CPT V24P7-Art1 (Content).pmd - Taxmann

LANDMARK RULINGS
684
LANDMARK RULINGS
An Overview of Latest Judgments on
Direct Tax Laws
Scot-free passage for closed PE,
unabsorbed losses can be set-off against
profits of rekindled PE - Singapore Tribunal
In AYN Corporation v. Comptroller of Income
Tax [2012] 23 taxmann.com 223 (ITBR -
Singapore), the appellant, a Japanese company,
was carrying on its business in Singapore through
a branch. Due to losses, the appellant closed
its branch and informed Registrar of Companies
at Singapore. Later on, it opened a new branch
and claimed set-off of unabsorbed losses of
closed branch against profits of new branch.
The Comptroller objected to the same on the
ground that with closure of the branch, the
right to tax the income of branch in Singapore
also ceased and, therefore, losses of closed
branch can’t be set-off against profits of new
branch. Comptroller also contended that branch
was a PE of appellant and it should be treated
as separate entity in view of article 7 of Singapore-
Japan DTAA.
The tax review board held in favour of assessee -
It held as follows:
(a) Section 368 of the Singapore Companies
Act allows a foreign company to set-up
its branch in Singapore to carry on its
business;
(b) Therefore, branch is said to be an extension
of HO and has no separate legal
entity;
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 64
(c) The PE is a mere fiction necessary for
purpose of determining profits under article
7; and
(d) Article 7 is not concerned with how the
profits of PE should be dealt with, such
as allowing losses, etc.
Therefore, it was held that unabsorbed losses
of closed branch could be set off against profits
of new branch.
ITAT allows ESOP expenses, Ranbaxy’s
case differentiated on grounds of
‘expenditure’ and ‘notional loss’
In Addl. CIT v. Spray Engineering Devices
Ltd. [2012] 23 taxmann.com 267 (Chandigarh
- Trib.), the assessee-company passed a resolution
to issue equity shares free of cost to its employees
as Sweat equity. Shares were to be issued with
lock in period of five years; however, no allotment
of such shares was done till the end of relevant
year. The fair value of the shares was debited
to employee benefits (P & L account) with
corresponding credit to shares outstanding
account which was reflected in the balance
sheet. AO denied the allowance for same
contending that it was just a contingent liability.
The Tribunal held in favour of assessee - The
Tribunal held that fair value of sweat equity
issued free of cost by special resolution was
allowed to be deducted under section 37(1).
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