Venkat Raj
International taxation is a dynamic, growing, and unique field. This subject revolves around topics that are global and very interesting. The changes are so constant that one has to keep on updating. The changes are incorporated through circular notifications issued by the Central Board of Direct Taxes (CBDT) and recent case laws of the tribunal, High Court, and Supreme Court. They also include changes made in the Finance Act, which get incorporated in the Income Tax Act 1961 (Act). Let us analyze key circulars issued by the Central Board of Direct Tax (''CBDT'') in the last six months.
1) CBDT vide notification no. 14/2025 dated 7th February 2025 has amended Rule 114DA. Form 49C is a form that is to be filed by the liaison office within sixty days from the end of the financial year that activities carried out are preparatory or auxiliary. Now the timeline to file 49C is now eight months from the end of the financial year. The timeline has now been increased, which now eases compliance for the liaison office.
2) Most favoured nation clause (MFN): The saga continues even after the Supreme Court ruling on Nestlé. In the landmark judgment of Nestle, it was held that the third country with which India has entered should be a member of the Organisation for Economic Cooperation and Development (OECD). The term ''is'' was emphasized that the third country on the date of signing the agreement should be a member of the OECD. But Switzerland has decided to suspend MFN, and thereby withholding dividends will be at a higher rate, and beneficial rates cannot be taken. This in turn will make the Swiss company pay higher dividends for dividends declared by the Indian company.
3) CBDT vide notification no. 9/2025 dated 21st January 2025 has introduced a new Section 44BBC. This applies for a non-resident engaged in the business of operatingcruise ships that operate ships for carrying passengers and not cargo; then a sum of 20% of the aggregate amount, namely the amount paid or payable to the assessee or to any person on his behalf on account of the carriage of passengers and the amount received or deemed to be received by or on behalf of the assessee on account of the carriage of passengers.
4) CBDT clarified vide circular 01/2025 dated 21-01-2025 issued guidelines on the application of the Principal Purpose Test (PPT) under the India Double Taxation Avoidance Agreement (DTAA). The circular clarifies the implementation of PPT as a measure introduced to prevent the misuse of tax treaties as part of India's commitment to multilateral convention to implement tax treaties. This circular clarifies that PPT provisions are to be applied prospectively from the date of entry into force of the treaty/amending protocol or the effective date of provisions introducing PPT into the treaty through a multilateral instrument. It also clarified that grandfathering benefits with reference to capital gains arising from the transfer of shares of Indian companies by treaty residents of Mauritius, Singapore, and Cyprus in respect of shares acquired prior to 1st April 2017 will be outside of PPT and will be governed by specific treaties.
Key Case Law Ruling
1) Castlewick FZE vs. ACIT (ITA No: 459/CHNY/2025)
It was held by Chennai ITAT that income received by the assessee for reviewing the existing design and drawing for a turnkey project from an Indian entity is not chargeable to tax in India when the Fee for Technical Services (''FTS'') clause in the India-UAE DTAA is absent and there is no permanent establishment in India. It was held that the amount received by the assessee company would be taxed as per Article 7 of DTAA and not as per income tax provisions.
2) Bay Capital India Fund Limited vs. Additional Director CPC (ITA No. 6355/Mum/2024-AY 2019-20)
Mumbai ITAT pronounced that long-term capital gains on shares acquired prior to April 1, 2017 (grandfathered sale), cannot be adjusted against long-term capital losses and short-term capital losses on shares acquired after April 1, 2017. It was held by ITAT that the primary condition for setoff of loss is that such loss can be set off only against income under the head of capital gains, which is nil here, as long-term capital gain itself is exempt from taxation based on Article 13(4) of the India-Mauritius DTAA. In a nutshell, long-term capital gain, which is nil by the thumb rule of shares acquired prior to 1st April 2017, cannot be set off against long-term capital loss and short-term capital loss acquired after 1st April 2017.
3) Sigma Global Fund vs. ACIT (ITA No. 1130/Mum/2025-AY 2022-23)
3 Sigma Global Fund is a foreign portfolio investor, and the issue that arose was the taxability of gains from derivative transactions in India. The assessing officer denied treaty benefits under the India-Mauritius Double Taxation Avoidance Agreement (DTAA), asserting the gains were taxable as capital gains in India. It was held by the tribunal that derivatives are assets distinct from shares, and the gain from the alienation of derivatives would fall under Article 13(4) of the India-Mauritius DTAA. The tribunal allowed the appeal and held that the gain arising from the transfer of derivatives cannot be taxed in India, and all the grounds raised by the assessee are allowed. Hence, the treaty benefits cannot be denied to the assessee.
4) IIFL Samasta Finance Limited vs. DCIT (ITA.No. 18/Bang/2025-AY 23-24).
It was held by Bangalore ITAT that the assessee is eligible for deduction under Section 80JJA of the Act even when the form 10DA is filed after the due date of filing the return but the same is available under 143(1) of the Act. The claim of deduction is allowed under 80JJA by taking reliance on judgment laid in the Supreme Court when the form is filed even during assessment proceedings and before the final order of the assessment. Hence, the deduction pertaining to 35.71 crores as claimed in Form 10DA is allowed.
5) Ashok Leyland Ltd. vs. ACIT (ITA No. 2330/Chny/2019-AY 2015-16)
It was held by Chennai ITAT that the claim under Section 35(2AB) was allowed in full by CIT(A) despite no Form 3CL submission. The delay is attributable to reasonable cause, which was accepted by the tribunal, and the sale of the windmill division falls within a slump sale, which is taxable as capital gain.
6) Bray Controls South East Asia Pte Ltd vs. CIT (W.P. © 17911/2014)
The core issue revolved around whether proper valuation was used when determining withholding tax liability on a share sale. The case revolved around where Bray Controls South East Asia Pte Ltd. proposed to purchase shares of an Indian company, Bind, from its US affiliate, BLL, incorporated under the laws of the USA and a tax resident of the USA, and the AO issued a certificate that tax was to be deducted at 10%, and CIT also did the same. The high court invoked an order of CIT under 264 of the Act whereby a fresh valuation report by an approved valuer within a period of four weeks would be the relevant valuation date.
Conclusion
Change is constant; it is inevitable and is permanent, and being aware of the recent case laws is of utmost importance. As Swami Vivekananda said, ''Arise, awake, and stop not till the goal is reached.''
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