This article looks at notable tax decisions from the Indian courts.
The Supreme Court recently held that a taxpayer had failed to discharge the onus on it to establish the creditworthiness or identity of investor companies.(1) As such, the entire transaction at issue was found to be bogus and without credibility. The court held that in the case of the private placement of shares, taxpayers have a legal obligation to prove the receipt of share capital or a premium to the tax officer's satisfaction.
The Bombay High Court held that the mere fact that a valuer had assigned different valuations to individual parts of a unit did not change the fact that the taxpayer had transferred the entire unit as a going concern for a lump sum.(2) The High Court thus held that the sale in question was a 'slump sale', as defined in Section 2(42C) of the Income Tax Act.
The taxpayer in a recent case provided catering and housekeeping services.(3) During the year under consideration, the taxpayer had entered into transactions worth approximately Rs110.28 million with its various associate enterprises. In the taxpayer's transfer pricing study report, it had adopted the entity level transactional net margin method as the most appropriate method and concluded that the transactions with the associate enterprises had been entered into at arm's length. The lower tax authority made an adjustment without restricting it to the value of the international transactions. The higher tax authority contended that adjustments must be restricted to the value of international transactions and not be made at an entity level. On further appeal, the Tax Tribunal rejected the lower tax authority's decision and upheld the higher tax authority's decision.(4)
(4) Further information on Indian tax case law is available in BDO in India's monthly Technical Tax Newsletter.
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