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Corporate Tax
India
New tool for denying tax treaty benefits?
A proposal by the Tax Department contained in the recent budget examines the system of tax residence certificates for non-resident entities and sparks fears that the government is seeking to introduce an additional tool by which protection available under double tax treaties could be denied. The proposal states that submission of the certificate is a "necessary but not sufficient" condition for claiming such benefits.
The Pune Income Tax Appellant Tribunal recently allowed a deduction for the management fees and carried interest to be paid by a fund. The tribunal held that the management fee is allowable as a deduction when computing capital gains, as the expenditure was incurred in connection with the transfer of capital assets or securities. The decision mitigates the risk of such fees being taxed twice.
Gifting of shares: a 'strange' transaction
In a recent ruling the Authority of Advance Rulings observed that the gifting of shares between two corporations is a 'strange' transaction. However, the the Mumbai Appellate Tribunal has also recently examined the same issue, observing that although such transaction may appear strange, it cannot be treated as a non-genuine transaction.
The Authority for Advance Rulings, the body responsible for determining tax liability in India, recently ruled that an Indian subsidiary that exclusively carried on a group's business created a permanent establishment, and was liable to tax in India. However, the authority pronounced its decision without examining all propositions in relation to fixed-place permanent establishments.
The Income Tax Appellate Tribunal recently ruled on the circumstances under which a company will be considered a dependent agent permanent establishment. If an Indian entity becomes a permanent establishment of a foreign company in India, the required compliances (eg, in relation to filing of annual tax returns) that it should undertake would have to be determined.
In a recent decision, the Chennai Tribunal considered the conflicting applicability of the Income Tax Act and the India-Mauritius double taxation avoidance agreement in relation to a payment. In general, if a particular tax treaty does not provide a specific provision for taxability of any income, such income will be subject to tax under the article relating to either 'other income' or 'business income'.
Trade & Customs
India
A new practice recently adopted in anti-dumping investigations concerning imports of phenol and soda ash into India may violate the World Trade Organisation Agreement on Anti-dumping. In particular, the requirements for an individual margin for each known producer or exporter and an upper cap that limits the duty to no more than the dumping margin have been breached.
The Department of Telecommunications recently issued a policy notification offering preferential market access to domestically manufactured telecommunications products. It has been carefully worded to ensure that it does not violate the General Agreement on Tariffs and Trade. However, several commentators have argued that the measure may violate India's commitments before the World Trade Organisation.
For a leading developing country, India's involvement in the World Trade Organisation (WTO) dispute settlement process in recent times has been largely lacklustre. This is now poised to change, with India involved in a number of upcoming cases. At least in the short term, the number of disputes involving India being brought before the WTO appears to be increasing.
A single, unified control list of all dual-use items whose exports are restricted applies under the Foreign Trade (Development and Regulations) Act. Exporters must apply for a licence to cover such items, but there are no defined timelines for the issuance of a licence. Establishing a timeframe for the grant or denial of licences would be a good step towards demonstrating a transparent system of governance.
The multilateral trading system is reliant on the principles of equal treatment for member countries. These principles were recently applied in a case before the Supreme Court involving anti-dumping duties, in which the court considered whether the designated authority was quasi-judicial and whether failure to provide for a fresh hearing when the authority was transferred violated natural justice.
The position in India on the chargeability of packaged software to customs duties has changed. Previously, assessees could either pay additional customs duty in lieu of central excise duties (CVD) on the entire consideration of packaged software and avail of an exemption from service tax, or split the values for the medium and licence, and pay CVD on the former and service tax on the latter.
