• Service: Tax, Global Indirect Tax, International Tax
  • Type: Regulatory update
  • Date: 12/9/2013

India - Treatment of financial aid from parent, royalty payments 

December 9: The KPMG member firm in India prepared a report on the following developments (read the December 2013 reports by clicking on the hyperlinks provided below):
  • Financial aid from parent company for recouping subsidiary’s losses is taxable revenue - The Karnataka High Court held that financial aid (“subvention”) received from a parent company to recoup the losses of the subsidiary is taxable as revenue receipt because the subvention was extended in an effort to run the subsidiary’s business more profitably. Further, the purpose of the subvention was to meet the working capital needs/recurring expenditure; hence, the payments were on revenue account.

    The case is: Siemens Public Communication Networks Ltd. Read a December 2013 report [PDF 425 KB]

  • Specific provisions are required for denying exemption pursuant to restructuring - The Mumbai Bench of Income-tax Appellate Tribunal applied the principle of “legitimate expectation” and held that a specific provision is required to deny a benefit that otherwise is available to the applicant. In view of the fact that the applicant was entitled to exemption at the time of sale of shares, the tribunal rejected the tax department's denial of a tax exemption on the grounds that pursuant to subsequent amalgamation, the investee company has ceased to exist.

    The case is: Goa Trading Pvt. Ltd. Read a December 2013 report [PDF 318 KB]

  • Loss carryforward denied; argument of “beneficial ownership” for intra-group share transfers rejected - The Mumbai bench of the Income-tax Appellate Tribunal denied a loss carryforward under Section 79 of Income-tax Act, 1961 in view of change in the taxpayer’s shareholding pattern, and rejected the taxpayer’s argument that share transfer within the group did not result in a change in “beneficial” shareholding.

    The case is: Just Lifestyle Pvt Ltd. Read a December 2013 report [PDF 3232 KB]

  • Payments for bandwidth / telecom services are royalty income - The Madras High Court held that consideration received by a non-resident taxpayer from Indian customers for the provision of bandwidth / telecom services outside India was for the “use of, or the right to use equipment” and therefore, was a royalty under Section 9(1)(vi) of the Income-tax Act, 1961 and also under provisions of the India-Singapore income tax treaty.

    The case is: Verizon Communications Singapore Pte Ltd. Read a December 2013 report [PDF 344 KB]

  • Amended rules for excise tax valuations - India’s Central Board of Excise and Customs issued a notice amending the Valuation Rules, 2000, concerning when goods are sold in part to unrelated buyers and in part to related buyers and also when goods are sold related persons, in addition to use of such goods partly for one’s “own consumption.”

    Read a December 2013 report [PDF 399 KB]

  • Not royalty for transfer of software (a “copyrighted article” and not a “copyright right”) - The Delhi High Court held that because the transfer was neither the copyright of software nor the right to use the copyright of the software (but the transfer was the right to use the copyrighted material or article), the payment was not a royalty under the India-United States income tax treaty.

    The case is: Infrasoft Ltd. Read a December 2013 report [PDF 318 KB]

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