Revenue Recognition Policy of Telecom Companies Attains Finality

The Indian telecommunications sector has experienced unprecedented growth in recent years due to the significant increase in the subscriber base, with an increasing percentage of them looking for pre-paid connections. The sector now reaches out to every nook and corner of the country. What is even more praiseworthy is the fact that this has been achieved at very low cost and consumers have also prospered from availing such services at one of the lowest charge-out rates.

The above was possible because Indian telecommunication players were able to come up with extremely innovative invoicing options and accordingly also adopted very different revenue recognition mechanisms. As most of the growth was seen in the pre-paid section, the revenue recognition methodology adopted by the industry was also subject to a vigorous amount of scrutiny by the tax authorities and there has been a significant amount of litigation on account of the same. The controversy primarily arose because the contracts entered into by the telecom companies with prepaid customers were large in numbers and got modified frequently. Continue Reading Revenue Recognition Policy of Telecom Companies Attains Finality

Interest Paid on Convertible Debentures - Income Tax Law

The recent Income Tax Appellate Tribunal (ITAT) Order in CAE Flight Training (India) Pvt. Ltd. (TS-440-ITAT-2019 (Bang)) clarifies how Compulsorily Convertible Debentures (CCDs) are to be treated under Income Tax Laws.

Before delving into the Order and what the ITAT said in making it, it is important to understand the legal context in which this question arose in the first place. To do this, we first need to understand the nature of a CCD. A debenture is a debt-based security that may or may not be secured against the assets of the company. Although debentures are undisputedly debt instruments, CCDs are debentures that are mandatorily converted into equity according to pre-determined terms at a pre-defined time. In the pre-conversion stage, the CCD holder is considered as a debtor by the company and is required to be paid interest on its investment. Post-conversion, the debt becomes equity capital in the company, which results in such investor earning dividends from its holdings. Continue Reading ITAT Puts On It’s Thin(king)-Cap – Treatment of Interest Paid on Compulsorily Convertible Debentures Under the Income Tax Laws

 

Insurance Compensation Outside India for Loss of Interest in Indian Subsidiary Not Taxable in India

 

In M/s Adidas India Marketing (P.) Ltd. v. Income Tax Officer,[1] the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that the insurance compensation received by the foreign parent due to loss of financial interest in its Indian subsidiary is not the subsidiary’s income as alleged by the tax officer and, therefore, is not taxable in India.

Facts

Adidas India Marketing (P.) Ltd. (Assessee) is an Indian company engaged in the business of sourcing, distributing and marketing products of the brand ‘Adidas’. Nearly all (98.99 %) of the Assessee’s equity is held by another Indian company, Adidas India Private Ltd. (Adidas India), which, in turn, is a subsidiary of a German company, Adidas AG, Germany (Adidas Germany). Continue Reading Insurance Compensation Outside India for Loss of Interest in Indian Subsidiary Not Taxable in India, Holds Delhi ITAT

 

ITAT on the Taxability of Transfer of Know-how Under Development

Research and development (R&D) in all fields is a costly affair, but more so in bio-technology, where molecules are first evolved, developed and then subjected to arduous and expensive clinical trials. Till such time that the molecule reaches the final stage, it is simply work-in-progress (WIP), even though the idea and formulation are valuable.

Further development of the WIP is even more expensive and needs an even larger source of funding. To brave cash crunches and the inherent risk of uncertainty in R&D, a common and relevant modus operandi for many WIP technologies is to transfer such WIP into another group company or a joint venture company. Such transfer is intended to facilitate further fine-tuning of the WIP until eligible for commercial exploitation, through licensing, manufacturing, production or processing. Continue Reading ITAT on the Taxability of Transfer of Know-how Under Development

 Are the Assets or monies distributed to retiring partners taxable

Disputes involving whether capital gains taxes are leviable on sums/assets paid to retiring partners has been a subject matter of litigation for several decades now. In order to bring clarity, the legislature introduced a new provision (i.e. section 45(4)) into the Income tax Act, 1961 (IT Act), which provided that capital gains tax should be levied in the hands of the partnership firm at the time of distribution of assets. This seems, however, to have further complicated the situation.

Bangalore Income Tax Appellate Tribunal (ITAT) in the case of Savitri Kudur[1] and the Madras High Court (HC) in the case of National Company[2] have delivered noteworthy decisions recently. The Bangalore ITAT held that the cash consideration paid to the retiring partner on the basis of the amount lying in his/her capital account would not be subject to capital gains tax under the IT Act by relying on the decision of the Supreme Court (SC) in the case of Mohanbhai Pamabhai[3]. The Madras HC, on the other hand, held that even the allotment of immovable properties to the retiring partners would not be subject to capital gains tax by relying on the same SC decision in the case of the Mohanbhai Pamabhai (supra). Continue Reading Never-Ending Saga: Are the Assets/Monies Distributed to Retiring Partners Taxable?

dual residence tax for Non Residential Indians NRIs

The concept of dual residence crucially affects taxation of non-resident Indians and individuals who travel frequently between India and other countries. India follows a residence-based taxation system for residents, i.e., an Indian resident is taxed on his global income. A non-resident is taxed on income which is sourced or accrued or received in India.

However, the confusion arises when an individual leaves the country and starts residing in another country under the laws of which he also becomes a resident in that other country in that year. Thus, the individual may become a ‘dual resident’ for tax purposes. Taxation of dual residents is resolved either under local laws or when there is a Double Taxation Avoidance Agreement (DTAA) executed between the two jurisdictions of which they are residents, through application of the tie breaker clause in the DTAA. Continue Reading The Dilemma of Dual Residence – Can Vital Interests Fluctuate Overnight?

 

cbdt direct tax

In the Chamber of Tax consultants & ors v. CBDT and Union of India)[1], the Hon’ble Bombay High Court (HC) set aside a portion of the Central Board of Direct Taxes’ (CBDT) action plan that sought to incentivise commissioners of income tax (Appeals) (CIT(A)) whose orders have led to enhanced tax demand from the tax payers. The HC noted that the proviso to the section 119 of the Income tax Act, 1961 (IT Act) specifically prohibits it from issuing any such directions to make a specific assessment or dispose a case in a particular manner.

Facts

Sometime back, the CBDT issued a Central Action Plan for the financial year 2018-19 (CAP) inter alia for the purposes of setting out targets for tax collection, fixing timelines for disposal of cases by income tax authorities and for awarding certain reward points for such disposals. However, since the said CAP proposed to incentivise CIT(A)s who were passing orders favouring the Government, it raised a huge issue and there were widespread protests against such a move. Continue Reading Bombay High Court Sets Aside CBDT’s Proposal to Reward CIT(A)s for Pro Revenue Orders

Indian Supreme Court Rectifies Mistake and Grants Benefit of Tax

 

To attract investment, industrial activities and improve economic development ,in certain states such as Himachal Pradesh, Uttaranchal, Sikkim and the states in the North-East, the Central Government has introduced a time-bound tax holiday, deducting 100% profit for the first five years and 25% of profits in subsequent five years under section 80-IC of the Income-tax Act, 1961 (IT Act).

This tax holiday is available to enterprises that have set up new units or carried out substantial expansion of existing units within a specified period (different dates apply for different states and regions). The conditions for availing the holiday are that the unit should operate or commence production, or manufacture specified articles, in these special category states. Continue Reading Supreme Court Rectifies Mistake and Grants Benefit of Tax Exemption

Conversion of Company into LLP - Income Tax Act

The business form of Limited Liability Partnership (LLP) became available in India when the Limited Liability Partnership Act, 2008 (LLP Act) was enacted. Prior to this, businesses were organised as companies under the Companies Act. Small businesses find LLP to be a preferred form and since the LLP Act has a provision for conversion of a company into an LLP, many companies sought to convert to LLP. However, the question was whether such conversion would attract taxation under the Income Tax Act, 1961 (IT Act). Continue Reading ITAT Holds Conversion of Company into LLP to be a Transfer

AT&T Communications Services (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax

With increasing globalisation of the world economy, the continuous movement of people from one jurisdiction to another has become imminent. However, such decisions have also created a significant amount of uncertainty, not only because of the social impact of such movement, but also because it creates tax complexities.

In a recent case, the Income Tax Appellate Tribunal (ITAT) had the occasion to examine the tax implications of reimbursement of salaries and other expenses in the case of AT&T Communications Services (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax[1]. The ITAT held that reimbursement made by AT&T Communication Services (India) Pvt. Ltd. (AT&T India) for salary and other costs to AT&T World Personnel Services Inc., USA (AWPS) for the seconded employees working in India did not constitute fees for technical services (FTS) or fees for included services (FIS) under section 9(1)(vii) of Income Tax Act, 1961 (IT Act) or Article 12 of India-US Double Tax Avoidance Agreement (DTAA). Hence, AT&T India was not required to withhold taxes under section 195 of the IT Act. Continue Reading Control and Supervision is the Important Factor to Determine the Nature of Reimbursements in Secondment Agreements