s.99 — Treatment of connected persons and accommodating parties
The short provision that says what follows from a finding that a party is connected or accommodating, and the reason the definitional argument under section 97 is worth having.
Every limb of the section is permissive. The definition of an accommodating party sits in section 97(3) of the 1961 Act but moves to section 184(1) of the Income-tax Act, 2025. Connected person is defined in section 102(4), which opens with a general test and then an inclusive list, so it is not exhaustive.
Income-tax Act, 1961
s.99
Income-tax Act, 2025
s.182
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 99 of the Income-tax Act, 1961 provides that for the purposes of the Chapter, in determining whether a tax benefit exists, parties who are connected persons in relation to each other may be treated as one and the same person, an accommodating party may be disregarded, the accommodating party and any other party may be treated as one and the same person, and the arrangement may be considered or looked through by disregarding any corporate structure. Every limb is permissive: the section says "may", not "shall". It operates at the stage of deciding whether a tax benefit exists, which is also the measure the three crore threshold in rule 10U is applied to, so whether a section 99 aggregation can itself carry an arrangement over that threshold is a live question, taken up below. The powers it confers are repeated among the consequences in section 98(1), at clauses (c), (d) and (g), which is why a finding under this section can matter twice over. The corresponding provision in the Income-tax Act, 2025 is section 182.
What the provision does
Supplies the consequences of the connected person and accommodating party findings at the stage of deciding whether a tax benefit exists, and feeds those findings into the measure the monetary threshold is applied to. It does not define either term, both of which sit elsewhere, and it compels nothing: each limb is expressed as a power rather than a duty, and nothing in the section says which limb to choose or on what the choice turns.
Threshold questions
- Whether the connected person or accommodating party finding was itself made, as a finding with reasons, before the section 99 consequence was applied to it
- Whether the order states which limb of section 99 it is applying, disregard or merger, and why that limb rather than another, every limb being expressed as a power rather than a duty
- Whether a merger made under section 99 to find that a benefit exists is also carried into the computation, which is a separate exercise under section 98(1)(d)
- Whether the connected person finding is used only to decide that a benefit exists, which is the stage section 99 operates at, or is carried over into the assessment of a person who is not before the Assessing Officer
- Whether disregarding the corporate structure is necessary on the facts, or is being used to reach a group position the Revenue could not reach directly
In practice
The recurring disputes.
Whether "may" leaves a real discretion
Each limb of section 99 is permissive. The taxpayer's argument is that Parliament chose "may" deliberately, so the Assessing Officer must address his mind to whether the consequence is appropriate on the facts, and an order that treats a connected person finding as automatically collapsing two taxpayers into one has not exercised the power at all. The Revenue's argument is that the permissive form simply confers the power, that no criteria are laid down because the section is machinery within the larger enquiry, and that the discretion is exercised by the decision to apply the Chapter. No decision addresses it.
Aggregation and the monetary threshold
Because section 99 operates in determining whether a tax benefit exists, the aggregation it permits can be what lifts an arrangement over the three crore floor in rule 10U. The taxpayer's argument is that a threshold meant to keep small arrangements out of the Chapter cannot be crossed by invoking a power that only exists once the Chapter applies, which is circular. The Revenue's argument is that rule 10U measures the benefit in aggregate to all the parties in any event, so section 99 adds nothing the rule did not already require. The interaction between the two has not been worked out in any decision.
Looking through a corporate structure
The fourth limb allows the arrangement to be looked through by disregarding a corporate structure, and section 98(1)(g) repeats the power among the consequences. The taxpayer's argument is that separate corporate personality is a matter of general law which a tax provision should be read as displacing only so far as its words require, and that the limb is directed at establishing whether a benefit exists rather than at rewriting ownership. The Revenue's argument is that the power appears twice, once in determining the benefit and once among the consequences, which shows Parliament intended it to be available at both stages. How far it goes is undecided.