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India: Tax treatment of global reservations services, new shares issuance

India: Tax treatment of global reservations services

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

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  • Tax treatment of payments foreign company received for global reservations, other services: The Authority for Advance Rulings (AAR) determined that the payments a foreign company (incorporated in Luxembourg) received from the Indian hotel for providing global reservation services were subject to tax in India as business income under a provision of the Income-tax Act, 1961 as well as the measures under Articles 5 and 7 of the India-Luxembourg income tax treaty. The income was determined to be attributable to the company’s permanent establishment in India because the company was conducting the entire business operations from a fixed place in India. The case is: FRS Hotel Group (LUX) S.A.R.L. Read a June 2018 report [PDF 607 KB]

  • Issuance of “fresh” equity shares not a transfer of capital asset, and not taxable: The Mumbai Bench of the Income-tax Appellate Tribunal held that the issuance of fresh equity shares was not a transfer of capital asset, but was a capital receipt and therefore not taxable under the Income-tax Act, 1961. The tribunal observed that for the transaction to be subject to capital gain taxation, the property transferred must be a capital asset on the date of the transfer. In this taxpayer’s case, there was no transfer of a capital asset. The case is: Supermax Personal Care Private Ltd. Read a June 2018 report [PDF 425 KB]

  • Foreign non-profit’s receipts not taxable in India: The AAR determined that membership fees and contribution received by a non-profit organisation from its members for certain services rendered were not taxable as business income in India because the receipts were not in the nature of business income. The AAR observed that a liaison office that the non-profit established in India did not make any profit from the receipts; that the funds collected were spent on organising matters; and was not subject to tax in India under the income tax law or under the India-Belgium income tax treaty. The case is: International Zinc Association. Read a June 2018 report [PDF 595 KB]

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