29 September, 2012



The KPMG member firm in India has prepared reports on the following developments (read the September 2012 reports by clicking on the hyperlinks provided below):


Non-compete fees are capital items, and not deductible but subject to amortization:The Mumbai Bench of the Income-tax Appellate Tribunal held that a non-compete fee is not a deductible expenditure because it is capital in nature; however, it is an intangible asset eligible for depreciation (amortization). Also, payments for the transfer of business along with contracts, clients, and client relationships did not result in acquiring any know-how that can be considered to be an intangible asset, and thus depreciation is not allowed on these payments.

 The case is: Ind Global Corporate Finance Pvt. Ltd. Read a September 2012 report 


Plan for transfer of passive infrastructure assets approved: The Gujarat High Court overturned a judgment of India’s Company Court, which had rejected a “scheme of arrangement” for demerger of passive infrastructure assets into a new entity.

 The case is: Vodafone Essar Gujarat Ltd. Read a September 2012 report


Fees paid to Australian subsidiary not taxable “fees for technical services” under the “make available” provision of the India-Australia income tax treaty; no permanent establishment in India is found: India’s Authority for Advance Ruling (AAR) found (1) that “fees for technical services” paid by the taxpayer / applicant to its Australian subsidiary were not taxable in India, absent a permanent establishment, and (2) that such services did not make available technical knowledge to the Australian subsidiary and, therefore, cannot be treated as fees for technical services under the India-Australia income tax treaty.

 The case is: Infosys Technologies Ltd. Read a September 2012 report

Supreme Court holds no withholding of tax on vendor’s discount because it was not commission or brokerage fee: The Supreme Court of India held that that the tax under section 194H of the Income-tax Act, 1961, is not to be withheld on the vendor’s discount because it was not a commission or brokerage fee.

 The case is: Ahmedabad Stamp Vendors Association. Read a September 2012 report


Swiss law firm / partnership not subject to tax in Switzerland and thus not eligible to claim tax treaty benefits: India’s Authority for Advance Rulings found that legal fees―received by a Swiss partnership / law firm in connection with adjudication of a dispute arising in relation to a project in India between two Indian parties―were taxable in India under the Income-tax Act, 1961. Because the law firm partnership was not subject to tax in Switzerland, it was not eligible to claim benefits of India-Switzerland income tax treaty. Also, the individual partners did not receive payment of the legal fees from an Indian entity and, hence, cannot claim the tax treaty benefits either.

 The case is: Schellenberg Wittmer. Read a September 2012 report


No capital gains on transfer of Indian shares if foreign companies are merged without consideration: India’s Authority for Advance Ruling (AAR) ruled in favor of the taxpayer / applicant with respect to the capital gains tax liability on the vesting of shares of an Indian company held by the amalgamating foreign company from the amalgamation with a second foreign company. The AAR found not taxable capital gain.

 The case is: Credit Suisse (International) Holding AG. Read a September 2012 report


Payment from foreign JV partner to exit and to issue “no objection certificate” is business income, not capital gains: The Delhi Bench of the Income-tax Appellate Tribunal held that a payment received from a foreign joint venture (JV) partner to end litigation, exit the JV, and to provide a “no objection certificate” to set up a wholly owned subsidiary in India was to be treated as business income. The tribunal found the payment was not for any “negative” covenants, that the profit-earning apparatus was not affected, and that the payment was not in the nature of capital gains.

 The case is: Control & Switchgear Contractors Ltd. Read a September 2012 report


AAR can refuse to issue ruling on transactions intended to circumvent SEBI guidelines: India’s Authority for Advance Ruling (AAR) ruled that it is not required to issue a ruling with respect to transactions intended to circumvent SEBI guidelines that were issued in the public interest.

The case is: Mahindra – BT Investment Company (Mauritius) Ltd. Read a September 2012 report



This article was supplied by KPMG.  



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