Global Business Tax Alerts
CBDT issues clarifications on computation of book profit for the purpose of MAT for Ind AS compliant companies
July 2017: The CBDT has cleared the air on the treatment of various Ind AS adjustments for the purposes of computing book profit under MAT and taxpayers would certainly welcome them. However, certain issues still remain unclear such as change in accounting policy for recognition of ESOP expenditure from intrinsic value to fair value, leading to recognition of additional liability through retained earnings upon transition, adjustment for prior period items etc.
CBDT issues modified circular clarifying no TDS with respect to component of GST on services
July 2017: The CBDT clarification through the above circular is timely and welcome. In line with the introduction of a new tax regime for indirect taxes on services, the CBDT has extended its rationale for excluding taxes from the purview of tax deduction at source for payments to residents.
CBDT issues final notification amending Rule 11UA in respect of valuation of unquoted equity shares
July 2017: The final notification is broadly in line to the draft notification issued on 5 May 2017. While the CBDT has now aligned the valuation of preference shares for the purposes of section 50CA, as per existing valuation rules under Rule 11UA(1)(c)(c), difficulties may arise with respect to valuation of unquoted equity shares in certain cases. For instance, practical difficulties may arise for valuation of equity shares in cases of cross holding, valuing investment in unquoted equity shares of investee companies, which in turn hold immovable property/jewelry, etc.
Alienation of shares of Indian company by Dutch company covered under Article 13(5) of India-Netherlands DTAA, thus, not taxable in India: High Court
July 2017: The ruling of the Andhra Pradesh and Telangana High Court in upholding the legal distinction between the concept of ‘share sale’ as opposed to an ‘asset sale’ is in line with the law laid down by the Hon’ble Supreme Court in the case of Vodafone International Holdings B.V.
India signs multilateral instrument and submits provisional list of reservations and notifications
July 2017: The MLI is a big step in the BEPS implementation process. The provisional list of reservations and notifications made by India and by other countries, has provided insights on how Indian tax treaties will shape up in the BEPS world. It needs to be seen if India makes any further changes in the provisional list of reservations and notifications.
- India signs multinational instrument for implementation of BEPS actions | Listen to the recorded webcast
- Ahmedabad Tribunal confirms payment made for sharing of standard operating procedures developed over a period of time as ‘royalty’ under Article 13 of India Germany tax treaty
- CBDT releases final notification under the amended provisions of section 10(38) of the Income-tax Act, 1961
- Delhi ITAT rejects depreciation claim on ‘government authorization / approvals’, non-compete fees and goodwill
- Calcutta High Court denies addition of waived interest income even where the taxpayer maintains accounts on mercantile basis
- Delhi High Court upholds benefit of deduction for export of data processing/ IT enabled data processing services under Section 10A/10AA.
- In the case of Hyundai Motor India Ltd v. DCIT  (81 taxmann.com 5) ITAT Chennai has held that there is no liability to withhold tax on interest paid to foreign banks
- The Delhi High Court in the case of Krishak Bharati Cooperative Ltd.(the taxpayer)1 held that foreign tax credit (‘FTC’) is available in respect of dividend income received from Oman company even though no taxes thereon have been paid in Oman under its domestic law.
- In the case of Palam Gas Service, the Apex Court of India has held that expense disallowance on account of non-withholding or non-deposit of tax withheld, would be triggered even if the payment has already been made.
- The Central Board of Direct Taxes (‘CBDT’) released draft rules on valuation of unquoted equity shares
- The Apex Court of India in the case of Godrej & Boyce Manufacturing Company Ltd. (‘the taxpayer’) held that disallowance under 2Section 14A of the Income-tax Act, 1961 (‘the Act’) shall be applicable on dividend income liable to dividend distribution tax under the Act.
- The Mumbai High Court in the case of Marks & Spencer Reliance India Pvt. Ltd., has held that the cost reimbursement made by the taxpayer to the overseas entity under a secondment agreement is not chargeable to tax in India.
- The Tribunal in the case of Pearl Logistics & Ex-IM Corporation has held that income of a foreign shipping company, whose place of effective management (POEM) and control is situated wholly outside India, is not taxable in India under the India-Denmark tax treaty
- The Apex Court of India in the case of Formula One World Championship Ltd.(FOWC) has laid down the guiding principles for qualifying as a ‘Permanent Establishment’ (‘PE’) in India.
- The Ahmedabad Bench of ITAT in the case of Saira Asia Interiors (P.) Ltd. has held that royalty income of a non-resident (‘NR’) is taxable on receipt basis under India-Italy tax treaty.
- Central Board of Direct Taxes (‘CBDT’) 1notifies procedures, formats and standards for E-proceedings for communication between the taxpayer and the Income Tax Authority (‘ITA’).
- The Bangalore Tribunal in the case of Fidelity Business Services India Pvt. Ltd. has held that claim for capital gains exemption by the Mauritius holding company towards buy back of shares needs to be substantiated by evidence that buy back price is not artificially inflated.
- The Delhi Tribunal, in the case of Reebok India Company [ITA Nos. 954 and 1620/Del/2016] held that payment made by the taxpayer as 'Rights fee' was exclusively for use of marks for the purposes of promotion and advertisement and not for manufacture and sale of licensed products. Therefore, the payments were not in nature of 'royalty' or 'fees for technical services' (‘FTS’).
- The Ahmedabad bench of the Tribunal in the case of Burt Hill Design (P.) Ltd. , has held that the cost reimbursement payment made by the taxpayer to its overseas holding company under an employee secondment agreement, is not chargeable to tax in India.
- The Apex Court of India in the case of Berger Paints India Ltd1. has clarified that the term “capital employed in the business of the company” shall not include amount collected by the taxpayer on account of security premium on issue of share capital for claiming deduction under Section 35D of the Income Tax Act, 1961 (“the Act”).
- The Bangalore Tribunal in the case of Flughafen Zurich AG vs. Deputy Director of Income-tax (International Taxation) (IT(IT)A Nos. 1525/Bang/2010, 1437,1438/Bang/2013, 244/Bang/2015), held that the payments made to foreign company towards reimbursement of salary for services provided by the seconded employees to India should be taxable as Fees for Technical Services (‘FTS’) under India-Swiss Tax Treaty (‘Tax Treaty’).
- India Budget – Proposed amendments to the Finance Bill, 2017 as tabled before the Lok Sabha and approved
- CBDT issues guidelines for waiver of interest charged in case of failure to deduct tax at source in select circumstances
- In the case of Standard Chartered Grindlays Pty Ltd. (ITA No. 3578/Del/2013), the Delhi Tribunal held that interest on monies borrowed by the Indian branch from its head office outside India is not a tax deductible expense both under the domestic tax law as well as under India-UK Double Taxation Avoidance Agreement.
- The Mumbai Tribunal in the case of Atos Information Technology HK Ltd. v. DCIT (I.T.A. No. 237-240/Mum/2016), held that payments received by the taxpayer for data processing support through a network of computers systems in Hong Kong is not taxable as royalty under section 9(1)(iv) of the Income Tax Act (‘the Act’) or as Fees for Technical Service (‘FTS’) under section 9(1)(vii) of Act.
- CBDT issues clarifications on Income Computation and Disclosure Standards (‘ICDS’)
- The Delhi Tribunal in the case of Cairn UK Holdings Limited (ITA No. 1669/Del/2016), rejecting the argument of the taxpayer that the transaction is a genuine case of group restructuring, held that transfer of shares of a foreign company deriving its value solely from the assets located in India, is deemed to be situated in India and therefore, capital gains arising on the same is taxable in India.
- In the case of JSW Steel Limited (‘the taxpayer’) v. ACIT, reported in ITA No. 923/Bang/2009, the Mumbai Tribunal has held that capital surplus in respect of waiver of loan amount is in the nature of capital receipt and can neither be considered as taxable income under the normal provisions of the Income Tax Act, 1961 (‘the Act’), nor be included in the computation of book profit under section 115JB of the Act.
- The Delhi Tribunal in the case of Stryker Global Technology Center (P.) Ltd. vs. Assistant Commissioner of Income-tax (ITA No. 149/Delhi/2013), held that the rent equalization reserve, which was debited to the profit and loss account is not in accordance with Accounting Standard 19. The reserve be added back while computing book profit under section 115JB of the Income-tax Act, 1961 (‘the Act’), the Tribunal said.
- The Supreme Court dismissed the Special Leave Petition of the Revenue in the case of Sardar Sarovar Narmada Nigam Ltd. (CC No. 3018/2017) filed against the order of the High Court wherein the High Court held that in a project where different activities are integral part of the business, the taxpayer’s business shall be considered to have been set-up when first of the activities has commenced.
- The Supreme Court in the case of Director of Income-tax (IT) vs. A.P. Moller Maersk A S, held that cost reimbursed by Indian agents for utilizing global telecommunication facility cannot be treated as fees for technical services and therefore not taxable.
- The Madras High Court, in the case of CIT v. Vinzas Solutions India Private Ltd. (77 taxmann.com 279), held that income from purchase and sale of software is not in the nature of royalty under section 9(1)(vi) of the Income-tax Act, 1961 (“ITA”) as it amounts to a transaction for sale of ‘copyrighted article’ and not of ‘copyright’ itself’.
- Rationalization of MAT provisions for Ind AS compliant companies
- The Mumbai Tribunal in the case of Goldgerg Finance Pvt. Ltd. v. ACIT (I.T.A. No. 7496/Mum/2013), held that while computing book profit under section 115JB of the ITA, the deduction in respect of the share of the taxpayer in the income of an AOP, inserted vide Finance Act, 2015 w.e.f. 1 April 2016, shall be applicable retrospectively as it is curative in nature.
- The Permanent Account Number (PAN) and the Tax Deduction and Collection Account Number (TAN) can now be applied through a common application form along with incorporation of company.
- The Special Bench of the Hyderabad Tribunal in the case of Nagarjuna Fertilizers and Chemicals Limited (78 taxmann.com 264) has held that the provisions of the Double Taxation Avoidance Agreement, to the extent they are beneficial to the taxpayer, will override the machinery provisions of section 206AA by virtue of section 90(2) of the Income-tax Act, 1961.
- The Delhi Tribunal, in the case of GE Energy Parts Inc. v. ADIT (78 taxmann.com 2), held that liaison office of one of the group entity constituted taxpayer’s as well as other GE overseas entities fixed place permanent establishment (“PE”) and that GE India comprising of expatriates deputed to India and employees of Indian entity constituted dependent agency PE. The Tribunal further upheld the reassessment proceedings initiated by the Assessing Officer.
- The Ahmedabad Tribunal, in the case of DCIT v. Welspun Corporation Ltd. (77 taxmann.com 165), held that commission paid to non-resident export commission agents is not taxable in India and accordingly withholding tax provisions are not applicable. The Tribunal further held that such services are not in the nature of fees for technical services.
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- The Supreme Court, in the case of CIT v. Best Corporation Ltd. (76 taxmann.com 295), held that initial assessment year under section 80-IA(5) would only mean year of claim of deduction under section 80-IA and not year of commencement of eligible business; the taxpayer has an option to choose first/initial assessment year of claim for deduction.
- The Bangalore Tribunal, in the case of Karnataka State Industrial Infrastructure Development Corporation Ltd. (‘the assessee company’) v. DCIT reported in  (76 taxmann.com 360) has held that the assessee is entitled to the benefit of indexation while computing long term capital gains exempt under section 10(38) of the Income-tax Act, 1961 (‘ITA’) for the purposes of computing book profits under section 115JB of the ITA.
- The Government of India and Republic of Singapore have signed the third protocol for amendment of the Double Taxation Avoidance Agreement between the two countries.
- The Supreme Court, in the case of Jeans Knit Private Limited v. DCIT (Civil Appeal No. 11189/2016) and other cases has held that writ petitions filed before the High Courts (‘HC’) challenging the re-assessment notices issued under section 148 of the Income-tax Act, 1961 (‘ITA’) are valid. The Supreme Court also directed the respective HCs to decide the writ petitions on merits.
- The Authority for Advance Rulings (AAR) in the case of Banca Sella (AAR No. 1130 of 2011) has, inter alia, held that the Indian branch office of a foreign company is a capital asset for tax purposes. However, the transfer of such branch office in a scheme of amalgamation between two foreign companies would not be chargeable to tax as capital gains, in the absence of any consideration (in which case the computation mechanism fails). The AAR further upheld the applicability of non-discrimination clause (Article 25) of India-Italy tax treaty, pursuant to which a non-resident transferor can invoke exemption from capital gains under section 47(vi) of the Income-tax Act, 1961 in a scheme of amalgamation.
- CBDT issues circular streamlining process of issue of No Objection Certificate (‘NOC’), Port Clearance Certificate (‘PCC’), filing of voyage return, and voyage assessment in the case of Foreign Shipping Companies (FSCs) [CBDT Circular No. 30/ 2016 dated August 26, 2016]
- The Government of India (GOI) has issued a notification for completing the procedures for the Protocol to India-Mauritius Double Taxation Avoidance Agreement to enter into force, as required by the laws of the respective countries. The protocol shall come into force from 19 July 2016.
- The Delhi Income Tax Appellate Tribunal (the Tribunal) in the case of Iveco S.p.A. (72 taxmann.com 195) has held that in absence of any material to prove that the services were rendered by the appellant through its Branch Office in India, Royalty income earned by the appellant from provision of such services could not be said to be effectively connected with the Permanent Establishment of the appellant in India. Hence, the Royalty income was held to be taxable as per Article 13 of the India-Italy tax treaty, and not as business income.
- The Delhi Income Tax Appellate Tribunal (“the Tribunal”) in the case of Ion Geophysical Corporation (TS-455-ITAT-2016(Del)) has held that contract revenue arising to Assessee (a US company) from ‘offshore supplies’ is not taxable in India, FOB/ FCA delivery terms substantiate that title ‘passed outside India’.
- The Mumbai Income Tax Appellate Tribunal (the Tribunal) in the case of Capgemini SA (72 taxmann.com 58) has held that corporate guarantee commission received by the appellant from its Indian subsidiary companies does not arise in India. Thus, Article 23 (Other Income) of the India-France tax treaty has no applicability and the guarantee commission was held to be not taxable in the hands of the appellant in India. Separately, the Tribunal also ruled in favour of non-applicability of surcharge in addition to the tax rate specified in Article 13 of the tax treaty in respect of Royalty income earned by the appellant.
- The Delhi High Court in the case of Steria (India) Ltd. (72 taxmann.com 1) has held that Protocol forms an integral part of a DTAA. Accordingly, the ‘Most Favoured Nation’ (‘MFN’) clause (Clause 7) in the Protocol to the India-France DTAA is self-operational and does not require a separate notification from Central Government to be effective. Overruling the AAR's decision, the High Court, held that the amount paid to offshore service provider for provision of managerial services does not constitute ‘Fees for technical services’ (‘FTS’) by virtue of restricted scope/definition of FTS under the India-UK DTAA which must be read as forming part of India-France DTAA.
- Foreign Direct Investment in Other Financial Services
- Removal of mandatory warehousing requirement for EOUs, STPIs, EHTPs etc.
- The Central Board of Direct Taxes (‘CBDT’), vide Notification No.55/2016 [F.No. 142/26/2015-TPL]/SO 2226 (E), dated June 28, 2016, has notified Income-tax (19th Amendment), Rules, 2016 (Indirect transfer rules’) prescribing the manner of determination of fair market value in certain cases and reporting requirement for Indian concern.
- The Delhi High Court overruling the AAR's conclusion has held that the situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset. This is an internationally accepted rule, unless it is altered by local legislation. Hence, the offshore Brand –IP transfer by Fosters Australia to SAB Miller is not taxable under the domestic law (i.e. Income Tax Act, 1961).
- CBDT provides relief to investments in ‘startup’ companies – no tax on startup companies issuing shares above fair market value
- Amendments to Finance Bill, 2016 passed by the Lok Sabha and approved by the Rajya Sabha
- The Government of India and Mauritius release Protocol amending the Double Taxation Avoidance Agreement (“DTAA”) between India and Mauritius
- CBDT issues press release towards protocol for amendment of the Double Taxation Avoidance Agreement between India and Mauritius
- CBDT notifies draft rules for granting foreign tax credit under section 90 / 90A / 91 of the Income-tax Act, 1961
- Madras High Court dismisses writ petitions challenging the validity of section 94A of the Income-tax Act, 1961, Notification no. 86/2013 and Press Release issued by CBDT dated November 1, 2013 notifying Cyprus as non-cooperative jurisdiction
- Interest on tax refund is not covered by definition of 'interest' under article 12(4) of India-Italy tax treaty
- CBDT clarification on cases where returns filed by FII/FPIs not to be treated as defective
- Compliances on foreign remittances to undergo a change effective 1 April 2016
- Delhi Tribunal allows claim of expenditure on free samples given to doctors/medical practitioners
- Income from offshore services of a foreign company exempt under tax treaty cannot be charged to tax in India
- “Authority to guarantee” paid to finance company, to compensate for losses on credit assistance, are not commission/brokerage
- Capital gains exempt from tax to be excluded for the purpose of computing ‘accumulated profit’
- New India-Thailand tax treaty enters into force
- Income from distribution of news and information not taxable in India
- Gujarat High Court holds that ‘international traffic’ includes the journey of a vessel operating within Indian ports if it forms part of a larger international voyage
- MAT provisions are not applicable to nationalized banks not being a ‘company’. Amendment vide Finance Act, 2012 to bring all companies within MAT is applicable only with effect from AY 2013-14.
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- Consideration received for live coverage of audio-video visuals is neither ‘fees for technical services’ nor ‘royalty’
- Bangalore ITAT held that disallowance u/s 40(a)(i) cannot be made if payments are made without tax deduction on basis of nil tax withholding certificate issued u/s 195(2) of the Act
- Guidance notes on reporting requirements under rules 114F to 114H of the Income–tax Rules issued
- High Court has inherent power to review its own order
- Supreme Court holds that interest under Section 234B is leviable even if assessment order does not contain any direction for payment of such interest.
- High Court rules on sufficiency of Mauritius tax residency certificate to avail treaty benefits
- Lionbridge Technologies Private Limited (Mum ITAT)
- Mere passing of book entries which are subsequently reversed would not give rise to an obligation to withhold tax by the payer in case of transactions covered u/s 195
- Victory Aqua Farm Ltd. (Supreme Court)
- Bombay High Court holds that buyback of shares under a Scheme of Arrangement in accordance with section 391 read with section 100 – 103 of the Companies Act, 1956 is not a colourable device to evade tax
- Interest applicable for non-deduction of tax at source from year-end provision for expenses, despite provision being disallowed.
- CBDT prescribes guidelines and conditions for expediting disposal of condonation applications for delay in filing refund claim and claim of carry forward and set-off of losses
- Tribunal has power to grant extension of stay beyond 365 days in deserving cases where the delay in disposing the appeal is not attributable to the assesse – Delhi HC strikes down the third proviso to Section 254(2A) of the Act.
- CBDT issues directives to the Income tax Authorities for a prompt redressal of taxpayer’s grievances
- CBDT extends due date for filing Income-tax return for the Assessment Year 2015-16 from 31 July 2015 to 31 August 2015 for individuals, firms, trusts etc
- Explanation to Section 9 does not override the ‘source rule’ exclusion under section 9(1)(vii)(b) of the Act.
- Tribunal rules that no tax is required to be deducted on the additional liability arising on account of foreign exchange fluctuation at the time of payment
- Tribunal holds that Arranger fees are neither in the nature of interest as per section 2(28A) nor fees for technical services under section 9(1)(vii)
- Mumbai Tribunal holds that license fees and management charges do not fall within the purview of section 44C
- Discount given to Sim card distributors on prepaid cards and payment for roaming charges not liable for TDS
- Procedure simplified for grant of refund of wealth tax on account of retrospective amendment excluding ‘agricultural land’ from ‘Urban Land’.
- LTCL on sale of equity shares and mutual funds units (subject to securities transaction tax) not to be ignored in view of section 10(38) exemption, but can be set-off against taxable LTCG as per Section 70(3)
- Tribunal holds that fees under section 234E for default in furnishing TDS statements cannot be levied prior to 1 June 2015 in the absence of any enabling provision
- If the services do not enable the recipient to utilise the knowledge in future - No ‘make available’ and hence, not ‘Fees for technical services’ under India-US tax treaty. If the Associated Enterprise (‘AE’) is remunerated at arm’s length price – No profit attribution, even where AE is considered to be a Permanent Establishment
- Electronic Verification code (EVC) introduced to simplify validation of Income-tax Returns
- Activities relating to acquisition of 3D seismic data covered under section 44BB. Income from mobilisation and demobilisation of vessel outside India taxable as fees for technical services. Interest u/s 234B and 234C not chargeable to the non-resident
- Revenue expenditure is deductible from the date of ‘set-up of business’ and not from the date of ‘commencement of business’.
- JV formed to secure a contract (with scope of JV partner distinctly outlined and entire scope of work is split and fulfilled through subcontractors) – Not to be taxed as an ‘Association of Persons’
- If payee is not identified and amount payable is not ascertained, no tax is required to be deducted at source from the provision for expenses.
- Karnataka High Court rules that the DSIR is the final authority to decide whether or not, an activity constitutes scientific research
May - June 2015
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- SC rules that upfront interest payment on debentures is allowable in the year of payment and is not required to be deferred over the term of the debentures
- India Budget - Amendments to the Finance Bill, 2015
- Deeming provision in relation to indirect transfer not applicable to dividend declared and paid by foreign company outside India
- No capital gains at the time of roll over of the units of a Mutual Fund under the Fixed Maturity Plans
- Income computation & disclosure standards - notified
- India to exchange information with US and CRS countries. Indian Institutions to comply with FATCA and CRS
- Payments to a foreign company for activities inextricably connected with prospecting, extracting or production of mineral oils are taxable under section 44BB and not under section 44D of the Act
- CBDT issues directions to restrict and monitor the issuance of manual refund by Assessing officers
- Reassessment on same set of facts that were available at the time of original assessment constitutes a change of opinion and hence reassessment proceedings cannot be sustained
- India Budget 2015 – Amendments to MAT proposals
- In a major relief to FIIs, MAT proceedings put on hold by the Government
- Section 206AA of the Act does not override the provisions of DTAA
- CBDT notifies rules for FATCA and CRS compliance
- Landing and parking charges for Aircrafts are not for 'use of land' and hence not subject to TDS u/s 194-I of the Act
- Managerial services are not covered in the definition of FTS under Indo-UK Tax Treaty. Further for technical or consultancy services to fall under the definition of FTS, it must meet the condition of ‘make available’ technical knowledge, experience, etc.
- Withholding of taxes under a wrong provision may attract disallowance u/s 40(a)(ia)