This decision could have far reaching impact on asset management companies. Apart from the withholding tax obligations, asset management companies could also be regarded as agents of non-resident investors. This implies that asset management companies could be proceeded against by the tax authorities for assessment and recovery of non-resident investors’ taxes.
ITAT held that the consideration paid by the taxpayer to foreign affiliates for purchase of Business Information Report (BIR) was not ‘royalty’ within the meaning of explanation 2(iv) to section 9(1 )(vi) of the Income-tax Act, 1961 (the Act). Further, no withholding of tax is required when payment is made to foreign affiliates for purchase of Business Information Report.
Mumbai bench of the Income-tax Appellate Tribunal held that subscription income received by a foreign entity from Indian clients is not in the nature of Royalty in accordance with the India-Ireland tax treaty (tax treaty). Further, the Tribunal relying on various Supreme Court decisions observed that the orders of the higher appellate authorities should be followed by the subordinate authorities and non compliance of this rule will result into undue harassment to taxpayers and chaos in the administration of tax laws.
The ITAT ruled that waiver of unpaid interest, which was not allowed as deduction in the past, is not liable to tax under the specific provisions of Indian Tax Laws (ITL) which provide for taxation of remission of trading liability. The ITAT also ruled that waiver of term loans used for acquiring capital assets is not liable to tax under the specific provisions of the ITL which provide for taxation of benefit or perquisite arising from business. The ITAT further held that waiver of cash credit facility used for trading operations is liable to tax since the benefit bears revenue character and, therefore, in the nature of benefit or perquisite arising from business.
Payment of royalty and knowhow fee under an agreement can not be ignored by the Revenue while doing the Transfer Pricing analysis, the transfer pricing adjustment can be made only to the international transactions and not transactions at the enterprise level which include domestic transactions, and internal comparability is most efficient when it involves the transactions of the tested party itself.
On the issue of deductibility of certain business expenditure incurred by the Taxpayer, under the provisions of the Indian Tax Laws (ITL), The ITAT allowed the deduction of the expenditure which was found to be inextricably linked to and expended for the purpose of the Taxpayer’s business.
In this Ruling Authority for Advance Rulings decided on taxability of certain computer software payments. Having regard to the facts of the case, the AAR distinguished between transfer of ‘rights in copyrighted software’ and transfer of a ‘copyrighted software’ and observed that mere transfer of computer software de-hors any copyright associated with it, would not amount to royalty. Accordingly, the payments were held not to be in the nature of royalty nor fees for technical services (FTS) under the India-Netherlands tax treaty (Treaty). In view of the fact that the Applicant does not have a permanent establishment (PE) in India, it will not be taxable in India.
After the Maruti Suzuki decision of the Supreme Court, the scope of the term “input” to determine eligibility to CENVAT Credit, appeared to have been narrowed down. Recently the Supreme Court in the case of Ramala Sahkari Chini Mills Ltd., UP v. CCE, Meerut-1 on the issue of admissibility of CENVAT Credit of duty paid on welding electrodes used in maintenance of machines decided that the ratio in Maruti Suzuki in relation to the interpretation of the definition of ‘input’ required reconsideration and directed that the issue be placed before the larger bench of the Supreme Court.
The Hon’ble Bombay High Court has held that impugned Govt. Circular dt.11-11-1996 (which gave powers to the Registrar to appoint statutory auditors for urban credit/employees co-op. credit societies) is not applicable to the non-aided cooperative societies of any category. As a result of this Judgment, henceforth the non-aided employees staff credit/ urban credit societies can appoint auditors of their choice in their AGM/SGM etc.
Income Tax – Section 10(33), 14A, Rule 8D – Whether disallowance of expenses incurred to earn an exempt income under section 14A, in effect from April 2007, could be applied to assessee for assessment year 2006-07 without an established nexus between exempt income and expenses – Assessee’s appeal allowed: DELHI ITAT In CIT vs. Hero Cycles 323 ITR 518 (P&H) it was held that disallowance u/s 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance u/s 14A could not stand. On the other hand, in Godrej Boyce Mfg. Co 328 ITR 81 (Bom) it was held that the AO could adopt a reasonable basis to identify the expenses in relation to the earning of exempt income; Rule 8D does not apply to AY 2006-07. The assessee has urged that no expenditure has been identified to have been incurred to exempt income. Neither the AO nor the CIT (A) has rebutted this submission. The AO has made an adhoc estimate which is not sustainable in the light of Hero Cycles. Accordingly, in view of Vegetable Products 88 ITR 192 where it was held that if two constructions are possible, one favouring the assessee should be adopted, the precedent laid down in Hero Cycles should be followed. Referred: M/s Vegetable Products Ltd. 088 ITR 0192 (SC) , that in the taxing provision if two constructions are possible, one favouring assessee should be adopted. Followed: CIT vs Hero Cycles Ltd (2010) 323 ITR 0518 (P&H) and Godrej & Boyce Mfg.Co.Ltd vs Dy. CIT (2010) 004 TaxCorp (DT) 46941 (BOMBAY)
