Direct Tax

The Bengaluru bench of the Income-tax Appellate Tribunal (ITAT) vide order dated 28 February 2019, held that consideration received by non-resident entity from an Indian company for performing management services cannot be taxed as ‘fees for technical services’ (FTS) in the absence of a specific provision for taxing FTS in the relevant tax treaty (India – UAE tax treaty in the instant case) (Ruling).

In M/s HDFC Property Fund v Income Tax Officer, the Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) has, through an order dated 28 February 2019, ruled in favour of the taxpayer, a SEBI registered Venture Capital Fund (VCF) upholding its ‘pass-through’ status. The tax authorities had denied the exemption to the taxpayer on the basis that it had made investments in violation of the SEBI (Venture Capital Fund) Regulations 1996 (VCF Regulations).

Amidst the on-going hue and cry around the hotly debated ‘angel tax’ issue, the Department for Promotion of Industry and Internal Trade (DPIIT) had recently issued a notification (No. GSR 127(E) dated 19 February 2019) superseding its earlier notification. This notification had further relaxed the criteria applicable to an eligible start-up and the conditions to be fulfilled for claiming certain income-tax benefits (DPIIT Notification).

In the case of Shrivardhan Mohta v Union of India [W.P. No. 568 of 2018, decided on 14 February 2019], the income tax authorities searched the premises of Mr Shrivardhan Mohta (Taxpayer) and found that the Taxpayer held four offshore bank accounts (held with HSBC Bank, Singapore) (Foreign Assets) which were not reported by the Taxpayer in his income tax returns. The Taxpayer explained such Foreign Assets as belonging to his deceased mother received as a part of his inheritance.

Today, in the wake of the General Elections slated to be held in May 2019, the Government of India (Government) presented the Interim Budget 2019 (Budget) The Hon’ble Finance Minister, whilst presenting the Budget, recounted some of the major achievements and initiatives undertaken by the Government during its tenure. The highlight being the fact that India has become the sixth largest economy in the world.

In a recent case of The Assistant Commissioner of Income Tax Vs. Shri Subodh Menon (ITAT order dated 7 December 2018), the Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) has held that a shareholder cannot be taxed under Section 56(2)(vii) of the Income-tax Act, 1961 (IT Act) so long as shares are allotted to him on a proportionate basis, even if such shares are allotted at lower than the fair market value (FMV) under Section 56(2)(vii) (Ruling).

The Bangalore bench of the Income Tax Appellate Tribunal (Tribunal) in a recent case of M/s Jupiter Capital Pvt. Ltd. v The Assistant commissioner of Income Tax (ITAT order dated 29 November 2018) has allowed the claim for capital loss on account of reduction in share capital of the company (Ruling). The Tribunal held that reduction of share capital results into extinguishment of rights which is provided for in the inclusive definition of “transfer” under section 2(47) of the Income-tax Act, 1961 (IT Act).

The Chennai Bench of the Income Tax Appellate Tribunal (Tribunal) in a recent ruling in Dr. Muthian Sivathanu v Assistant Commissioner of Income-tax [ITA No. 553/2018] held that proceeds received on sale of shares acquired pursuant to exercise of an employee stock option (Option) will be taxable as capital gains and not as salary.

Recently, the Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) has ruled that the conversion of a private company into a limited liability partnership (LLP) shall be considered as a taxable “transfer” attracting capital gains tax under the Income-tax Act, 1961 (IT Act), unless certain specified conditions are satisfied (Ruling).

The Income Tax Appellate Tribunal, Delhi (ITAT) in the case of Deputy Commissioner of Income Tax v M/s BS Infosolution Private Limited (ITAT Order dated 23 August 2018) rejected the taxpayer’s claim for setting-off long term capital loss (Loss) arising on sale of unlisted shares against long term capital gains (Gain) arising on sale of immovable property.