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India: Tax cases interpret tax treaties with UK, United States

India: Tax cases interpret tax treaties with UK, US

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

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  • Corporate/bank guarantee fees not treated as interest under India-UK income tax treaty: The Delhi Bench of the Income-tax Appellate Tribunal held that the payment received by a foreign holding company from an Indian subsidiary on account of corporate/bank guarantee accrued and was received by the taxpayer in India. Therefore such a receipt is taxable in India. Such fees do not fall within “interest” in view of “other income” article of the India-UK income tax treaty. Absent any specific provision dealing with corporate/bank guarantee fees, the amount must be subject to tax in India, as per the Income-tax Act, 1961. The case is: Johnson Matthey Public Ltd. Co. Read a December 2017 report [PDF 676 KB]

  • Subsidy (concession of entertainment tax) is capital in nature: The Supreme Court of India held that a subsidy in the form of a concession of the entertainment tax with respect to new multiplex complexes is capital in nature. The case is: Chaphalkar Brothers Pune. Read a December 2017 report [PDF 434 KB]

  • Indian group company of U.S. entity is not a permanent establishment under India-United States income tax treaty: The Mumbai Bench of the Income-tax Appellate Tribunal held that an Indian company of a U.S. group does not constitute a permanent establishment in India under the India-United States income tax treaty because the taxpayer was carrying out its operations from the United States and not from India. The activities (sale of advertisement inventory and distribution of channels) were not conducted in India, and the taxpayer did not have office premises or a fixed place of business in India. Also, none of the employees was based in India. Further, the revenue earned by the Indian subsidiary was not on behalf of the taxpayer—these were payments for purchases that were not subject to any control of the taxpayer as far as conducting of business in India was concerned. In addition, the activities of the taxpayer were not devoted wholly or almost wholly for the taxpayer. The case is: SPE Networks India Inc. Read a December 2017 report [PDF 435 KB]

  • “Small scale industrial undertaking” and benefit of deduction: The Supreme Court of India held that the taxpayer was not entitled to the benefit of deduction under Section 80-IB of the Income-tax Act, 1961 because it had lost its eligibility as a “small scale industrial undertaking” in subsequent years, even if in the initial year the eligibility criteria was satisfied. The Supreme Court observed that the provision relating to incentive is to be construed liberally only when there is a valid principle of interpretation and when there is ambiguity or absurdity or where conditions of eligibility are substantially complied. The case is: Ace Multi Axes Systems Ltd. Read a December 2017 report [PDF 452 KB]

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