The authors outline the decisions in five recent international tax cases delivered by the Delhi, Bombay and Gujarat High Courts.
The first case note addresses the July 2017 Delhi High Court decision in Director of Income Tax v. Mitsui & Co. Ltd, which found that the Indian tax department failed to satisfy the onus of proof to show that the taxpayer’s liaison office in India constituted a permanent establishment. Rather, the office met the preparatory and auxiliary activities test in article 5(6)(e) of the 1989 India–Japan Income Tax Treaty.
The second case note explains the decision of the Delhi High Court in Valvoline Cummins Private Ltd. v. Deputy Commissioner of Income-tax that the Indian tax department is required to demonstrate the existence of an international transaction between an Indian taxpayer and its foreign associated enterprise before it can make a transfer pricing adjustment to the taxpayer’s advertising, marketing and promotion expenditure, on the grounds that excessive amounts of such expenditure were incurred to enhance the associated enterprise’s brand, and that the associated enterprise should have compensated the taxpayer accordingly.
The third case note addresses the recent decision of the Bombay High Court in Commissioner of Income Tax v. JSH Mauritius Ltd, which found that the capital gain derived by a Mauritius company from the disposal of a long-term share investment in an Indian company was not taxable in India by virtue of article 13(4) of the India–Mauritius Income Tax Treaty.
The fourth case note reviews the Bombay High Court ruling in Ballarpur Industries Ltd v. Commissioner of Income Tax, which holds that a foreign exchange gain, which arises from a currency fluctuation upon remittance of underlying interest and royalty income does not have the character of that income, and therefore does not qualify for the same treaty exemption from Indian taxation as the interest and royalty income.
In case note 5, the authors review the recent short judgement of the Gujarat High Court in Principal Commissioner of Income Tax v. M/s Veer Gems, where the court held that two enterprises must meet the criteria specified in section 92A of the Income-tax Act 1961 before they were associated enterprises, and transfer pricing adjustments could be made. Mere control of each company by the same family members was not sufficient.