The year 2011 was in the news (insofar has tax issues are consult) mainly due to a few high-profile matters in the Supreme Court. The public interest litigation relating to black money (Ram Jethmalani v. Union of India) and the hearing in the Vodafone case are few examples of this. In terms of legal issues however, 2011 saw a number of far-reaching decisions of the courts which may not have been...
Retailers Assoc. v. Union: Bombay High Court on Service Tax
In a previous post, I had briefly mentioned the judgment of a Division Bench (D.Y. Chandrachud and A.V.Mohta, JJ.) the Bombay High Court, where the constitutional validity of service tax on renting of immovable property was upheld. The judgment (Retailers Association v. Union of India) is available on the Bombay High Court website (linked here). A perusal of the judgment shows that three...
Developments in Taxation: Constitutionality of Service Tax; and Tax Planning through the “Mauritius Route”
The Bombay High Court has, in the past few weeks, decided two important issues: one pertaining to direct taxation, and the other to indirect. A Division Bench headed by Justice D.Y. Chandrachud has upheld the constitutional validity of service tax on renting of immovable property, as reported by Legally India. The arguments raised by the Petitioners were primarily that a “service” tax on...
Patni Computer Systems: Transfer Pricing and “International Transaction”
The Pune Bench of the Income Tax Appellate Tribunal recently clarified several aspects of the law in relation to transfer pricing, as well as some issues in relation to the position in relation to Section 10A of the Income Tax Act, 1961. The elaborate decision, Patni Computer Systems v. DCIT, is available here. Insofar as the issues in relation to Section 10A are concerned, the principle issue...
UDF at Mumbai and Delhi airports
A Division Bench of the Supreme Court today declared that the User Development Fee [“UDF”] charged by the private operators of the Mumbai and Delhi airports is ultra vires. The judgment, reported as Consumer Online Foundation v Union of India, contains several observations that are crucial in ascertaining the proper scope of the public-private model [“PP”] in the aviation sector. This post set...
Lifting the Corporate Veil for Tax Purposes
The judgment of the Bombay High Court rendered last year in the Vodafone Case favours the revenue when it comes to imposition of tax by the Indian authorities on sale of shares in an offshore company that has a substantial stake in an Indian company. While an appeal in the Vodafone Case is pending before the Supreme Court, the Karnataka High Court recently had the opportunity to pronounce a...
Territorial Nexus Revisited: GVK Industries v. Union of India
We have previously discussed issues surrounding the application of the “territorial nexus” doctrine to income tax law in several posts (here, here, here and here). In its recent decision in GVK Industries v. Union of India, a Constitution Bench of the Supreme Court has confirmed that the doctrine applies to Parliamentary laws. The precise question of the constitutionality of Section 9(1)(vii) of...
Waiver of a Loan – Capital or Revenue?
Recently, the Delhi High Court was called on to decide the interesting question of the tax treatment of loans and interest waived by financial institutions. In Logitronics v. CIT, the Court considered two cases which raised similar issues, and held that the treatment of the waived loan amount would depend on the purpose for which the loan was taken. In the first case, the assessee had taken loans...
General Anti-Avoidance Rule – UK Committee
Developments in Indian tax law over the last five years or so have brought to the fore the contentious issue of whether it is desirable to enact a General Anti-Avoidance Rule [“GAAR”] in India, and, if so, whether it is likely to be effective. As we have noted, the Direct Taxes Code proposes to introduce a significantly broad GAAR in India, with limited guidance as to its application. In this...
Software and Royalty: Further Controversies
In an earlier post, I had stated: “The judgment in TCS as also the subsequent decision of the ITAT in Sonata, (2007) 106 T.T.J. (ITAT) 797, make it abundantly clear that payments for shrink-wrapped software would not be chargeable to tax in India. V. Niranjan, in a recent article published in the Journal of Business Law describes the decision...
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