Income tax - Sections 9(1)(vi) - ITAT Mumbai Rules Interest on Delayed Aircraft Lease Rentals by Irish Entity Not Taxable in India under Article 8 of India-Ireland DTAA - The ITAT, Mumbai, has held that interest earned on delayed payment of lease rentals by an Irish lessor, being an inseparable component of profits derived from the operation of aircraft in international traffic, is not taxable in India under Article 8 of the India-Ireland DTAA. The decision underscores that both lease rentals and related interest, when integrally connected to aircraft leasing business, cannot be recharacterized as royalty or interest for taxation purposes in India if the applicable DTAA provision provides exemption.
Income tax - Sections 37 - ITAT Delhi Upholds Deductibility of One-Time Distributor Compensation Paid by Tupperware India Amidst Business Model Shift: Unliquidated Damages under Section 37 Allowed - On the facts and legal analysis, the ITAT Delhi decisively held that the one-time compensation paid by Tupperware India to its distributors as part of a business model transition was a justified, revenue expenditure allowable under section 37 of the Income Tax Act, 1961. The absence of a specific liquidated damages clause or legal compulsion does not, by itself, render such expenditure inadmissible, provided it is grounded in business necessity and prudence. Tax authorities must evaluate such claims on the touchstone of commercial reality and business exigency.
Income tax - Sections 195, 119(2)(b) - Gujarat High Court Directs Refund of TDS to NRI Employee for Sale of Shares: Condones Delay in Return Filing, Disapproves Stateâs Unjust Enrichment - The Gujarat High Court concluded that the retention of the refund by the State, in the absence of any legal bar and when the entitlement is undisputed, amounts to unjust enrichment. The mere fact that the assessee could have filed his return online or was allegedly aware of the timelines does not negate the genuine hardship arising from his non-resident status. The AOâs refusal to condone the delay was thus found untenable. The Court directed that the delay be condoned and the refund processed in accordance with law, without interest for the condoned period.
Income Tax - Sections 9(1)(vi), 192 - ITAT Delhi Rules Salary Reimbursements to Seconded Employees Not Taxable as Fees for Technical Services under India-Japan DTAA - The ITAT Delhi has reaffirmed that cost-to-cost salary reimbursements for seconded employees, where the employment is substantively with the Indian entity and TDS compliance is ensured, cannot be treated as Fees for Technical Services under section 9(1)(vii) of the Income Tax Act or Article 12(4) of the IndiaâJapan DTAA. Tax authorities are thus directed not to re-characterize such genuine employment-linked payments as FTS, provided there is no profit element and the Indian entity exercises control and supervision over the secondees.
Income tax - Sections 9(1)(vii), 40(a)(ia), 194J - ITAT Mumbai Holds No TDS Required on Roaming Charges: Payment for Telecommunication Connectivity Not "Technical Service" under Section 194J - The ITAT Mumbaiâs decision unequivocally holds that payments made by a telecom service provider to other operators for roaming charges do not constitute âfees for technical servicesâ under section 9(1)(vii) and, consequently, are not subject to TDS under section 194J. This decision, rooted in consistent judicial precedent, clarifies that the use of technical infrastructure alone does not render the service a technical one for the purposes of TDS. Telecom operators should thus review their compliance procedures and ensure that TDS is not unnecessarily deducted on similar roaming charge payments.
Income Tax - Sections 92CA, 144C - ITAT Delhi Quashes Assessments Passed Beyond Limitation under Section 144C(13) in High-Value Transfer Pricing Cases - The ITAT Delhi allowed the assesseeâs appeals and set aside the final assessment orders for both AY 2017-18 and 2018-19. The Tribunal held that the assessments were invalid as they were completed beyond the limitation period mandated by section 144C(13) of the Income Tax Act. This decision reaffirms the strict and mandatory nature of the timeline prescribed for completion of assessments post-DRP directions, leaving no scope for relaxation by the Assessing Officer.
Income Tax â Section 250 - ITAT Bangalore Rules: No Separate Notional Interest Adjustment on Receivables When Working Capital Adjustment Already Made in Software Development TP Case - The ITAT Bangalore has categorically held that where a working capital adjustment is granted in transfer pricing analysis under TNMM, it subsumes the effect of outstanding receivables. Consequently, no separate notional interest adjustment should be made for such receivables unless the receivables in question are outside the ambit of the working capital adjustment. Taxpayers should ensure that their working capital adjustment computations appropriately capture all outstanding receivables to avoid redundant TP adjustments.
Income Tax - Sections 143(3), 144C - ITAT Delhi Rules Against Arbitrary Mark-Up on Cost-to-Cost Recoveries Absent Service Element in Transfer Pricing Dispute - On a comprehensive analysis, the ITAT set aside the TPOâs and DRPâs actions, holding that:
Cost-to-cost recoveries devoid of any service element cannot be recharacterised as services for transfer pricing purposes or subjected to arbitrary mark-up.
Aggregation of unrelated domestic and international transactions for ALP determination, absent a clear functional nexus, is not permissible.
Ad hoc ALP determination without application of prescribed methods or comparables is legally untenable.
Assessees should ensure robust segmental documentation and certification to substantiate the nature of transactions and preclude unwarranted transfer pricing adjustments.
Income tax - Sections 195, 234B - Delhi High Court Rules: Indian Subsidiary Does Not Constitute PE for US Parent Merely Due to Outsourcing and Cross-Transactions - The Delhi High Courtâs decision reaffirms that the existence of a PE in India, whether fixed place, service, or agency PE, cannot be presumed solely from the outsourcing of back-office operations or cross-transactions between an Indian subsidiary and its foreign parent. The armâs length nature of intercompany transactions, as determined by the TPO, precludes further attribution of income. This decision underscores the need for substantive facts demonstrating control, disposal, or authority to conclude contracts, not just the presence of contractual relationships or shared business interests.
Income Tax â Section 250 - ITAT Directs TPO to Apply MAP Margin to ITES Segment for Non-UK AEs if FAR Profile Matches: Fresh FAR Analysis Ordered for Transfer Pricing Adjustments - The ITAT has set aside the lower authoritiesâ findings on the ITES segment and has remanded the matter for a fresh determination by the TPO/AO. The TPO is directed to perform a comprehensive FAR analysis of non-UK AE ITES transactions, comparing them to those covered under the India-UK MAP resolution. If similarity is established, the MAP-agreed margin of 18% on operating costs must be applied for determining the ALP for non-UK transactions. The assessee is to be given a fair opportunity to submit relevant documentation and arguments to support its case.
Income Tax - Sections 144B, 144C - ITAT Bangalore Quashes Final Assessment Order Passed Prematurely Before 30-Day Objection Window Under Section 144C in Transfer Pricing Case - The ITAT, Bangalore, has unequivocally held that a Final Assessment Order passed before the expiry of the 30-day period available to the assessee for filing objections against the draft assessment order under section 144C(2) is without jurisdiction and, therefore, unsustainable in law. In the absence of express acceptance of the draft assessment order by the assessee, the Assessing Officer is statutorily barred from proceeding to finalize the assessment prior to the lapse of the objection window. Assessees facing similar circumstances should vigilantly assert their rights under section 144C and challenge any premature final assessment orders.
Income Tax - Sections 143(3), 144C(13), 144B - ITAT Hyderabad Directs Exclusion of Functionally Dissimilar and High Turnover Comparables in Marketing Support Services Transfer Pricing Case - The ITATâs ruling underscores the necessity of ensuring both functional similarity and size comparability when selecting comparables for transfer pricing analysis under section 92C and Rule 10B. The exclusion of Ugam Solutions (P) Ltd., Scarecrow Communications Ltd., and I Runway India (P) Ltd. was warranted due to their functional dissimilarity and disproportionate turnover. The AO has been instructed to recompute the transfer pricing adjustment for marketing support services after excluding these companies from the final set of comparables. This decision is actionable, requiring the AO to revisit the transfer pricing adjustment calculation in light of the revised comparables set.
ITAT Delhi Rules Bright Line Test Inapplicable for Benchmarking AMP Expenditure; Transfer Pricing Adjustment for Brand Promotion Nullified in LG Electronics Case - In light of the consistent judicial position, the ITAT Delhi concluded that AMP expenses, when incurred as part of normal business operations to promote sales, cannot be treated as a separate international transaction for transfer pricing purposes. The application of the Bright Line Test for benchmarking such expenditure stands rejected. Tax authorities are directed not to make transfer pricing adjustments on AMP expenses if the overall armâs length analysis under TNMM has been accepted.
Madras High Court Quashes FCRA Registration Rejection: Compounding of Offence and Lack of Notice Vitiate Order Against Charitable Trust - The Madras High Court set aside the impugned order rejecting the petitionerâs FCRA registration, remanding the matter to the competent authority for fresh consideration. The authority was directed to take into account all relevant materials, issue a detailed and specific notice to the petitioner regarding any alleged transfer of foreign contribution, and provide an opportunity for a proper response. The Court reaffirmed the primacy of natural justice and transparency in administrative proceedings under the FCRA.
Bombay High Court Affirms Enforcement of Foreign Arbitral Awards, Permits Lifting of Corporate Veil Against Diverted AssetsâImposes Costs for Frivolous Litigation - The Bombay High Court has reaffirmed that foreign arbitral awards can be enforced against the assets of group companies, provided those assets were improperly diverted from the original award debtor to defeat execution. The Court has clarified the application of limitation and res judicata, and underscored the limited scope of public policy objections. Award creditors should meticulously trace asset transfers and invoke the Courtâs power to lift the corporate veil when faced with deliberate attempts to evade enforcement. The decision also signals the Courtsâ readiness to impose costs for vexatious and obstructive litigation.
Delhi High Court Bars Re-litigation of FERA-Linked Property Dispute Citing Constructive Res Judicata and Finality of Civil Proceedings - The Delhi High Court has unequivocally held that issues conclusively decided by a civil courtâparticularly those determined on appeal under Section 96 CPCâcannot be reopened in writ proceedings under Article 226, even if the dispute involves questions of statutory compliance under FERA. The doctrine of constructive res judicata bars such attempts at relitigation, and parties are expected to exhaust all opportunities within the original trial and appellate process, including adducing evidence and raising all relevant legal grounds. Any dissatisfaction with the findings or the procedure adopted must be addressed through appropriate appellate channels, not by invoking the extraordinary writ jurisdiction of the High Court.
Income tax - Sections 40(a)(i), 195, 201 - ITAT Ahmedabad Rules in Favour of Assessee: No TDS Default for Commission Paid to Non-Resident Where DTAA Provisions Followed - In light of the facts, legal provisions, and judicial precedents, the ITAT held that where an assessee has made commission payments to non-residents without a PE in India and in compliance with the applicable DTAA, no TDS is required under section 195. Consequently, the assessee cannot be treated as an assessee in default under section 201(1) or made liable for interest under section 201(1A) for such payments.
Income tax - Sections 90(2) - ITAT Mumbai Upholds Treaty Exemption for Singapore-Based Strategic Investor: Substance over Form in Post-PPT Regime - The ITATâs decision reaffirms that for entities incorporated in Singapore, the satisfaction of the LOB and PPT conditions under the IndiaâSingapore DTAAâsupported by genuine commercial substance, valid TRC, adequate operational expenditure, and a bona fide business purposeâentitles them to claim exemption on capital gains arising from the sale of shares acquired prior to April 1, 2017. The focus should remain on the economic substance and intent, not mere operational form or technicalities.
Income Tax - Sections 115BBE, 133 - Unexplained Cash Deposits During Demonetisation: ITAT Mumbai Overturns Addition After Accepting NRI Source Documentation - The ITAT Mumbaiâs decision underscores that cash deposits, even during periods of heightened scrutiny like demonetisation, cannot be treated as unexplained income merely due to their quantum or timing, provided the assessee is able to satisfactorily establish the source with proper documentation. The Tribunalâs order mandates deletion of the addition and annuls the tax levied under Section 115BBE, directing the revenue authorities to accept the explanation supported by the documentary trail.
Income Tax - Sections 9(1)(vii), 144C, 270A, 274 - ITAT Pune Rules IT Support Services Not Taxable as FTS Absent âMake Availableâ Criteria under India-Singapore DTAA - The ITAT Puneâs decision confirms that IT support and maintenance services, when not âmaking availableâ technical knowledge or skills to the recipient as per Article 12(4) of the IndiaâSingapore DTAA, are not taxable in India as Fees for Technical Services. Judicial discipline requires tax authorities to follow binding precedents, particularly where facts remain unchanged. Assessees in similar positions should ensure that the nature of their services is clearly documented and that reliance on prior favorable judicial decisions is appropriately maintained throughout the litigation process.