Staying updated with recent case laws in income tax is essential for professionals in transaction advisory and management consultancy services. This article provides an in-depth analysis of five significant case laws from the past two months, focusing on international taxation, business income, and capital gains. Each case is dissected into provisions, facts, analysis, and conclusions to offer a clear and comprehensive understanding.
1) ITOCHU Corporation vs ACIT (Delhi ITAT)
Provisions
- The term Permanent establishment (‘’PE’’) may be fixed preparatory auxiliary. Only if business profit is attributable to Permanent establishment, then Permanent establishment is established.
Facts
- Assessee, a Japan resident Company engaged in the activities of general trading, and providing other business support services to its associated enterprises through its wholly owned subsidiary ITOCHU India Private Limited (Indian PE) by virtue of Memorandum Agency Agreement. The assessee has no authority to conclude contracts.
Analysis
- Whether the assessee by way of not concluding contracts or not maintaining stock or merchandise can constitute PE in India?
Conclusion
- The nature of business of trading is a continuous flow of the business process that cannot be a foundation to conclude a principal-agent relationship for the purpose of Article 5 of DTAA based on India Japan.
2) Royal Bank of Scotland vs Commissioner of Income tax
Provisions
- Based on provisions of the Act foreign company is liable to be taxed at rate of 40% along with surcharge cess as applicable.
Facts
- Assessee is a branch of ABN Amro Bank NV (Now the Royal Bank of Scotland N.V.) incorporated in the Netherlands with limited liabilities having its original office at Singapore. In India, the Assessee is registered as a scheduled bank. The main activity is accepting and lending deposits.
Analysis
- Whether the foreign company can be taxed at rates prevailing under DTAA or rates prescribed in Act.
Conclusion
- Reliance was based on famous ruling of AUDA (Ahmedabad urban development authority), Azadi bachao , Nestle SA wherein it was held that entering into a treaty or protocol does not result in reduction of It was observed that the word foreign company is excluded therefore the same is liable at rate of 40%.
3) Tiger Global vs DCIT
Provision
In order that non resident having no Permanent establishment in India to claim DTAA benefit such assessed should possess valid Tax residency certificate form 56F and no Permanent establishment declaration.
Facts
Assessee, a Mauritius based Company, established for the purpose of acting as an investment platform for investing in countries in a regional grouping such as Cayman Islands and Asia, held shares in Etechaces Marketing and Consulting In AY 2020-21, out of the total shares the Assessee sold 1581 shares which were acquired on Oct 13, 2017 and offered same to tax @ 10 %. Assessee paid tax of Rs. 40.427 Cr on these shares purchased after Apr 1, 2017. However, the long term capital gain from sale of 9013 shares was not offered to tax, as the same were purchased before April 1, 2017 and was claimed exempt under Article 13(4) of India-Mauritius DTAA. However, Revenue denied the DTAA benefit to the Assessee and held that the Assessee was unable to prove sufficiently that it is a resident of Mauritius, thus the said capital gains to be taxable under Section 112.
Analysis
Whether TRC possessed by assessee act as sufficient and conclusive evidence to get DTAA benefit.
Conclusion
The assessee is a dropdown entity associated with the entities operating in Cayman Island, but that does not taint the genuine activities as investment platform and the doctrine of ‘substance over form’ cannot be stretched to the extent. Merely because minuscule percentage of fund is invested in India compared to investment in other countries the treaty benefit cannot be denied.
4) Axis bank vs ACIT(Ahmedabad Tribunal)
Provisions
Employee stock option plan(ESOP) expenditure is allowable by way of Section 37 of Income tax Act(‘’Act’’).Discount issued on ESOP is allowable as the same is in nature of business expenditure.
Facts
Axis Bank (‘’Assessee”)claimed deduction of Rs. 250.63 crores on ESOP expenditure under Section 37(1) being difference between the market price as on the date of exercise of options and the market price of share on the grant date which was disallowed by the Revenue
Analysis
Whether ESOP expenditure is allowable for the company?
Conclusion
ESOP expenditure are allowable under Section 37 and dismisses Revenue’s appeal
5) Checkmate Services vs ADIT(Ahmedabad Tribunal)
Provisions
Based on Act read with rules if there is late delay in deposit of employees PF and ESIC then the same would be disallowed while computing business Income . Adjustment will be made while processing under 143(1).
Facts
Assessee-Company, filed its return of income for A.Y. 2019-20, declaring total income of Rs. 16.46 Cr and claimed a refund of Rs. 7.32 Cr. Assessee’s return was processed under Section 143(1) whereby adjustment of Rs.5.87Cr was made on account of delay in deposit of employees’ contribution to PF & ESI as mentioned in the tax audit report filed by the Assessee.
Analysis
Whether adjustment can be made under 143(1) or in short whether disallowance can be invoked.
Conclusion
Adjustment can be invoked under 143(1) with regard to late deposit of employees PF and ESIC.s.
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