Article
SC Ruling on MFN Clause in Tax Treaty: A conundrum for the tax deductors in India?
By S. Vasudevan, Bharathi Krishnaprasad and Krishna Laasya V
The Supreme Court recently passed a judgment, in favour of the Revenue department, interpreting the Most Favoured Nation (‘MFN’) clause present in various Double Taxation Avoidance Agreements (‘DTAAs’). The article in this issue of Direct Tax Amicus delves into the intricacies of the said decision and in turn, lays emphasis on the plausible ramifications on the benefits claimed by the taxpayers in the past. Discussing the issue of limitation for initiating a tax demand under Section 201 of the Income Tax Act, 1961, the article cites various decisions of Courts and Tribunal, and observe that the opinion on the issue is divided. The authors further opine on the question as to whether tax deductors can be construed as assessees-in-default in cases where lower withholding rate was applied considering the certificate under Section 197. They also explore the possibilities of imposition/non-imposition of interest and penalty in such cases. Observing that the recent Supreme Court decision does not provide any relief for the assessees who have had a reasonable cause for not deducting tax (or the correct amount) in the past, the authors believe that suitable clarification from the government, either through legislative amendments or through circulars, will go a long way in settling these open issues.
Notifications & Circulars
- Trusts, educational institutions, hospitals, etc. – Details in Form 10B/ 10BB, of persons making ‘substantial contribution’ clarified
- SEZ units – Form of report for claiming deduction under Section 10AA notified; Due date for filing form for AY 2023-24 extended till 31 December 2023
- Concessional tax under Section 115BAA – Delay in filing Form No. 10-IC for AY 2021-22 condoned
- ‘Stichting Pensioenfonds ABP’ notified as pension fund for exemption under Section 10(23FE)
- Payment by IFSC unit to a non-resident, which is not chargeable to tax, is not required to be reported in Form 15CA
- Rules pertaining to allotment and quoting of PAN amended
Ratio decidendi
- Nature of original obligation and nexus of subsequent payment are relevant for characterization of payment as revenue or capital – Supreme Court
- Taxability of app-development, marketing and sales support services, web-hosting services under UAE and Mauritius DTAA – ITAT Delhi
- Subscription fees received from member firms when non-taxable – Delhi HC discusses three tests of mutuality, i.e. commonality of identity, non-profiteering, and obedience to mandate – Delhi High Court
- Borrowed services charges for provision of statistical or qualitative inputs cannot be regarded as FTS – ITAT Mumbai
- Order determining total income and tax payable is a final assessment order – Participation in DRP proceedings does not oust assessee from challenging the validity of such final order – ITAT Delhi
