Tax DigestQuarterly newsletterSeptember 2017

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We are pleased to present the September 2017 edition of EYs quarterly newsletter Tax Digest, which summarizes significant tax and regulatory developments during the July to September 2017 quarter.

This newsletter is designed as a ready reckoner and covers landmark tax judgments, an update on tax treaties and alerts on topical developments in the tax arena. The In the press section includes published articles on various issues in the tax realm over the last quarter. It also details key thought leadership reports and other topics of interest to tax professionals.

We hope you find this edition both timely and insightful.

Best regards,EY Tax Update team

Dear readers,

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Direct tax

Verdicts!

Significant Supreme Court (SC) rulings

SC rules business of bottling liquefied petroleum gas is eligible for profit linked incentives

SC rules use of know-how obtained while setting up new manufacturing unit is capital expenditure

Rulings on Minimum Alternate Tax (MAT)

Gujarat High Court reconciles distinction between provision and write off of bad debt for MAT purposes

Delhi Tribunal Special Bench confirms non-applicability of expense disallowance methodology to MAT

Rulings on subsidy taxation

Delhi HC holds sales tax subsidy is taxable as revenue receipt

Mumbai Tribunal rules conditional grant is not to be reduced from the cost of the asset

Rulings on capital gains taxation

Sale of shares of Indian company cannot be equated to sale of an immovable property situated in India

Bombay HC allows exemption on gains on sale of shares of an Indian company under India-Mauritius tax treaty

Other Significant Decisions

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Delhi HC upholds weighted R&D deduction for recognized in-house R&D facility from the date prior to recognition and approval

Karnataka HC holds legal expenses incurred to defend mining lease is deductible revenue expenditure

Salary received by NR in Non-Resident External (NRE) account for services rendered outside India is non-taxable in India

Patna HC quashes prosecution basis reasonable cause and delay in initiation of prosecution

Chhattisgarh HC rules on carry forward of losses when loss return is filed after the due date for filing tax returns

Madras HC upholds addition of share capital as taxpayer failed to establish contributors credit-worthiness

Bombay HC rules gains from foreign currency fluctuations is taxable in India even if it arises from exempt royalty and interest transactions

Delhi Tribunal rejects depreciation claim on government approvals and non-compete fees

Delhi Tribunal upholds taxation in the hands of taxpayer on share capital received by taxpayers overseas subsidiary from unrelated investor

Chennai Tribunal invokes non-discrimination clause of tax treaties to delete disallowance of expense

Is there a Permanent Establishment (PE)?

Bangalore Tribunal rules on constitution of service PE for services rendered virtually as well as physically

Unless liaison office (LO) is used for business or trading activity in India, LO does not qualify as PE

Mumbai Tribunal rules independent agent in India does not create PE of foreign entity

Recent decisions on taxation of royalty/fees for technical services (FTS) payments

Some key issues where Special Leave Petitions (SLPs) were admitted by SC

From the tax gatherers desk

Central Government notifies the transactions of listed equity shares as not eligible for long-term capital gains exemption

Central Board of Direct Taxes (CBDT) notifies cost inflation index for tax year 2017-18 with tax year 2001-02 as new base year

CBDT clarifies trade advances are not deemed dividend

CBDT issues final rules prescribing methodology for determining FMV of unquoted shares

CBDT issues clarifications to compute book profit for MAT levy for Ind AS companies

CBDT notifies rules and form for deduction of tax on rent payment exceeding INR 50,000

Central government notifies exclusions from section introduced for prohibition of cash receipts

CBDT clarifies no withholding tax on GST component in relation to services

CBDT invites public comments on the application of income tax provisions to first-time POEM resident foreign companies

CBDT issues rules for implementing secondary transfer pricing (TP) adjustment provision

CBDT issues amended safe harbor rules on TP for international transactions

India notifies Multilateral Competent Authority Agreement (MCAA)

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Optional reporting of details of one foreign bank account by NR in refund cases

Treaty updates

Protocol to tax treaty between India and Portugal signed

Memorandum of Cooperation (MoC) between BRICS countries signed

Happenings across the border

Organisation for Economic Co-operation and Development (OECD) releases draft changes to be incorporated in 2017 update to OECD Model Tax Convention

OECD releases 2017 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

G20 leaders communiqu demonstrates continued support on tax issues, highlights new developments

OECD, United Nations (UN), International Monetary Fund (IMF) and World Bank (WB) issue toolkit for addressing difficulties in accessing comparable data for TP analysis

OECD, UN, IMF and WB release discussion draft on taxation of offshore indirect transfers

OECD BEPS updates

OECD releases report on branch mismatch arrangements

OECD releases update of guidance on the implementation of CbCR

70 countries, including India, signed Multilateral Convention (MLI) to implement tax treaty related measures to prevent BEPS

OECD releases revised discussion drafts on profit splits and attribution of profits to PEs

Indirect tax Case laws

Customs duty

High Court, Madras

Bank guarantee is in the form of security, limitation period not applicable to restitution

CA certificate and balance sheet not primary documents to rebut unjust enrichment presumption

Foreign trade policy

High Court, Ahmedabad

Recovery of CST reimbursement on inter-EOU procurements after seven years not permissible

Central Excise

High Court, Madras

The HC allows CENVAT credit on structural supporting plant and machinery; to be qualified as capital goods and inputs

CENVAT credit allowed to be transferred under Rule 10 on relocation of factory to another site

HC allows manufacturer to claim CENVAT credit against supplementary invoice and TR-6 Challan

Tribunal, Kolkata

The Tribunal upholds MRP-based valuation for mono-cartons containing sachets

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CENVAT credit

Tribunal, Mumbai

Credit eligible to Indian arm, for services by overseas entity, when assessee is the same

Service tax

Supreme Court

Writ can be dismissed on ground of four-year delay in case the confirmed demand is not challenged

High Court, Kerala

Exchange of secondhand cars is sale; cannot be treated as business auxiliary services

High Court, Madras

Commissioner (Appeals) empowered to remand service tax assessment; Central Excise law restriction inapplicable

Tribunal, Mumbai

Revenue cannot dispute input services admissibility without issuing SCN while processing refund

Value Added Tax/Central Sales Tax

High Court, Gujarat

The HC upholds CST exemption on milk sold through consignment agents

The pre-condition of payment of self-assessed tax for generating C-form is illegal

High Court, Delhi

Exemption has been granted for treating demo car as capital goods of automobile dealer

Maharashtra Sales Tax Tribunal, Mumbai

The movement of goods from mother warehouse to carrying and forwarding agents (CFAs) is considered as branch transfer in the absence of inextricable link between dispatch of goods and purchase order of customer

Key statutory updates

Customs duty

Foreign Trade Policy 201520 (FTP)

Central Excise

Service tax

Value Added Tax (VAT)/Central Sales Tax (CST)

Goods and Services Tax (GST)

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Regulatory

Foreign Exchange Management Act (FEMA) 1999

Reserve Bank of India (RBI) revises the framework for issuance of rupee denominated bonds (RDBs)

Foreign direct investment (FDI) policy

Department of Industrial Policy & Promotion (DIPP) issues the consolidated FDI policy circular of 2017

DIPP issues the standard operating procedure (SOP) for processing FDI proposals

In the press

Compilation of alerts

Direct tax

Indirect tax

Regulatory

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Whats new Useful links

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DigiGST (EY GSP-ASP solution)

EY India Tax Insights App - Download from Google

playstore and Apple playstore

All about GST in India

Budget Connect 2017

Upcoming webcasts

Digital Tax Webcast series Technology for the tax

function

Permanent establishments: where to draw the line?

India Tax Insights magazine issue 11

Tax Insights magazine

Tax Library

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Indian Tax Insights Blog

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