Delhi Appellate Tribunal Establishes Liability of Company Directors Under FEMA for Concealed Foreign Payments; Electronic Evidence Upheld, Penalties Reduced - In summary, the Tribunalâs decision clarifies that directors and officers can be held personally liable under FEMA for their participation and knowledge in unauthorized foreign exchange transactions. The Tribunal emphasized the importance of proportionality in the imposition of penalties and affirmed the admissibility of electronic evidence when statutory requirements are satisfied. Companies and their officers must ensure strict adherence to authorized channels for foreign exchange transactions and maintain robust documentation to defend against allegations of contravention.
Appellate Tribunal Clarifies Third-Party Payment Restrictions for Pre-2013 Export Transactions; Reduces Companyâs Penalty under FEMA - The Tribunalâs decision firmly establishes that, prior to the RBIâs circular of 8 November 2013, Indian exporters were not legally permitted to receive export proceeds from third parties. Only after the said circular, subject to stringent due diligence and documentation, did the regulatory framework permit such flexibility. For export payments received from third parties before this date, contravention of Regulation 3(2) is manifest, and penalties may be imposed not only on companies but also on responsible individuals who directly participated in the impugned transactions. Going forward, exporters and their directors must strictly adhere to RBI guidelines and ensure that any innovative payment arrangements are supported by contemporaneous circulars or notifications.
Tribunal Clarifies Ex-Post-Facto Approval Regularises FEMA Contraventions in Share Transfer; Penalty Maintained for Unexplained Funding - The tribunalâs decision establishes that ex-post-facto approval by the RBI regularises the procedural lapse of not obtaining prior approval for share transfer transactions under FEMA regulations. However, this regularisation does not extend to breaches involving substantive compliance requirements, such as verifying the source of funds. Thus, penalties for procedural lapses are unsustainable once ex-post-facto approval is granted, but penalties for substantive contraventions remain enforceable.
Income tax â Sections 197, 245R - Supreme Court Upholds Taxability of Capital Gains from Flipkart Share Sale: India-Mauritius DTAA Benefits Denied to Tiger Global Entities Due to Impermissible Avoidance Arrangement - The Supreme Courtâs decision establishes that in the post-GAAR and 2016 Protocol era, a Tax Residency Certificate alone does not grant automatic entitlement to DTAA benefits. Tax authorities are empowered to scrutinize the true nature of cross-border transactions, and where evidence indicates a lack of commercial substance or a tax avoidance motive, treaty benefits may be denied. Assessees engaging in transactions after April 1, 2017, must ensure that their arrangements are backed by genuine commercial substance and not structured solely for tax avoidance, as GAAR provisions will override any grandfathering protection if a tax benefit is obtained after the cut-off date.
Income Tax Act - Section 195 - Delhi High Court Rules Physical Presence Mandatory for Service PE under India-UK DTAA â Virtual Presence Not Sufficient for Taxability - The Delhi High Courtâs decision provides actionable clarity that for a foreign entity to attract Service PE status and thus be subject to tax withholding in India under Article 5(2)(k) of the India-UK DTAA, there must be a demonstrable physical presence of its employees or personnel in India. Entities providing cross-border services should review their operational models and ensure that unless their employees or personnel are physically present in India, no Service PE will arise, and therefore, no withholding tax obligation exists under this specific treaty provision.
Income Tax - Sections 195, 197 - Delhi High Court Quashes Nil Withholding Certificate Denial for UK Educational Firm Due to AOâs Non-Compliance with Rule 28AA in FTS Dispute - The Delhi High Courtâs decision mandates strict compliance with Rule 28AA by the AO when processing applications under Section 197 for nil or reduced withholding tax certificates. Authorities must not disregard binding appellate orders or the statutory framework, and must substantiate their decision-making with reference to all relevant factorsâincluding prior yearsâ liabilities and DTAA interpretations. AOs are directed to reconsider such applications afresh, adhering fully to the procedure prescribed by Rule 28AA and to the factual and legal context, especially where prior ITAT rulings exist on the same facts.
Income Tax - Sections 144C, 147, 148, 151 - ITAT Mumbai Declares Reassessment Void for Lack of Proper Sanction: Approval from Principal Chief Commissioner Held Mandatory under Amended Section 151(ii) in FTS Dispute - The ITAT Mumbaiâs decision establishes that strict compliance with the amended sanctioning authority requirement under section 151(ii) is essential for the validity of reassessment proceedings initiated after the passage of three years from the end of the relevant assessment year. Any lapse in obtaining the approval from the correct authority, namely the Principal Chief Commissioner, will render such reassessments without jurisdiction and liable to be quashed, irrespective of the merits of the underlying additions.
Income tax - Sections 194J - ITAT Mumbai Rules: Automated Roaming Charges Not Liable for TDS under Section 194JâDisallowance under Section 40(a)(ia) Deleted - The ITAT Mumbaiâs decision establishes that, for roaming charges paid to telecom operators, where the core service is rendered through a fully automated process without human intervention, no obligation arises for deduction of TDS under Section 194J. Therefore, any disallowance made under Section 40(a)(ia) for non-deduction of TDS on such payments must be deleted. Assessees should carefully document the automated nature of the services to avoid unnecessary disallowances and litigation.
Income Tax - Sections 40(a)(ia), 147, 148, 195 - ITAT Lucknow Rules Testing Charges to Foreign Entities Not Taxable as Fees for Technical Services: Reassessment Under Section 147 Quashed - The ruling of the ITAT, Lucknow Bench, provides a clear actionable precedent: payments for ballistic testing and certification to foreign entities, where no human element is involved, do not constitute âfees for technical servicesâ under section 9(1)(vii), and thus do not trigger TDS obligations under section 195. Consequently, any disallowance under section 40(a)(ia) for such non-deduction is unsustainable. Furthermore, reassessment proceedings cannot be initiated solely on a change of opinion when all primary facts were previously disclosed.
Income Tax â Sections 6(1)(c) - Flipkart Co-Founder Deemed Indian Resident Despite Move to Singapore: ITAT Upholds Centre of Vital Interest and DTAA Tie-Breaker Application - The ITATâs decision affirms that for individuals transitioning between countries, mere relocation or new overseas investments do not override prior and continuing substantial ties to India. The residency status must be determined by holistically examining the centre of vital interests, including both personal and economic relations, with precedence given to active business ties over passive holdings. Procedural safeguards, such as issuing a draft order under Section 144C, must be observed based on the initial claim in the return.
Income Tax - Sections 92CA, 143(3), 143A, 143B - Transfer Pricing Adjustment on Rupee-Denominated CCD Interest DeletedâDomestic Lending Rate, Not LIBOR, Held Applicable - This ITAT-Delhi decision firmly reiterates that interest on rupee-denominated CCDs issued to non-resident AEs must be benchmarked with reference to domestic prime lending rates rather than foreign currency benchmarks like LIBOR. The Tribunalâs application of the Special Bench ruling in Hyderabad Infratech (P.) Ltd. not only reinforces consistency in such transfer pricing matters, but also provides actionable clarity for future benchmarking of similar instruments, ensuring that taxpayers use the correct domestic comparables for ALP determination.
Income Tax - Sections 271G, 92D, 139(1) - ITAT Ahmedabad Rules Penalty Under Section 271G Invalid Without Specific Documentary Lapse in Transfer Pricing Scrutiny - In light of the above, the ITAT Ahmedabad dismissed the Revenueâs appeal and upheld the deletion of the penalty. The ruling makes it abundantly clear that penalty under Section 271G can only be levied for non-furnishing of specific documents prescribed under Rule 10D, and not for general or technical deficiencies in benchmarking or method selection.
Delhi Tribunal Reduces Penalty for Directors and Firm in Hawala Payment & Customs Evasion Case Involving Falsely Declared Agrochemicals - The Tribunal affirmed the findings of contravention under Section 3(b) of FEMA for making Hawala payments to exporters in China and for customs duty evasion through misdeclaration, holding both the firm and the directors liable under Section 42 of FEMA. However, it exercised discretion to reduce the penalty imposed, citing settlement of customs dues and financial hardship. Appellants must note that payment of customs dues does not exonerate them from FEMA violations, but genuine cooperation and financial distress may warrant leniency in penalty.
Appellate Tribunal Permits Substitution of Seized Demat Accounts with Fixed Deposit under SAFEMA: Relief Granted Subject to Adjudication and Compounding Outcome - The Tribunalâs decision underscores that in cases of seizure under Section 37A of FEMA, the core objective is to secure an equivalent amount in India corresponding to the alleged contravention. Substitution of the seized asset with another form of securityâsuch as a Fixed Deposit of equivalent valueâis permissible, provided it ensures the authoritiesâ interests are safeguarded until final adjudication or compounding is resolved. Appellants seeking compounding or adjudication may thus request substitution, provided they offer a security of equal value and adhere to the conditions imposed by the authorities.
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.