September 2023 Newsletter

Direct Tax

Circulars / Notifications / Press Release

Clarification regarding applicability of TDS on lease rent or supplemental lease rent to a unit of an International Financial Service Centre (IFSC).

  • The Central Government has specified that no deduction of tax shall be made under section 194-I of the Income-tax Act on payment in the nature of lease rent or supplemental lease rent made to IFSC subject to receipt of statement-cum-declaration in Form No.1 furnished by lessor. 

Extension of the applicability of Safe Harbour rules: CBDT Notification

  • CBDT vide notification dated 9th August 23 has extended the applicability of Safe Harbour rules to the AY 2023-24. 

Case Laws

Income cannot be taxed until it is received even though TDS is deducted on it.

  • Assessee, a UAE entity had leased a helicopter to an Indian entity for which payment was yet to be received due to dispute between the parties. However, lessee has deducted the TDS and amount was reflecting in Form 26AS.Assessing Officer had treated said sum as royalty income of the assessee purely based on amount shown in Form 26AS. 
  • Matter reaches to ITAT wherein stated that in the aforesaid scenario, it cannot be said that the assessee has received any royalty income, either under the domestic law or under the treaty provisions and hence it cannot be added on notional basis and assessing officer was directed to delete the said addition. 

International Transaction (royalty) cannot be clubbed with other transaction: Pune ITAT

  • Assessee-company aggregated all transactions of ‘manufacturing activity’ and ‘trading activity’ for demonstrating them at Arm’s Length Price. Transfer Pricing officer (TPO) held that held that the aggregation of the ‘manufacturing activity’ with the ‘trading activity’ was not acceptable.  
  • The TPO focused only on royalty payment paid by the assessee to its Associated Enterprise (AE) for technical know-how and he segregated this transaction from the ‘manufacturing segment’ and the ALP of the royalty-payment transaction was separately determined under ‘other method’ as prescribed under rule 10AB. 
  • Matter reaches to ITAT wherein ITAT stated that where the transactions are not closely linked, their ALP needs to be determined separately and such determination of the ALP of an international transaction as per section 92C(1) should be done as per the most appropriate method. 
  • Transaction of payment of Royalty for use of technical know-how provided by the AE and other international transactions under the manufacturing segment are not under any package deal nor is there any such understanding or any inextricable link between these transactions as one not surviving without the other.
  • ITAT held that royalty should be computed under rule 10AB separately and cannot be aggregated with others 

GST litigation Update

Indirect Litigation update

Service Tax

Mere delivery of services through electronic medium does not amount to OIDAR services – Bombay High Court  

The petitioner had entered into an agreementagreed with Emirates Defence Industries Co (EDIC), located outside India, to provide Satellite-derived 3D model services. To fulfil this agreement, the petitioner imported high-resolution satellite images, processed them, and transmitted the results via file transfer protocol. GST authorities contended that the services offered by the petitioner would be categorized as Online Information Database Access or Retrieval (OIDAR) services. Since the petitioner was unable to establish that the place of supply for these services was outside India, a GST refund on the export of services was denied. 


The High Court held the agreement explicitly states that the services are intended for supply to EDIC, a non-Indian entity. Furthermore, the services involve specialized work in providing 3D city models, which are not readily available on the internet and they do not fall within the category of services defined as OIDAR services. The Court further noted that if the Department’s interpretation is to be accepted then it would lead to an absurd outcome, as it would imply that any form of information communication or service provision via email or electronic data transfer should be considered OIDAR, which is certainly not the purport and meaning of OIDAR services. The Court finally concluded that merely because the petitioner has secured data from different source so as to create the services to be supplied to EDIC, it would not amount to the petitioner falling within the definition of OIDAR services.    

Support services provided to the foreign affiliates do not amount to intermediary services – Delhi High Court 

The petitioner, in this case, offers bookkeeping, payroll, and accounting services using cloud technology to its affiliated entity based in the UK. GST authorities contended that the petitioner is providing intermediary services, and as a result, they are not eligible for a refund, as the place of supply would be in India. 

The High Court held that the petitioner does not qualify as an intermediary because the petitioner neither facilitates the provision of services by a third party nor acts as a middleman in procuring such services for its affiliate. The petitioner is contracted to provide the services and is, in essence, the principal service provider in this context. 

Investment advisory services provided to the group companies located outside India qualifies for export of services – Delhi High Court

The petitioner, under a support service agreement, provides investment advisory services to an overseas entity for investing in Indian target companies. GST authorities contended that these services fall under the definition of intermediary services since the petitioner facilitates investment by the foreign entity in target companies. 

The High Court held that the agreement clearly establishes the petitioner as an independent service provider, operating on a principal-to-principal basis. The agreement explicitly states that the petitioner is not intended to act as an agent of the principal. Given these facts, the services provided by the petitioner involve only two parties (supplier and recipient) and do not meet the requirement of three parties for intermediary services. Therefore, the services rendered by the petitioner cannot be classified as intermediary services.  

Constitutional validity of section 16(2) of CGST Act upheld, ITC can be recovered from buyer if the tax collected by the supplier is not paid to the Government – Patna High Court 

The petitioner in this case filed a writ petition questioning whether the Input Tax Credit (ITC) can be availed when all conditions outlined in Section 16(2) have been met, except for the payment of tax collected by the supplier to the government. Additionally, the concern expressed was whether recovering the tax from the purchaser who claimed ITC would result in double taxation, considering that the law provides mechanisms for recovering taxes from defaulting sellers. 

The High Court held that a purchaser is eligible to claim ITC only when all conditions specified under Section 16(2) are satisfied collectively, not in isolation. Therefore, merely producing documents showing payment and the movement of goods will not entitle the purchaser to claim ITC. The issue of double taxation for the purchaser does not arise, as ITC is denied only when the supplier fails to remit the tax to the government. In cases where the supplier does not remit the tax to the government, it becomes the responsibility of the purchaser, who claimed the ITC, to recover the tax amount from the non-compliant supplier.  

ITC is available on demo cars purchased for test drives if there is a further supply of such demo cars after a period of time – Telangana AAR

The applicant in this case is a dealer in automobiles who is required to purchase cars for demo purposes. These cars are either used as replacement vehicles after 2 years or sold to customers. The applicant has capitalized these motor vehicles in their accounting books and sought clarification regarding the availability of Input Tax Credit (ITC) on such motor vehicles. 

Tamil Nadu AAR has held that capitalizing a motor vehicle, which was purchased, does not render the tax paid on the acquisition ineligible for ITC if there is a subsequent supply of these motor vehicles, as defined within the scope of Section 7 of the Central GST Act. Therefore, if the applicant intends to sell the motor vehicle after 2 years, they are eligible to claim ITC. 

Service Tax not payable by the assessee under RCM on foreign bank’s charges – Chennai Tribunal  

The appellant, an exporter in this case, received export proceeds in their Indian bank account after the deduction of the foreign bank’s charges. The dispute revolved around whether the appellant is liable to pay service tax on these charges under the reverse charge mechanism as import of service from foreign banks. 

The Chennai Tribunal held that the Indian bank has merely recovered these charges from the appellant as reimbursement for the service charges they bore. In this transaction, the foreign bank is regarded as the service provider, and the Indian bank, located in India, is the actual service recipient liable to pay service tax under the reverse charge mechanism. Even if it is assumed that the appellant received any service, it would have been solely from the Indian bank. Therefore, according to the forward charge mechanism, the Indian bank is responsible for service tax payment in such cases.  

Singapore Updates

Latest Updates

Monetary Authority Of Singapore

MAS Announces New Regulatory Framework for Stablecoins

On 15 th August 2023, the Monetary Authority of Singapore (“MAS“) released the finalized regulatory framework for stablecoins regulated in Singapore in its “Response to Public Consultation on Proposed Regulatory Approach for Stablecoin-related Activities” (“Response“) where MAS responded to feedback received on MAS’ earlier public consultation (“Consultation“) which was published in October 2022 where MAS first set out its proposals for the new regulatory framework. Stablecoins are digital tokens designed to maintain a constant value against one or more specified fiat currencies.  MAS had previously identified that an innovative and responsible digital asset ecosystem needs credible and reliable mediums of exchange to facilitate transactions. MAS noted the potential for stablecoins to function as such mediums of exchange where they are well-regulated and give a high degree of assurance of value stability, and the new regulatory framework seeks to support the development of such stablecoins.    


In the Consultation, MAS noted that stablecoins are currently treated as digital payment tokens (“DPTs”) under the Payment Services Act 2019 (“PS Act“). In the Consultation, MAS proposed to introduce a new regulated activity of “Stablecoin Issuance Service” under the PS Act to regulate Single-Currency Pegged Stablecoins (“SCS“) pegged to the Singapore dollar or Group of Ten (G10) currencies issued in Singapore under the new regulatory framework (“SCS Framework“). 


Other types of stablecoins, including SCS issued outside of Singapore or pegged to other currencies or assets, will not be prohibited from being issued, used or circulated within Singapore. These stablecoins will continue to be subject to the existing DPT regulatory regime. MAS stated it will continue to monitor developments in the stablecoin landscape, and will bring other types of tokens into the SCS Framework if necessary.   

MAS’ stablecoin regulatory framework will apply to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency, that are is issued in Singapore. Issuers of such SCS will have to fulfil key requirements relating to: 


  • Value stability: SCS reserve assets will be subject to requirements relating to their composition, valuation, custody and audit, to give a high degree of assurance of value stability. 


  • Capital: Issuers must maintain minimum base capital and liquid assets to reduce the risk of insolvency and enable an orderly wind-down of business if necessary. 


  • Redemption at Par: Issuers must return the par value of SCS to holders within five business days from a redemption request. 


  • Disclosure: Issuers must provide appropriate disclosures to users, including information on the SCS’ value stabilising mechanism, rights of SCS holders, as well as the audit results of reserve assets. 

MAS Proposed Framework for Single Family Offices

The Monetary Authority of Singapore (MAS) has proposed a new exemption framework for single single-family offices (SFOs) operating in Singapore. The framework introduces qualifying criteria to exempt SFOs from fund management licensing requirements. These criteria aim to subject SFOs to anti-money laundering checks by MAS-regulated financial institutions and corporate beneficial ownership reporting. MAS’s move responds to the increasing prominence of SFOs, intending to curb potential money laundering risks associated with their growth. 

Under the proposed framework, SFOs must meet specific conditions to qualify for the exemption, including being a Singapore-incorporated company wholly owned by a single family. The SFO’s fund management business must cater exclusively to family members, closely related corporations, express trusts, or charities funded solely by these entities. The SFO must maintain business relations with MAS-regulated financial institutions and have a resident employee as a point of contact with MAS. 


Notably, MAS emphasises that it won’t grant case-by-case exemptions to SFOs failing to meet the specified criteria. The proposed framework also mandates reporting requirements, necessitating new SFOs to submit commencement notifications and annual returns to MAS, disclosing their assets and financial relationships. 


For existing SFOs, a six-month transitional period is proposed to align with the exemption framework. During this period, existing SFOs must submit a commencement notification, and their previously reliedupon licensing exemptions will be withdrawn once the notification is filed or at the end of the six-month period months. 

MAS to Strengthen Defense Against Money Laundering Risks in Single Family Offices 

The Monetary Authority of Singapore (MAS) has launched a public consultation on a revised framework to strengthen surveillance and defence against money laundering (ML) risks in Singapore’s Single-Family Office (SFO) sector. The revised framework will introduce a harmonised class exemption for SFOs with specific requirements to ensure that all SFOs are subject to anti-money laundering controls.   

Currently, as SFOs do not manage third-party assets, they can either rely on existing class exemptions from licensing requirements under the Securities and Futures Act or apply to MAS for case-by-case exemptions. To strengthen surveillance and defence against ML risks in the SFO sector, MAS proposes to harmonise the exemption criteria for all SFOs operating in Singapore.   

Specifically, to qualify for the class exemption, SFOs must: 


  • be incorporated in Singapore; 
  • notify MAS and confirm that it is in compliancecomplies with the qualifying criteria under the class exemption when they commence operations in Singapore; 
  • report annually on total assets managed after the end of each calendar year; and 
  • maintain a business relationship with an MAS-regulated financial institution that will perform anti-money laundering checks on these SFOs. 


These measures will allow MAS to better monitor SFOs operating in Singapore and address any ML risks in the sector.