• Service: Tax, Global Indirect Tax, Global Mobility Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 1/29/2014

India - Income of foreign company’s liaison office is taxable 

January 29:  The KPMG member firm in India has prepared reports on the following developments (read the January 2014 reports by clicking on the hyperlinks provided below):
  • Permanent account number process; original documents required for verification at the time of application - The Central Board of Direct Taxes revised the process of allotment of the permanent account number (PAN) with effect from 3 February 2014.

    Read a January 2014 report [PDF 363 KB]

  • Payment for “transfer of right to purchase flat” is “capital gain” income - The Kolkata Income-tax Appellate Tribunal held that income from the transfer of a right to purchase a flat is taxable as capital gain income. Here, the right was held for more than 36 months; accordingly, the gain is to be treated as long-term capital gain, thereby allowing relief from capital gains taxation if invested in residential property.

    The case is: Subhas Chandra Parmanandka. Read a January 2014 report [PDF 435 KB]

  • Income of liaison office providing promotion and product sales services in India is taxable - The Delhi Bench of the Income-tax Appellate Tribunal held that the income attributable to a foreign company’s “liaison office” that rendered services for the promotion and sales of the products in India was taxable in India.

    The case is: Brown & Sharpe Inc. Read a January 2014 report [PDF 438 KB]

  • Interest expense not disallowed under section 14A because the taxpayer had sufficient funds available for investment - Disallowance under section 14A of the Income-tax Act, 1961, of an interest expense related to exempt income has been the subject of litigation before the courts. Recently, the Gujarat High Court held that an interest expense was not disallowed under section 14A because the taxpayer had sufficient funds of its own available for investment.

    The case is: Gujarat Narmada Valley Fertilizers Co Ltd. Read a January 2014 report [PDF 389 KB]

  • Interest income and import entitlement sale consideration eligible for tax benefit (deduction) under section 10B - The Karnataka High Court held that interest received on fixed deposits and consideration received from the sale of an import entitlement are eligible for the tax benefit (i.e., deduction) under section 10B of the Income-tax Act, 1961, since there is a direct nexus between such income and the business of the undertaking. The High Court held that though the interest income does not take on the character of profits and gains from the export of article, it is in fact income that is derived from the consideration realized by export of articles. Therefore, it is eligible for the deduction under section 10B.

    The case is: Motorola India Electronics (P) Ltd. Read a January 2014 report [PDF 440 KB]

  • Guidelines on employment visa and business visa - India’s Ministry of Home Affairs updated the guidelines originally issued in 2009 on employment visa and business visa in the form of frequently asked questions. The revised visa guidelines provide certain exemptions and rules.

    Read a January 2014 report [PDF 378 KB]

  • Employee contributions deposited after due date but before return’s filing date - The Gujarat High Court held that employee contribution deposited by an employer with the employees’ providential fund (PF) is not allowed as business deduction under section 36(1)(va) if deposited after the “due date” specified under the PF laws but before the due date of filing the income tax return. However, the Rajasthan High Court held that because the entire amount was deposited by the taxpayer on or before the due date for filing the return the employees’ PF contribution is not disallowed under section 43B or under section 36(1)(va).

    The cases are: Gujarat State Road Transport Corp. and Jaipur Vidyut Vitran Nigam Ltd. Read a January 2014 report [PDF 361 KB]

  • Cenvat credit with respect to service tax paid on transportation of final products - The issue is when can a manufacturer claim a credit on the service tax paid on goods transport by road is a subject matter of litigation in various decisions (in other words, whether the Cenvat credit can be claimed with respect to service tax paid on the transportation of goods up to the factory gate or up to depot, up to the premises of the consignment agent or up to the place of delivery i.e., premises of the customer?) The Customs Excise & Service Tax Appellate Tribunal held that when the duty is chargeable at specific rates or at the value determined under section 4A (and not at ad-valorem rates under section 4), the definition of “place of removal” will be the factory gate. Therefore, in such cases, Cenvat credit cannot be claimed with respect to service tax paid on transportation of final products beyond the factory gate.

    Read a January 2014 report [PDF 449 KB]

  • Reserve Bank of India issues pricing guidelines for foreign direct investment instruments with optionality clauses - The Reserve Bank of India “notified” (released) conditions for optionality clauses with respect to the issuance of equity shares and compulsorily and mandatorily convertible preference shares/debentures to a person resident outside India under the foreign direct investment program. The conditions for optionality clause require the buy-back of securities from the investor at the price prevailing / value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return.

    Read a January 2014 report [PDF 377 KB]

©2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.


Share this

Share this


Subscribe to receive the latest TaxNewsFlash email alerts (you must select the option for TaxNewsFlash)

Already a Subscriber? Login

Not a member? Subscribe now