In 1935, the House of Lords famously observed that “every man is entitled to order his affairs” in order to minimise his liability to tax (IRC v. Duke of Westminster, [1936] AC 1). This is the dictum that is often cited as the source of the rule that while tax avoidance is legal, tax evasion is not. The distinction between the two, while not always clear, is regarded by some as especially thin...
Southern Technologies and Sticky Interest – Part II
We discussed the recent decision of the Supreme Court in Southern Technologies that rejected a challenge to the constitutionality of ss. 36(1)(vii) and 43D of the Income Tax Act, 1961. The Court held that non-banking-financial institutions [“NBFC”] must account as income interest received from loans that are, for commercial purposes, bad debts. Four important issues were considered in the case:...
Supreme Court Rejects NBFC Claim on Sticky Interest – Part I
Non-banking-financial institutions (“NBFCs”) face a serious setback after the judgment of the Supreme Court this Monday (11 January 2010) in Southern Technologies Ltd. v. JCIT. This blog has discussed a long-standing controversy in Indian law on the treatment of “sticky” advances. It is useful to briefly recapitulate the contours of this controversy before considering the impact of the Supreme...
Bad Debts, Commercial Judgment and Taxation
We have discussed the controversy in Indian law surrounding the treatment of bad debts. In short, it has traditionally revolved around two questions. The first pertained to the extent to which commercial reality could influence the determination of taxable income. In particular, banks began to account interest on non-performing assets [“NPA”] or “loans” in a “Suspense account”, without, however...
Restructuring Companies: Capital Gains and Transfer Pricing
In a very interesting decision that could have significant implications for restructuring companies, the Authority for Advance Rulings [“AAR”] has discussed several controversies in connection with restructuring schemes. The decision, Re Dana Corporation (decided November 30, 2009), is available here. The applicant, Dana Corporation, was incorporated in the USA. As part of its extensive worldwide...
Auxiliary Activities and Permanent Establishments
We have discussed on several occasions the extent to which a liaison office of an MNC is taxed, and more generally, the concept of a “permanent establishment”. A series of decisions in 2009 has introduced some clarity in the analysis of what constitutes a permanent establishment and what does not. To briefly recapitulate, although s. 9(1) of the Income Tax Act, 1961, enumerates circumstances...
Changing Advertising Practices in India – The End of “Puffery”?
The Government’s proposed “Advertising Code” for food and health products is an interesting development , particularly in light of developments in India over the past three years or so on the subject. This blog has discussed emerging trends in India on the norms governing advertising practices. To briefly recapitulate, the law does not proscribe comparative advertising, which is a near...
Incorporation of an Arbitration Clause by Reference
One of the most controversial and interesting questions in contemporary arbitration law is incorporation by reference. It is a common practice in some industries, particularly shipping and construction, for the contractual relationship between the parties to be composed of several documents. It sometimes happens that a dispute arises with reference to one of these documents, while the arbitration...
Taxation of non-residents: More controversy
This blog has covered the controversy surrounding the taxation of Indian companies for engaging services from abroad. A recent decision of the Karnataka High Court has made the law even more difficult to ascertain. The decision is that of a Division Bench of the Court, in Jindal Thermal Power Co. Ltd. v. Deputy Commissioner of Income Tax. To briefly recapitulate, taxable income under the Income...
Derivatives and Underlying Assets
In a very interesting article published in the Journal of Business Law in 2007, Professors Green and Saidov had this to say of software: “…its unique characteristics mean that it is not truly analogous to any conventional chattel with which the law is familiar… despite the fact that it is one of the most ubiquitous commodities of our commercial age, it has no readily discernible legal identity.”...
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