Section 98 of ITA, 1961 : Section 98: Consequences Of Impermissible Avoidance Arrangement

Explanation using Example

Example Application of Section 98 of The Income-tax Act, 1961

Consider a scenario where Company A, based in India, sets up a subsidiary, Company B, in a country with a lower tax rate. Company A then sells its intellectual property (IP) to Company B at a low price, allowing Company B to license the IP back to Company A at a much higher price. This arrangement is designed to shift profits to the lower-tax jurisdiction, thus reducing Company A's tax liability in India.

The Indian tax authorities investigate this arrangement and determine that it is primarily aimed at tax avoidance...

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