Corporate entities have been invoking the provisions of the India-Mauritius tax treaty and using the infamous “Mauritius route” to avoid paying capital gains tax in India for a while now. This has been a sore subject for tax authorities in India.
Continue Reading Beneficial ownership test is not required under Indo-Mauritius tax treaty
In order to ensure income does not escape assessment, anti-abuse provisions under the Indian Income-tax Act, 1961 (“IT Act”) have been strengthened through multiple amendments. The Finance Act, 2017 introduced two such provisions to the IT Act, i.e., sections 56(2)(x) and 50CA, to bring under the scope of tax any notional gain that arises when shares[1] of a company are transferred for a consideration less than their the fair market value (“FMV”). This was followed by the introduction of a computation mechanism[2] to determine the FMV of the shares being transferred.
Continue Reading Shares under lock-in period valued as unquoted shares
English language and technical proficiency, coupled with the highly skilled workforce that India has to offer, has made the country a darling of most multinational companies (MNCs). For a while now, these MNCs have been outsourcing their routine as well as technical and complex business processes to their subsidiaries or third-party service providers in low-cost and efficient jurisdictions, including India. Indian entities, in turn, offer their expertise in customer care, follow ups for regular payables like credit card, life and healthcare insurance premiums, routine troubleshooting services, assisting internal departments like finance, accounting, human resources departments, etc., as well as supporting various complicated and complex issues like sophisticated high-end research and technology services, analytical and computational support services, etc. The Government has taken several steps to encourage the service sector and has come up with many benefits and incentives. However, there appears to be a new set of challenges that this sector must deal with, arising in the context of Goods and Service Tax (“GST”).
Continue Reading Refund of Unutilised ITC cannot be Denied to Supplier of Subcontracted Services
The Hon’ble Supreme Court of India (“SC”) delivered two landmark decisions dealing with the conditions and entitlement of charitable institutions to claim exemption under the Income Tax Act, 1961 (“IT Act”), recently. While Ahmedabad Urban Development Authority,[1] (“AUDA”) dealt with the provisions and conditions of a charitable institution engaged in the activity of advancing an object of general public utility (“GPU”), New Noble Educational Society,[2] (“New Noble”) dealt with the issue of whether educational institutions can be engaged in other activities.
Continue Reading SC delivers two landmark judgments on exemptions claimed by Charitable Institutions
The Hon’ble Supreme Court (“SC”) recently in the case of Principal Commissioner of Income Tax-III, Bangalore and another Vs. M/s Wipro Limited[1] refused to allow the assessee i.e. Wipro Limited (“Assessee”), a 100% export oriented unit, to carry forward its losses under Section 72 of Income Tax Act, 1961 (“IT Act”) due to its failure to withdraw deduction (which was regarded as exemption) under Section 10B of IT Act within the prescribed timeline.
Continue Reading Supreme Court holds that filing of declaration under Section 10B is mandatory
In a major relief to all the parties accused of being involved in benami transactions, a three-judge bench of the Supreme Court in the case of Ganpati Dealcom Pvt. Ltd.[1] has quashed all prosecution and forfeiture proceedings pertaining to transactions entered into before October 25, 2016. The old benami law i.e. Benami Transactions Act of 1988 ( “Benami Act”) was amended on the said date by the Benami Transactions (Prohibition) Amendment Act, 2016 (“2016 Amendments”) and the Supreme Court declared Section 3 and Section 5, introduced through this amendment, as unconstitutional.
Continue Reading Supreme Court strikes down the old benami law as unconstitutional
The Income Tax Act, 1961 (“IT Act”) prescribes a special taxation regime for charitable trusts and institutions which are registered under the said Act. Sections 11-13 of the IT Act enable the income of a charitable trust or institution to be exempt from tax, subject to the satisfaction of certain prescribed conditions. Before such exemption can be claimed, the charitable trust or institution needs to make an application before the Commissioner of Income Tax (“CIT”) or the Principal Commissioner of Income Tax (“PCIT”), seeking registration as a charitable trust or institution under the IT Act. The CIT or PCIT can then pass an order accepting or rejecting the application for registration.
The concessionaire or contractors/ sub-contractors of the national/ state highways face a possible levy of Goods and Services Tax (“GST”) on their supplies. However, GST is exempted for services when toll is paid to access the roads or bridges.[1] The exemption is also applicable on payment of annuity for access to roads.[2] A contract in relation to highways may deal with several aspects such as construction of a highway, shops, operation of highways, maintenance of highways, collection of toll or separate charges like overhead charges, etc. Further, with different models of highway projects, it becomes essential to analyse the nature of supply, party rendering such supply to determine if any exemption or concessional rate is available.
Continue Reading Karnataka High Court’s decision on GST levy provides a comfort to highway projects
India witnessed tax revolution in 2017 when Goods and Services Tax (“GST“) was implemented to subsume existing indirect taxes on production, provision of services, sale of goods, entry, etc. The intent clearly has been to provide seamless flow of credit and avoid multiple levies on same transaction. Unfortunately, due to Integrated GST (“IGST“) payable on import of good at the transaction value, (including transport value), as well as on the procurement of transportation services as a separate supply of service, there have been instances of GST being levied twice.
Continue Reading SC Decision on Levy of GST on Ocean Freight May Act as Gamechanger
Historically, the Indo-Mauritius tax treaty has exempted capital gains arising to Mauritian investors from sale of shares of Indian companies, from being taxed in India. As a result, many investors used to structure their investments in India through entities incorporated in Mauritius, to claim this treaty benefit. This prompted the Indian tax authorities to renegotiate its tax treaty with Mauritius (and other countries), to, inter alia, acquire the right to tax capital gains arising from sale of shares of Indian companies and to introduce a limitation of benefits (“LOB”) clause, which excluded any shell/conduit company to claim certain benefits under the Indo-Mauritius tax treaty.
Even prior to such amendments, courts have denied the capital gain exemption under the Indo-Mauritius tax treaty to entities that were mere shell companies incorporated in Mauritius for the sole purpose of treaty shopping[1]. Recently, a similar question arose before the Mumbai Income-tax Appellate Authority (“ITAT”) in Blackstone FP,[2] where investments in Indian shares had been made prior to the amendment of the Indo-Mauritius tax treaty.
Continue Reading Beneficial ownership requirement not in-built in Capital Gains Article