The latest rulings in international tax and transfer pricing continue to shape India’s cross-border taxation landscape, offering critical clarity on treaty interpretation, MLI applicability, and notional income taxation.
In a significant decision, the Mumbai Tribunal in Sky High Appeal XLIII Leasing Company Ltd. vs. ACIT (IT) held that the Multilateral Instrument (MLI) cannot modify a tax treaty unless a separate notification under Section 90(1) of the Income-tax Act is issued by the CBDT. The Tribunal reaffirmed that, in absence of such notification, MLI provisions like the Principal Purpose Test (PPT) cannot override existing treaty benefits — aligning with the Supreme Court’s ruling in Nestle SA.
Further, in Volkswagen Aktiengesellschaft vs. DCIT, the Tribunal clarified that notional interest arising from transfer pricing adjustments is not taxable under the India–Germany Tax Treaty unless interest is actually paid, as the Treaty taxes interest only on a payment basis. Similarly, the Delhi Tribunal in Acme Cleantech Solutions (P.) Ltd. vs. NFAC ruled that no TP addition can be made on outstanding receivables from AEs when similar interest is not charged from non-AEs.
Together, these rulings underscore a consistent judicial approach — treaty provisions prevail over domestic rules, taxability requires actual income realization, and transfer pricing adjustments must respect commercial substance and consistency. These decisions offer valuable guidance for multinational groups navigating India’s evolving international tax and TP regime.
