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...
Obama’s ‘Taxing’ Proposals
On Monday (4th May, 2009), the United States President, Barrack Obama announced the proposed implementation of another one of his election promises, targeted towards improving the domestic economic climate, and freeing up financial resources for investment in areas of pressing importance. The proposal is to withdraw the scheme of deferred tax for foreign income, currently in place in the U.S...
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...
A Much Needed Reading Down of Dharmendra Textiles
An earlier post highlighted the implications of the decision of the Supreme Court in Dharmendra Textiles (306 ITR) on penalty proceedings under the revenue laws, including the Income Tax Act. The Court there overruled its earlier decision in Dilip Shroff, and concluded that there is no requirement of mens rea in the case of penalty proceedings. Thus, it does not need to be shown that the assessee...
NCLT and NTT: Questions of “Intrinsic Judicial Functions”
Recently, a Constitution Bench of the Supreme Court (headed by Balakrishnan C.J.) finished hearing arguments on the constitutionality of the proposed National Company Law Tribunal (NCLT), and judgment has been reserved. The matter arose out of an appeal against a Madras High Court decision in R. Gandhi v. Union of India. The principal challenge to the constitutionality of the NCLT is based on the...
Non-Discrimination: Protecting foreign-owned subsidiaries
A recent decision of the Pune Bench of the Income Tax Appellate Tribunal in Daimler Chrysler v. DCIT deals with several important issues. One of these was whether the provisions of a Double Taxation Avoidance Agreement would apply in the absence of double taxation. The Tribunal held that given the role DTAAs play in modern economies, the incidence of double taxation cannot be a prerequisite...
Further watering down of section 14A, Income Tax Act
Close on the heels of the decision of the Bombay High Court in Reliance Utilities & Power, which possibly has significant implications on the interpretation of section 14A of the Income Tax Act, the Bombay ITAT has, in a recent decision, taken a further step with the potential of limiting the inequity resulting from the current interpretation of the provision. The current position with regard...
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...
Have liaison offices escaped the tax net?
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...
A Way around Daga Capital?
An earlier post had discussed a decision of a Special Bench of the Mumbai Income Tax Appellate Tribunal (ITAT) in Daga Capital [26 SOT 603], highlighting its far-reaching implications on expenditures incurred ‘in relation to’ the earning of tax-free income under the Income Tax Act (Act). The Special Bench, following the Supreme Court decision in Doypack Systems [(1988) 2 SCC 299], held that the...
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