Gift of ‘Brand’ to family trust not taxable

Family trusts have become a widely popular tool for not only succession and estate planning, but also for managing assets and investments. If deployed wisely, these trusts can prove to be an effective and tax efficient structuring instrument. However, despite the advantages offered by these family trusts, contributing or settling existing assets into such trusts may pose some challenges, especially on account of certain tax provisions. One such challenge is posed by the provisions of Section 56(2)(x) of the Indian Income-tax Act, 1961 (“IT Act”), which seeks to tax a notional income, where certain assets (such as land, securities, work of art, etc.) are transferred or settled/ contributed into a trust for no consideration or for a consideration less than the fair market value of such assets. (exempts transfer or contribution to a trust settled by an individual for the sole benefit of his/ her relatives). Recently, a similar issue came before the Mumbai ITAT, in the case of Balaji Trust[1], where the tax authorities sought to tax the gift of ‘Essar’ brand to a family trust.

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Faceless appeals, CBDT extends faceless assessments to the second level

Conception of new faceless regime

The government had introduced the faceless assessment regime from 2018, thereby eliminating the physical interface between the Assessing Officer (“AO”) and the assessee. Suitable amendments were made in the Income Tax Act, 1961 (“IT Act”), authorising the government to notify a suitable scheme for this purpose, which led to the setting up of a Centralised  Communication  Centre i.e. an internet-based, independent, centralised communication centre for issuance of e-notices to taxpayers, thus doing away with the need for the traditional face to face appearance by an assessee before the designated income tax authority. These preliminary steps finally culminated in the launch of the Faceless Assessment Scheme, 2019.

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Faceless assessment Is this the right cure

The government has over the years strived to modernize the taxation system in our country to remove the discretions and unnecessary harassments experienced by the taxpayers. It has continuously integrated new technologies with the various tax compliances and other proceedings under the IT Act. With continuous planning and efforts, the Indian Revenue Authorities (“IRA”) have enabled electronic filing of several applications and returns under the Income Tax Act, 1961 (“IT Act”) and have even intimated their approvals or objections directly through the e-filing portal.

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GST obligations of employer on services rendered to its own employees

With re-opening of offices post the second wave of COVID-19, various employers have re-initiated providing canteen, cab, health insurance and many other services to their employees as part of welfare programme as well as obligations under various labour law regulations. The employer may choose to recover the cost of providing such services in full or offer a concession or deduct it from the concerned employees’ salaries or supply them free of cost. Surprisingly, the Goods and Services Tax (“GST”) legislation neither provides for any exemption nor declares that services rendered by the employer to its employees would not be in the nature of goods or services.

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Tax motivated transaction IPSO Facto may not be regarded as Sham

In today’s economy, a business entity cannot undermine the impact of taxation on its growth and development trajectory, which is why tax planning is considered to be the most pivotal part of financial planning. While the line between tax planning and tax evasion is very thin, the Supreme Court, on various occasions, has differentiated between the two concepts and has repeatedly held that minimisation of tax liability through legitimate tax planning is not illegal.[1]

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The conundrum created by AAR regarding GST on damages

With the ongoing pandemic, the odds of invocation of clauses such as liquidated damages, price variation clause, compensation clause or forfeiture of deposits for the delay in adhering to contractual timelines, etc. have become very high. Such additional payments could also bring out an exposure on account of taxability under Goods and Services Tax (“GST”) legislations.

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International Financial Services Centre

Inauguration of India’s first International Financial Services Centre (“IFSC”) at the Gujarat International Finance Tec-City (“Gift City”) in Gujarat is a positive development to invigorate our financial sector. If everything that is being attempted to achieve is accomplished, it will mark our entry on the global stage. When IFSC was being set up, our then Finance Minister, Late Mr. Arun Jaitley, had envisioned an IFSC at par with other global financial hubs like London, Singapore, Hong Kong, Dubai, etc. An IFSC encourages all major global players to operate in such facility, which in turn would facilitate a two way flow of finance, financial products, financial services, etc.. It would also attract the best talent pool because of access to multiple career opportunities as well as ability to work with the market leaders and world class products. For India, despite being one of the fastest-growing economies in the world, having one of the best talent pools that has created a name for itself in the global scene, having a significantly young population and emerging as one of the most sought after jurisdictions for start-ups, to not have an IFSC of its own and to not offer financial services to businesses across the world, would have been a great travesty.

Continue Reading International Financial Services Centre, an idea whose time has come – Part I: Banking Sector

Applicability of new TDS provisions on sale of securities

Generally, transactions involving sale of shares by non-resident shareholders are subject to withholding tax at applicable rates under the Income-tax Act, 1961 (“IT Act”), provided the gains arising from such sales are taxable in India. However, there was no requirement to withhold/ deduct any tax on gains arising to resident sellers from sale of shares/ securities. Continue Reading Decoding the applicability of new TDS provisions on sale of securities

Taxing Times Ahead for Slump Sale Transactions

Slump sale transactions are a preferred method of transferring a business as a going concern. They are often used for internal restructuring purposes and for sale of a whole or part of a business undertaking to a third party. Several global transactions also comprise of a slump sale element to execute the transfer of the Indian business to the buyer’s affiliate in India. In a slump sale, a business undertaking is transferred by one party to another as a going concern for a lumpsum consideration, without attributing specific values to assets and liabilities. Continue Reading Taxing Times Ahead for Slump Sale Transactions

CBDT notifies thresholds to determine ‘significance’ of significant economic presence

Non-resident taxpayers may now have to watch out for a new nexus norm that will require enterprises with no physical presence in India to pay taxes in India on their business profits attributable to transactions or activities that constitute a ‘significant economic presence’ (“SEP”) of the non-resident in India. Continue Reading CBDT notifies thresholds to determine ‘significance’ of significant economic presence