Direct Tax Case Laws Update - March 2025.

 ·       SC dismisses SLP to hold that capital reduction leads to transfer of shares and exigible to capital gains taxation

 

·       The Supreme Court of India has delivered a ruling that impacts shareholders and taxation in cases of capital reduction. In the case of Jupiter Capital Pvt. Ltd., the SC dismissed the Special Leave Petition (SLP) filed by the Tax Authority, affirming that capital reduction does indeed lead to a "transfer" of shares and is subject to capital gains taxation

 

·       Merely on account of non functionality of TRACES platform, IT refund cannot be withheld: Madhya Pradesh HC ,  Birla Corporation Limited Vs PCIT.

 

·       Delhi HC in the case of Technip Energies emphasized the importance of clear evidence before any expense can be disallowed under 40A(2)(b). The Hon'ble Court held that before the Assessing Officer (AO) can disallow any business expenditures under Section 40A(2)(b), it must be demonstrated by the AO with cogent material that these expenses are excessive or unreasonable.

 

·       The Delhi High Court’s opinion in Samsung Electronics Co.—that the Korean company did not have a fixed place PE in India—was in view of the relevant fact pattern. Indeed, there are many judicial precedents that provide important principles and guidance for evaluating as to whether the prerequisites for a PE are satisfied. But, in essence, PE issues (and their resolution) are largely fact-driven. While the Delhi High Court’s that decision is fairly interesting, if I were to say that it provides an inflection point, that might be quite an exaggeration.

 

·       In the case of Adobe Systems Software Ireland Ltd, Delhi High court Disapproves Dept’s Endeavours To Attribute Excess Profits To Adobe.

 

·       The Delhi ITAT’s ruling in the SC Lowy P.I. (Lux) S.A.R.L. case provides key insights into treaty benefits and the Principal Purpose Test (PPT) under the MLI. It emphasizes the significance of economic substance and the value of a Tax Residency Certificate (TRC) in cross-border taxation. The Tribunal recognized the TRC as proof of tax residency and clarified that genuine global investment strategies cannot be dismissed as treaty shopping. Treaty benefits cannot be denied solely based on the investor's jurisdiction, such as the Cayman Islands, without clear evidence of treaty abuse. The decision allowed DTAA benefits for business income, capital gains, and interest income, establishing a critical precedent in MLI-PPT jurisprudence. This ruling offers essential guidance for global investors, highlighting the need for robust documentation of economic substance, a balanced approach to anti-abuse measures, and a framework for future disputes involving treaty benefits.  

 

·       Gujarat HC in the case of Axis Bank Ltd held that transactions entered into by the Indian entity with its foreign branch falls within the ambit of international transactions, and are subject to transfer pricing provisions.