ITAT

As you sow, so you reap: ITAT holds MLI provisions adopted in DTAAs inapplicable without specific notification

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

A subsequent SC decision is not ground for rectification u/s 254(2)

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)

Foreign taxes cannot be allowed as tax deductible expenditure: Chennai ITAT

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

Delhi ITAT delivers one of the first decisions dealing with Principal Purpose Test

The principal purpose test (“PPT”) has been introduced into the Indian double taxation avoidance agreement (“DTAA”) lexicon through the base erosion and profit shifting (“BEPS”) project of the Organisation for Economic Cooperation and Development (“OECD”) to dissuade sophisticated taxpayers from entering into transactions aimed at tax avoidance. The requisite amendments to the DTAAs have been made via multilateral instruments (“MLIs”).Continue Reading Delhi ITAT delivers one of the first decisions dealing with Principal Purpose Test

Premium Received on Redemption of Debentures: Taxed as Interest or Capital Gains?

Background

While debentures have been a common mode of raising debt for companies, there still remains ambiguity regarding the taxation of certain income earned from debentures. Taxation of premium received on redemption of debentures is one such issue. Continue Reading Premium Received on Redemption of Debentures: Taxed as Interest or Capital Gains?

Introduction

The intricacies of tax law often unfold through nuanced interpretations and amendments aimed at addressing loopholes. One such facet is the taxation of capital contributions by partners in partnership firms (including limited liability partnerships), as delineated under section 45(3) of the Income-tax Act, 1961 (“IT Act”). This provision deals with taxing transactions…

Cognizant’s High Court approved scheme of arrangement was held to be a colorable device by Chennai ITAT

The ITAT recently dismissed an appeal and slammed Cognizant India Private Limited (“Cognizant India”) for what it perceived as  using a colorable device to evade taxes during its INR 190 billion share buyback exercise.Continue Reading Cognizant’s High Court approved scheme of arrangement was held to be a colorable device by Chennai ITAT

Forex Benefit

Introduction

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

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