Which of the following statements regarding the General Anti-Avoidance Rules (GAAR) and Tax Treaties in India is/are correct?
1. The Supreme Court has ruled that a Tax Residency Certificate (TRC) is absolute and conclusive proof to claim Double Taxation Avoidance Agreement (DTAA) benefits, overriding GAAR.
2. GAAR empowers tax authorities to deny tax benefits if a transaction is found to lack commercial substance and is structured primarily for tax avoidance.

Question

Accepted Answer

B. 2 only — Statement 1 is incorrect because the Supreme Court established that GAAR can override a TRC if the transaction lacks commercial substance. Statement 2 is correct as it defines the core principle of GAAR, which prioritizes substance over form to prevent treaty shopping and tax evasion.

SC Rules GAAR Overrides Tax Treaty Exemptions

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