Income Tax Act 1961

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Share subscription above fair market value would be subject to angel tax

The Bombay High Court has recently allowed a writ, challenging a reassessment notice served on the Assessee (by the income tax department) for FY11-12 on share premium issued by it. The assessing officer, however, failed to come up with any reasonable grounds that led him to believe that income had escaped assessment during the relevant FY. 

Section 56(2)(viib) was introduced into the (Indian) Income Tax Act, 1961 (“IT Act”) as an anti-abuse provision with effect from FY12-13, according to which, if a company issues shares at a value higher than its fair market value, then it will have to pay tax (angel tax) on such incremental value. Rule 11UA of the (Indian) Income Tax Rules, 1962 (“IT Rules”) provides mechanism for computing fair market value.Continue Reading Share subscription above fair market value would be subject to angel tax

Income Tax Act

In the case of Manas Vs. Income Tax Officer[1], the Hon’ble Madras High Court (“HC”) took serious objection to the taxpayer’s attempt at misleading the Court. The taxpayer had filed a writ petition seeking quashing of the reassessment proceedings and satisfaction order passed under Section 148A of Income Tax Act, 1961 (“IT Act”).Continue Reading Madras High Court takes taxpayer to task for mischief with costs

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

SC delivers two landmark judgments on exemptions claimed by Charitable Institutions

The Hon’ble Supreme Court of India (“SC”) delivered two landmark decisions dealing with the conditions and entitlement of charitable institutions to claim exemption under the Income Tax Act, 1961 (“IT Act”), recently. While Ahmedabad Urban Development Authority,[1] (“AUDA”) dealt with the provisions and conditions of a charitable institution engaged in the activity of advancing an object of general public utility (“GPU”), New Noble Educational Society,[2] (“New Noble”) dealt with the issue of whether educational institutions can be engaged in other activities.Continue Reading SC delivers two landmark judgments on exemptions claimed by Charitable Institutions

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

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

Faceless assessment Is this the right cure

The government has over the years strived to modernize the taxation system in our country to remove the discretions and unnecessary harassments experienced by the taxpayers. It has continuously integrated new technologies with the various tax compliances and other proceedings under the IT Act. With continuous planning and efforts, the Indian Revenue Authorities (“IRA”) have enabled electronic filing of several applications and returns under the Income Tax Act, 1961 (“IT Act”) and have even intimated their approvals or objections directly through the e-filing portal.Continue Reading Faceless assessment: Is this the right cure?

Applicability of new TDS provisions on sale of securities

Generally, transactions involving sale of shares by non-resident shareholders are subject to withholding tax at applicable rates under the Income-tax Act, 1961 (“IT Act”), provided the gains arising from such sales are taxable in India. However, there was no requirement to withhold/ deduct any tax on gains arising to resident sellers from sale of shares/ securities.
Continue Reading Decoding the applicability of new TDS provisions on sale of securities

Taxing Times Ahead for Slump Sale Transactions

Slump sale transactions are a preferred method of transferring a business as a going concern. They are often used for internal restructuring purposes and for sale of a whole or part of a business undertaking to a third party. Several global transactions also comprise of a slump sale element to execute the transfer of the Indian business to the buyer’s affiliate in India. In a slump sale, a business undertaking is transferred by one party to another as a going concern for a lumpsum consideration, without attributing specific values to assets and liabilities.
Continue Reading Taxing Times Ahead for Slump Sale Transactions