Section 115-O of the Income Tax Act
The decision most relied on for Section 115-O is CIT v. HCL Technologies Ltd. (404 ITR 719), cited in 174 of the 331 judgments on BharatTax that turn on this section.
Leading authorities on Section 115-O
When calculating deductions under sections like 10A or 10AA, any expenses or items reduced from 'export turnover' in the numerator must also be reduced from 'total turnover' in the denominator to ensure consistent application of the deduction formula.
Incidental income like interest on bank deposits or staff loans, earned by an undertaking eligible for deductions under sections 10A and 10B, constitutes part of the 'profit and gains of the undertaking' and is thus eligible for 100% deduction, as it arises in the ordinary course of the export business even if not a direct result of export.
Genuine trade advances or amounts advanced for bona fide business transactions, driven by commercial expediency, do not fall within the definition of deemed dividend under section 2(22)(e) of the Income-tax Act.
Genuine trade advances made by a company in the ordinary course of business to a shareholder do not fall within the definition of deemed dividend under Section 2(22)(e) of the Income-tax Act.
A high turnover criterion, such as above Rs. 200 crores, is a valid ground to exclude companies from the list of comparable companies in a transfer pricing analysis, as such companies are not comparable to those with significantly lower turnover.
For Section 2(22)(e) to apply, a payment by a company must be in the nature of a loan or advance, and the company must have accumulated profits. Such payments to a concern in which a shareholder, holding more than 10% voting power, has a substantial interest are deemed dividends if the shareholder ultimately benefits, even if routed through different modes or concerns.
Pure reimbursement of expenditure does not constitute income in the nature of royalty or fees for technical services, therefore eliminating the obligation to deduct tax at source.
Reimbursement of expenses, where there is no profit element included, does not constitute taxable income. Recoveries made by an assessee that merely reduce its cost, without netting off any income from expenses, are not income.
The provisions of Section 2(22)(e) regarding deemed dividends do not apply to transactions between a shareholder and a company that create mutual benefits and obligations, such as trade advances in the nature of commercial transactions.
