Technical Update from India

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Technical Update from India

aig.jpg

Rohan Phatarphekar and A Pradeep from TP Week correspondent firm KPMG in India report on two recent cases

aigatin.jpg

The taxpayer is now entitled to a tax holiday on voluntarily increased income due to transfer pricing adjustment

Under Indian TP regulations, the tax assessing officer (AO) has powers to determine the arm’s length price (ALP) relating to international transaction between associated enterprises. However, the tax holiday is not available on the enhanced income determined by the AO after considering the ALP.

In a recent case involving iGate Global Solutions (pictured), the taxpayer after computing the ALP in relation to its international transactions, made an upward adjustment to its income and claimed tax holiday on its total income.

The Bangalore tribunal held that such upward adjustment by the tax payer is not an enhancement due to determination of ALP by the AO; hence a tax holiday shall be available on such voluntarily increased income.

A foreign company providing computer reservation system (CRS) services is not to be taxed in India even though a permanent establishment (PE) exists, if the PE is remunerated at arm’s length.

In the case of Galileo International, the Delhi tribunal held that the taxpayer had a business connection in India under the Income-tax Act, 1961 and fixed/agency place PE under the India-US tax treaty. Accordingly, 15% of the revenue accruing from bookings made in India was attributed to the PE.

However, the tribunal relying on Supreme Court’s decision in Morgan Stanley’s case held that the entire income accruing in India was completely offset and exhausted, inter-alia, by arm’s length payments to Indian distributor. Therefore no income could be further charged to tax in India.

rohankp@kpmg.com

pradeepa@kpmg.com

more across site & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article