India – Deductible interest on loan to acquire controlling stake in Malaysian company; qualified foreign investors purchasing equity shares in Indian companies; foreign direct investment in single brand retail 

Interest on loan taken to acquire shares / controlling stake in Malaysian company is allowable: The Mumbai Bench of the Income-tax Appellate Tribunal held that interest incurred on a loan taken to acquire shares and a controlling stake in a Malaysian company is a deduction allowable under section 57(iii) of the Income-tax Act, 1961 (the Act). The tribunal further held that the net income of the taxpayer was negative under the provisions of the Act, and since the provisions of the Act are more beneficial to the taxpayer than the India-Malaysia income tax treaty, the taxpayer is entitled to claim a deduction for the interest paid on the borrowed funds. Finally, the tribunal held that absent any evidence that the interest expenditure is directly or indirectly attributable to earning dividend income, provisions that would disallow the interest expense deduction under section 14A do not apply.

The case is Ultramine & Pigments Ltd.

Guidance for qualified foreign investors investing in Indian equity market: On 1 January 2012, the government of India issued a release regarding the ability of qualified foreign investors to purchase equity shares of Indian companies. The KPMG member firm in India has prepared a presentation highlighting key features of the guidance, including the definition of a qualified foreign investor, eligibility requirements, investment restrictions, the process flow for the purchase and sale of equity shares, investors' responsibilities and obligations, and other items.

Up to 100% foreign direct investment allowed in single brand retail trading: The Ministry of Commerce in India issued a release permitting up to 100% foreign direct investment in single brand retail trading under the conditions that (1) products sold are of "single brand" only; (2) products are sold under the same brand internationally; (3) products are branded during manufacturing; (4) the foreign investor is the owner of the brand; and (5) for proposals involving foreign direct investment beyond 51%, at least 30% of the value of products sold must be undertaken from Indian "small industries."