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Bipluv Jhingan

Principal Associate in the Tax Practice at the Mumbai office of Cyril Amarchand Mangaldas. Bipluv specialises in various aspects of direct tax such as corporate tax, restructuring, and funds. He can be reached at bipluv.jhingan@cyrilshroff.com

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Treaty Shopping Safari Ends Here: Footprints from Tiger Global

Summary:

The Supreme Court’s ruling in Tiger Global International Holdings has redrawn the contours of India’s tax landscape. By rejecting treaty shopping structures and affirming the reach of GAAR even for legacy investments, the Court has signalled a decisive shift toward substance-over-form in cross-border taxation. TRCs are no longer conclusive shields, and investors must now demonstrate genuine commercial substance to claim treaty benefits. This landmark judgment underscores India’s firm stance against tax avoidance and sets the tone for heightened scrutiny of offshore investment structures going forward.Continue Reading Treaty Shopping Safari Ends Here: Footprints from Tiger Global

Substance over Form: Supreme Court Clarification on Creation of Permanent Establishment in Cross-Border Services

The question of whether cross-border services rendered by foreign entities would establish a taxable presence in India has been subject to nuanced scrutiny. In a recent ruling,[1] the Hon’ble Supreme Court of India (“SC”) has reaffirmed that economic substance (not legal form) is the crucial factor for determining whether a foreign entity exercises substantive control over Indian operations to constitute a permanent establishment (“PE”) in India.Continue Reading Substance over Form: Supreme Court Clarification on Creation of Permanent Establishment in Cross-Border Services

Crypto Sales Prior to AY 2022–23: Taxable as Capital Gains?

The Raunaq Prakash Jain v. Income Tax Officer case addresses a significant cryptocurrency transaction-related taxation issue in India, i.e., whether gains arising from cryptocurrency sales should be taxed as “capital gains” or “income from other sources”. This decision is particularly important because it clarifies the tax treatment of cryptocurrency gains before the introduction of the specific tax regime for virtual digital assets (“VDA”) with effect from April 1, 2022.Continue Reading Crypto Sales Prior to AY 2022–23: Taxable as Capital Gains?

Premium Received on Redemption of Debentures: Taxed as Interest or Capital Gains?

Background

While debentures have been a common mode of raising debt for companies, there still remains ambiguity regarding the taxation of certain income earned from debentures. Taxation of premium received on redemption of debentures is one such issue. Continue Reading Premium Received on Redemption of Debentures: Taxed as Interest or Capital Gains?

Introduction

The intricacies of tax law often unfold through nuanced interpretations and amendments aimed at addressing loopholes. One such facet is the taxation of capital contributions by partners in partnership firms (including limited liability partnerships), as delineated under section 45(3) of the Income-tax Act, 1961 (“IT Act”). This provision deals with taxing transactions…

Background

The Income-tax Act, 1961 (“IT Act”) contains various machinery provisions which enable tax authorities to recover tax dues from taxpayers. When payments are made to non-residents that are chargeable to tax under the IT Act, payers (both resident and non-resident) are obligated to withhold tax at applicable rates prior to remittance of funds. Typically, no such obligation arises if the payments are not subject to tax in India. Thus, there are times when taxpayers don’t withhold tax on payments, believing they should not be subject to tax under the IT Act. However, if the Indian tax authorities take a different view, they may initiate proceedings under section 201 of the IT Act against such taxpayers, i.e., the person responsible for withholding taxes.Continue Reading Orders for default in withholding tax on payments made to non-residents must be passed in a reasonable time

Income Tax Act

Background

The Income Tax Act, 1961 (“IT Act”), allows certain taxpayers to carry forward and set off the losses incurred in a financial year (“FY”)against the income of subsequent FYs, on satisfaction of prescribed conditions. However, to ensure taxpayers do not use such beneficial provisions to escape their tax liabilities, the IT Act also includes anti-abuse provisions, which disallow carry forward or set off of such losses under specified circumstances. In this respect, section 79 of the IT Act disallows a closely held company from carrying forward and setting off its tax losses if there is a change in the beneficial ownership of shares carrying more than 49% of the voting power of the company as compared to the year in which the loss was incurred (subject to certain exceptions). This provision was introduced with the intent to curb the practice of profitable enterprises acquiring loss making undertakings for the sole reason of utilising tax losses accumulated by such undertakings to reduce their taxable business profits.Continue Reading Section 79 cannot be invoked when there is no change in ultimate beneficial shareholding

unquoted shares

Background

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

Beneficial ownership requirement not in-built in Capital Gains Article

Background

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

IT Act

Background

The Income Tax Act, 1961 (“IT Act”) confers various powers on the Income Tax Department (“ITD”) to curb the menace of laundering of unaccounted money. One such power-bestowing provision is Section 68 of the IT Act, which is often resorted to by the ITD when large amounts of unaccounted funds are invested in companies at a significant premium. This provision puts the onus on the taxpayer, i.e., the investee company, to satisfactorily explain the source of those funds and produce details to evidence the identity, genuineness and creditworthiness of the shareholders as well as the source of the shareholders’ fund.Continue Reading Is regulatory compliance sufficient to discharge onus u/s 68 of the IT Act?