Tax deducted at source (TDS) has proved to be a controversial area of law for quite some time now. One issue that has most recently come to light is likely to have enormous commercial significance – under what circumstances is a company obliged to treat an ordinary transaction as a “works contract” and not a “sale of goods” with the consequent liability to deduct TDS? The governing provision is s...
Landmark Judgment on the Role of the Debt Recovery Tribunal
The role of the Debt Recovery Tribunal has been the subject of a great deal of controversy. Some aspects of this issue have been discussed on this blog. The main question has been whether an independent suit filed by a borrower against a bank in a civil court could be transferred to the DRT as a “counterclaim” against his wishes. The law on the point was uncertain, with several conflicting...
Greater Role for Judicial Intervention in Foreign Arbitration
The decision of the Supreme Court in Bhatia International and its implications are well known, and have been discussed on this blog on several occasions. In a recent judgment, the Supreme Court has further entrenched the decision. The decision, Citation Infowares Ltd. v. Equinox Corporation, (2009) 5 UJ 2066 (SC), raised the question as to whether a court can appoint an arbitrator under an...
Lead Managers, Bond Issues and Taxes
Previous posts have examined the scope of Indian taxation of fees for technical services that are paid to non-residents. This is an increasingly common commercial practice, especially in the context of issuing shares or bonds abroad. An interesting issue that has arisen recently before the Bombay ITAT is whether Indian companies that make use of this service are liable to make provision for TDS...
More Uncertainty in the Law on Penalties
Earlier posts have noted and examined a few recent decisions of the Supreme Court and the ITAT on the law governing the imposition of penalties under the Income Tax Act, 1961. In what is perhaps the best restatement of the position of law today, the Pune Bench of the ITAT appears to have altered the course of the law back towards the assessee-friendly Dilip Shroff decision, in Kanbay Software...
Writing off Bad Debts and Tax Liability
The treatment of bad debts has been a constant source of disagreement between financial institutions and the Tax Department. Banks typically argued that some advances were so unlikely to be recovered that they may justifiably be regarded as “sticky” advances, and that interest on these advances should not be treated as income for the purposes of taxation. The Department’s response was that the...
The G20’s pledge to crack down on tax havens
The most significant outcome of the recently concluded G20 summit is perhaps its resolve to crack down on tax havens – unprecedented as it is, its implications are not entirely clear. In the communiqué of April 2, the G20 promises to “take action against non-cooperative jurisdictions, including tax havens” and declares that it stands “ready to deploy sanctions to protect our public finances and...
AAR doubts Ishikawajima – Territorial Nexus and Royalties
An earlier post discussed the taxability of royalties paid to non-residents for technical services. There has been substantial conflict in decisions on this point. Under Section 9(1)(vi) of the Income Tax Act, 1961, royalties payable by non-residents in respect of a right, property or service utilized for the purpose of making or earning any income for any source in India is deemed to accrue or...
Securitisation and Debt Recovery – A Centre-States Conflict?
The Constitution has devised an elaborate scheme of distribution of legislative powers, and the competence of a legislature to enact a law has normally been challenged by a private citizen to whom the law applies. The latest battleground looks to be the fairly recent structure of securitization, debt recovery and other FI-friendly legislation. The first major decision of the Supreme Court on this...
Taxing times for the software industry
ET reports that the software industry has witnessed a 40 % drop in sales as a result of recently introduced taxation provisions. After the decision of the Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh, (2005) 1 SCC 308, the sale of ‘branded’ software like Microsoft products has been subject to the sales tax/VAT regime, on the theory that when software is stored on a...
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