Business Taxation

KKKD & Co., a premier tax consultancy firm based in Delhi, specializes in offering comprehensive tax advisory services to individuals and businesses. Our expert team is adept at navigating the complexities of Indian tax laws, including managing tax credits, handling double taxation issues, and providing solutions for tax disputes. We are well-versed in the latest regulations, including those introduced by the Finance Act 2006, and offer guidance on international tax agreements and unilateral relief options. At KKKD & Co., we also facilitate advance tax rulings to streamline foreign investments and ensure compliance with fiscal year requirements. Our commitment is to deliver precise, timely, and strategic tax solutions tailored to meet the unique needs of our clients

In India, the government has the authority to form agreements with other countries to address various tax issues. These agreements are designed to provide relief from double taxation, where income is taxed in both India and another country. They also help in exchanging information to prevent tax evasion and assist in recovering taxes. This provision ensures that taxpayers do not face the burden of being taxed twice on the same income.

The Finance Act 2006 introduced Section 90A, allowing Indian associations to enter into agreements with counterparts in other countries. The Central Government can then notify these agreements, enabling them to grant relief for income taxed in both countries. This process helps avoid double taxation and promotes the exchange of information to prevent tax evasion. The agreements can also help in recovering income tax.

For residents in India, unilateral relief is available for income earned abroad where taxes are payable both in the foreign country and in India. This relief applies when India does not have a tax treaty with the foreign country, and taxes have actually been paid in that country. However, Indian tax laws do not include provisions for tax sparing, which would involve granting relief based on expected tax savings rather than actual tax payments. Therefore, tax relief is typically granted only based on taxes that have been actually paid, and tax treaties with India generally do not cover tax sparing.

When a taxpayer disagrees with an order from the assessing officer, they have the right to appeal to the Commissioner (Appeals). If the taxpayer remains unsatisfied with the outcome, the dispute can be escalated to the Income Tax Appellate Tribunal. If necessary, further appeals can be made to the High Court and, ultimately, to the Supreme Court. Additionally, taxpayers can request a revision of the order from the Commissioner.

The Income Tax Act of 1961 grants the Commissioner (Appeals) and the Appellate Tribunal significant autonomy in determining the procedures for handling appeals. An Income Tax Settlement Commission has also been established to address cases related to assessment and reassessment. This commission, appointed by the Central Government, consists of a Chairman, Vice Chairmen, and other members, who work within the Central Government’s direct taxes department.

The Appellate Tribunal, made up of judicial and accounting members, hears appeals from assessing officers, Deputy Commissioners (Appeals), and Commissioners (Appeals). For legal questions, references can be made to the High Court and, in specific cases, directly to the Supreme Court.

To encourage foreign investment, India has implemented the Advance Tax Ruling Scheme. This scheme is available to non-residents and allows for advance rulings on legal or factual questions concerning proposed or completed transactions. Residents may also seek advance tax rulings if they are notified by the Central Government. The ruling process is designed to be completed within six months.

In India, the fiscal year runs from April 1 to March 31 of the following year. Income earned during the “previous year” (the accounting year) is taxed in the assessment year that follows. This system helps ensure that income is assessed and taxed in a timely manner, corresponding to the fiscal year in which it was earned.

Taxpayers are required to submit their income tax returns in the prescribed format and verify them by the due date specified in Section 139 of the Income Tax Act. The due dates are as follows:

• For companies, individuals whose accounts must be audited under the Act or other laws, and working partners in audited firms: September 30 of the assessment year.
• For all other taxpayers: July 31 of the assessment year.

These deadlines are important to ensure timely compliance with tax regulations and avoid any penalties for late filing.

The concept of Permanent Establishment (PE) is crucial in determining how cross-border transactions are taxed. A PE refers to a fixed business location in a foreign country, which can be a branch, office, factory, or other establishments. This concept is essential for the application of rules related to Double Taxation Avoidance Agreements (DTAs) and revenue sharing among tax jurisdictions.

According to Sections 92, 92A, 92B, 92C, 92D, and 92E, which deal with income computation from international transactions under DTAs, a PE includes a fixed place of business through which an enterprise operates. This includes activities conducted through various units, divisions, or subsidiaries, regardless of their location relative to the main enterprise.

Taxation of business income under DTAs is applicable only if there is a PE or fixed place of business in the source country. Similarly, gains from transferring movable property that is part of the business assets of a PE are taxed in the country where the PE is situated.

Examples of PEs include:

• A place of management
• A branch
• An office
• A factory
• A workshop
• A mine, oil well, or other site of natural resource extraction
• A construction or assembly project lasting an agreed period
• Supervisory activities related to a building or construction site

Certain activities are not considered PEs, such as:

• Facilities used solely for storing or displaying goods
• Maintenance of stock solely for storage or display
• Processing goods by another enterprise
• Advertising or auxiliary activities without significant business operations

Recent Supreme Court rulings have affirmed that circulars or instructions from the Central Board of Direct Taxes are binding on revenue authorities, ensuring consistency in the application of tax laws