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Supreme Court holds that filing of declaration under Section 10B is mandatory

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

Supreme Court strikes down the old benami law as unconstitutional

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

Registration as a charitable institution cannot be made subject to conditions not prescribed under the IT Act

Background

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.Continue Reading Registration as a charitable institution cannot be made subject to conditions not prescribed under the IT Act

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

Determining Tax Implications on Hiring Foreign Employees from Related Foreign Entities

Multinational companies (“MNCs”), with a view to utilise available skill within the MNC group, often depute employees from a foreign entity to another entity of the same group. During the period of deputation, such employees often retain their employment with the original parent entity, typically to enjoy continued social security benefits. Employees under such arrangements (“Secondment Agreements”) are referred to as, inter alia, ‘seconded employees.’Continue Reading Your Employee or Mine? – Determining Tax Implications on Hiring Foreign Employees from Related Foreign Entities

Supreme Court Overturns Several High Court Decisions Quashing Reassessment Notices

In a recent decision of Union of India vs. Ashish Agarwal[1], the Supreme Court (“SC”) effectively overturned several High Court decisions which had quashed reassessment notices issued under Section 148 (as it existed prior to the amendments introduced through the Finance Act, 2021). The decision has a significant impact for pending reassessments, notices for which have been issued after April 1, 2021. This blog shall briefly explain the background to the appeal as well as the decision of the SC, and analyse the reasoning and impact of the decision.Continue Reading Supreme Court Overturns Several High Court Decisions Quashing Reassessment Notices

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?

Income Tax

The Indian Income Tax Department (“ITD”) has been closely scrutinising the internal business restructuring of companies to weed out any unwarranted tax incentives or benefits that may be claimed by the taxpayer. This has sometimes resulted in prolonged tax litigation, with no end in sight. The ongoing dispute between the ITD and Grasim Industries Limited (“GIL”)[1] is one such example.Continue Reading Could Demerger Consideration be Construed as Dividend Distribution – Our views on the IT Ruling on the Grasim matter

Apex Laboratories

In a recent decision of M/s Apex Laboratories vs. Deputy Commissioner of Income Tax[1], the Supreme Court yesterday held that expenditure incurred by a pharmaceutical company towards distribution of incentives (freebies) to doctors cannot be claimed as expenditure under Section 37(1) of the Income Tax Act, 1961 (“IT Act”), since the same is illegal in nature.Continue Reading Pharma companies cannot claim freebies given to doctors as expenditure

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.Continue Reading Gift of ‘Brand’ to family trust not taxable