Direct Tax

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With the intent to reduce the direct tax litigation pending before various courts / appellate forums [i.e. the Supreme Court or High Courts or Income Tax Appellate Tribunal or Commissioner of Income Tax (Appeals)], the Government of India introduced ‘The Direct Tax Vivad Se Vishwas Bill, 2020’ (Scheme) before the Lok Sabha on 5 February 2020 (please see our Ergo). Thereafter, various representations were made by the stakeholders expressing their concerns and suggested modifications to the Scheme.

With an intent to reduce direct tax litigation pending before various courts/ appellate forums  [ie Supreme Court or High Court or Income Tax Appellate Tribunal (ITAT) or Commissioner of Income Tax (Appeals) (CIT(A)), together referred to as Appellate Forum], the Government introduced ‘The Direct Tax Vivad Se Vishwas Bill, 2020’ (Scheme) before the Lok Sabha on 05 February 2020 (please see our Ergo). Thereafter, various representations were made by the stakeholders expressing their concerns and suggested modifications to the Scheme.

The Authority for Advance Rulings (AAR) in its recent verdict in the matter of Bid Services Division (Mauritius) Ltd, In re ([2020] 114 taxmann.com 434 (AAR – Mumbai)), denied the benefits of the capital gains tax exemption under the India – Mauritius Tax Treaty (Treaty) to the taxpayer on the sale of its Indian investment.

In a controversial ruling released 17 February, India’s Authority for Advance Rulings, a quasi-judicial body which rules on the taxation of non-residents, denied a capital gains tax exemption under the India–Mauritius tax treaty to a Mauritian entity. 

The Union Budget may be around the corner. But the task force set up by the finance ministry on the new direct taxes code (DTC) is scheduled to submit its draft by July 31. The task force was mandated to draft a new law to bring income tax in line with global best practices, while also addressing India’s economic needs.

The Income Tax Appellate Tribunal (ITAT) recently held that income from cloud hosting services provided by a company based in the United States of America to its Indian customers was not ‘royalty’ or ‘Fees for Technical Services’ (FTS) under the India - USA Double Taxation Avoidance Agreement (Treaty). The same constituted business income which was not taxable in India in the absence of a Permanent Establishment (PE).

Under the current regime, dividends distributed by a company are subject to Dividend Distribution Tax (DDT) at an effective rate of 20.56 per cent. Such DDT is levied on the post-tax income of the company i.e. after the company has already suffered corporate tax on its profits. Since DDT is the tax obligation of the distributing company (i.e. it is not in the nature of tax deduction at source), such DDT is not available as a credit to the shareholder.