#Tax / Corporate Law

The ITAT Delhi ruled that expenses incurred to sustain a Permanent Establishment after a business transfer cannot be disallowed under Section 28(i) merely due to the transfer-each cost must be evaluated for its direct nexus to ongoing business operations. This clarifies a critical loophole for multinational firms restructuring Indian operations, ensuring tax treatment aligns with economic substance rather than corporate form.

The ITAT Delhi has ruled that corporate social responsibility (CSR) donations meeting Section 80G conditions qualify for tax deduction, rejecting the Revenue’s attempt to disallow them under Section 37(1). This clarifies that Chapter VI-A benefits are independent of business expense disallowances, protecting companies that fulfill statutory CSR obligations while seeking legitimate tax incentives.

The ITAT Bangalore ruled that public sector banks can claim CSR spending and 60% depreciation on ATMs as allowable business expenses under Section 36(1)(viii), thereby excluding them from Section 115JB book profit tax. This sets a critical precedent for the banking sector, affirming that regulatory compliance costs and infrastructure investments essential to modern banking operations qualify as genuine business expenditures, not disallowable non-business outlays.

The ITAT Bangalore ruled that tax at source under Section 40(a)(ia) is triggered when professional fees are accrued in the books, not when paid - allowing deduction in the year TDS is actually deposited, even if delayed. This clarifies compliance for asset managers and intermediaries making accrual-based provisions, aligning tax treatment with accounting principles.

The ITAT Bangalore ruled that reimbursement of salaries to group companies for seconded employees triggers TDS obligations under Section 195 if the Indian entity functions as the economic employer, regardless of cost-to-cost accounting. This clarifies that inter-company cost recovery does not override the substance-over-form principle in cross-border secondments, impacting multinational corporations with shared staffing models.