOME TAX ACT,1961.
It is most humbly submitted before this Hon’ble court that the said arrangement comes under the
purview of Impermissible Avoidance Arrangement as [A] it results in the misuse and abuse of the
provisions of this Act, and [B] it lacks commercial substance U/S 97 in its part. Also, [C] the
arrangement was carried out with mala fide intention of obtaining the tax-benefit.
§102(1) of the Act defines an “arrangement” to mean 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. 23 It includes a singular transaction, or multiple transactions which can amount to
an operation or a scheme or an agreement or an understanding. It also includes a step in or a part
of a transaction. 24
In the present case, buy back of shares undertaken by SPL can be considered as an “arrangement”.
In the process of buy back, since the company has to determine the price at which buy back of
shares is to be undertaken, then “determination of such price” can be considered as “step in” or
“part of the transaction” of buy back.
A. THAT IT RESULTS IN THE MISUSE AND ABUSE OF THE PROVISIONS.
It should be ‘looked upon’, if there is a presence of [i] an alternative arrangement. Also, that [ii]
GAAR provisions interplay as per the applications of law and is not barred by any other provision
of the IT Act.
23
Girish Ahuja and Ravi Gupta. Simplified Approach to Corporate Tax Planning and Management, Wolters Kluwer
India Pvt. Ltd., 21st ed., Pg. 254., (2018)
See Also Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue, [2008] NZSC 115, [2009] 2 NZLR
289 at [107] (Also known as the First Tax Avoidance Case)
24
Classic.ird.govt.nz. 2020. [online] Available at:
https://www.classic.ird.govt.nz/resources/1/0/10876180402363a989fbef5d802abedf/is1301.pdf[Accessed on 28th
August 2020 at 5:00 PM].
See also, James Coleman, Tax Avoidance and Interpretation of §s BG-1 and GA-1 of the Income Tax Act 2007, 2nd
Edition. Public Rulings Unit, Office of the Chief Tax Counsel, (2013).

i. ALTERNATIVE ARRANGEMENT
To determine the fact whether the ‘tax benefit’ is arising out of an arrangement, logically a
comparison has to be made as to whether an alternative but similar arrangement would have
occurred without any ‘tax benefit’ arising.25 This is referred to as the counter-factual. Determining
the counter-factual is a highly fact specific exercise and it essentially involves the identification of
an alternative arrangement26 which would lead to a similar legal and economic outcome, but
would be undertaken without abusive tax considerations. In the present case, the assesses could
have Declared Dividend as an alternative arrangement, which would have facilitated a similar legal
and economic outcome.
ii. INTERPLAY OF GAAR PROVISIONS
In the present case, no dividends were distributed by SPL in the FY 2018-19, which was unlikely
to their usual practices keeping in view the previous three FY’s i.e., 2015-16, 2016-17 and 2017-
18. The appellants have obtained tax benefit by escaping the tax liability in the hands of
shareholders by declaring buy-back scheme in the FY 2018-19 as per § 115QA,27 read with §
10(34A),28 incidence of tax on buy back of shares by the company arises at the company level and
thereafter no tax is required to be paid by the shareholder. Thus, shareholders need not calculate
any income under the head Capital Gains, in accordance with § 46A, read with 48, of the ITA.
Also, Countering one of the contentions of the Appellants about the Grandfathering provisions,
of Rule 10 clause (d) of sub-rule (1),29 the provisions of Chapter X-A, stating that GAAR
provisions will not interplay with the right of the taxpayer to select or choose method of
implementing a transaction;30 it is submitted that: “Without prejudice to the provisions of clause
(d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of
25
Supra note 10
26
An alternative and better rationale views the corporation tax on retained profits as a proxy for taxing capital gains
accruing to shareholders. For a general treatment, see J.G. Head, ‘Capital gains Taxation-An Economist’s
Perspective’ (1984) 1 Australian Tax Forum 148.
27
Income Tax Act, 1961 § 115QA
28
Id.
29
Income Tax Act, 1961, Chapter X-A, General Anti Avoidance Rule (GAAR)
30
¶ 17(iii) of Pg. 6 of the Moot Proposition

the date on which it has been entered into, in respect of the tax benefit obtained from the
arrangement on or after the [1st day of April, 2017].”31
B. THAT IT LACKS COMMERCIAL SUBSTANCE U/S 97 IN ITS PART.
§ 97 explains the meaning of “lacking commercial substance”. 32 However, it actually explains

when the arrangement will be considered to be “deemed to lack commercial substance”. 33 Lacking
commercial substance and “deemed to lack commercial substance” would in effect mean one and
the same thing. 34 An arrangement shall be considered to be deemed to lack commercial substance
if any of the specified conditions are satisfied 35 i.e., [i] Conditions in which ‘form’ appears is more
important than ‘substance’; [ii] Round trip financing
i. CONDITIONS IN WHICH ‘FORM’ APPEARS MORE IMPORTANT THAN ‘
SUBSTANCE’.
The substance-over-the-form is an invasive discretionary power vested in the revenue authorities

to inquire into the subject matter in a suspicious transaction36 in order to ascertain if the transaction
is taxable in essence but tends to escape the tax liability under its delusively designed form. 37 So,
31
Host Books. 2020. Rule - 10U, Application of General Anti Avoidance Rule - Host books. [online] Available at:
https://www.hostbooks.com/in/all-rules/rule-10u-application-general-anti-avoidance-
rule/#:~:text=(2)%20Without%20prejudice%20to%20the,day%20of%20April%2C%202017%5D. [Accessed on 26th
August 2020 at 7:48 PM].
32
Finmin.nic.in. 2012, Financial Report on General Anti Avoidance Rules (GAAR) In the Income Tax Act, 1961.
[online] Available at: https://www.finmin.nic.in/sites/default/files/report_gaar_itact1961.pdf [Accessed on 28th
August 2020 at 7: 55 PM].
33
Vishnu. General Anti Avoidance Rule (GAAR). PRS India. 2013 [online] Available at:
https://www.prsindia.org/hi/theprsblog/general-anti-avoidance-rule-gaar [Accessed on 28th August 2020 at 8:00
PM].
34
Girish Ahuja, Concise Commentary on Income Tax, 2Oed (2 Vol). ISBN:9789389335729, 9389335728 Format: E-
book Publisher :Wolters Kluwer India Pvt Ltd (2019). (Accessed on: 27th August 2020 at 9:00 PM).
35
id
36
Rishi Kapadia. GAAR- Shades of Substance. Page count: 270 Format: E-book Publisher: Wolters Kluwer India Pvt.
Ltd., (ISBN:9789386691903, 9386691906) See Chapter 2, Pg. 19 (2018) [Accessed on 28th August, 2020 at 10:00
pm].
37
Thajaswini C.B. and Shambhavee H.M. The GNLU Journal of Law, Development and Politics, ‘Substance-Over-
Form Doctrine: Reshaping India's Corporate Tax Regime’, [2017] 7 GJLDP (October) 36 (Accessed at SCC Online
on 25th August, 2020, at 10:00 AM)

the principle implies that a tax benefit or exemption from liability that cannot be achieved directly,
cannot be achieved indirectly either.38
The statutory definition of the principle is, “the prevalence of social and economic reality over the
literal wordings of the legal provision.”39
In the case of Gregory v. Helvering,40 the Supreme Court held that for the transaction to be illegal
on the ground that it was only in conformity with the letters of the statute but not with the intent
of the statute.41 And the court further observed that corporate reorganization conducted solely to
dodge tax liability not germane to any business purpose contemplated within the meaning of
corporate reorganization is in substance violative of law, notwithstanding that in form it is in
conformity with law.42 The court further held that the test for legality of a transaction is whether it
resonates with the intendment of the statute.43
Further, the Supreme Court’s decision in WT Ramsay Ltd. v. IRC,44 has referred to House of Lords
decision of Ramsay. Ramsay’s decision states that there may be a series of steps which individually
may be genuine but collectively it gives rise to avoidance of tax. 45 Such an arrangement can be
disregarded. 46 This was re-iterated in the case of Inland Revenue Commissioners v. Burmah Oil
Co. Ltd.47
38
id
39
OECD, International Tax Avoidance and Evasion, Double Taxation Conventions and the Use of Base Companies,
Issues in International Taxation, No. 1, OECD, Paris, 1987.
40
Gregory v. Helvering, 1935 SCC Online US SC 6: 79 L Ed 596: 293 US 465 (1935).
41
The Law Journal Reports. (1857). United Kingdom: E.B. Ince. Volume 26. Pg.747
42
Thelawreviews.co.uk. The Corporate Tax Planning Law Review. [online] Available at:
https://thelawreviews.co.uk//digital_assets/da6f2156-fcfa-411c-b946-434a82dd15a5/The-Corporate-Tax-Planning-
Law-Review---Edition-1.pdf (2019) [Accessed on 28th August 2020].
43
Victor Thuronyi. Tax Law Design and Drafting: Volume 1 By 1996 ISBN:9781455221523, 145522152X Page
count: 531: E-book Publisher: International Monetary Fund See Pg. 226 (1996). (Accessed on 27th August, 2020 at
1:00 AM).
44
WT Ramsay Ltd. v. IRC (1982) AC 300 HL, [“Ramsay”].
45
General Anti Avoidance Rule GAAR An Indian and International Perspective. Available at:
http://www.legalservicesindia.com/article/1563/General-Anti-Avoidance-Rule-GAAR---An-Indian-and-
International-Perspective.html (Accessed on 24th August , 2020 at 11:00 PM)
46
[2020] 117 taxmann.com 219 (Article). (Accessed on: 27th August, 2020, at 9:00 AM).
47
Inland Revenue Commissioners v. Burmah Oil Co Ltd: HL 3 Dec 1981. [1981] UKHL TC – 54 – 200, 1982 SLT
348, [1982] STC 30, 1982 SC (HL) 114, 54 TC 200, [1982] TR 535, [1980] TR 397 (Accessed on 28th August, 2020,
at 9:30 AM).

The doctrine was explained as a whole in the context of the case, facts and circumstance in which
it was sought to be invoked, and the collective proposition that has emerged out of these court’s
progressive approach is that mere legal framework should not be given precedence over the
substance of the transaction that amounts to encouraging tax payers espousing tax avoidance as
the sole purpose of their transaction. 48
There is no significant effect on business risks or cash flows of party to an arrangement except for
tax benefit.49 In the present case, there were no significant risks on the business of SPL, yet they
floated the scheme of buy-back as they wanted to take the benefit of tax in the hands of the
shareholders.
ii. ROUND TRIP FINANCING
As per § 97(2)50 for the purposes of § 97(1)51, round trip financing includes any arrangement in
which, through a series of transactions-
 b.1. Funds are transferred among the parties to the arrangement; and
 b.2. Such transactions do not have any substantial commercial purpose other than obtaining
the tax benefit (but for the provisions of this chapter),
b.1. “Fund” has been explained in S. 102(5)52 to include cash, cash equivalents and right or an
obligation to receive or pay cash or cash equivalent. It refers to liquid funds in form of cheques,
negotiable instruments, etc. It does not include securities, mutual funds, etc. Through buy-back
48
IRS v. Cm Holdings (in Re Cm Holdings, Inc.), 301 F.3d 96, 102 (3d Cir. 2002). “Although our Court has
hinted that the objective analysis may be more important than the subjective, the latter analysis remains
important.”) (citation omitted); Id. at 105–106 (rejecting taxpayer’s argument that subjective motives
cannot be considered by the courts in an economic substance analysis).
49
The Australian GAAR, on the other hand, requires the “sole or dominant” purpose of the GAAR to be the receipt
of a tax benefit as is evident in §177D of the Income Tax Assessment Act 1936. This must be read with § 177A(5)
which further states that if a transaction has several purposes, receiving a tax benefit must be the dominant purpose
i.e. the most ‘influential’ purpose. See, Federal Commissioner of Taxation v. Spotless Services Ltd., [1996] HCA 34,
96 ATC 5201, 5206, 5210. See also; Federal Commissioner of Taxation v. Spotlight Stores Pty Ltd., 2005 ATC 4001,
4015; Hart v. Federal Commissioner of Taxation, [2004] HCA 26, 2004 ATC 4599, 4613 as in J Cassidy, supra n. 9,
467, 478.
50
Income Tax Act, 1961, Ch. X of GAAR Provisions
51
Id.
52
Id.

scheme, the company repurchases its own shares from the shareholders. Hence, there is a transfer
of funds among the parties to the arrangement. 53
Also, for the provisions of GAAR to be invoked, it is imperative that the ‘arrangement’ has been
entered into by the taxpayer.54 The term ‘enter’ is generally understood as ‘engaging in’ or ‘bind
oneself by’ (an engagement, contract, treaty, etc.).55 While the determination of whether the
taxpayer has entered into an arrangement is fairly intuitive and fact specific, interesting issues
could arise in determining the same in cases of certain shareholder actions such as:56
 Casting of vote by a shareholder in favour of an Arrangement

 Non-exercise of option available to a shareholder in cases such as buyback, capital
reduction, rights issue, etc.
b.2. In the present case SPL was supposed to Declare Dividend on the Net Profit of INR 92 crores
for FY 2018-19. The DDT of 19.48 (calculated @ 15% + 12% Sur Charge + 4% cess on the
Dividend Amount) and a tax U/S 115BBDA of 13.09 crores (calculated @ 10% + 37% Surcharge
+ 4% cess on amount exceeding 10lakh) would be charged and deducted. Therefore, the total tax
payable would be INR 32.57crores.57
While, the tax liability with respect to the said buy-back as per the provisions of § 115QA on the
net-profit of INR 92 crores calculated on the amount received i.e., INR 20.25 crores, making the
income distributed, amounting to INR 71.75 crores. Tax liability on the buy-back scheme
(calculated @ 20% + 12% surcharge + 4% cess) paid by SPL would thereon be INR 16.71 crores.
Thus, SPL has obtained a tax-benefit of INR 15.86 crores. This shows that their purpose does not
have any substantial commercial purpose other than obtaining the tax benefit.
53
Godbole, Prasad G. Mergers, Acquisitions and Corporate Restructuring, 2nd Edition. ISBN: 9789325964556, Page
count: 565. Publisher: VIKAS Publishing House Pvt. Ltd. Pg.25(2013) (Accessed on 28th August, 2020 at 3:00 PM)
54
Alexander Rust, Claus Staringer, Jeffrey Owens, Josef Schuch, Michael Lang, Pasquale Pistone. GAARs A Key
Element of Tax Systems in the Post-BEPS World. ISBN:9789087223588, 9087223587. Publisher: IBFD (2016).
(Accessed on 28th August at 3:24 PM)
55
Id.
56
Arthur M. Borden, Joel A. Yunis. Going Private. ISBN:9781588520159, 1588520153. Publisher: ALM Media
Properties, 2020. eBook. (Accessed on 28th August at 4:00 PM)
57
¶10, Pg.3, Moot proposition

C. THAT THE ARRANGEMENT WAS CARRIED OUT WITH MALAFIDE

INTENTION OF OBTAINING THE TAX-BENEFIT.
In the present case the main agenda of the board meeting was called for approving the audited
financial statements and declaring dividends for the FY 2018-19.58 A proposal for buy-back was
made by Hafiz but the Board didn’t pass any resolution due to the lack of the consensus by the
other two shareholders, namely Asha and Lata. The Assessing Officer has every reason for
invoking the GAAR provisions on the basis of the documentary evidence of the Minutes of
Meeting of the mentioned meeting along with the Financial Statement of SPL over the years 59.
Further, it has been observed that although Hafiz had expressed to reduce his exposure in the steel
business. Inspite of that, Asha and Lata had no commercial rationale for accepting the buy-back
offer. 60 Their act of participating in the buy-back scheme, inspite of there having the option of
alternative arrangement, reflects their mala fide intention of retaining the tax-benefit, arising from
the buy-back.
3. THE BUY-BACK SCHEME WAS INTRODUCED TO ESCAPE TAX LIABILITY.
It is humbly submitted before this Hon’ble court that the buy-back scheme was introduced to
escape tax liability as: [A] the scheme was taken to avoid tax and [B] it is a colorable device. Also,
[C] the petitioners have not approached the court with clean hands.
A. THAT THE BUY-BACK SCHEME WAS INTRODUCED TO AVOID TAX.
Taxes are what we pay for civilized society.61 Tax avoidance means the legal exploitation of tax
laws to one ‘s own advantage.62 Every attempt which is within the framework of law in order to
prevent or reduce tax liability which would otherwise be incurred, by taking advantage of some
58
¶ 4, Pg.1, Moot proposition
59
¶13(iii), Pg.4, Moot proposition
60
¶17, Pg.5, Moot proposition
61
Oliver Wendell Homes Jr, Companlia General de Tabacos de Filipians v. Collector of Internal Tax Revenue, 275
U.S. 87 (1927)
62
Final Report on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961 Expert Committee (2012) Pg. 19
Available at: https://www.finmin.nic.in/sites/default/files/report_gaar_itact1961.pdf (Accessed on 27th Aug, 2020
8:04 PM)

provisions or lack of provisions in the law or loopholes of the provisions.63 It presumes the
existence of alternatives, one of which would result in less tax than the other except where the
taxpayer adopts the same course for business or personal reasons. 64
Therefore, it can be understood that tax avoidance is "the art of dodging tax without breaking the
law.”65 Avoidance of tax is unethical and if a transaction is taken with sole purpose to avoid tax it
should not be permissible.66 Considering the aspects of economic efficiency, fiscal justice, and
revenue productivity, a taxpayer should not be allowed to use legal structures or transactions
exclusively to avoid tax.67
During the board meeting called for approving audited financial statements and declaring
dividends for financial year 2018-19, Hafiz proposed for buy-back for utilizing the entire profits
for the year, instead of distribution of dividends, as that would be tax effective. 68 Asha and Lata
who were optimistic about future growth in steel business and had no intention of divesting from
SPL also offered their shares for buy back. 69 Although there is no dispute on the legal aspect of
the buy-back scheme,70 the scheme was adopted to take advantages of legal provisions, as per
§115QA, read with §10(34A), incidence of tax on buy back of shares by the company arises at
the company level and thereafter no tax is required to be paid by the shareholder. 71 Therefore, the
tax liability which would be otherwise incurred on shareholders is reduced and this amounts to
avoidance of tax.
B. THAT IT IS A COLORABLE DEVICE.
Colorable transaction means a transaction which is not genuine and which appears to be existence
but not really existing or is only in pretense.72 Avoidance of tax is unethical and if a transaction
63
Royal Commission on Taxation (Carter Commission), 1966
Available at: https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=3588&context=uclrev (Accessed on
27th Aug, 2020 9:00 PM)
64
Id.
65
Mc Dowell & Company Limited v. The Commercial Tax Officer, 1986 AIR 649, 1985 SCR (3) 791
66
Groupe Industrial Marcle Dassault, In re [AAR No. 846 and 847 of 2009]
67
Supra Note 18, Pg. 20
68
69
Id.
70
71
72
Commissioner of Income Tax v. Walfort Shares and Stock Brokers Pvt. Ltd., 2008 SCC Online Bom 1493

device to avoid tax it should not be permissible. 73 If the parties chosen to conceal the true legal
relation resulting from transaction, it is open to tax authorities to unravel the transaction.74
Colorable devices could not form part of tax planning and it was wrong to encourage or entertain
the belief that it was honorable to avoid the payment of tax by resorting to dubious methods. 75 The
court also noted that it is the obligation of every citizen to pay taxes honestly without resorting to
subterfuge. 76
“The proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask
whether the provisions should be construed literally or liberally, nor whether the transaction is
not unreal and not prohibited by the statute, but whether the transaction is a device to avoid
tax, and whether the transaction is such that the judicial process may accord its approval to
it.”77
The buy-back scheme is a colorable device to avoid taxes as: [i] it is sans commercial rationale
and [ii] it was entered only to reap tax benefits.
i. THAT IT IS SANS COMMERCIAL RATIONALE.
In the Abhinandan Investment case,78 the court cited the decision of Vodafone International
Holdings B.V v. UOI79 and observed that in order to examine whether a transaction was a colorable
device or a subterfuge, the question of whether the transaction had any reasonable business purpose
would be vital. 80
73
Supra Note 22
74
Devarshi Mukhopadhyay, looking “Through” to a Commercial Rationale:” Reviewing GAAR Implications of DIT
v. Copal Research and Ors., 4.2 NLIU LR (2015) 46
75
Mc Dowell, Supra Note 21
76
Id.
77
Id.
78
Commissioner of Income Tax v. M/S. Abhinandan Investment Ltd, (2015) 63 taxmann.com 263 (Del)
79
Vodafone International Holdings B.V v. UOI, (2012) 341 ITR 1 (SC)
80
Abhinandan Investment Ltd, Supra Note 33

The courts require a taxpayer to demonstrate some commercial rationale for the transactions
undertaken81 and the sham transaction doctrine states that if a transaction is merely a charade to
reap tax benefits with no other motivation, then the transaction will be ignored. 82
ii. THAT IT WAS ENTERED ONLY TO REAP TAX BENEFITS.
A transaction lacks commercial substance if the purpose is to obtain fiscal advantage or tax benefit
which cannot be accepted for taxation purpose.83 Therefore, the pre-requisite of the purpose test is
the main purpose or one of the main purposes of the transaction or arrangement should be to obtain
tax benefit. 84 The term tax benefit has been defined as:
Tax benefit means85—

a. A reduction or avoidance or deferral of tax or any other amount payable under this
Act;
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 including increase in loss, in the relevant previous year or
any other previous year.
The following bases demonstrate the existence of a tax benefit: 86
81
Dhruva Advisors, Year in Review 2015
Available at: https://dhruvaadvisors.com/insights/files/YearinReview2015.pdf (Accessed on 26th August, 2020, at
3:00 PM)
82
Knetch v. United States, (1960) 364 U.S. 361 (SC)
83
Lupton v. F.A. and B.A. Ltd., [1972] A.C. 634 (HL); Coates v. Arundale Properties Ltd., [1984] 1 WLR 1328;
Overseas Container (Finance) Ltd. v. Stoker (Inspector of Taxes), [1991] 188 ITR 383 (CA)
84
Supra Note 18, Pg. 23
85
Income Tax Act, 1961 § 102(11)
86
Deloitte, General Anti-Avoidance Rules (GAAR) India and International Experience (March 2017)
Available at: https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-gaar-india-and-international-
experience-noexp.pdf (Accessed on 26th August, 2020 at 6:09 PM)

a. Comparison of the tax consequences of the scheme with the tax consequences that
“would have” resulted had the scheme not occurred, i.e. deletion of the scheme (the
“annihilation approach”).87
b. Comparison of the tax consequences of the scheme with the tax consequences that
“might reasonably be expected to have” resulted if the scheme had not occurred, i.e.
speculation of the state of affairs that reasonably would have occurred in the absence
of the scheme (the “reconstruction approach”).88
In the present case, the buy-back scheme is adopted with the sole motivation to reap tax benefit as
the adoption of scheme led to reduction in amount payable as tax by SPL. 89 Applying the
annihilation approach and reconstruction approach it is evident that if the scheme was not adopted
tax payable would be Rs. 32.57 cr.90
Rule 10U also states that: The provisions of Chapter X-A shall not apply to an arrangement where
the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the
arrangement does not exceed a sum of rupees three crore.91
In the present case the said company along with its shareholders has obtained tax benefit of Rs.
16.40 cr. collectively. 92 Therefore, the scheme planned though legitimate and strictly within the
four corners of the law is part of a colorable device or dubious method entered into with a purpose
to minimize tax incidence and obtaining tax advantage.
C. THAT THE PETITIONERS HAVE NOT APPROACHED THE COURT WITH

CLEAN HANDS.
The doctrine states that “those seeking equity must do equity” or “a person is expected to approach
the court with clean hands”.93 It is settled law that a person who approaches the Court for granting
87
Id.
88
Id.
89
¶ 10, Pg. 3 of the Moot Proposition
90
Id.
91
Income Tax Rules, 1962, Rule 10U(a)
Available at: https://www.incometaxindia.gov.in/pages/rules/income-tax-rules-1962.aspx (Accessed on 28th August,
2020 at 4:00 AM)
92
93
V. Chandrasekaran v. Administrative Officer, (2013) 4 SCC (Cri) 587

relief, equitable or otherwise, is under a solemn obligation to candidly & correctly disclose all the
material/important facts which have bearing on the adjudication of the issues raised in the case. 94
He owes a duty to the court to bring out all the facts and desist from concealing/suppressing any
material fact within his knowledge or which he could have known by exercising diligence expected
of a person of ordinary prudence. 95 If a petitioner is found guilty of concealment of material facts
or making an attempt to pollute the pure stream of justice with his tainted hands, the court not only
has the right but a duty to summarily deny relief to such person to prevent an abuse of the process
of law and reject the Petition/Appeal on this ground alone without going to the merits of the case. 96
The Apex Court has repeatedly invoked and applied the rule that a person who does not disclose
all material facts has no right to be heard on the merits of his grievance. 97
In the case of Babu Lal v. Director of Income Tax,98 this doctrine was further elaborated and the
court held thus: “When a person approaches a Court of equity in exercise of its extraordinary
jurisdiction under Art. 226/227 of the Constitution, he should approach the Court not only with
clean hands but also with clean mind, clean heart and clean objective.”
Writ jurisdiction though discretionary in nature is an equitable jurisdiction meant to do justice to

the parties and remedy to injustice suffered by the petitioner at the hands of the Government/State,
but concealment of material facts can disentitle a petitioner from seeking relief under a
discretionary remedy. 99
In the present case the petitioner has mala fide objective of escaping tax liability by adoption of
buy-back scheme. The petitioner has intentionally and deliberately suppressed the material facts
94
Inder Chand Jain, Doctrine of Clean Hands in Taxation Proceedings, TaxGuru (Complete Tax Solution) 28th July,
2015
Available at: https://taxguru.in/income-tax/doctrine-clean-hands-taxation-proceedings.html (Accessed on 28th
August, 2020 at 6:00 AM)
95
Id.
96
S.P. Chengalvaraya Naidy vs. Jagannath, AIR 1994 SC 853 at Pg. 855; S.P. Chengalvaraya Naidu (dead) by L.Rs.
v. Jagannath (dead) by LRs. and ors., (1994) 1 SCC 1; Agricultural and Processed Food Products v. Oswal Agro
Furane and ors., (1996) 4 SCC 297; UoI and ors. v. Muneesh Suneja, (2001) 3 SCC 92; Prestige Lights Ltd. v. State
Bank of India, (2007) 8SCC 449; Sunil Poddar and others v. Union Bank of India, (2008) 2 SCC 326; K.D. Sharma
v. Steel Authority of India Ltd. and ors., (2008) 12 SCC 481; G. Jayshree and ors. v. Bhagwandas S. Patel and ors.,
(2009) 3 SCC 141 and C.A. No. 5239/2002 – Dalip Singh v. State of U.P. and ors., decided on 3.12.2009.
97
Id.
98
Babu Lal v. Director of Income Tax (2006) 281 ITR 0070, (2005) 147 Taxman 0318
99
Avenue Realities and Developers Private Limited vs. Appropriate Authority of IT Department, (2012) 80 CCH
0124

as the scheme was without any commercial rationale and was adopted to obtain tax benefit only.
And the said company along with its shareholders has obtained tax benefit of Rs. 16.40 cr.
collectively.100 Justice is based on truth and truth cannot be trampled by an act of fraud.101
Therefore, the writ petition filed by the petitioners ought to be dismissed as they have not
approached the court with clean hands but also with clean mind, clean heart and clean objective.
100
101
Commissioner of Income Tax v. Electronic Research Ltd. & Anr. (2003) 262 ITR 361, (2003) 130 TAXMAN 216

PRAYER
In the light of the issues raised, arguments advanced and authorities cited, the Counsel for the
Respondent humbly prays before this Hon’ble High Court of Bombay to kindly adjudge and
declare:
1. That the Petition filed by the Petitioners is frivolous and immature and hence, same must
be dismissed;
2. That the arrangement adopted by the Petitioners comes under the purview of Impermissible
Avoidance Arrangement U/S 96(1) of the Act.
3. That the scheme of Buy-Back was introduced for the simple purpose of escaping the tax
liability. And they should be made to pay an amount of INR 16.71 crores that they have
escaped, under the veil of Buy-back scheme.
And pass any other order, direction, or relief that it may deem fit in the best interests of Justice,
Fairness, Equity and Good Conscience.
For this act of kindness, the Respondent shall duty bound forever pray
Most Respectfully Submitted
Sd/-
Counsel for Respondent

Moot Memo On GAAR Provision

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4TH THE CHAMBER OF TAX CONSULTANTS

NATIONAL ONLINE MOOT COURT COMPETITION, 2020

4TH THE CHAMBER OF TAX CONSULTANTS

NATIONAL ONLINE MOOT COURT COMPETITION, 2020

IN THE PROCEEDING BETWEEN

SINGHANIA PVT. LTD. (SPL)……………………………….………...……. PETITIONERS

INCOME TAX DEPT.……………………………………………………. ….. RESPONDENT

MOST RESPECTFULLY SUBMITTED

COUNSEL APPEARING ON BEHALF OF THE RESPONDENT

-MEMORIAL ON BEHALF OF RESPONDENT-

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE I

LIST OF ABBREVIATIONS ......................................................................................................... IV

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE II

C. THAT THE ARRANGEMENT WAS CARRIED OUT WITH MALAFIDE INTENTION OF

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE III

AIR All India Report

CIT Commissioner of Income Tax

CTR Currency Transaction Reports

CBDT Central Board of Direct Taxes

DTR Daily Tax Report

DDT Dividend Distribution Tax

GAAR General Anti-Avoidance Arrangement

IT Act Income Tax Act

ITAT Income Tax Appellate Tribunal

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE IV

ITO Income Tax Officer

ITR Income Tax Report

ITD Income Tax Tribunal Decisions

PCIT Principle Commissioner of Income Tax

P&H Punjab & Haryana

SPL Singhania Private Limited

SCC Supreme Court Cases

U/S Under Section

UOI Union of India

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE V

1. ACIT v. Banswara Syntex Ltd .................................................................................................... 2

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VI

31. Sunil Poddar and others v. Union Bank of India ........................................................................ 18

1. Income Tax Act,1961.................................................................................................................. 1

III. OTHER AUTHORITIES

1. Deloitte, General Anti-Avoidance Rules (GAAR) India and International Experience

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VII

1. Income Tax Rules, 1962 ........................................................................................................... 16

VI. FOREIGN CASES

1. Coates v. Arundale Properties Ltd ............................................................................................. 15

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE VIII

2. Companlia General de Tabacos de Filipians v. Collector of Internal Tax Revenue ..................... 13

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE IX

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE X

I. INTRODUCTION OF BUY-BACK SCHEME

II. TAX LIABILITY DISCHARGED ON SPL

III. GENERAL ANTI-AVOIDANCE AGREEMENT (GAAR)

IV. OBJECTIONS AND REASONING BY THE ASSESSES

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XI

V. PRINCIPLE COMMISSIONER OF INCOME- TAX (PCIT)

VI. APPROVING PANEL (AP)

VII. HIGH COURT

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XII

1. WHETHER THE WRIT PETITION IS MAINTAINABLE BEFORE THE HIGH COURT

2. WHETHER THE SAID ARRANGEMENT COMES UNDER THE PURVIEW OF

IMPERMISSIBLE AVOIDANCE ARRANGEMENT AS PER § 96(1) OF THE INCOME

3. WHETHER THE BUY-BACK SCHEME WAS INTRODUCED TO ESCAPE TAX

MEMORIAL ON BEHALF OF THE RESPONDENT PAGE XIII