Direct Taxation

June 2025

Introduction

by Anjali Darak

Manager - Direct Tax

India has emerged as a key global investment hub. However, its history of tax litigation with foreign companies, especially concerning retrospective taxation, transfer pricing and treaty interpretation, has often created uncertainty. As India works to restore investor confidence, a look at these high-profile disputes offers valuable lessons.

Coming to this month’s Taxation Times, here’s what we have:

An article on Foreign Companies and Their Tax Disputes in India: Lessons from the Past, Directions for the Future
Case Laws from various courts & jurisdictions
Tax Compliance Calendar – June 2025
Circulars & Notifications – May 2025
Tax News from around the world

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in

Best Regards,
UJA Tax Team

Foreign Firms in India: Tax Disputes and the Way Forward

India has rapidly emerged as a major global investment destination, driven by a large consumer base, skilled workforce and a growing digital economy. Foreign direct investment (FDI) inflows have consistently increased over the past decade, reflecting confidence in India’s economic potential. However, this optimism has often been tempered by the country’s complex and, at times, unpredictable tax environment. Particularly, disputes involving retrospective taxation, transfer pricing and treaty interpretation have cast a long shadow over investor sentiment.

The Retrospective Taxation Debate

Perhaps the most contentious chapter in India’s tax history unfolded with the Vodafone case. In 2012, the Indian government amended its tax laws retrospectively to tax offshore transactions involving Indian assets. This amendment followed the Supreme Court’s ruling in Vodafone’s favor, which held that capital gains arising from such offshore transactions were not taxable in India under the law as it stood. The retrospective change drew widespread criticism, with investors questioning the sanctity of legal certainty in India.

Reforms and Responses

Digitization and Transparency

Introduction of Faceless Assessments and Appeals.
Use of AI and analytics in compliance checks.

Tax Treaty Revisions

India renegotiated several tax treaties (e.g., with Mauritius, Singapore) to prevent treaty abuse.

Advance Pricing Agreements (APA) and Mutual Agreement Procedure (MAP)

Increasing use of APAs to reduce transfer pricing disputes.
Streamlined MAP framework with treaty partners.

Lessons Learned

Legal Certainty is Crucial:
Retrospective laws can severely damage investor trust.
Importance of Dispute Resolution Mechanisms:
Efficient, transparent and quick resolutions encourage compliance and investment.
Policy Consistency Matters:
Frequent changes to tax laws create a perception of instability.
Stakeholder Engagement:
Proactive communication with businesses can avoid litigation.

Directions for the Future

Strengthen Dispute Resolution

Expand the use of arbitration and mediation in tax matters.
Fast-track tribunals for international tax disputes.

Clarity in Tax Legislation

Simplifie tax code; minimise interpretational ambiguities.
Avoid retrospective amendments unless absolutely necessary.

Enhance Transparency and Predictability

Publish more APA outcomes and case summaries.
Public consultations before implementing major changes.

Focus on Global Alignment

Align domestic tax rules with OECD’s BEPS 2.0 framework.
Ensure fair taxation of digital economy players.

Investor Communication

Proactive outreach through embassies, chambers of commerce and tax forums.

Conclusion

India’s journey from a litigation-heavy tax jurisdiction to one aspiring for predictability offers important lessons. For policymakers, it underscores the need for clarity, consistency and consultation in tax law-making. For investors, it highlights the importance of structuring investments with due diligence and understanding the evolving legal landscape.

As India continues to position itself as a global economic powerhouse, the challenge lies in balancing robust tax enforcement with a regime that respects investor rights and fosters long-term confidence.

Case Laws

DATE: May 9, 2025

[2025] 174 taxmann.com 461 (Ahmedabad - Trib.) IN THE ITAT AHMEDABAD BENCH 'C' Gujarat State Financial Services Ltd. v. Deputy Commissioner of Income-tax

Section 80G of the Income-tax Act, 1961 and Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962

Fact I :

During the year, the assessee had contributed Rs. 3.57 crore to the Gujarat Cleanliness Fund as part of its CSR activities and claimed a 50 per cent deduction under section 80G.
The Assessing Officer disallowed the deduction on the ground that the same pertained to CSR expenditure and was not eligible for deduction.
On appeal, the Commissioner (Appeals) upheld the disallowance.
On the assessee’s appeal to the Tribunal:

Held I:

There is no dispute to the fact that the expenditure incurred by the assessee on CSR activities was suo moto disallowed while computing the income under the head business profit. The assessee had claimed a deduction under section 80G in respect of CSR contribution made to the Gujarat Cleanliness Fund. On perusal of provisions of section 80G, it is evident that the restriction on deductibility of donation made pursuant to CSR obligation is expressly provided under section 80G(2)(a)(iiihk)/(iiihl) in respect of donation made to Swachh Bharat Kosh and Clean Ganga Fund, set up by the Central Government. Apart from the donation to these two funds, there is no restriction in respect of donations made to any other fund. The Co-ordinate Bench of this Tribunal in the case of Gujarat State Fertilizers & Chemicals Limited v. ACIT – ITA No.348/2020 (Ahd. Tribunal) has held that the donation under section 80G, the CSR expenses and the business expenses under section 37 operate under different arena and that there was no bar in claiming deduction under section 80G in respect of CSR contribution, if the fund to which donation made was eligible for deduction under section 80G. Further, it has been held by the other Tribunals as well that the assessee was entitled to claim a deduction towards the amount spent on CSR under section 80G. Considering the provision of section 80G as well the decisions of the co-ordinate Benches of the Tribunal on this issue, it is held that the assessee was eligible for claim of deduction under section 80G in respect of donation made to Gujarat Cleanliness Fund, as donation to this fund in respect of CSR activities was not specifically debarred under the provisions of the Act. [Para 9]

In Favour of: The Assessee

Fact II :

During assessment, the assessee had initially disallowed Rs. 14.31 crores under section 14A in its return of income based on Rule 8D.
Subsequently, the assessee revised the disallowance to Rs. 98,872, allocating 5 per cent of administrative expenses as expenditure attributable to the earning exempt income.
The Assessing Officer rejected the revised claim, noting that the revised allocation was arbitrary and unsupported by a revised audit report.
On appeal, the Commissioner (Appeals) upheld the disallowance.
On the assessee’s appeal to the Tribunal:

Held II:

The undisputed fact of the case is that the assessee had suo moto made a disallowance of Rs. 14.31 crore under section 14A in its return of income. In the course of assessment, the Assessing Officer had issued a show cause notice to make a disallowance of Rs. 310.67 crore under section 14A, which was ultimately dropped by him after considering the explanation of the assessee. The Assessing Officer has categorically recorded in the assessment order that the working of disallowance under section 14A, read with rule 8D, suo moto made by the assessee was acceptable and no further disallowance was warranted on this issue. Considering these facts, the contention of the assessee that the Assessing Officer had made a disallowance under section 14A without recording his satisfaction has no merit. The Assessing Officer did not make any disallowance under section 14A but had merely accepted the disallowance as made by the assessee itself. [Para 13]
The assessee in his explanation filed before the Assessing Officer had contended that the expenditure attributable to the earning of exempt dividend income was Rs. 98,872 only and had requested that the disallowance be restricted to this amount only. [Para 14]
According to the assessee, only the expenses as mentioned above were attributable to the earning of exempt income, out of which a proportionate amount of 5 per cent and 1 per cent was allocated by the assessee. An alternate plea was also taken that the total administrative expenses under the head “other expenses” (excluding donation of Rs. 8.50 Crores) were Rs. 3.02 Crores only and by applying the ratio of equity share investment to total asset, the disallowance amount works out to Rs. 1.09 lakh only. As another alternate plea, it was contended that the disallowance amount can’t exceed the total other expenses of Rs. 3.02 crores. In the explanation filed before the Assessing Officer, the assessee had nowhere explained as to why the finance cost of Rs. 2982.39 crores and employee benefit expense of Rs. 3.28 crores should not be proportionately allocated towards the expenditure incurred for earning of exempt income. Further, the basis of allocating only 5 per cent or 1 per cent of the expenses was also not explained by the assessee.

From the accounts of the assessee, it is found that the assessee company had invested in equity shares as per the directives of the Finance Department of Government of Gujarat during the financial year 2018-19 and the investment was strategic in nature. Such a strategic investment could not have been made without the involvement of top management. Therefore, the Directors’ remunerations and fees, along with employees’ costs, were also required to be proportionately allocated towards the earning of exempt income. The assessee had also not explained on what basis the disallowance in respect of the earning of exempt income was made in the preceding year, in which the investment in shares was made for the first time. [Para 15]

The amount of deduction inadmissible under section 14A in respect of expenditure incurred in relation to income which does not form part of total income was certified by the Auditor at Rs. 14.31 crore in Form No.3CA. The assessee did not furnish any revised certificate from the Auditor in Form No. 3CA in respect of the revised claim as made in the course of assessment. In the absence of any such revised certificate from the Auditor, the claim of the assessee was rightly rejected by the Assessing Officer. The revised claim for disallowance under section 14A, as made by the assessee in the course of assessment, is found to be neither based on any rationale nor supported by a revised audit report from the Auditor. Therefore, the action of the Assessing Officer in rejecting the revised claim for deduction under section 14A and the decision of the Commissioner (Appeals) on this issue are to be upheld. [Para 16]

In Favour of: The Revenue

[2025] 174 taxmann.com 273 (Delhi) HIGH COURT OF DELHI Lalit Gulati v.
Assistant Commissioner of Income-tax

Reference: Section 149, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment

Time limit for Issuance of notice (Limitation) – Assessment year 2015-16 – Assessee had filed its return of income for relevant assessment year on 23-9-2015 – Assessing Officer issued a notice under section 148 on 23-7-2022 – Assessee contended that proceedings initiated pursuant to impugned notice dated 23-7-2022 were required to be set aside in view of concession made by revenue before Supreme Court in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 (SC) that for assessment year 2015-16, all notices issued on or after 1-4-2021 would have to be dropped as they would not fall for completion during period prescribed under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 – Whether in view of aforesaid concession, impugned notice and proceedings relating thereto were required to be set aside – Held, yes [Paras 7 and 8]

Fact I:

The petitioner/assessee filed its return of income for the assessment year 2015-16 on 23-9-2015, declaring total income of ₹ 13.63 crores. The Assessing Officer issued a notice dated 5-4-2021 under section 148 seeking to reopen the assessment. Although the said notice was issued after 31-3-2021, the procedure as prescribed under section 148A was not followed, as the notice was premised on the provisions relating to reassessment as were in force prior to 31-3-2021.
Thereafter, by a communication dated 30-5-2022, the Assessing Officer referred to the decision of the Supreme Court in Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1; and forwarded certain information, which, according to the Assessing Officer, suggested that the assessee’s income had escaped assessment. The said communication also mentioned that in terms of the aforementioned decision in Ashish Agarwal (supra), the notice dated 5-4-2021 issued under section 148 was deemed to be a notice under section 148A(b). The assessee responded to the said notice on 16-6-2022.
The Assessing Officer passed an order dated 23-7-2022 under section 148A(d) holding that it was a fit case for issuance of a notice under section 148 in respect of assessment year 2015-16. The said order was forwarded to the assessee along with a notice dated 23-7-2022 issued under section 148.
The assessee contended that the proceedings initiated pursuant to the impugned notice dated 23-7-2022 were required to be set aside in view of the concession made by the revenue before the Supreme Court in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 (SC).

Held I:

It is relevant to refer to the decision of the Supreme Court in Union of India v. Rajeev Bansal (supra) which sets out the concession as made on behalf of the revenue that for the assessment year 2015-16, all notices issued on or after 1-4-2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA. [Para 7]
In view of the above concession, the impugned notice and the proceedings relating thereto are required to be set aside. [Para 8]
The notice dated 23-7-2022 issued under section 148 stands quashed and set aside. Concededly, the controversy is covered in favour of the assessee by the decision of this court in Makemytrip India (P.) Ltd. v. Dy. CIT [2025] 173 taxmann.com 497 (Delhi). [Para 9]
The petition is, accordingly, allowed and all proceedings initiated pursuant thereto are set aside. [Para 10]

In Favour of: The Assessee

Circulars and Notifications May 2025

Circulars / Orders

FAQ's
FAQ ON COLLECTION OF TAX AT SOURCE ON GOODS NOTIFIED UNDER NOTIFICATION NO. 36/2025 [S.O. 1825(E)], DATED 22-4-2025

Q.1 What changes were brought in section 206C(1F) of the Income-tax Act, 1961 through Finance (No. 2) Act, 2024?
Ans. Earlier, Section 206C(1F) provided for collection of tax at source (TCS) on the sale of motor vehicles of value exceeding ten lakh rupees.
Vide Finance (No. 2) Act, 2024, section 206C(1F) was amended to provide that TCS will also be levied on any other goods of value exceeding ten lakh rupees, as may be notified by the Central Government in the Official Gazette.

Q.2 Which are the luxury goods of value exceeding ten lakh rupees on which TCS will be levied?

Ans. Vide CBDT Notification No. 36/2025, dated 22-4-2025, S.O. 1825(E), the following goods of the value exceeding ten lakh rupees have been notified for collection of tax at source as specified in sub-section (1F) of section 206C of the Act —

Sr. No.	Nature of Goods
1.	Any wristwatch
2.	Any art piece, such as antiques, paintings or sculptures
3.	Any collectibles such as coins, stamps
4.	Any yacht, rowing boats, canoes and helicopters
5.	Any pair of sunglasses
6.	Any bag such as a handbag, purse
7.	Any pair of shoes
8.	Any sportswear and equipment such as golf kit, ski wear
9.	Any home theatre system
10.	Any horse for horse racing in race clubs and horse for polo.

Q.3 Whether TCS will be levied on the sale of a single item of the notified goods of value exceeding ten lakh rupees?
Ans. Yes, TCS will be levied on the sale of a single item of the goods of the nature specified in the above table, which is of the value exceeding ten lakh rupees.
Q.4 When will the new provisions become effective?
Ans. The new provisions will become effective from the date of publication of the notification i.e., 22-4-2025.

Press Release

DEPARTMENT OF ECONOMIC AFFAIRS, MINISTRY OF FINANCE, INVITES SUGGESTIONS FROM EXPERTS/PUBLIC ON DRAFT FRAMEWORK OF 'INDIA'S CLIMATE FINANCE TAXONOMY BY 25TH JUNE 2025 - INDIA'S CLIMATE FINANCE TAXONOMY WILL FACILITATE GREATER RESOURCE FLOW TO CLIMATE-FRIENDLY TECHNOLOGIES AND ACTIVITIES, ENABLING INDIA TO ACHIEVE THE VISION OF BEING NET ZERO BY 2070 WHILE ENSURING LONG-TERM ACCESS TO RELIABLE AND AFFORDABLE ENERGY

In pursuance of the Union Budget 2024-25 announcement (Paragraph 104 of the budget speech) to develop India’s Climate Finance Taxonomy, the Department of Economic Affairs, Ministry of Finance, invites expert/public comments (format below) on the Draft framework. (CLICK HERE TO ACCESS — DRAFT FRAMEWORK OF INDIA’S CLIMATE FINANCE TAXONOMY).

The Union Minister for Finance and Corporate Affairs announced in the Union Budget 2025-26:

“We will develop a taxonomy for climate finance for enhancing the availability of capital for climate adaptation and mitigation. This will support the achievement of the country’s climate commitments and green transition.”

A Draft Framework of the Climate Finance Taxonomy has been developed pursuant to this announcement. This framework outlines the approach, objectives and principles that will guide the taxonomy. It also details the methodology for classifying activities, projects and measures that contribute to India’s climate commitments, while also taking into account goals associated with achieving Viksit Bharat by 2047.

The draft framework will be the basis for developing sectoral annexures. The sectoral annexes will outline the measures, activities and projects considered climate-supportive and those identified for promoting the transition.

India’s climate finance taxonomy aims to facilitate greater resource flow to climate-friendly technologies and activities, enabling the country to achieve the vision of being Net Zero by 2070 while also ensuring long-term access to reliable and affordable energy. The Climate Finance Taxonomy will serve as a tool to identify activities consistent with a country’s climate action goals and transition pathway.

Comments may be emailed to aditi.pathak@gov.in by 25th June 2025 with the Subject “Comments on the Draft Framework for the Taxonomy”.

The comments received through public consultation will be duly considered and examined, following which the Department of Economic Affairs, Ministry of Finance, will release the Framework of India’s Climate Finance Taxonomy.

PRESS RELEASE, DATED 7-5-2025

Notifications

INCOME-TAX (NINTH AMENDMENT) RULES, 2025 – AMENDMENT IN RULE 114

In exercise of the powers conferred by clause (48) of section 2 of the Income-tax Act, 1961 (43 of 1961), read with clause (ii), clause (iii) and clause (v) of sub-rule (3) and sub-rule (6) of rule 8B of the Income-tax Rules, 1962, the Central Government hereby specifies the bond with the following particulars as zero coupon bond for the purposes of the said clause (48) of section 2 of the said Act, namely:

(a)	Name of the bond	–	Ten-Year Zero-Coupon Bond of Indian Railway Finance Corporation Ltd.
(b)	Period of life of the bond	–	Ten years
(c)	The time schedule of the issue	–	To be issued on or before the 31st day of March 2027 of the bond
(d)	The amount to be paid on maturity or redemption of the bond	–	Rs.10,000 crores
(e)	The discount	–	Rs. 4,916.51 crores
(f)	The number of bonds to be issued	–	Ten lakhs

NOTIFICATION S.O. 2137(E) [NO. 48 /2025/F. NO. 300164/3/2024-ITA-1], DATED 14-5-2025

Tax Calender: June 2025

07th June 2025

Equalization Levy Deposit Due Dates:
Collection and recovery of equalization levy on specified services in May 2025.
TDS/TCS Deposit:
Due date for deposit of Tax deducted/collected for May 2025. However, all sums deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day on which tax is paid without production of an Income Tax Challan.

14th June 2025

Due date for issue of TDS Certificate for tax deducted under section 194S/194-IA/194-IB/194M in April 2025.

15th June 2025

Form 24G: Due date for furnishing of Form 24G by an office of the Government where TDS/TCS for May 2025.
Form 16: Certificate of tax deducted at source to employees in respect of salary paid and tax deducted during Financial Year 2024-25.
Form 16A: Quarterly TDS certificate (in respect of tax deducted for payments other than salary) for the quarter ending March 31, 2025.
Advance-Tax Instalment due date: First instalment of advance tax for the assessment year 2026-27.
Form 64A: Due date for filing of statement of income distributed by business trust to unit holders during the financial year 2024-25. This statement is required to be filed electronically with the Principal CIT or CIT in Form No. 64A.
Form 64E: Statement of income paid or credited by a securitisation trust to be furnished under section 115TCA of the Income Tax Act, 1961.
Form 64D: Statement to be furnished in Form No. 64D by Alternative Investment Fund (AIF) to Principal CIT or CIT in respect of income distributed (during the previous year 2024-25) to unit holders.

30th June 2025

Form 26QB: Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA in May 2025.
Form 26QC: Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IB in May 2025.
Form 26QD: Due date for furnishing of challan cum statement in respect of tax deducted under section 194M in May 2025.
Form 1 Equalization Levy: Statement of Specified Services or E-Commerce Supply or Services.

Tax News from Around the World

S. Tax Litigation Developments

Liberty Global Inc. v. United States: The IRS is seeking to apply the economic substance doctrine to disregard certain transactions, potentially expanding its discretion in tax enforcement.

Altria Group Inc. v. United States: A case that may clarify due process concerns related to imputing income from foreign stock ownership, with potential implications for minority U.S. shareholders of controlled foreign corporations.

3M Co. v. Commissioner: 3M is appealing a decision that allowed the IRS to reallocate income from foreign subsidiaries for tax purposes, a case with potentially constitutional implications.

India’s Tax Dispute Backlog

India faces a significant backlog in income tax disputes, with approximately ₹31.4 trillion under litigation as of FY 2023-24. The government is considering introducing an arbitration mechanism to streamline tax disputes and reduce the backlog.

Global Trends in Tax Dispute Resolution

International Tax Dispute Resolution in Light of Pillar One: New Challenges and Opportunities.