Summary: The implementation of the labour codes necessitates a comprehensive review of compensation paid to employees. The compensation structure of employees will also see an impact from an income tax perspective, which cannot be ignored easily. Through this blog, we have analysed some of the positive as well as negative consequences that would need to be understood and analysed by employers as well as employees at the earliest.Continue Reading Tax implications of the new labour codes
Summary: The Multilateral Instrument (MLI), which had originated from the OECD’s BEPS project, was meant to fast-track adoption of anti-avoidance measures without lengthy bilateral negotiations between multiple countries. India ratified the MLI in 2019 and the Revenue argued vociferously before the Supreme Court in the case of Nestle that every change to the DTAA shall have to be notified separately to give effect to such change and succeeded. Following the aforesaid SC decision, a few recent ITAT judgments have thrown a curveball by holding that MLI provisions cannot apply automatically to the DTAAs unless a specific notification is issued. Through this blog, we analyse the impact of these ITAT decisions, which may reshape ongoing tax litigation strategies.Continue Reading As you sow, so you reap: ITAT holds MLI provisions adopted in DTAAs inapplicable without specific notification
Summary: In a recent case, the Telangana High Court has frowned upon the Revenue’s attempt to invoke GAAR in respect of a transaction that was carried out by the taxpayer through the stock exchange. By rejecting the stance adopted by the Revenue, the High Court categorically held that not every tax planning is bad, and it cannot be brought within the purview of GAAR. Only if a taxpayer colludes or connives to bypass statutory provisions, by entering into transactions that defy commercial logic, can it be examined.Continue Reading Telangana High Court clarifies GAAR in relation to market-based transactions
Summary: Section 254(2) of the Income Tax Act, 1961, provides power to the Income Tax Appellate Tribunal to amend its order to rectify any mistake apparent on record to ensure fairness without re-visiting the entire case and prolonging litigation. This blog analyses a recent decision of the Hon’ble Bombay High Court where the extent of exercise of rectification powers was discussed. It held that a subsequent Supreme Court decision on the issue cannot be grounds for rectification of orders.Continue Reading A subsequent SC decision is not ground for rectification u/s 254(2)
The Income Tax Appellate Tribunal’s (“ITAT”) Chennai bench in Zoho Corporation Pvt. Ltd. v. Deputy Commissioner of Income Tax,[1] determined that foreign taxes paid by an assessee, which do not qualify for relief under Sections 90 or 91 of the Income Tax Act, 1961 (“IT Act”), cannot be claimed as business expense deduction under Section 37(1).Continue Reading Foreign taxes cannot be allowed as tax deductible expenditure: Chennai ITAT
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
Businesses are increasingly integrating cloud computing models into their operations, necessitating unambiguity regarding the position of tax leviable on such transactions under the Income-Tax Act, 1961 (“IT Act”), and tax treaties. Uniformity in the tax treatment of cross-border cloud computing models has become crucial for these businesses to plan their operations and tax costs effectively. A long-standing subject of scrutiny has been whether to consider the taxation of payment for cross-border cloud services as “royalties” or “fee for technical services” (“FTS”)/ “fee for included services” (“FIS”). However, in recent rulings, Indian courts have affirmed that such standardised services would not be liable to income tax in India.Continue Reading Debunking taxation of cloud services as royalty
The Alternate Minimum Tax (“AMT”) has its genesis in the Minimum Alternate Tax (“MAT”), which was introduced to ensure that taxes were paid by even those companies that intended to avoid payment of taxes by engaging in ingenuous tax planning methods despite having earned significant amount of book profits. These companies, called “zero-tax companies”, while reporting significant book profits, paid minimal or no income tax by leveraging various exemptions and deductions available under the Income Tax Act, 1961 (“IT Act”). Continue Reading AMT: Does It Impose Additional Taxes Under Income Tax Bill, 2025?
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?
The Supreme Court (“SC”) recently addressed the validity of reassessment notices in Rajeev Bansal[1], issued under Section 148 of the Income Tax Act, 1961 (“IT Act”), from April 1, 2021, to June 30, 2021, even though the reassessment regime had been overhauled with effect from April 1, 2021. The Revenue argued that these notices fell under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (“TOLA”), which relaxed the time limits for reassessment due to the COVID-19 pandemic (“Pandemic”). However, several High Courts, including the Allahabad and Gujarat High Courts,[2] had ruled that such notices were subject to the new reassessment provisions introduced by the Finance Act, 2021, and hence, without the applicability of TOLA, were time-barred. The SC, in this landmark decision, ruled in favour of the Revenue, by upholding the validity of TOLA and laid down several jurisprudential observations in its judgement.Continue Reading Tax reassessment proceedings: Supreme Court puts TOLA controversy to rest