India: Marketing services not fees for technical services; other developments

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

• Marketing services not taxable “fees for technical services” when rendered by a foreign company for Indian company’s business outside India:  The Bangalore Bench of the Income-tax Appellate Tribunal held that marketing services are not taxable as fees for technical services (FTS) under a provision of the Income-tax Act, 1961 because such services were rendered by the taxpayer outside India and were used in business carried on outside India by an Indian company. Therefore, the services rendered by the taxpayer were not deemed to have been accrued or arisen in the hands of the taxpayer in India. The tribunal also held that the services were not taxable as FTS under the India-Singapore tax treaty because the services were not made available technical knowledge, skills, etc., to the Indian subsidiary. The case is: Orkla Asia Pacific Pte Ltd. Read a January 2022 report [PDF 292 KB]
• Commissioner’s challenge of final assessment order from Assessing Officer, at Dispute Resolution Panel’s direction, held invalid: The Mumbai Bench of the Income-tax Appellate Tribunal quashed “revisionary proceedings” initiated by the Commissioner regarding the Assessing Officer’s final order that was issued pursuant to the Dispute Resolution Panel’s (DRP) direction. The tribunal observed that an order given pursuant to the DRP’s direction is excluded from the revisionary proceedings, and that once the Assessing Officer issues an order in accordance with the directions issued by the DRP, this cannot be revised by the Commissioner. The case is: Barclays Bank PLC. Read a January 2022 report [PDF 319 KB]
• Vouchers are goods and not actionable claims: The Karnataka Appellate Authority for Advance Ruling (appellate AAR) upheld an order from a lower AAR and concluded that vouchers traded by the taxpayer are goods and not actionable claims. Read a January 2022 report [PDF 450 KB]
• CBDT and new “faceless appeal” regime: The Finance Act, 2020 authorizes a “faceless appeal” regime, to allow for greater efficiency, transparency, and accountability. The Central Board of Direct Taxes (CBDT) issued a notice prescribing a new faceless appeal scheme, with an effective date of 28 December 2021. Read a January 2022 report [PDF 328 KB]
  
• Guidance clarifying customs treatment of automobile parts: The Central Board of Indirect Taxes and Customs issued guidance—Instruction 1/2022 (5 January 2022)—to clarify the treatment of “automobile parts” for customs tariff purposes. A judgment by India’s Supreme Court in a case, Westinghouse Saxby Farmer Ltd., resulted in divergent practices regarding the customs treatment of automobile parts. Over the past eight months, many customs and goods and services tax authorities have sought to classify automobile parts under Chapter 87 citing the Westinghouse judgement, thereby causing delays in clearances and increasing costs in the supply chain. The guidance clarifies that the classification of parts of goods falling under section XVII (which includes automobiles) is to be decided after taking into account all facts, details, and judicial decisions on the subject, including references to relevant section or chapter notes and explanatory notes to the Harmonised System of Nomenclature (HS notes). Read a January 2022 report [PDF 328 KB]
• Foreign tax credit claim allowed even when form claiming the credit is filed late: The Bangalore Bench of the Income Tax Appellate Tribunal allowed the taxpayer’s claim of a foreign tax credit when the taxpayer filed Form 67 after the taxpayer filed the India income tax return for the tax year. The case is: Brinda RamaKrishna. Read a January 2022 report [PDF 292 KB]
• Deadlines extended for filing income tax returns, audit reports: The Central Board of Direct Taxes issued a circular announcing an extension of the deadlines for filing income tax returns and audit reports for assessment year 2021-2022. The extended deadlines are provided as relief in response to the coronavirus (COVID-19) pandemic. Read a January 2022 report [PDF 212 KB]