Photo of Daksha Baxi

Head of International Taxation at the Mumbai office of Cyril Amarchand Mangaldas. Daksha has a vast experience of over 30 years in taxation laws and also specialises in succession and estate planning, education sector and employee equity compensation. She can be reached at daksha.baxi@cyrilshroff.com

Indian Tax measures to counter COVID-19 impact - How do they compare with OECD’s suggestions

At a time when economic activities have come to a standstill on account of the lockdown imposed by the government to tackle the Covid-19 pandemic, some leeway in tax laws will provide much needed relief to taxpayers. Many countries, including India, have announced various economic relief measures, ranging from financial aid and provision of free/ subsidised food and water to debt repayment deferrals. The idea essentially is to help people cope with the substantial reduction in their cash flows to meet their daily and business needs, especially for businesses with permanent employees whose rights may be protected legally, meeting their working capital requirements for maintaining the supply-chain, transporting goods, meeting their other contractual commitments, including those related to debt and so on. Businessmen have no control over tax payouts since the amount or percentage to be paid is fixed by the government, unless governments provide tax relief to ease cash flows.

In this context, the Organisation for Economic Co-operation and Development (“OECD”) has sprung into action to make a compilation of: (i) measures contemplated by tax administrations; (ii) constraints pertaining to those measures; (iii) recommendations to deal with the impact under tax treaties due to travel restrictions and ensuing possible tax exposures, which arise unintentionally and temporarily; and (iv) some recommendations on ‘good to have’ practices by businesses for their business continuity. The stated purpose of the compilation and these guidelines is to assist tax administrations and businesses in formulating their own possible measures. The compilations and guidelines are not recommendations with regard to any particular measures and they recognise that circumstances and considerations will vary for every country.
Continue Reading Indian Tax measures to counter COVID-19 impact: How do they compare with OECD’s suggestions?

Dividend Distribution Tax Abolishment - Here’s Something Lost in Translation

The government has said taxes on income received from dividends will now have to be paid by the shareholders instead of the dividend distributing company. The Finance Bill 2020 presented alongside the Union Budget on February 1, 2020 abolished the imposition of Dividend Distribution Tax (“DDT”) w.e.f. FY 2020-21. Over two decades ago, the Finance Act 1997 under Income Tax Act, 1961(“IT Act”), introduced DDT wherein the taxes on dividend were directed to a single point i.e. to be paid by the dividend distributing company and the incidence of tax shifted from the recipient to the payer. Doing away with this practice, the government has once again reverted to the pre DDT days. Present rate of DDT is @15% on gross basis plus surcharge and cess, resulting in net tax rate of 20.56%.
Continue Reading Dividend Distribution Tax Abolishment: Here’s Something Lost in Translation

MLI Impact on Treaty Benefit Tax Blog

The Base Erosion and Profit Shift (“BEPS”) programme, initiated by OECD, had recommended a host of action plans, which could be implemented by making changes to the international tax treaties. . However, there are more than 3000 bilateral tax treaties entered into by contracting countries and it would have taken years to amend them. To solve this problem, over 100  jurisdictions negotiated and concluded a multi-lateral instrument (“MLI”) in November 2016. Countries that agreed to change their tax treaties were required to sign and notify the OECD Secretariat.  India was amongst the first few signatories to the MLI in 2017 and ratified   it on June 25, 2019. Thus, its network of bilateral tax treaties would be impacted by the provisions of the MLI where its treaty partner is also a signatory. It is, therefore, necessary now to read the applicable tax treaty with MLI, based on the treaty partner’s position and reservations on the provisions of the MLI.
Continue Reading Have You Checked the Applicability of Multi-Lateral Instrument Impacting Your Treaty Benefit Claim?

claim of depreciation of assets and carry forward of expenditure by trusts

In a very recent judgment of Income Tax Appellate Tribunal, Delhi (ITAT) in DCIT(E) v. Smt. Angoori Devi Educational & Cultural Society (Angoori Devi),[1] two very important questions in relation to the taxation of trusts were discussed:

  1. Whether depreciation can be allowed on assets that were acquired out of contributions received, which were exempt from tax since the said expense was allowed as application of income in the past years under Section 11 of the Income Tax Act, 1961 (IT Act);
  2. Whether excess expenditure incurred by a trust in an earlier assessment year could be allowed to be set off against the income of the subsequent year, and in the event of delay in filing the return, whether such a carry forward can be disallowed under section 80 of the IT Act.


Continue Reading Delhi ITAT clarifies the issues around claim of depreciation of assets and carry forward of expenditure by trusts

 

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

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?

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

Taxpayer’s Choice for Valuation of Shares at Premium Upheld

The Income Tax Appellate Tribunal (ITAT) in the case of M/s. Rameshwaram Strong Glass (P) Ltd. v The Income Tax Officer[1] has upheld the right of the company issuing shares to choose the valuation methodology under the provisions of the Income Tax Act, 1961 (IT Act) read with the rules framed thereunder (Tax Law) for the purposes of determining the ‘fair market value’ (FMV) of such shares at premium.
Continue Reading Taxpayer’s Choice for Valuation of Shares at Premium Upheld