Article
Dy/Dx – Differentiating the contours of taxation of derivatives By Siddhesh Khandalkar and Sudin Sabnis
The article in this issue of Direct Tax Amicus discusses a recent ITAT decision wherein the Tribunal was called upon to adjudicate a question as to whether a Venn Diagram of two sets of items – meaning of derivatives as it is normally understood and its tax treatment equating it with shares, would have any intersection or not. By distinguishing derivatives from shares, the ITAT has affirmed that derivatives, despite deriving their value from underlying assets like shares, are distinct financial instruments, i.e., the derivatives are not subject to the same taxation rules as shares under the India-Mauritius DTAA. According to the authors, the judgment underscores the importance of understanding the legislative intent behind treaty provisions and adhering to the principle of treaty override.
Notifications & Circulars
- Section 54EC — IREDA bonds (5 year lock in) treated as ‘long term specified asset’
- Section 10(23FE) — Eligibility window extended to 31 March 2030
- Rule 21AK amended to include OTC derivatives and recognise IFSC FPI units for Section 10(4E)
- PAN-AADHAR non-linking – No liability to deduct/collect at higher rates in certain circumstances
- CPC may re-process invalidated income tax returns filed up to 31 March 2024, and issue intimations by 31 March 2026
Ratio decidendi
- Strategic oversight fees taxable in India: Supreme Court upholds existence of a fixed place PE – Supreme Court
- Corporate guarantee fee paid by an Indian subsidiary to its Korean parent is taxable only in Korea under Article 22 (‘Other income’) of the India-Korea DTAA – ITAT Bengaluru
- Fees received from Indian airlines for the use of software are not ‘royalty’ – Indian tax not attracted in absence of a permanent establishment – ITAT New Delhi
- Buyback of shares – Section 56(2)(viia) is inapplicable as a company’s own shares do not constitute ‘property’ in its hands – ITAT Mumbai
- IBC moratorium bars income tax assessment proceedings as well – Bombay High Court
- Provision for disputed liability which is pending adjudication does not crystallise into taxable income under Section 41(1) – Madras High Court
- Estate of a deceased assessed through multiple executors is to be taxed at the slab rates applicable to an individual – ITAT Mumbai
