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Vrinda Bagaria (Advocate) analyses the interplay of domestic general anti-avoidance rules (‘GAAR’) and treaty GAAR or the Principal Purpose Test (‘PPT’). Illustrating by way of an example on perpetual securities, the author explains that uncertainties in application and conflicting results of domestic GAAR, often render it unsuitable for prevention of treaty abuse in international context whereas “PPT ensures a consistent approach to meet common objectives of both states, in accordance with the treaty provisions.” Similarly, the author elucidates on the interplay of LOB (Limitation of Benefit) and PPT. The author also discusses about transactions which might lead to overlap of PPT and domestic GAAR. While signing off the author states that, “...while the MLI reveals prospects for ‘cooperative multilateral solution’, differing approaches adopted by states and the current stream of unilateral measures in digital taxation indicate that the road to multilateralism is far.”
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Upamanyu Manjrekar and Unnati Sharma (Chartered Accountants) in their article, examine deduction of tax at source on dividends as per the IT Act, 1961 and the correlation with the DTAAs while analysing the impact of BEPS and its implementation via the MLI. The authors highlight that where the total income of a non-resident or a foreign company includes dividend income and appropriate taxes have been deducted at source, the non-resident need not furnish his ROI. However, considering that the wordings used in Section 115A state deduction of tax at source as per the Act and not as per the DTAA, thus, where taxes are deducted in consonance with rates as per the DTAA, the non-resident is still under an obligation to furnish his ROI. The authors also analyze International Tax perspective, GAAR & MLI impact on the re-introduced provisions of tax on dividend income in the hands of the shareholders.|
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CA Rohini Ramya (Partner, Taxkode Consulting LLP), in this article, discusses the totalization agreements that India has entered into with 18 countries so far, to avoid double coverage under a social security scheme. The author highlights that there is no law equivalent to Sec. 90(2) of the IT Act providing for application of beneficial provision in cases of dichotomy between local laws under the domestic social security legislation (PF Act). This leaves employees/employers at the mercy of the EPFO who is likely to decide such questions in favour of the PF Act. The author speaks about the expectations from the Draft Code on Social Security, 2019 introduced in the Lok Sabha by the Ministry for Labour and Employment in December 2019, will eventually replace nine laws related to social security, including the current PF Act. The author opines that “Including sufficient clarity in the draft Code will go a long way in reducing the regulatory uncertainty businesses and employees will face, if caught between the SSA and the Indian social security legislation.”
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In this regard, Kinjesh Thakkar (Head – Corporate Tax & Transfer Pricing at Linde Engineering India) provides a lucid analysis of Interplay between PPT under MLI and GAAR. The author highlights that the approaches in application of Principal Purpose Test under MLI and GAAR are divergent and states that while GAAR adopts the narrow approach (i.e., main/principal purpose is to obtain tax benefit), MLI adopts the intermediate approach (i.e., one of the main/principal purposes is to obtain tax benefit), thus, creating confusion. The author explains that domestic law is the prime source of charge on tax as well as characterization of transaction or arrangement, “Thus, it is reasonable to conclude that PPT under MLI shall not displace GAAR”. Similarly, the author explains that based on commentary in OECD and Vienna convention, PPT is also not displaceable and therefore, both should co-exist. Highlighting that even OECD commentary on Model Tax Convention provides that in case there is conflict in result of GAAR and MLI, the provisions of tax treaties are intended to prevail, the author opines that “...broader definition under PPT rule of MLI shall achieve more desirable result which is in line with purposive interpretation when applied to GAAR provision.”|
Issue No. 210 / June 25th, 2020 Dear Professionals, “Taxsutra Database”, a true Income-tax research tool, is an archive of over 107400+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:
We are glad to present to you the 210th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! *********************** Key Takeaways from Handpicked Rulings 1) ITAT: Non-deposit of tax deducted by Deductor, liability cannot be fastened on Assessee-deductee; Assessee cannot be denied tax credit - ITAT holds that once tax had been deducted then it is deductor’s liability to deposit the withheld tax into the credit of the Central Government, deductee cannot be denied credit of tax; Observes that u/s 205, the assessee/deductee ............. Click here to read and download ITAT order 2) ITAT: Oral contract is adequate to invoke the provisions of Section 194C – ITAT upholds TDS liability u/s. 194C on vehicle hire-charges, states that a contract need not be in writing, it may be inferred from the conduct of the parties; Notes that assessee is engaged in the business of vehicle hire and takes vehicles along with drivers on hire from various persons and pays vehicle hire charges, petrol and diesel expenses to such cab owners; ITAT holds that payment of hire charges made by assessee to cab owners for hiring cabs for the purpose of providing transportation services to its customers would ...........Click here to read and download ITAT order 3) HC: Allows Sec 54F exemption; Actual use, whether commercial or residential, to be considered while adjudicating upon the eligibility of deduction – HC grants Sec. 54F benefit for investing long term capital gains arising on sale of shares during the financial year 2005-06, holds two independent residential units to be treated as one residential unit; Observes that out of nine flats, seven flats have been sanctioned for commercial purposes and only two flats have been sanctioned as residential units which were put to use for commercial purposes for service apartments; Rules that the usage of the property ........... Click here to read and download HC order 4) HC: Souharda Co-operative entitled to claim Sec.80P benefit; Allows writ – HC quashes assessment order passed by AO, rules that Assessee-society registered under the Karnataka Souharda Sahakari Act, 1997 fits into the definition of “co-operative society” u/s. 2(19) and is hence entitled for deduction u/s 80P.................. Click here to read and download ITAT order 5) ITAT: Income from unlisted company’s share sales to be taxed as “capital gain”, applies CBDT Circular – ITAT grants relief to NDTV, sets aside lower authorities order treating income from sale of shares of M/s Astro Awani Networks Ltd as income from “Other Sources"; AO noted that the shares of increasingly loss making companies which had been purchased just 13 months before the date of sale (for Rs.46 per share) were sold at a high price (Rs.544) and treated gain from sale of shares as income from other sources instead of capital gain; CIT(A) placed reliance on Apex court ruling of Karanpura Development and Durga Prasad More confirmed the order passed by AO that the valuation report of shares of the company is not reliable; ITAT observes that the sale price................... Click here to read and download ITAT order 6) ITAT: Allows co-operative society’s Sec. 80P claim on interest income; Distinguishes Totgars SC ruling – ITAT allows Sec. 80P benefit to assessee (a co-operative society) with respect to interest earned on statutory deposits being income from business and not the income from other sources; Follows co-ordinate bench decision in assessee’s own case for AY 2013-14 & 2014-15 wherein it was held that as per guidelines of Orissa Co-operative Society Rules, it is mandatory for assessee to create surplus / reserve fund and it was intrinsically connected with the ............. Click here to read and download ITAT order 7) ITAT: Date of possession is the date of the actual purchase of the property for purpose of Sec.54F – ITAT allows the benefit of section 54F, treats date of possession of the flat, not date of payment of the first installment towards allotment of flats to be considered as the date of obtaining the title of the property.......... Click here to read and download ITAT order Note: SC in [TS-5072-SC-2015-O] had dismissed assessee’s SLP against HC’s order. HC had held that booking confirmation letter is irrelevant for determining Apartment "Booking Rights". “Booking rights” in flat / apartment shall be treated as acquired upon execution of buyer’s agreement with builder and not on the date of 'booking confirmation letter' for provisional allotment of flat. Kolkata ITAT in [TS-8534-ITAT-2018(Kolkata)-O] had held that by virtue of the allotment letter issued and receipt of booking amount acknowledged by the builder, assessee was vested with title, domain and control over the flats (i.e. legal right over the property) 8) ITAT: Donation to trust eligible for deduction u/s 80G though forming part of CSR obligation – ITAT sets aside lower authorities order, holds that the benefit under Chapter VI-A for computing “Total Taxable Income” cannot be denied to assessee; States that “If Assessee is denied this benefit, merely because such payment forms part of CSR, would lead to ..................Click here to read and download ITAT order 9) ITAT: Shah commission report merely an expression of its opinion lacking both finality and authoritativeness, no reason for reopening the assessment – ITAT quashes initiation of reassessment proceedings against assessee [trader / exporter of iron ore]; Observes that reasons recorded by AO for reopening the assessment and approved by the Addl. Commissioner (i.e., under-invoicing of exports) is entirely based on findings in the .................. Click here to read and download ITAT order Note: Karnataka HC in [TS-6469-HC-2016(Karnataka)-O] upheld re-assessment beyond 4 years on the grounds that ‘Under-invoicing’ based on Shah Committee report was ‘sufficient reason’ for reassessment initiation.
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