The issue of the General Anti Avoidance Rule (GAAR) has dominated the news recently and there are fears that GAAR will discourage foreign investment in India. However, tax avoidance can hinder public finance objectives and it is in this context GAAR was introduced in this year’s Budget. Last week, the Finance Minister pushed back the implementation of GAAR by a year. What is GAAR? GAAR was first introduced in the Direct Taxes Code Bill 2010. The original proposal gave the Commissioner of Income Tax the authority to declare any arrangement or transaction by a taxpayer as ‘impermissible’ if he believed the main purpose of the arrangement was to obtain a tax benefit. The 2012-13 Finance Bill (Bill), that was passed by Parliament yesterday, defines ‘impermissible avoidance arrangements’ as an arrangement that satisfies one of four tests. Under these tests, an agreement would be an ‘impermissible avoidance arrangement’ if it (i) creates rights and obligations not normally created between parties dealing at arm’s length, (ii) results in misuse or abuse of provisions of tax laws, (iii) is carried out in a way not normally employed for bona fide purpose or (iv) lacks commercial substance. As per the Bill, arrangements which lack commercial substance could involve round trip financing, an accommodating party and elements that have the effect of offsetting or cancelling each other. A transaction that disguises the value, location, source, ownership or control of funds would also be deemed to lack commercial substance. The Bill as introduced also presumed that obtaining a tax benefit was the main purpose of an arrangement unless the taxpayer could prove otherwise. Why? GAAR was introduced to address tax avoidance and ensure that those in different tax brackets are taxed the correct amount. In many instances of tax avoidance, arrangements may take place with the sole intention of gaining a tax advantage while complying with the law. This is when the doctrine of ‘substance over form’ may apply. ‘Substance over form’ is where real intention of parties and the purpose of an arrangement is taken into account rather than just the nomenclature of the arrangement. Many countries, like Canada and South Africa, have codified the doctrine of ‘substance over form’ through a GAAR – type ruling. Issues with GAAR A common criticism of GAAR is that it provides discretion and authority to the tax administration which can be misused. The Standing Committee responded to GAAR in their report on the Direct Taxes Code Bill in March, 2012. They suggested that the provisions should ensure that taxpayers entering genuinely valid arrangements are not harassed. They recommended that the onus should be on tax authorities, not the taxpayer, to prove tax avoidance. In addition, the committee suggested an independent body to act as the approving panel to ensure impartiality. They also recommended that the assessing officer be designated in the code to reduce harassment and unwarranted litigation. GAAR Amendments On May 8, 2012 the Finance Minister amended the GAAR provisions following the Standing Committee’s recommendations. The main change was to delay the implementation of GAAR by a year to “provide more time to both taxpayers and the tax administration to address all related issues”. GAAR will now apply on income earned in 2013-14 and thereafter. In addition, the Finance Minister removed the burden upon the taxpayer to prove that the main purpose of an alleged impermissible arrangement was not to obtain tax benefit. These amendments were approved with the passing of the Bill. In his speech, the Finance Minister stated that a Committee had also been formed under the Chairmanship of the Director General of Income Tax. The Committee will suggest rules, guidelines and safeguards for implementation of GAAR. The Committee is expected to submit its recommendations by May 31, 2012 after holding discussions with various stakeholders in the debate.
The ongoing Monsoon Session of Parliament is being widely viewed as the 'make or break' session for passing legislation before the end of the 15th Lok Sabha in 2014. Hanging in balance are numerous important Bills, which will lapse if not passed before the upcoming 2014 national elections. Data indicates that the current Lok Sabha has passed the least number of Bills in comparison to other comparable Lok Sabhas. The allocated time to be spent on legislation in the Monsoon Session is also below the time recommended for discussion and passing of Bills by the Business Advisory Committee of the Lok Sabha. Eight out of a total of 16 sittings of the Monsoon Session have finished with only 15 percent of the total time spent productively. Success rate of the 15th Lok Sabha in passing legislation India’s first Lok Sabha (1952-1957) passed a total of 333 Bills in its five year tenure. Since then, every Lok Sabha which has completed over three years of its full term has passed an average of 317 Bills. Where a Lok Sabha has lasted for less than 3 years, it has passed an average of 77 Bills. This includes the 6th, 9th, 11th and 12th Lok Sabhas. The ongoing 15th Lok Sabha, which is in the fifth year of its tenure, has passed only 151 Bills (This includes the two Bills passed in the Monsoon Session as of August 18, 2013). In terms of parliamentary sessions, Lok Sabhas that have lasted over three years have had an average of fifteen sessions. The 15th Lok Sabha has finished thirteen parliamentary sessions with the fourteenth (Monsoon Session) currently underway. 
Legislative business accomplished in the 15th Lok Sabha For the 15th Lok Sabha, a comparison of the government's legislative agenda at the beginning of a parliamentary session with the actual number of Bills introduced and passed at the end of the session shows that: (i) on average, government has a success rate of getting 39 percent of Bills passed; and (ii) on average, 60 percent success rate in getting Bills introduced. 
The Monsoon Session of Parliament was scheduled to have a total of 16 sitting days between August 5-30, 2013. Of the 43 Bills listed for consideration and passage, 32 are Bills pending from previous sessions. As of August 18, 2013, the Rajya Sabha had passed a total of five Bills while the Lok Sabha had passed none. Of the 25 Bills listed for introduction, ten have been introduced so far. The Budget Session of Parliament earlier this year saw the passage of only two Bills, apart from the appropriation Bills, of the 38 listed for passing. These were the Protection of Women Against Sexual Harassment at Workplace Bill and the Criminal Law (Amendment) Bill. Time allocated for legislation in the Monsoon Session The Lok Sabha is scheduled to meet for six hours and the Rajya Sabha for five hours every day. Both houses have a question hour and a zero hour at the beginning of the day, which leaves four hours for legislative business in the Lok Sabha and three hours in the Rajya Sabha. However, both Houses can decide to meet for a longer duration. For example, Rajya Sabha has decided to meet till 6:00 PM every day in the Monsoon Session as against the normal working hours of the House until 5:00 PM. The Business Advisory Committee (BAC) of both Houses recommends the time that should be allocated for discussion on each Bill. This session's legislative agenda includes a total of 43 Bills to be passed by Parliament. So far, 30 of the Bills have been allocated time by the BAC, adding up to a total of 78 hours of discussion before passing. If the Lok Sabha was to discuss and debate the 30 Bills for roughly the same time as was recommended by the BAC, it would need a minimum of 20 working days. In addition, extra working days would need to be allocated to discuss and debate the remaining 13 Bills. With eight sitting days left and not a single Bill being passed by the Lok Sabha, it is unclear how the Lok Sabha will be able to make up the time to pass Bills with thorough debate.
