After the Department’s partial victory of sorts in the Vodafone tax battle, recent decisions of various Tribunals holding that liaison offices are generally not subject to taxation come as much needed relief for MNCs. This, however, is subject to a few qualifications. As the decision of the AAR in Ikea Trading v. Director of Income Tax, [2009] 308 ITR 422 illustrates, an MNC can avail of this...
The Role of the Debt Recovery Tribunal
In the recent past, several important questions have arisen with respect to the role of the Debt Recovery Tribunal [“DRT]. Some of these have been discussed on this blog. An interesting feature of the DRT is that only banks and financial institutions are entitled to invoke its jurisdiction, while borrowers are not. The question that arises in this context is whether borrowers are entitled to...
The Fallout of Daga Capital
An earlier post had noted that a recent decision of the Bombay ITAT could significantly affect the taxation of shares and securities, and group companies generally. To briefly summarise, it was a case involving a company dealing in shares and securities. It claimed that the interest it incurred on loans taken to finance the purchase of shares was deductible, although its dividend income was...
A New Theory of Commercial Disparagement
An earlier post had noted recent decisions of the Delhi High Court on the issue of comparative advertising and commercial disparagement. It is becoming increasingly commonplace today to see advertising battles fought out in Courts. A recent decision of the Madras High Court, however, has substantially changed the law on the point – Colgate Palmolive v. Anchor Health and Beauty Care Pvt. Ltd...
Legality of ‘Exotic’ Derivatives – Part II
In a previous post, I had discussed the preliminary and procedural aspects of the decision of the Madras High Court on legality of derivative transactions. This post considers the substantive aspects of the decision. A description of the nature of the transaction is available in the previous post. The challenge to its validity rested on two grounds – wagering and public policy. The effect in both...
Legality of ‘Exotic’ Derivatives – Part I
A previous post had noted that the Madras High Court has recently upheld the legality of the so-called exotic derivatives, holding that they qualify for recovery through the Debt Recovery Tribunal. The following is an analysis of that judgment – Rajshree Sugars & Chemicals v. Axis Bank Ltd. (MANU/TN/0893/2008, C.S. No. 240 of 2008, decided on 14 October 2008). The well-reasoned and...
Important Judgment on the Levy of Penalties in Civil Liability Laws
In a crucial judgment on the scope of penalty provisions in tax and other civil liability laws, the Supreme Court has significantly broadened their scope (Union of India v. Dharmendra Textile Processors, CA Nos. 10289 – 10303 of 2003, decided on September 29, 2008, per Pasayat J.). The judgment of the three-judge Bench on a reference from a Division Bench overrules the important decision in Dilip...
SEBI moves to tighten insider trading norms by prohibiting opposing transactions
In an earlier post, Mihir had remarked that while arguments for legalizing insider trading are interesting, there is a long way to go before they are actually accepted by legal systems. SEBI’s recent move to tighten insider trading norms is a case in point. ET reports that SEBI will soon amend its regulations to ban insiders from any opposing transaction within a period of six months. ‘Insider’...
DTAA income now included in total income
The CBDT has notified that if a DTAA provides that the income of a resident “may be taxed” in the other country, such income will be considered to be part of the total income of the assessee (CBDT Notification No. 91/2008). The notification is available here. The implication is that such income will be part of total income, although relief can be claimed under the applicable...
Motive to Avoid and Transfer Pricing
Transfer pricing and arm’s length pricing have become increasingly important subjects over the past few years, with the growing importance of cross-border transactions between companies under the same umbrella organisation, or connected in other ways. Several questions have arisen – the definition of ‘associated enterprises’, the appropriate method of computing transfer pricing etc. One of these...
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