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  • Service: Tax, International Corporate Tax, Mergers & Acquisitions, International Executive Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 10/16/2012

India - Construction PEs, splitting composite contracts, offshore indirect transfers 

October 16: The KPMG member firm in India has prepared reports on the following developments (read the October 2012 reports by clicking on the hyperlinks provided below):
  • Mauritian company does not have construction PE when duration of each contract is less than nine months: The Mumbai Bench of the Income-tax Appellate Tribunal held that the taxpayer does not have a permanent establishment (PE) in India under the India-Mauritius income tax treaty because the duration of each contract entered into by the taxpayer is less than nine months.

    The case is: J.Ray McDerrmott Eastern Hemisphere Ltd. Read an October 2012 report [PDF 162 KB]


  • Refunds of provident fund accumulations for expatriates from “social security agreement” countries: India has modified the rules concerning when “international workers” (expatriates) can make withdrawals from provident funds (pension plans).

    Read an October 2012 report [PDF 316 KB]


  • Composite contract can be split into offshore supplies and onshore activities: The Delhi Bench of Income-tax Appellate Tribunal held that a composite contract for fabrication and installation of onshore and offshore oil facilities can be divided into offshore supplies and onshore activities. Also, the tribunal found that income from the offshore supplies was not taxable in India because the activities prior to installation and commissioning (i.e., offshore supplies) were carried out and completed outside India and were not relating to a PE in India.

    The case is: National Petroleum Construction Co. Read an October 2012 report [PDF 194 KB]


  • Section 14A does not apply to shares held as stock- in-trade: The Mumbai Bench of the Income-tax Appellate Tribunal held that because the taxpayer did not retain shares with the intention of earning dividend income and that such income was incidental to the taxpayer’s business of selling shares, no disallowance of expenditure incurred on borrowings made for the purchase of the trading shares could be made under section 14A of the Income-tax Act, 1961.

    The case is: India Advantage Securities Ltd. Read an October 2012 report [PDF 195 KB]


  • Draft report on retrospective amendments relating to indirect transfer: After the Supreme Court held in Vodafone International Holdings B.V. that the transfer by a non- resident to another non-resident of shares of a foreign company holding an Indian subsidiary company does not amount to transfer of any capital asset situated in India, the Finance Act 2012 included a measure that the income deemed to be accruing or arising to non-residents directly or indirectly through the transfer of a capital asset situated in India is to be taxed in India, retroactively from 1 April 1962.

    The Prime Minister of India formed an “expert committee” to undertake stakeholder consultations and finalize guidelines including with respect to the implications of amendments relating to the taxation of overseas transfer of assets when the underlying asset is located in India.

    The committee issued a draft report on these issues. Read an October 2012 report [PDF 239 KB]


  • Deduction not available when the total area of apartments exceeds the maximum prescribed limit: The Mumbai Bench of the Income-tax Appellate Tribunal held that the deduction under section 80-IB(10) of the Income-tax Act, 1961, is not available when the area of the combined flats exceeds the maximum prescribed limit, regardless of separate sale agreements entered into by the taxpayer.

    The case is: Siddhivinayak Homes. Read an October 2012 report [PDF 212 KB]


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