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    The Central Board of Direct Taxes (for brevity ‘CBDT’) has released a paper for public consultation on the proposals pertaining to the amendment of rules which deal with profit attribution to Permeant Establishment (for brevity ‘PE’). The current rule does not lay down a universal approach for determination of profits attributable to PE, leaving to the discretion of Assessing Officer a wide power for such attribution. This has led to multiple rounds of litigations both by tax payer and revenue. The Courts also held in different matters, different profit attributions making this more complicated. Further, the tax payer is also burdened in absence of a concrete mechanism, which leads to tax uncertainty. Hence, the CBDT thought in the best interests of tax payers and to achieve a universality in attributions of profits to PE, brought out a paper for public consultation dealing with the amendments to such rules. The paper was published on 18th April 2019 and CBDT has provided a window of 30 days for providing the comments on the proposed amendments. Such comments can be mailed to This email address is being protected from spambots. You need JavaScript enabled to view it.. In this write up, we have tried to concisely capture the key contents in the paper, so that reader can go through this write up and make his suggestions to the proposed amendments.


    In our last article, we have analyzed the legal provisions relating to interest payable under Goods & Services Tax (for brevity ‘GST’) laws towards delay in remittance of tax. Taking into consideration, the well established legal principle that interest is compensatory in nature and is required to be payable only when there is a loss to revenue for delayed remittance of tax, we have expressed our opinion that interest payable under GST law is on net liability after adjustment of input tax credit as against the view expressed by Principal Commissioner, Hyderabad vide his standing Order No. 01/2019 dated 04.02.2019. In the meantime, the Telangana and Andhra Pradesh High Court, in the case of M/s Megha Engineering and Infrastructures Limited vs CCT[1], has expressed that interest is payable gross tax liability. In this article, we will now analyze the reasons for such conclusion by Honorable High Court and the probable legal proposition that can be reconceived.


    What is a Derivative? 

    A Derivative is a (financial) security or instrument, the value of which depends on underlying asset or group of assets or a benchmark.   It is a contract between two or more parties, and its price is determined by fluctuations in the underlying asset.  Examples of underlying assets in case of derivatives are shares /stocks, bonds, indexes, currencies, interest rates and commodities. 

    Derivatives are most commonly used to hedge the risk of abnormal fluctuations, be it price of share or interest rate or exchange rates of currencies. At the same time, derivatives are also used as a speculation tool where the speculators engage in trading them with an objective to gain (arbitrage) from such abnormal fluctuations.  Most commonly used derivative contracts as Forward Contracts, Exchange Traded Futures and Options (in stocks and currencies), Interest Rate Swaps, Currency Swaps, etc.

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    In this edition, we bring to you certain important articles on various aspects.

    We have summarised the proposals of paper released by CBDT on Rule 10 of Income Tax Rules which deals with attribution of profit to PE. This is a welcome paper by CBDT which would lead to tax certainty. We request all of you to kindly read the summary and share your comments to CBDT at the earliest.

    The next article is on ‘Derivates under FEMA’. In this article, we bring to you the basic concepts of derivates and the FEMA regulations applicable to such derivatives. My team also wrote a piece on the global data protection regulations.

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