After taxing investors for dividend stripping, the Income Tax (I-T) Department is gearing up to tax bonus stripping. Official sources say scrutiny of returns filed by companies, brokers and individuals active in the stock markets and in possession of shares revealed wide use of this mechanism to evade tax.

In this view of the matter, we hold that the payment of royalty made by the assessee is out side the purview of section 40(a) of the Income-tax Act, 1961, and therefore, no TDS is required to be made from such royalty payment. Accordingly, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the disallowance. The ground raised by the assessee is accordingly allowed.

In exercise of the powers conferred by sub-clause (f) of clause (iii) of sub-section (3) of Section 194A of the Income Tax Act, the Central Government hereby notifies the Rural Electrification Corporation Ltd., New Delhi for the purpose of said clause.

The government is through with the consultation process on the proposed direct taxes code and the contours of the new tax structure could be finalised soon, a top government official said on Wednesday. The process of consultation is almost complete,” finance secretary Ashok Chawala told reporters on the sidelines of a Federation of Indian Chambers of Commerce and Industry seminar in New Delhi.

The Delhi bench of the Income-tax Appellate Tribunal (the Tribunal), in the case of Oracle India (P) Ltd. V. ACIT (2009-TIOL-540-ITAT-DEL) (the taxpayer) held that section 40A(2) of the Income-tax Act, 1961 (the Act) overrides the provisions relating to computation of business income only and thus in relation to international transactions, the specific provisions embodied in Chapter X (section 92 – 92F) shall override the general provisions embodied in section 40A of the Act. Hence, once the Transfer Pricing Officer (TPO) accepts the arm’s length character of any international transaction, the Assessing Officer (AO) could not make an adjustment in relation to that transaction under section 40A(2) of the Act.

Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of JCIT v. State Bank of Mauritius Ltd. (2009-TIOL-712-ITAT-MUM) has held that the foreign company having Permanent Establishment (PE) in India cannot be taxed at the rate applicable to domestic company in view of insertion of Explanation 1 to section 90 of the Income-tax Act, 1961 (the Act) by Finance Act 2001 with retrospective effect from 1 April 1962. Accordingly, it will have to pay tax at the rate prescribed in the Finance Act (i.e. at higher rate) even if a taxpayer is covered by the provisions of the India-Mauritius tax treaty (the tax treaty).

The Supreme Court would decide whether foreign airlines are liable to deduct tax at source (TDS) on commissions paid to travel agents for rendering ticketing services. The issue for consideration before the apex court is if airlines would have to deduct TDS on the difference between the full value of tickets and the concessional tickets issued to their travel agents.

I am directed to bring to your notice on the subject of issue of certificates under Section 197. Instruction No- 8/2006 dated 13.10.2006, was issued stating that 197 certificates for lower deduction or nil deduction of TDS u/s 197 are not to be issued indiscriminately and for issue of each certificate, approval of the JCI/Add. CIT concerned need to be taken by the Assessing Officer (AO). Further, a letter of even number dated 6.10.2008 was issued stating that power of issue of certificates under Section 197 would ordinarily be exercised by the officers manning TDS Administration. However, instances are being brought to the notice of Board that the AOs are issuing certificates for lower or non-deduction of tax at source under Section 197 indiscriminately, in contravention of relevant Income Tax Rules and Instructions.

The Tribunal has got the power of rectifying a mistake which is apparent from the record itself and even an error of judgment is outside the ambit of section 254(2) of the Income-tax Act, 1961

The Tribunal was incorrect in holding that since the assessee had purchased only a right to use the copyright i.e., the software, and not the entire copyright itself, the payment cannot be treated as Royalty as per the Double Taxation Avoidance Agreement and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not be taken into consideration.