India: Intra-group share buyback qualifies as reorganization under treaty (tribunal decision); other recent tax-related court decisions
Decisions regarding various issues under treaties and application of CGST
The Delhi Special Bench of the Income-tax Appellate Tribunal held that a buyback of shares by an Indian company from a related Netherlands company qualified as a form of reorganization, and thus capital gains recognized by the Netherlands company on the buyback were not taxable in India under Article 13(5) of the India-Netherlands income tax treaty.
In reaching its conclusion, the tribunal considered similar provisions under the Netherlands-Nigeria income tax treaty, as well as legal and judicial definitions of the term reorganization.
The case is: Huntsman Investment [Netherlands] BV v. ADIT (ITA No. 764/Del/2014).
Read a March 2026 report prepared by the KPMG member firm in India
The KPMG member firm in India also prepared another March 2026 report summarizing the following recent tax-related court decisions in India:
- Presence of permanent establishment (PE): The Delhi Tribunal held that a Danish software provider’s income from sales to Indian distributors was not taxable in India under the India-Denmark income tax treaty due to the absence of a PE.
- Entitlement to benefits of treaty for fiscally transparent U.S. LLC: The Delhi Tribunal held that a U.S. LLC, though fiscally transparent, qualified as a U.S. tax resident and was entitled to treaty benefits under the India-U.S. income tax treaty.
- Treatment as taxable unexplained cash credit: The Mumbai Tribunal held that share capital received from a Mauritian investor cannot be taxed as unexplained cash credit without substantive evidence of lack of creditworthiness.
- Timing of taxation of revenue from annual maintenance contracts: The Chennai Tribunal held that revenue from annual maintenance contracts must be recognized and taxed proportionately over the contract period, not entirely in the year of receipt.
- Timing of distribution of input tax credit for central goods and services tax (CGST) purposes: The Madras High Court clarified that input tax credit by an input service distributor must be distributed in the month it becomes eligible under section 16 of the CGST Act, not merely when the invoice is received.
- Timing of issuance of final CGST order: The Bombay High Court ruled that a minimum three-month gap between issuing a show cause notice under section 73(1) of the CGST Act and passing the final order is mandatory to ensure a fair hearing.