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A writ petition was recently filed before the Gujarat High Court challenging the constitutional validity of an amendment to the Income Tax Act. The amendment discriminates against assessees within the same class that are on a different footing by retrospectively taking away benefits from some, but allowing others to continue to benefit. The court held that substantive law could not be amended with retrospective effect.
A tribunal recently found that an agreement for granting an IP licence fell within the ambit of an 'IP service', which covers both temporary transfers of IP rights and those permitting the use or enjoyment of such rights. The tribunal held that although the licence may not have been a 'temporary transfer', it would certainly constitute 'permitting the use or enjoyment' of the trademark, and service tax was therefore payable.
In two recent cases the Income Tax Appellate Tribunal confirmed that the comparable uncontrolled price method can be used in situations where the rates charged in controlled transactions are identical to those charged in uncontrolled transactions in the same line of business and for the same job. However, the transactions and products to be compared must be similar.
In a recent case the Income Tax Appellate Tribunal held that no method for calculating tax can be rejected without giving cogent reasons. In addition, Reserve Bank of India approval alone cannot be sufficient reason to state that remittances to an associated enterprise are at arm's-length price.
The Delhi High Court recently ruled that a royalty/brand fee was tax deductible, despite continuous losses. This case is typical of the tax authorities' habit of making transfer pricing adjustments by denying contractually valid payments against the background of continuous losses, without delving into the economic rationale, the business requirements or the reality of the situation on the ground.
The Authority for Advance Rulings recently determined that a foreign company's server constituted a permanent establishment in India, and that profits attributable to it would therefore be taxable in India. The authority's ruling is relevant to all foreign companies that have computer servers or hardware in India. Such entities should examine their business activities in order to avoid future disputes with the department.
The Income Tax Appellate Tribunal recently ruled that compensation received for a waiver of the right to acquire shares against capital advances is taxable. The assessing officer held that Rs100 million received by Natco Pharma Ltd as compensation for forgoing the right to acquire shares in Krishnapatnam Port Co Ltd should be taxed as short-term capital gains.
The Union Budget for 2012 to 2013 was recently announced and proposes a number of far-reaching amendments to both the direct and indirect tax laws in India. Of the amendments to the laws on direct taxes, the most talked-about is the retrospective amendment to overcome the recent Supreme Court decision in favour of Vodafone Holdings BV.
The Delhi High Court recently ruled that payment for the supply of software cannot be regarded as a royalty. The court held that in order for software payments to qualify as a royalty, it must be established that there has been a transfer of all or any rights (including the granting of any licence) in respect of copyright in a literary, artistic or scientific work.
The Allahabad High Court recently upheld the validity of the reverse charge mechanism set out in Section 66A of the Finance Act 1994. This judgment will have persuasive value in respect to other petitions challenging the applicability of service tax on services provided from overseas. However, the specific issue of whether the mere location of the recipient of service in India would establish a 'real' connection to India remains open.
The Indian government recently entered into a tax information exchange agreement with the Cayman Islands. Based on international standards of transparency and exchange of information, the agreement covers "taxes of every kind and description". Information in respect of taxes sought under the agreement must be relevant to the administration and enforcement of the domestic laws of the contracting parties.
The Supreme Court of India recently issued a landmark judgment in the much-awaited Vodafone case. The judgment highlights that the Hutchinson transaction (in which Vodafone acquired a single share of an HTIL subsidiary) was a valid structural transaction and the Indian authorities had no jurisdiction to tax such an offshore transaction. It is hoped that the government will respect and accept the court's judgment.