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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

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

Foreign Pension Funds’ tax treatment to match Sovereign Funds for certain investments 

Background

With a view to boost infrastructure investments in India and make Indian investment more attractive, the Finance Act, 2020 (FA, 2020) introduced section 10(23FE) in the Income-tax Act, 1961 (IT Act). This section provides an exemption from tax in India in respect of income of certain specified investors who have investments in the infrastructure sector. Specified investors for this purpose include a wholly owned subsidiary of Abu Dhabi Investment Authority, ‘pension funds’ (PF) and ‘sovereign wealth funds’ (SWF). The exempt income would include interest, dividend or long-term capital gains arising to the specified investors, from their investments made in (a) company or entity engaged in developing, maintaining or operating an ‘infrastructure facility’ (Infra Companies); (b) Category-I and Category-II Alternate Investment Funds which have in turn made all their investments in Infra Companies; and (c) business trusts (i.e. Real Estate Investment Trusts and Infrastructure Investment Trusts). These exemptions are available if the Specified Investors meet certain conditions, including the requirement that they should be notified by the Indian Central Government in this regard. In pursuance to this, the Central Board of Direct Taxes (CBDT) has specified the procedure for the inclusion of PFs in the tax exemption notification.
Continue Reading Foreign Pension Funds’ tax treatment to match Sovereign Funds for certain investments

CBDT NOTIFIES RELAXATION IN FAIR VALUATION NORMS- ARE THEY ENOUGH

Income-tax Act, 1961 (“IT Act”) provides for certain anti-avoidance provisions, like Section 56(2)(x) and Section 50CA, which seek to impose tax on certain assets, that were received or transferred for an inadequate consideration. Section 56(2)(x) of the IT Act stipulates that where certain assets, including shares and securities are received for a value which is less than their fair market value (“FMV”), then the difference between the FMV and actual consideration paid would be subject to tax in the hands of the recipient under the ‘other incomes’ head. Similarly, in the hands of the seller / transferor, Section 50CA provides for deeming the FMV of unquoted shares as the sale consideration for computing the capital gains arising from the transfer of such shares at a value which is less than the FMV.
Continue Reading CBDT NOTIFIES RELAXATION IN FAIR VALUATION NORMS- ARE THEY ENOUGH?

The Telangana and Andhra Pradesh High Court (High Court) in the case of Leo Edibles and Fats Limited v. TRO, Writ Petition No 8560 of 2018, has allowed the liquidation of assets of a company under the Insolvency and Bankruptcy Code, 2016 (IBC), despite the claim of the tax authorities that they have a charge over it, by virtue of having initiated attachment proceedings under the Income Tax Act, 1961 (IT Act). The High Court, while dealing with the interplay between the IT Act and the IBC, held that the income tax authorities are not at par with ‘secured creditors’ under the IBC.

The petitioner in the instant case had purchased certain property of a company undergoing liquidation under the IBC in an e-auction. The registrar refused to register the transfer in favour of the petitioner due to the attachment notice issued by the tax authorities. Accordingly, the petitioner filed a writ petition challenging the refusal of the registrar to register the sale deed – and sought issuance of direction to the income tax department to withdraw the said attachment.Continue Reading Decoded: The Interplay Between Tax Law and the Insolvency and Bankruptcy Code

Indian income tax law exempts long-term capital gains arising from transfer of listed equity shares provided such transfer takes place through the stock exchange, and securities transaction tax (STT) is paid. However, the Government believes that this exemption is being misused by certain unscrupulous elements to convert unaccounted money into legal money. The law was therefore recently amended to remedy the situation, restricting this benefit only to such cases where STT is paid both at the time of purchase as well as sale.

However, since this amendment is being introduced as an anti-abuse provision, it also provided that the Government would notify certain types of acquisitions where this restrictive provision would not apply so that genuine business transactions are not impacted.

A draft notification has recently been issued by the Central Board of Direct Taxes (CBDT) attempting to list out such instances and inviting comments from stakeholders. Through this blogpost, we will discuss the efficacy and appropriateness of this draft notification.

Draft CBDT Notification

As discussed above, the recent amendment provides that the capital gains exemption shall be available only in such cases where STT is paid both at the time of purchase as well as at the sale of such listed shares, unless the shares were acquired through a mechanism which has specifically been notified to be unaffected by this provision. In other words, the import of this provision is very wide and could deny capital gains exemption to all such instances unless the notification exempts them. To protect genuine business transactions, the Government has been empowered to come up with instances where the exemption will not be denied. Hence, the nature of transactions to be specified by the notification shall be very important to determine the taxability of capital gains.Continue Reading Draft CBDT Notification on Withdrawal of Capital Gains Exemption – Clearing the Maze or Further Compounding it