In this edition, we bring you an article on the second part on the prevention of abusive strategy of thin capitalisation, which deals with various issues. The next article is on the eligibility of credit with respect to supplies which are made as part of promotion schemes and discharge of CSR obligations. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.

Key Topics:

GST

• BLOCKED CREDIT ON FREE OF COST SUPPLIES— THE GLOOMY PICTURE AND A GLIMMER OF HOPE

INCOME TAX

• THIN CAPITALIZATION - RESTRICTION OF INTEREST UNDER SECTION 94B – NEXT LITIGATION SAGA – PART II

  SBS Wiki E Journal Feb 2021 | SBS and CoSBS Wiki E Journal Feb 2021

  Tags: wiki, news

Introduction:

At the time of introduction of negative list-based taxation under service tax law[1] effective from 01.07.2012, only selected services provided by Government are subject to service tax and the rest are covered under the negative list. With effect from 01.04.2016, the negative list contained in section 66D was amended to exclude all services provided by Government from negative list and to bring them under levy. Further, these services were subjected to reverse charge requiring the recipient to pay tax.

Since then, applicability of service tax over royalty paid by mining companies to State Governments towards mineral rights has been a subject matter of debate.  The industry is of the view that royalty payable on mineral rights itself is in the nature of tax and service tax cannot be levied on such tax amount. The matter was examined by Rajasthan High Court in Udaipur Chambers of Commerce and Industry[2] and ruled the issue in favor of Revenue. The same has been challenged before the Supreme Court[3] which is pending for disposal.

Read more: Comprehensive Analysis of Service Tax & GST Implications on Mining Rights

The concept of transfer pricing was introduced in the IT Act through Finance Act 2001 in order to make sure that appropriate amount of income is subject to tax in India and to curb the practice of tax avoidance. The Honourable Finance Minister in his budget speech for the year 2001 has stated as under:

176. The presence of multinational enterprises in India and their ability to allocate profits in different jurisdictions by controlling prices in intra-group transactions has made the issue of transfer pricing a matter of serious concern. I had set up an Expert Group in November 1999 to examine the issues relating to transfer pricing. Their report has been received, proposing a detailed structure for transfer pricing legislation. Necessary legislative changes are being made in the Finance Bill based on these recommendation[1]

     Read more: Domestic Transfer Pricing - A Bird’s Eye View

     Tags: direct tax, news

In this edition, we bring you an article on indirect tax implications on mining rights. Majority of the readers would know that there was a reverse charge obligation on businesses for support services received from government. The tax authorities using this particular obligation has tried to fasten liabilities on mining rights taken by the businesses from the government. Whether a mining right can be called as a ‘tax’ or ‘consideration for service’ is currently pending before 9 member bench at Honourable Supreme Court. We have comprehensively discussed about the said issue pending the outcome of judgment.

The next article is on domestic transfer pricing regulations. With the introduction of Section 115BAB, the said domestic transfer pricing regulations have come again to the surface. In this part, we have dealt with the basic overview of the domestic transfer pricing regulations and in the upcoming parts, we are going to take certain case studies for deliberation.

Read more: SBS Wiki E Journal Jan 2021