We have discussed the issue of TDS u/s 195 of the Income Tax Act, 1961 a few times earlier; and have also discussed a recent judgment of the Karnataka High Court in Samsung Electronics. The decision holds that deduction must be made u/s 195 on all sums paid to a non-resident, irrespective of the chargeability of the sum.s As was argued in the earlier posts, this view merits reconsideration. In a...
The Court of Appeal Reaffirms the Sanctity of the Corporate Form
Few issues have proved to be more controversial than the strength of the principle that the company is a separate legal entity. The exceptions to the principle – commonly referred to as “lifting” or “piercing” the corporate veil – are both statutory and judge-made. The statutory exceptions are, in the main, not controversial. However, while there is agreement that courts are entitled to lift the...
Service Tax and Works Contracts
A recent decision of the Punjab and Haryana High Court Commissioner of Central Excise v. Vahoo Colour Lab clarifies the scope of service tax in the context of works contracts. Issues around works contracts have been controversial in relation to income tax as well as sales tax. The controversy in income tax law (in relation to TDS under Section 194C) has been discussed here; and the issue of sales...
Corporate Restructuring and the Business Purpose Rule
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...
‘Manufacture’ in Income Tax
The decision of the Supreme Court in CIT v. Oracle Software is set to add another controversy to the many that already exist with respect to taxation. Involving the interpretation of the term ‘manufacture’, which has been a contentious issue in the excise law context, the decision gives rise to a couple of interesting issues. The assessee was a wholly owned subsidiary of Oracle Corporation, USA...
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...
New Development on Section 14A, Income Tax Act
Several prior posts have discussed the decision of the Special Bench of the Mumbai Income Tax Appellate Tribunal in Daga Capital, on the appropriate interpretation of section 14A of the Income Tax Act. It was also observed that the problem was not so much with the provision per se, as with Rule 8D of the Income Tax Rules, which laid down the computation mechanism for the amount to be considered...
The RTI and Income Tax Returns
The recent decision of the Central Information Commission in the Escorts case, has led to many raised eyebrows. In sum, the CIC held in Mr. Rakesh Gupta v. Public Information Officers (Decision No. CIC/LS/A/2009/000647/SG/5887, available here), that the information submitted to the Income Tax Department by a company cannot be personal information, and even personal information submitted by the...
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...
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