Direct Tax

Whether transfer of shares of company holding land can be equated to the transfer of land held by the said company?

DCIT Vs. M/s Venus Infrastructure & Developers (P) Ltd. ITA No. 1582/AHD/2019


The taxpayer, a real estate private limited company, held shares ARGHPL company for 34 months. The taxpayer had acquired the share in ARGHPL in AY 2008-09 for INR 280 million and sold its stake in ARGHPL for INR 340 million in AY 2012-13. However, due to the indexation benefit, the taxpayer claimed a Long Term Capital Loss (LTCL) of INR 60 million. Furthermore, ARGHPL only owned one asset, i.e., a piece of land. The Assessing Officer (AO) was of the view that the assessee had transferred the immovable property in the garb of transferring the shares, i.e., used shares of ARGHPL as a colorable device in order to declare an LTCL instead of Short Term Capital Gain (STCG) on the sale of a property. Accordingly, the AO proposed to tax STCG of INR 60 million for the aforesaid transfer since the shares in ARGHPL were held for a period less than 36 months.

The Commissioner of Incometax( Appeals) [CIT(A)] confirmed the order of the AO. Aggrieved by the order, the taxpayer filed an appeal before the Ahmedabad Tribunal.


After consideration of the data on record, the Tribunal held that the taxpayer had two legal courses available to dispose of the land held by ARGHPL. One option was to directly transfer the land and pay capital gains tax in the hands of ARGHPL. The second option available would be by way of selling the shares of ARGHPL so that control over the company as a whole was transferred. Thus, the Tribunal held that the assessee chose one of the two legally permissible options which it deemed most taxeffective or viable. It further held that there was no inserting of any device and, therefore, it could not be said that any colorable device was used to reduce the tax liability.

Moreover, it also upheld the taxpayer’s contention that a shareholder and company are two separate legal persons capable of holding property of any kind in their name. The land in question was held by ARGHPL and not by the shareholder, i.e., the taxpayer. By being a shareholder, the taxpayer cannot be said to be the owner of the aforesaid land. Accordingly, the Tribunal held that the transfer of shares by the assessee could not be equated with a transfer of land which is not held by it.

Our Comments

The Tribunal has clarified that companies are individual and distinct persons. Furthermore, choosing a tax-effective option is not akin to tax avoidance.

Whether entity not working exclusively for the non-resident can be regarded as its Agency Permanent Establishment (PE) in India?

Integrated Container Feeder Service Vs. Joint Director of Income-tax ( [I.T.A. No.5083/Mum/2003, I.T.A. No.7720 /Mum/2010, I.T.A. No.7721/Mum/2010, I.T.A. No.7022/Mum/2010]


The taxpayer is a shipping company incorporated in and tax resident of Mauritius. During the assessment years under consideration, the taxpayer received certain receipts from freight. The taxpayer submitted that its Place Of Effective Management (POEM) is in Mauritius. Thus, as per Article 8 of the India-Mauritius Double Tax Avoidance Agreement (DTAA), its income from shipping operations shall be taxable only in Mauritius. The AO, however, observed that two of the shareholders of the assessee company are located in the UAE. These shareholders have also attended Board meetings. Thus, AO concluded that the taxpayers’ POEM is in UAE, and the benefit of Article 8 of India-Mauritius DTAA was denied. Furthermore, the AO also held that the company has a PE in India as two Indian parties work exclusively for the taxpayer and, accordingly, brought the entire receipts from shipping activities to tax.


The Tribunal accepted the Revenue's view that Article 8 of India-Mauritius DTAA would not apply in the taxpayer's case. However, while deciding whether the taxpayer has a PE in India, the Tribunal observed that the two Indian parties that provide services to various companies relating to shipping activities had earned income by providing such service to a number of shipping companies. Not only are they agents of an independent status, but their services to various shipping companies, including the assessee, are in the course of their ordinary business as per Article 5(5) of the DTAA. Therefore, it has to be held that the Indian parties do not constitute Agency PE of the assessee in India. Thus, in the absence of a PE in India, the business profits of the assessee would not be taxable in view of Article 7 of the DTAA.

Our Comments

Determination of Agency PE requires factoring of various aspects. One needs to study the inter-company arrangements for determining PE.

Transfer Pricing

Licensor-Licensee relationship is of essence to determine whether any royalty can be attributed, the Income Tax Appellate Tribunal (ITAT) placing reliance on Base Erosion and Profit Shifting (BEPS) Action Plan 8-10 remitted the issue back to the files of Transfer Pricing Officer (TPO)

Sasken Technologies Ltd [TS-403- ITAT-2021(Bang)-TP]


The taxpayer, a telecom software solutions company with multiple subsidiaries worldwide, offers software services, development consultancy, and wireless software products to companies in the communications space. During the course of the Transfer Pricing (TP) assessment proceedings for AY 2013-14, the TPO made the adjustments to the international transactions of recovery of brand royalty and provision of invoices and collection services (fact-specific issue by applying Profit Split Method[PSM] as the Most Appropriate Method[MAM])8.

The TPO carried out an upward adjustment on account of royalty chargeable at 2% of Associated Enterprises (AEs) turnover for using taxpayer's brand name ‘Sasken’ stating that the AEs have been using the trademark and the brand name, originally owned by the taxpayer against which the subsidiaries paid no royalty. The Dispute Resolution Panel (DRP) upheld the addition of 2% royalty on AEs turnover. Aggrieved by the final assessment order, the taxpayer filed an appeal before the ITAT.

Contentions of taxpayer before the ITAT:

  • Organization for Economic Cooperation and Development (OECD)’s BEPS Action Plan 8-109 states that royalty payment is not payable basis the membership or use of the group name to reflect group membership.
  • The financial benefit attributed to the use of the name, cost, and benefits associated with other alternatives and relative contributions to the value of the name made by the legal owner and the functional analysis of the user in its jurisdiction is an integral part in determining the royalty payment towards a trade name.
  • The AEs were already in operation and already had a base revenue. It was submitted that these AEs did not derive any commercial success out of using the group's name during the year under consideration. The TPO failed to demonstrate that the AEs have derived any financial or commercial benefits from the brand 'Sasken' during the assessment proceedings.
  • TPO made contradicting remarks by saying that the subsidiaries were full-fledged entrepreneurs and also stating that subsidiaries cannot stand on their own legs without using the brand name 'Sasken.'

Ruling by ITAT

The ITAT observed that the TPO contradicted itself in concluding that the subsidiaries were not able to stand on their own legs without the use of brand name Sasken, ignoring the facts that the AEs were entrepreneurs and already in operation having revenue base before becoming a part of the group and that the group name did not add any significant value to the AEs operations. While there had been an increase in profits/reduction in loss of the AEs during the year, as per the ITAT, this alone ipso facto couldn't conclude that subsidiaries were able to get premium price benefit due to the use of the brand name.

The ITAT witnessed that the TPO had not established that:

  • Financial benefit was derived to the members of the group.
  • There was a legal contract between the brand owner and licensee, agreeing on the terms and scope of licensing agreement determining how the brand can be used, how long can they be used, in what market can they be used, and what remuneration is required.
  • There was any actual transfer of technical know-how and any outcome of Research and Development undertaken by the taxpayer, which was transferred to the subsidiaries.

As per provisions of Section 9 of the Income-tax Act, 1961 (IT Act), consideration for transfer of rights (including granting of license) in respect of a trademark or similar property or for the use of a trademark or transfer of rights (including granting of a license) in respect of any copyright, literary, artistic or scientific work, falls under the definition of 'royalty.'

The ITAT remanded the case to the TPO, directing him to verify the agreements and evaluate the matter as per the guidance provided under the OECD BEPS Action Plan 8-10 and to evaluate whether there exists a licensor-licensee relationship between the taxpayer and its subsidiaries and analyze the brand name’s impact on the subsidiaries’ profits.

Our Comments

The ITAT emphasized the financial benefits accrued to an entity, which is critical in an analysis to determine whether a third party would agree to pay such royalty in an arm's length scenario. There may be some implicit benefit but whether this would require the group entity to pay royalty is a question, which needs to be answered based on the detailed analysis of the facts of each case. The ITAT has given significant importance to the principles laid down in OECD BEPS Action Plan 8-10 for evaluating such situations.

Whether DRP has the power to condone the delay in filing objections by the taxpayer?

Lam Research (India) Private Limited [TS-431-ITAT-2021(Bang)- TP]


The taxpayer is engaged in providing computer development services and Information Technology Enabled Services(ITeS) to its AEs on a costplus mark basis. While determining the arm's length price of the international transactions for AY 2012-13, the TPO proposed an adjustment which was incorporated in the draft assessment order passed on 23 February 2016 by the AO.

Aggrieved by the order, the taxpayer filed an objection before the DRP on 30 March 2016. The DRP rejected the objection of the taxpayer in limine on account of the belated filing of the objections (by three days), stating that the DRP does not have the power to condone the delay. Pursuant to this, the final assessment order was passed on 30 September 2016, retaining the original adjustment.

Aggrieved by the final assessment order, the taxpayer filed an appeal before the ITAT. The taxpayer also raised the following two additional grounds on legal issues:

  • The DRP dismissed the objections of the taxpayer without condoning the delay; and
  • The final assessment order was timebarred since it was not passed within 30 days from the date of the draft assessment order.

Rulings of ITAT

In relation to the delay in the filing by the taxpayer, the ITAT held that as per the provisions of Section 144C of the IT Act and as per the procedures governed by Income Tax Rules, 2009, the DRP had not been explicitly given the powers to condone the delay in filing the objections by the taxpayer.

In relation to the contention of the taxpayer that the final assessment order was time-barred, the ITAT held that it has powers to entertain an appeal in two situations, i.e. (i) when an order of assessment impugned is an order pursuant to directions of DRP under Section253(1)(d) of the IT Act; or (ii) from an order of the CIT(A). In the instant case, the DRP rejected the objections on the ground of limitation, and it provided no directions on the merits of the issue. In view of the above, the final assessment order was not pursuant to the direction of the DRP. The ITAT suggested that the correct course of action for the taxpayer would have been to appeal before the CIT(A) since the ITAT does not have jurisdiction to hear plea against final assessment order barred by limitation.

Our Comments

It has now been a settled issue with rulings from various ITAT across the country that DRP has no power to condone the delay in filing of the objections by the taxpayers. Thus, it lays down the basic principle of timely filings of the objections before the DRP. Also, in cases wherein the DRP rejects the objections of the taxpayers on the ground of limitation, and no directions are issued by the DRP pursuant to Section 144C(5) of the IT Act, the taxpayer may contemplate a recourse to file an appeal before the CIT(A) against the final assessment order passed by the AO.

8. This alert captures the detailed analysis of the brand royalty adjustment.

9. Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (‘BEPS’) Action Plan 8-10

Indirect Tax

Whether the amended Rule 89(5) of CGST Rules is valid to the extent, it denies refund of unutilized Input Tax Credit (ITC) relatable to input services in case of Inverted Duty Structure (IDS)?

Union of India vs. VKC Footsteps India Pvt. Ltd. [Civil Appeal No. 4809 of 2021 - Supreme Court of India]


  • Section 54(3) of the CGST Act provides for a refund of unutilized ITC where the credit is accumulated on the tax rate on inputs being higher than the tax rate on output supplies (viz. IDS).
  • Input tax is defined in Section 2(62) as tax charged on the supply of goods or services or both.
  • The refund amount is computed as per the formula laid down in Rule 89(5) of the CGST Rules.
  • Notification No. 21/2018-CT dated 18 April 2018 amended the said Rule to deny a refund of ITC availed on 'input services' and restricted the refund to ITC of inputs alone.
  • This amendment was later given a retrospective effect from 1 July 2017 vide Notification No. 26/2018-CT dated 13 June 2018.
  • Earlier, the Gujarat HC had held that the amended Rule is contrary to Section 54(3), whereas the Madras HC had upheld the validity of the amended Rule.


Powers of the Court

  • The Court cannot redraw legislative boundaries on the basis of an ideal that the law was intended to pursue.
  • The doctrines emphasized during the course of the arguments furnish the underlying rationale for the enactment of the law but cannot furnish either a valid basis for judicial review of the legislation or make out a ground for invalidating a validly enacted law unless it infringes constitutional parameters.

Statutory provision cannot visualize every eventuality

  • The absence of a specific rulemaking provision in Section 54 and its existence in some other Sections of the same legislation does not lead to an automatic inference that the Central Government (CG) does not have rule-making power.
  • Furthermore, Section 164(1) confers express rule-making powers on the CG.

Whether Rule 89(5) overrides Section 54(3)?

  • The Court held that clause (ii) of the first proviso is not merely a condition of eligibility but provides a substantive restriction wherein refund of unutilized ITC can be availed only when the accumulation is relatable to an IDS, viz. the tax on input goods is higher than the rate of the tax rate of tax on output supplies.
  • Therefore, there is no disharmony between Rule 89(5) which restricts the IDS refund to only ITC pertaining to 'inputs' (and not 'input services') and Section 54(3).

Anomaly in the formula cannot result in invalidation

  • The Court agreed that there is an anomaly in the prescribed formula. However, held that it cannot result in the invalidation of a fiscal rule framed in exercise of the power of delegated legislation.
  • By referring to its past judgments, the Court held that in the exercise of its powers of 'judicial review,' it could not allow itself to become a 'one-time arbiter' of any and every anomaly of a fiscal regime.

Our Comments

The Court has refused to walk in the shoes of the executive or the legislature and urged the GST Council to reconsider the formula and take a policy decision regarding the same.

Said judgment, although rendered in the context of IDS refund, has wider implications. It would be interesting to see whether other issues such as the validity of place of supply of intermediary services, the validity of ITC pertaining to goods/services procured for construction of immovable property, etc., will meet a similar fate before the Apex Court.

Whether managerial and leadership services provided by the Corporate Office to its site offices in various States and Group Companies can be considered as 'supply of service' in terms of Section 7 of the CGGT Act?

If yes, whether the applicant can charge a certain lump sum amount in terms of the second proviso to Rule 28 of CGST Rules as most of the recipients of such services are eligible for ITC at their respective ends?

B. G. Shirke Construction Technology Pvt. Ltd. [2021 (9) TMI 949 - AAR, Maharashtra]


  • The applicant, a Corporate Office, supplies managerial and leadership services in finance, operation, etc., to its site offices and Group companies, whereby it receives fixed monthly charges on a lump sum basis.
  • The services rendered by employees of the Corporate Office still retain the character of 'services by an employee to the employer in the course of or in relation to his employment.'
  • The employment relationship exists between the employee and employer, i.e., legal entity as a whole and not confined to the location of the registered person from where the said employee renders services.
  • Hence, such services shall not be treated as supply of services as per Schedule III, and GST is not payable on the lump sum amount.


  • Upon referring to the dictionary meaning of ‘Employee,’ the site offices/group companies cannot be treated as persons who the applicant employs.
  • The site offices as well as Group companies are independent and separately registered under the GST law, and hence, the applicant cannot get the benefit of Entry 1 to Schedule III.
  • As per the CGST Act, branch offices and head offices are distinct persons and all transactions between them are to be brought under the GST net.
  • Therefore, the impugned services provided by the applicant to its distinct and related entities can be considered as ‘supply of service,’ and GST will be leviable on the lump sum amount charged on them.
  • Furthermore, since full ITC is admissible to the recipients, the value declared in the invoice would be deemed to be the open market value of the services.
  • Therefore, the applicant may resort to valuation under Rule 28 of the CGST Rules.

Our Comments

The ruling has once again brought to fore the question of whether employees based in Head/Corporate Office can also be considered as employees of various branches located across different States, for the purpose of GST. The issue has arisen mainly because the GST law considers branch offices in different States as 'distinct persons.'

However, whether such a deeming fiction created by the statute will override the employment contracts, which are usually at an organization level, is expected to be an area prone to litigation.

It would be an opportune time for the GST Council to clarify this aspect and restrict the levy to specified transactions, if any, for such supplies are generally revenue neutral.

Merger & Acquisition Tax

Mumbai ITAT: Tribunal allows the benefit of India-Mauritius DTAA on re-domiciliation of a company to Mauritius

Asia Today Limited [TS-620-ITAT- 2021(Mum)]

The assessee, Asia Today Limited (ATL), an erstwhile company registered in the British Virgin Islands (BVI), is now re-domiciled to Mauritius. On redomiciliation, the company's registration was canceled by the Registrar of Company in BVI, and simultaneously, the Mauritian Revenue Authorities issued Tax Residency Certificate (TRC) to the company. The assessee, now registered in Mauritius, claimed the treaty benefits as per India – Mauritius DTAA. However, the AO, contending that the company was originally a BVI registered company, disallowed the benefits as per India-Mauritian DTAA.

The Tribunal decided in the favor of the assessee company laying down the following observations:

  • Corporate re-domiciliation also referred to as 'continuation', is a process by which a company moves its 'domicile' from one jurisdiction to another by changing the country under whose laws it is registered and incorporated whilst maintaining the same legal identity
  • Once a tax residency certificate is issued, it is not up to the tax authorities even to make such investigations
  • Re-domiciliation of the company by itself cannot lead to denial of treaty entitlements of the jurisdiction in which the company is re-domiciled, though, of course, the fact of redomiciliation of the company could at best trigger detailed examination or the re-domiciled company being actually fiscally domiciled in that jurisdiction.

Our Comments

The Mumbai Tribunal has recognized re-domiciliation as an authentic and convenient procedure from a business perspective and has allowed treaty relief of new jurisdiction.

Mumbai ITAT: Allows set-off of losses under Section. 79 of the Act despite a change in immediate holding observing no effective change in voting rights

Tril Roads Private Limited [TS-843- ITAT-2021(Mum)]

The assessee, Trill Road Pvt. Ltd. (TRPL), has claimed set-off of brought forward losses for AY 2014-15. The assessee's shares as on 1 April 2013 were held in the proportion of 24%, 24% & 52% by Tata Realty and Infrastructure Ltd. (TRIL), Actis Infrastructure Roads Ltd. (Actis) and TRIL Highway Project Ltd. (THPL), respectively. TRIL and Acits held THPL's shares in the proportion of 78.85% and 21.15%. Subsequently, in 2013, THPL merged into TRIL, and TRPL became a subsidiary of TRIL. Subsequently, at the time of set-off, TRPL was a wholly-owned subsidiary of TRIL.

The AO strictly interpreted the provisions of Section 79 of the Act and observed that there was a change in shareholding by 51%. Accordingly, he rejected the claim of set-off of brought forward losses. The assessee contended that there is no change in control and management as even pre-merger, TRIL held 24% directly and 41% indirectly (78.85% of 52%). CIT(A) accepted the assessee's contention that more than 51% of voting power continued to be held by the same beneficial owners.

The Tribunal allowed the set-off of losses under Section 79 of the Act basis the following observations:

  • Effectively, there is no change as far as the voting pattern and beneficial ownership of the assessee company.
  • TRIL controlled the whole management directly as well as indirectly at the time of incurring loss and was controlling directly after the merger. The whole group is managed by the same set of directors and shareholders.
  • With reference to the Department's reliance on the decision of Yum Restaurants India Pvt. Ltd.10, the same was distinguished by facts.

Our Comments

The ruling re-signifies that provisions of Section 79 cannot trigger where the beneficial ownership (control and management of the company through voting power) remains the same.

10. Yum Restaurants India Pvt. Ltd. (ITA No. 349/2015)