Search Results For: ITAT Mumbai


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DATE: March 19, 2020 (Date of pronouncement)
DATE: March 25, 2020 (Date of publication)
AY: 2015-16
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S. 5, 9 + DTAA: The payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a "business connection" and also under Article 23(1) of Inda-USA tax treaty (All imp judgements referred)

business models are constantly evolving, and as the rapid communication modes such as internet and social media have completely transformed the way businesses communicate, it is time that the law is seen in tandem with the ground realities of the business world, rather than in the strict confines of what was decided in the judicial precedents, in the context of a different business world when these ground realities did not exist. Today, virtual and intangible business connections are perhaps far more critical, important and commonplace than the conventional brick and mortar business connections half a century ago, and, therefore, to disregard these business connections as a real and intimate business connection leading to earning of income by the non-residents, only because Hon’ble Courts, while delivering judgments several decades ago, could not visualize the same and hedge their observations about such possibilities, will certainly be travesty of justice.

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DATE: January 14, 2020 (Date of pronouncement)
DATE: March 7, 2020 (Date of publication)
AY: 2014-15
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S. 90(3): The law laid down in PVAL Kulandagan Chettiar 267 ITR 654 (SC) that once an income of an Indian assessee is taxable in the treaty partner source jurisdiction under a treaty provision, the same cannot be included in its total income taxable in India as well i.e. the residence jurisdiction, is no longer good law in view of s. 90(3) inserted w.e.f. 01.04.2004 read with Notification no. 91 of 2008 dated 28.08.2008. The substitution of s. 90 w.e.f. 01.10.2009 does not affect the validity of the said Notification. The mere amendment or substitution of a section does not affect the validity of notifications, circulars and instructions issued therein (all imp judgements referred).

The effect of Hon’ble Supreme Court’s judgment in PVAL Kulandagan Chettiar 267 ITR 654 (SC) thus was clearly overruled by the legislative developments. It was specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that “such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement”.

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DATE: February 28, 2020 (Date of pronouncement)
DATE: March 7, 2020 (Date of publication)
AY: 2007-08
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S. 92A(2): The law in Diageo India Pvt Ltd 47 SOT 252 that the definition of "Associated Enterprises" in section 92A(1)(a) & (b) is the basic rule which is unaffected by the specific instances referred to in s. 92A(2) is not good law in view of the amendment by the FA 2002 and CBDT Circular No. 8 dated 27.08.2008. The correct law as held in Veer Gems 95 taxmann.16 (Guj) is that S. 92A(2) restricts the scope of S. 92A(1) and it is only when the criterion specified in sub section (2) is satisfied, two enterprises can be treated as associated enterprises. Judgements of non jurisdictional High Courts are binding on the Tribunal

Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as ‘associated enterprises’. Section 92A(1) and (2), in that sense, are required to be read together, even though Section 92A(2) does provide several deeming fictions which prima facie stretch the basic rule in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in “control” of the other enterprise. What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises

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DATE: February 6, 2020 (Date of pronouncement)
DATE: February 22, 2020 (Date of publication)
AY: 2011-12
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S. 2(47)/45: A reduction of capital results in an "extinguishment of rights" in the shares and constitutes a "transfer‟. The fact that the percentage of shareholding remains unchanged even after the reduction is irrelevant. The loss arising from the cancellation of shares is entitled to indexation and is allowable as a long-term capital loss (Bennett Coleman 133 ITD 1 (Mum)(SB) distinguished, all imp verdicts referred)

The ld DR vehemently argued that the percentage of shareholding remains the same because reduction of shares had happened for all shareholders. We find that the ld DR relied on para 24 of the judgement of Special Bench of Mumbai Tribunal in 133 ITD 1 supra to support his proposition. In this regard, we hold that the percentage of shareholding has got no bearing for chargeability of capital gains under the Act. We further find that the provisions of section 55(2)(v) of the Act were applied in the Mumbai Special Bench decision also in para 28 thereon. We find that in the case before us, the provisions of section 55(2)(v) of the Act will have no application at all and if the assessee is not given the benefit, it will never get it and none of the clauses of section 55(2)(v) of the Act would be applicable to the assessee in the instant case. Hence reliance placed on para 28 of the judgement of Special Bench of Mumbai Tribunal does not advance the case of the revenue

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DATE: June 11, 2019 (Date of pronouncement)
DATE: February 15, 2020 (Date of publication)
AY: 2014-15
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Transfer Pricing: (i) If the "arms length‟ principle is satisfied qua the relevant transaction between the assessee and its Indian subsidiary, no further profits can be attributed to the assessee in India even if it was to be held that the latter had a PE in India (ii) If the subsidiary has subsequently entered into an "APA‟ with the CBDT & the FAR analysis and overall functions remain unchanged, the "APA‟ would have a bearing on the ALP of the earlier years

The Indian subsidiary of the assessee had for A.Y. 2015-16 to A.Y 2019-20 entered into an “APA‟ with the CBDT. As is discernible from the “APA‟, the functions of the subsidiary company inter alia included “marketing and sale of various software solutions” of the assessee company. As per the “APA‟ the operating profit margin up to its revenue of Rs. 50 crore was to be taken at 7% of its “Operating revenue‟. Admittedly, the FAR analysis and overall functions of the subsidiary company had remained the same during the period covered by the “APA‟ and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT (ITA No. 581/Mum/2015, dated 16.09.2016), a subsequent “APA‟ would also have a bearing on the earlier years

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DATE: January 20, 2020 (Date of pronouncement)
DATE: January 25, 2020 (Date of publication)
AY: 2013-14
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S. 226(3): Undue haste in recovery of disputed demands by issue of s. 226(3) garnishee notices, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited the disposal of the stay petition. Interim stay granted and garnishee proceedings placed under suspension till the disposal of the stay petition

We have noted that the hearing of stay petition was concluded, as per information available to us, on 17th January 2020, but the order thereon has not been passed as yet since one of the Members constituting coram of the bench has gone on tour to Delhi benches due to unavoidable official exigencies. In the meantime, however, the revenue authorities have already issued garnishee notices, under section 226(3) of the Income Tax Act, 1961, to the bankers of the assessee on 17th January 2020 itself. Such an undue haste in recovery of the disputed demands, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited for the disposal of the stay petition.

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DATE: December 6, 2019 (Date of pronouncement)
DATE: December 21, 2019 (Date of publication)
AY: 2008-09
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S. 68/ 69C: In case of bogus purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases

It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases

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DATE: November 15, 2019 (Date of pronouncement)
DATE: November 30, 2019 (Date of publication)
AY: 2018-19
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Static vs. Ambulatory interpretation of DTAAs: Entire law on whether the retrospective amendments to the definition of "royalty" in s. 9(1)(vi) of the Act can have bearing on the interpretation of the same term in the DTAAs explained with reference to the doctrine of "treaty override" and the Vienna Convention (Siemens AG 310 ITR 320 (Bom) explained)

That is a classic case of a subtle unilateral treaty override. While, in India, the expression ‘treaty override’ is often loosely used for the situations where the provisions of tax treaty prevails over any inconsistent provisions of domestic law, this approach seems to be at variance with the international practices wherein connotations of ‘treaty override’ refer to a situation in which domestic legislation of a treaty partner jurisdiction overrules the provisions of a single treaty or all treaties hitherto having had effect in that jurisdiction. That will be the end result of a domestic law amendment of an undefined treaty term, in departure from the current position, and import such amended meaning of that term, under article 3(2), in the treaty situations as well. Such an approach, on the first principles, is unsound inasmuch as it is well settled in law that the treaty partners ought to observe their treaties, including their tax treaties, in good faith. Article 26 of Vienna Convention on Law of Treaties provides that, “Pacta sunt servanda: Every treaty in force is binding on the parties to it and must be performed by them in good faith”. What it implies is that whatever be the provisions of the treaties, these provisions are to be given effect in good faith. Therefore, no matter how desirable or expedient it may be from the perspective of the tax administration, when a tax jurisdiction is allowed to amend the settled position with respect to a treaty provision, by an amendment in the domestic law and admittedly to nullify the judicial rulings, it cannot be treated as performance of treaties in good faith. That is, in effect, a unilateral treaty over-ride which is contrary to the scheme of Article 26 of Vienna Convention on Law of Treaties

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DATE: November 27, 2019 (Date of pronouncement)
DATE: November 30, 2019 (Date of publication)
AY: 2007-08
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Law on taxation under DTAAs of "transparent entities" & "representative assesseess" explained: When an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection (Linklaters LLP 9 ITR (Trib) 217 (Mum) followed)

The principle emerging out of this analysis of legal position is that when an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection. Viewed thus, this is beyond doubt that the income in question has actually accrued to the taxable entities on the Netherlands, which, according to the approach adopted by the Assessing Officer, is sine qua non for tax treaty protection. It would thus appear that the treaty protection has indeed been wrongly declined to the assessee

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DATE: October 16, 2019 (Date of pronouncement)
DATE: November 9, 2019 (Date of publication)
AY: 2015-16
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S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01.04.2019) which defines "balance sheet‟ was not applicable to a foreign company. If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1.4.19 is prospective in nature (B. C. Srinivasa Shetty 128 ITR 294 (SC), Palai Central Bank Ltd (1985) 1 SCC 45 followed)

We hold that since the shares of a foreign company were acquired by the assessee company in the instant case, the ld AO ought to have relied on the balance sheet as audited by the auditor appointed under the Indian Companies Act. In the instant case, the ld AO had relied on the balance sheet of KNP Industries Pte Ltd, Singapore, which is prepared in accordance with Singapore Companies Act, which fact is not in dispute before us. Admittedly, the case of the assessee falls squarely on clause (ii) of the definition of “Balance Sheet‟ as defined in Rule 11U of the Rules supra. Hence it is mandatory to draw a balance sheet as on the valuation date i.e. 10.2.2015 /11.2.2015 (being the date of purchase of shares by the assessee company) and that the said balance sheet should have been audited by an auditor appointed under section 224 of the Companies Act, 1956. Hence it could be safely concluded that the ld AO had applied the valuation method on a different date which is not in accordance with law and that since the computation mechanism provided in Rule 11UA of the Rules is not applicable to the facts of the instant case, the provisions of section 56(2)(viia) of the Act also could not be invoked