The views expressed herein are personal to the writer and do not necessarily represent the views of the Bar Association

Shri. Anant Pai

Analysis of four important judgements (Jan to March ’10)

CA Anant N. Pai

No practitioner can afford to be unaware of latest judgements & whether experts view the judgement as being right or wrong. Towards that end, the author has agreed to take time out of his busy schedule to make an analysis of landmark judgements every quarter. In the second part, the author has identified four landmark judgements analyzed them with a critical eye and identified their strengths & shortcomings.



Let us begin our sojourn through this article on a humorous note. Once a king had a dream, in which he saw several ill omens. He described this dream to his astrologer, who was an expert dream interpreter. Hearing the description of the dream from the king, the wise astrologer turned his head gravely from one side to another and pronounced his analysis of the royal dream as follows – “O king! This dream foretells several ill ominous signs for you. You shall have the agony of seeing each of your dear ones dying one after another before your eyes.” The enraged king drew his sword from its sheath and cut of the neck of this astrologer with one stroke.


Still not finding himself at ease, the king decided to seek a second opinion from another astrologer. This astrologer had known about the fate of his predecessor and pronounced his opinion as follows: – “O king! This dream augurs well for you! You shall have the good fortune of living the longest life in your clan!” The king, overwhelmed with happiness, removed his royal necklace from his neck and presented it to this astrologer.


Such should be our analysis of tax decisions too. A dissent should be tactfully stated and never invite the ire of the authorities pronouncing the decisions.


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Rajat Mittal & Adhitya Srinivasan, Students, National Law Institute University, Bhopal

Transfer Pricing Regulations: A Comparative Study

Rajat Mittal & Adhitya Srinivasan, Students, NLIU, Bhopal

The authors have conducted deep research into how the transfer pricing regulations in India, OECD and other countries function and how effective it is in preventing the menace of transfer pricing manipulation. The authors have identified weaknesses in the law and made valuable suggestions on how it can be strengthened.


I. Introduction


Transfer pricing has assumed enormous significance in the modern economic context. The practice of transfer pricing refers to the application of prices to transactions that are conducted within the precincts or structure of an enterprise. Over the years, most of these transactions have become unavoidable and fundamental to the economic survival of a transnational organization. However, an interesting dimension is thrown open when one considers the ability of a firm to drastically reduce its tax incidence by using transfer pricing. The mechanism by which this is put into effect is simple: prices for intra-firm transactions are fixed in such a manner that low profits are reflected in jurisdictions having a high tax rate while higher profits are shown in those jurisdictions having a low tax rate.


A sizeable portion of tangible and intangible global trade is intra-firm i.e. it is conducted within the enterprise itself.1 The OECD observer opines that as much as 60% of world trade takes place within multinational enterprises.2 This has at least two different implications. Firstly, a multinational corporation (hereinafter: MNC) may be subject to double taxation on the same profits. To put this into perspective, a survey conducted by PricewaterhouseCoopers on Tax Risks in India shows that transfer pricing has emerged as the most significant event for MNC firms leading to potential tax risk.3 Secondly, an MNC may use transfer pricing to reduce the overall tax burden by “trading” with production units or subsidiaries in different tax jurisdictions. The effect of these transfers is that governments are often deprived of revenue, and in some cases, the effect may be so severe as to trigger distortions in the Balance of Payments situation of a country.


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How to become a good lawyer

January 22nd, 2010
Hon'ble Shri.  V. C. Daga

How to become a good lawyer

Hon’ble Shri Justice V. C. Daga

Hon’ble Justice Daga uses his perspective as a serving judge of the Bombay High Court to outline the qualities that a successful lawyer should have. ‘Industry’ and ‘Integrity’ are two qualities that every professional must possess to succeed, he emphasizes. He cites the example of Nani Palkhivala to illustrate the heights to which a professional can rise with the proper approach.


My greetings to you all.


It is a great honour for me to be invited to inaugurate the 6th Nani Palkhivala Memorial National Tax Moot Court Competition, which by itself has become a glorious event in the field of legal education in this country. It is also a matter of great honour for the participants to participate in this Competition named after Nani Palkhivala to perpetuate his memory.


I appreciate the unique idea of conducting Moot Court Competition in the memory of Late Nani Palkhivala to sensitize and educate the students for which, I congratulate the present and past Office Bearers of the ITAT Bar Association, the Federation and the Government Law College, Mumbai.


Late Mr. Palkhivala was a lawyer gifted with advocacy. Advocacy is not something which comes easily. Advocacy is a gift of God and the important thing about advocacy is that you have to communicate. When you are standing before the judge, you have to make your point of view known and understood.


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Hon'ble Shri. F. I. Rebello

India Advantages – Vision 2020

Hon’ble Shri Justice F. I. Rebello

Hon’ble Justice Rebello provides a unique perspective from his position as sitting judge of the Bombay High Court with rich experience in tax matters as to the advantages available to the Country and how we can capitalize on them. He lauds the use of technology and points out that this has not only reduced the delay in disposal of tax matters but has also resulted in complete transparency in the functioning of Courts.


1. Introduction


Mr. Vimal Gandhi President of ITAT, President of AOTCA. Mr Gill Levy, Mr Bharatji Agrawal Sr. Advocate and National President of AIFTP, Dr K. Shivaram, Chairman of International, Tax Conference Committee, Mr. M.L. Patodi the Dy. president AIFTP, Foreign delegates, delegates from different parts of our country, members of ITAT, Sales Tax Tribunal, Ladies and Gentlemen.


I am honoured to be invited to Inaugurate this first “International Tax Conference” of AIFTP, which is held at Mumbai which is the commercial hub of India. I am delighted to know that more than 50 foreign delegates from 10 countries are attending this conference.


Sitting on the tax bench of High Court of Bombay I had an opportunity to deal with various complex issues including the provisions of Double taxation agreements, OECD Commentaries etc. In one case the issue involved was whether the Singapore company having no permanent establishment in India can be assessed to business income through its agents in India for canvassing advertisements, we have held as there was no business connection, the Singapore company cannot be assessed here. [Set Satellite (Singapore) PTE Ltd. vs. Deputy Director of Income Tax (International Taxation) & Anr, (2008) 307 ITR 205 (Bom.)]


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Shri. Anant Pai

Analysis of six important judgements (Oct to Dec ’09)

CA Anant N. Pai

No practitioner can afford to be unaware of latest judgements & whether experts view the judgement as being right or wrong. Towards that end, the author has agreed to take time out of his busy schedule to make an analysis of landmark judgements every quarter. In the first part, the author has identified six landmark judgements analyzed them with a critical eye and identified their strengths & shortcomings.



Legal decisions form the daily diet of tax practitioners. And when these legal decisions transform in to ‘precedents’, they condition not only our minds while arguing tax matters, but also dictates terms to the judges to dispose the cases in accordance with the precedents. This is the ‘controlling influence’ or the ‘sovereignty’ that precedents exercise over judiciary. Precedents are welcome in the sense that they standardize judicial thinking and do away with randomness in the outcomes of matters decided. For example, two similar cases heard by two different judges are decided uniformly in accordance with a common precedent applicable to both.


The credit for developing a precedent should not go entirely to the judiciary. Behind the evolution of the precedent lies the hard work of the tax advocates, who support the judiciary as ‘officers of the court’ by providing innovative legal propositions to the judges to determine the cases. In short, whereas precedents appear to be handiwork of judges because the judges write the orders and sign them, in the same also lies the hidden acumen of the advocates who have argued the matter.


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Shri. Rangesh Banka, Advocate

Core Principles of Reassessment with Important Case Laws

Rangesh Banka, Advocate

The author has conducted pain-staking research to identify the core principles of law on which reopening of assessments under sections 147 & 148 of the Income-tax Act are based. He has also sorted through the plethora of case law to identify the important ones that cannot be missed. This ready-referencer will prove invaluable to a busy practitioner looking for a judgement on a point.


I. Recording of reasons


1. Recording of reasons is a condition precedent to invoke jurisdiction under section 147/148.


CIT vs. Rajindra Rosin & Turpentine Industries. (2008) 305 ITR 161 (Punj. & Har.)


2. Language of section 148(2) does not permit recording of reasons between date of issuance of notice and service of notice, words used by provisions in no uncertain terms require recording of reasons before issuing any notice.


Rajoo Engineers vs. Dy. CIT (2008) 218 CTR (Guj.) 53


II. Notice — Return under protest


3. when a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.


GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC).


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Shri. Anant Pai

Are Derivatives really speculative transactions?

CA Anant N. Pai

The author argues that the judgement of the Special Bench in Shree Capital Services requires reconsideration. He argues that there is an inconsistency in the Tribunal’s finding that a derivative is a “commodity” and at the same time holding that the said “commodity” is incapable of delivery. He argues that there is in fact a “delivery” of the derivatives which takes it outside the realm of a speculative transaction.


1. Special Bench decision:- A recent tribunal decision of the Kolkata Special Bench in Shree Capital Services Ltd. vs. ACIT [ITA no. 1294 {Kol} of 2008 dated 31-7-2009 for A.Y. 2004-05] has upset the apple carts of many in the share trading community. The issues before the Special Bench were primarily two fold. Firstly, whether loss from transactions in share derivatives was a speculation loss within the meaning of section 43 [5] of the Income Tax Act, 1961, more particularly because there was apparently no delivery observed. Secondly, whether the Finance Act 2005 amendment to section 43 [5], by insertion of new clause [d] in the proviso with effect from 1-4-2006, was clarificatory in nature? By this clause [d], transactions in derivatives carried on approved stock exchanges are treated as non speculative transactions.


Prior to this Special Bench decision, two decisions of Mumbai Tribunal {DCIT vs. SSKI Investors Pvt. Ltd. and RBK Securities Pvt. Ltd. vs. ITO respectively] had held that such derivative transactions, even before the amendment, were non speculative.


In the Special Bench decision, both the above issues have been answered against the assessee. The Special Bench has firstly ruled that the derivative was very much a ‘commodity’ within the meaning of section 43 [5] and that since there is no delivery of this commodity involved, the transaction was essentially speculative in terms of this section. The Special Bench has further held that the amendment in clause [d] was prospective and not clarificatory in nature.


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Shri. Anant Pai

Section 56 [2][vii] and Limited Liability Partnership: New Controversies!

CA Anant N. Pai

The author uses strong logic to make two controversial arguments. One, that the amount taxed under the new s. 56 [2][vii] can be treated as cost of asset acquired in computation of business income and second, that the conversion of a firm into a LLP under the Limited Liability Partnership Act 2008 does not attract capital gains liability.


1. At the time of writing this article, the Finance Bill [no. 2] 2009 has been cleared by the Lok Sabha. Some changes have been made in this Bill since its introduction by the Hon’ble Finance Minister, Shri Pranab Mukherjee for purging out anomalies.


This Finance Bill has been widely discussed in professional circles and debated. Several finely scripted articles have also been penned by learned authors in this regard. Though good amount of waters have flowed in these discussions, some deep areas still remain to be waded in. I thought I should venture in to these depths in this article.


2. The issues discussed in this article are in two parts :-


Part – 1:- Whether the amount taxed under the new provisions of section 56 [2][vii] towards inadequacy in consideration for property acquired by an assessee, can be treated as cost of asset acquired in computation of business income? This new issue arises pertinently now because whereas express provisions have been subsequently inserted in the Bill for such treatment in capital gains provisions [viz. in the amended section 49 –cost of acquisition of capital asset], similar provisions are not found in the computational provisions for business income. [para nos. 3 to 8 ]


Part – 2 :- Whether any capital gains tax can result from a transaction involving conversion of a partnership firm in to a limited liability partnership [LLP]? [para nos. 9 to 23]


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Shri. Anant Pai

Beliefs, Prophecies and War

CA Anant N. Pai ‘Indian’

What causes War and bloodshed in the name of GOD? The author explores the fascinating connection between religious beliefs and the causes of eternal human conflict. He uses Palestine – the place where three religions converge – as a case study to explain his thesis on why it has become the focal point of a global war.


1. Religion and War: – Friends, all of us are familiar with the popular adage that “more blood has been shed in the name of God than in any other name”. While there can be no doubt about the truth in this statement, equally striking is the paradox in it. After all, if religion is the way to God, who is All Love, then cruelty and bloodshed should have no place in practice of religion. But, then just as a needle is required to remove a thorn stuck in the heel, wars have been invoked in name of religion to settle contentious issues amongst disputing parties. Ahimsa – which is negation of himsa [i.e. violence], has two meanings in interpretation; both meanings being equally valid according to the context in which it is invoked. The first being ‘abstinence from himsa itself and second being resorting to himsa of a lesser intensity to destroy a himsa of a larger intensity. It is in the second context, that wars have been justified in religions, if the same is conducted on basis of a “Dharm Yudh”. The endorsement of such ‘justifiable wars’ can be even found in our religious texts. For example, the sacred Gita was not only conceived on the battleground of Kurukshetra, but also the very Mahabharata War was ushered to Arjuna by Krishna Himself on the grounds that he was duty bound to conduct this war to erase evil from earth. It may however be remembered that this war was endorsed by Krishna only after all diplomatic overtures to make peace with the evil enemy had failed. The Holy Quran also justifies Jihad, the Holy War, when the Way of God is irreparably being put to threat by the evil in mankind.


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Hon’ble Mr. Justice Dalveer Bhandari, Judge, Supreme Court of India

Global Economic Scenario – Role of Tax Professionals

Hon’ble Mr. Justice Dalveer Bhandari, Judge, Supreme Court of India

The Learned Judge laments that the Income-tax Act is a “national disgrace”. He says that it is unfortunate that the law is so complex that even practising Lawyers and Judges have to employ Chartered Accountants or tax experts to file their income tax returns. He uses his vast experience to provide several suggestions on how the law can be made simple, concise and effective.


My Esteemed Colleague Hon’ble Mr. Justice Markandey Katju, Judge, Supreme Court, Hon’ble Mr. Justice Rakesh Tiwari, Judge, High Court of Allahabad, Mr. H.C. Bhatia, Chairman, All India Federation of Tax Practitioners (North Zone), Mr. Anil Kumar Singh, Chairman-Conference Committee, All India Federation of Tax Practitioners (North Zone), other members of the All India Federation of Tax Practitioners, other Hon’ble Judges, learned District Session Judges, Varanasi and other judicial officers, learned members of the Bar, distinguished participants, gracious ladies and gentlemen,


Before I deal with my address I would like to convey my deep sense of gratitude to Shri Anil Kumar Singh, Chairman Conference Committee and Mrs. Singh for organizing ‘Rudra Abhishek’ on the Ganga. It was a unique experience for all of us. I on my own behalf and on behalf of all of us convey our greetings and gratitude to them. It was more like organizing their daughters wedding reception. They richly deserve our heartfelt congratulations and are also entitled for the blessings of a ‘Kanya Dan’ I am deeply beholden to the Chairman and Members of the All India Federation of Tax Practitioners for providing me an opportunity to share my views on such an important subject — “Global Economic Scenario — Role of Tax Professionals”. In the conference, experts would be deliberating on important issues under the Income Tax relating to shares, securities and derivatives transactions, Input Tax Credit under VAT, important issues relating to business auxiliary services under Service Tax and Brain Trust. The subjects chosen for the conference are extremely fascinating and important. I am sure in depth discussion on these subjects would lead to crystallization of various aspects of Tax Laws. I am keenly looking forward to concrete suggestions of the conference. World’s Oldest City and Centre for learning, knowledge and wisdom.



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