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
Section 48 of the Income-tax Act, 1961 (“IT Act”) provides the computation mechanism for capital gains arising to a taxpayer pursuant to the transfer of a capital asset.[1] The said provision, inter alia, permits non-resident taxpayers to account for foreign currency fluctuation while computing capital gains arising from the transfer of shares or debentures of an Indian company. However, where capital gains arise to a non-resident taxpayer pursuant to the transfer of unlisted securities or shares of a private company, section 112(1)(c)(iii) of the IT Act provides that such capital gains should be computed without giving effect to any foreign currency fluctuations. A concessional tax rate of 10% (plus applicable surcharge and cess) is available on such gains. Section 112(1)(c)(ii) of the IT Act, on the other hand, provides a higher tax rate of 20% (plus applicable surcharge and cess) on any other long-term capital gains arising to a non-resident (i.e., other than gains arising from transfer of unlisted securities or shares) while, inter alia, allowing foreign currency fluctuation benefits to such non-residents.
Continue Reading Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares
In an upsetting ruling, the Hyderabad ITAT in Vertex Projects LLP[1] has held that even in a court approved merger, the resulting company will have to pay taxes if the assets of the merging companies were transferred to it for less than fair market value.
Continue Reading A Court Approved Merger could still be Subject to Tax
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.
In order to ensure income does not escape assessment, anti-abuse provisions under the Indian Income-tax Act, 1961 (“IT Act”) have been strengthened through multiple amendments. The Finance Act, 2017 introduced two such provisions to the IT Act, i.e., sections 56(2)(x) and 50CA, to bring under the scope of tax any notional gain that arises when shares[1] of a company are transferred for a consideration less than their the fair market value (“FMV”). This was followed by the introduction of a computation mechanism[2] to determine the FMV of the shares being transferred.
Continue Reading Shares under lock-in period valued as unquoted shares
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
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
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
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.’
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