Direct Tax

From having admitted the slowdown in the economy to announcing back to back measures to stabilise and improve the growth, the Government of India today defied all the criticism by announcing big bang tax reforms vide Taxation Laws (Amendment) Ordinance dated 20 September 2019 promulgated by the Hon’ble President of India (Ordinance). The tax reforms announced primarily pertain to significant reduction in corporate tax and capital gains tax rates to provide an impetus to manufacturing, employment and investment in India.

In a recent decision in the case of M/s Golden Bella Holdings Ltd v Deputy Commissioner of Income Tax (International Taxation), Income tax appeal number: 6958/MUM/2017, the Mumbai bench of Income Tax Appellate Tribunal (ITAT) examined the concept of ‘beneficial ownership’ in relation to interest income and held the taxpayer, a Cyprus company, to be the ‘beneficial owner’ of such income and accordingly eligible to a lower tax rate under the India-Cyprus tax treaty (Cyprus Treaty).

In a recent judgment [ITO(TDS)-2(3) v/s M.S.Shah Developers Private Limited and Ors., CC No. 53/SW/2014] (Judgment), the Hon’ble Court of Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai (Court) has ordered 3-months imprisonment (along with a monetary fine of INR 5,000) for the directors of M/s M.S.Shah Developers Private Limited (Company) for delayed deposit of tax deducted at source (TDS) by the Company, pertaining to Financial Year (FY) 2009-10.

Recently, the Delhi Bench of the Income Tax Appellate Tribunal (Tribunal) held that the Liaison Office (LO) of Hitachi Technologies Singapore Pte Limited (Hitachi) constituted a Permanent Establishment (PE) of Hitachi in India for the financial years (1 April to 31 March) 2001-02 to 2006-07. Hitachi was engaged in trading business and the activities undertaken by the LO were viewed as “core” activities for a trading business and not merely “preparatory” in nature.

In a recent case, The Deputy Commissioner of Income-tax v TCS E-Serve International Limited dated 28 August 2019, the Mumbai Bench of the Income Tax Appellate Tribunal (Tribunal) has allowed a demerged company to continue to avail Minimum Alternate Tax (MAT) credit pertaining to its demerged SEZ units even after the demerger. The Tribunal has relied on the Bombay High Court’s order sanctioning the scheme of demerger which provided that the taxes including income tax paid or payable upto the appointed date shall remain only with the Taxpayer.

In the recent case of Domino Printing Science Plc., In Re (AAR 1290 of 2012 decided on 23 August 2019), the Authority for Advance Rulings (AAR), ruled that shareholders of a company are liable to capital gains tax upon the conversion of a company to a Limited Liability Partnership (LLP) as the conditions of a tax neutral transfer are not fulfilled.

In line with the recent assurances from the Finance Minister of India regarding ending the tax harassment, the Central Board of Direct Taxes (CBDT) which is the apex body for administration of direct tax in India, has issued 2 circulars. These circulars are reflective of the recent statements that ‘penalty rather than prosecution is the priority of the Government’. 

This is in furtherance to our Ergo Updates dated 23 July 2018 and 28 August 2018, on monetary limits for filing of appeal by the Income-tax department (Department). Now, the Central Board of Direct Taxes (CBDT), vide circular No. 17/2019 dated 8 August 2019 (Circular), has further enhanced the monetary limits for filing of appeals by the Department before the Income-tax Appellate Tribunal (ITAT), High Court (HC) and the Supreme Court (SC).

The Central Board of Direct Taxes – the apex body for direct tax administration in India (CBDT), has issued a clarification dated 9 August 2019 (Clarification) that provides further clarity with respect to ‘angel tax’ levied on start-ups. Further, as per a recent circular (dated 7 August 2019), the CBDT has announced simplification of tax assessment of start-ups in cases where angel tax levy is the subject matter of the proceedings.

In a much-awaited move, the Government of India (Government) vide press release dated 24 August 2019 (Press Release), announced withdrawal of the enhanced surcharge rates on income arising from the transfer of certain investments made in the Indian capital markets.