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  • Service: Tax, International Corporate Tax, Mergers & Acquisitions, International Executive Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 7/3/2012

India - GAAR guidance, tax on slump-sale, loss carryforwards 

July 3:   The KPMG member firm in India has prepared reports on the following developments (read the June 2012 reports by clicking on the hyperlinks provided below):
  • Draft guidelines on implementing general anti-avoidance rule: The Finance Act, 2012 added a general anti-avoidance rule (GAAR) to India’s Income tax Act, 1961. The GAAR:
    • Applies to arrangements / transactions that are regarded as “impermissible avoidance arrangements
    • Authorizes the tax authorities to re-characterize such arrangements / transactions and deny the claimed tax benefits
    • Is effective 1 April 2013
    • Will be applied in accordance with prescribed guidelines
    The Central Board of Direct Taxes formed a committee to give recommendations for formulating the guidelines for proper implementation of the GAAR provisions and to suggest safeguards to curb abuse of these rules. The committee released its draft recommendations on 28 June 2012.

    Read the June 2012 report [PDF 208 KB]


  • Amounts received on slump sale of taxpayer’s business are taxable as capital gains, and not as “business income” under section 28(va): The Delhi Bench of the Income Tax Appellate Tribunal held that consideration received as a result of a slump sale of the taxpayer’s business as a going concern is capital gains, and not compensation for “not carrying out any activity in relation to any business” which would be subject to tax as business income under section 28(va) of the Income-tax Act, 1961.

    The case is: Mrs. Sangeeta Wij. Read the June 2012 report [PDF 201 KB]


  • Taxation of partner’s share in profits; depreciation not disallowed: The Ahmedabad Special Bench of Income-tax Appellate Tribunal held that a partner’s share of profit received from a firm, which is exempt in the hands of the partner under section 10(2A) of the Income-tax Act, 1961, is subject to section 14A (which generally provides that an expenditure incurred in earning the partner’s share of income is disallowed), and further that depreciation is not an expenditure that is to be disallowed under the provisions of section 14A.

    The case is: Shri. Vishnu Anant Mahajan. Read the June 2012 report [PDF 196 KB]


  • Amount realized on sale of unlisted shares by promoters is taxable as business income, not as capital gain: The Chandigarh Bench of the Income Tax Appellate Tribunal held that income realized with respect to a substantial sale of unlisted equity shares by promoters of a company will be treated as business income and not capital gains.

    The case is: Sumeet Taneja and Harbir Singh Khurana. Read the June 2012 report [PDF 202 KB]


  • Transfer of shares between a company and its director limits loss carryforwards: The Mumbai Bench of the Income Tax Appellate Tribunal held that a transfer of more than 51% of shares by an investor company to its director invokes provisions of section 79 of the Income-tax Act, 1961 (i.e., rules limiting loss carryforwards when there are certain changes in shareholdings); and thus, carried forward losses cannot be set off against profits from a prior year.

    The case is: Tainwala Trading and Investments Company Ltd. Read the June 2012 report [PDF 191 KB]


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