INCOME TAX ACT 1967 (ACT 53) PART X - SUPPLEMENTAL Chapter 2- Controlled companies and powers to protect the revenue in case of certain transactions
Section 140. Power to disregard certain transactions.
(1) The Director General, where he has reason to believe that any transaction has the direct or indirect effect of-
(a) altering the incidence of tax which is payable or suffered by or which would otherwise have been payable or suffered by any person;
(b) relieving any person from any liability which has arisen or which would otherwise have arisen to pay tax or to make a return;
(c) evading or avoiding any duty or liability which is imposed or would otherwise have been imposed on any person by this Act; or
(d) hindering or preventing the operation of this Act in any respect,
may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such adjustments as he thinks fit with a view to counter-acting the whole or any part of any such direct or indirect effect of the transaction.
(2) In exercising his powers under this section, the Director General may-
(a) treat any gross income from any source of any person either as the gross income and source of any other person or, where the gross income is that of a controlled company, as having been distributed to any member (within the meaning of subsection 139(7)) of that company;
(b) make such computation or recomputation of any gross income, adjusted income or adjusted loss, statutory income, aggregate income, total income or chargeable income of any person or persons as may be necessary to revise any person's liability to tax or impose any liability to tax on any person in accordance with his exercise of those powers; and
(c) make such assessment or additional assessment in respect of any person as may be necessary in consequence of his exercise of those powers, nullify a right to repayment of tax or require the return of a repayment of tax already made.
(3) Without prejudice to the generality of the foregoing subsections, the powers of the Director General conferred by this section shall extend-
(a) to the charging with tax of any person or persons who but for any adjustment made by virtue of this section would not be chargeable with tax or would not be chargeable with tax to the same extent; and
(b) to the charging of a greater amount of tax than would be chargeable but for any such adjustment.
(4) Where in accordance with this section the Director General requires from a person the return of the amount of a repayment of tax already made-
(a) the Director General shall give to that person a notice of that requirement and the notice shall be treated as a notice of assessment for the purposes of any appeal therefrom, the provisions of Chapter 2 of Part VI applying with any necessary modifications; and
(b) that amount shall be deemed to be tax payable under an assessment and section 103 or 103A and the other provisions of Part VII shall apply accordingly.
[Am. Act A1151:s.24]
(5) Where in consequence of any adjustment made under this section an assessment is made, a right to repayment is refused or a return of a repayment of tax is required, particulars of the adjustment shall be given with the notice of assessment, with the notice refusing the repayment or with the notice requiring the return of a repayment, as the case may be.
(6) Transactions-
(a) between persons one of whom has control over the other;
(b) between individuals who are relatives of each other; or
(c) between persons both of whom are controlled by some other person,
shall be deemed to be transactions of the kind to which subsection (1) applies if in the opinion of the Director General those transactions have not been made on terms which might fairly be expected to have been made by independent persons engaged in the same or similar activities dealing with one another at arm's length.
(7) Notwithstanding any other provision of this section, where a transaction to which this section relates consists of a settlement on a relative or on a relative and other persons, nothing in this section and no powers exercised thereunder shall affect the interests of the relative under the settlement.
(8) In this section-
"relative" means a parent, a child (including a stepchild and a child adopted in accordance with any law), a brother, a sister, an uncle, an aunt, a nephew, a niece, a cousin, an ancestor or a lineal descendant;
"transaction" means any trust, grant, covenant, agreement, arrangement or other disposition or transaction made or entered into orally or in writing (whether before or after the commencement of this Act), and includes a transaction entered into by two or more persons with another person or persons.
