India: R&D deduction; no PE under treaty with Japan - KPMG Global
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India: R&D deduction; no permanent establishment under treaty with Japan

India: R&D deduction; no PE under treaty with Japan

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).


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  • R&D expenditure eligible for deduction prior to approval: The Delhi High Court held that research and development (R&D) expenditure incurred in earlier years is eligible for the weighted deduction under section 35(2AB) of the Income-tax Act, 1961 even though the Department of Scientific and Industrial Research (DSIR) only approved the R&D facility subsequently. The court held that the critical factor is whether there has been DSIR approval—not the date of recognition or the cut-off date. The case is: Maruti Suzuki India Ltd. Read an August 2017 report [PDF 457 KB]
  • Liaison and project offices were not PE under tax treaty with Japan: The Delhi High Court held that offices of the taxpayer and its activities cannot be regarded as a permanent establishment (PE) in India and the income directly or indirectly attributable to the the offices was not taxable in India. In order to constitute PE under provisions of the India-Japan income tax treaty, there must be more that having an office, factory or workshop; rather, there must be a fixed place of business through which the business of the enterprise is wholly or partly carried out according to the tax treaty measure. In this case, the liaison office of the taxpayer was not used for the purpose of business. Rather, the liaison office was solely for the purpose of search or display or solely for the purchases of goods or collecting information or for any other activity, and as such, it did not constitute a PE in India. The case is: Mitsui & Co. Ltd. Read an August 2017 report [PDF 317 KB]
  • Tax exemption for educational activities denied: The Chennai Bench of the Income-tax Appellate Tribunal held that the taxpayer’s receipt of “stall charges,” and sponsorship or souvenir charges was not eligible for exemption under section 11 of the Income-tax Act, 1961 because the taxpayer’s activities did not qualify as “education.” The tribunal found the taxpayer’s institution had not carried out a significant part of its activities in relation to educational institutions, educational courses, and that any short term course or training program, even if conducted in the past, would not imbue it with the character of an educational institution. The case is: FRP Institute. Read an August 2017 report [PDF 345 KB]

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