Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Month: January

Section 143(2) read with section 120 – Assessment framed by non-jurisdictional Assessing Officer

76. [2025] 126 ITR(T) 664 (Delhi – Trib.)

Arjun Rishi vs. ITO

ITA NO: 3020 (DEL.) OF 2023

A.Y.: 2017-18

DATE: 09.07.2025

Section 143(2) read with section 120 – Assessment framed by non-jurisdictional Assessing Officer

FACTS

The assessee filed his return of income for the AY 2017–18 on 31.03.2018 declaring total income of ₹91,05,020. The case was selected for limited scrutiny under CASS on issues relating to cash deposits, capital gains/loss on sale of property, and investment in immovable property.

Notice under section 143(2) was issued and served upon the assessee by the Income-tax Officer (ITO), followed by notice under section 142(1). The assessee complied and furnished the requisite details electronically. Thereafter, the assessment was completed by the ITO vide order dated 30.12.2019.

Before the Commissioner (Appeals), the assessee raised a jurisdictional objection contending that, in view of CBDT Instruction No. 1/2011 dated 31.01.2011, the pecuniary jurisdiction to assess cases where returned income exceeds ₹30 lakhs in metro cities lies with the Assistant/Deputy Commissioner of Income-tax and not with an ITO. Since the assessee had declared income exceeding ₹90 lakhs, the ITO lacked jurisdiction. It was further contended that no order under section 127 transferring jurisdiction had been passed.

The Commissioner (Appeals) rejected the jurisdictional objection and upheld the assessment as well as the additions made therein.

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal observed that the assessee had declared income of ₹91.05 lakhs and, as per CBDT Instruction No. 1/2011 issued under section 119, cases where declared income exceeds ₹30 lakhs in metro cities fall within the jurisdiction of ACs/DCs and not ITOs. The Instruction is binding on the Department and must be strictly followed.

The Tribunal further noted that the Revenue failed to place on record any order passed under section 127 transferring jurisdiction from the competent AC/DC to the ITO. In the absence of such an order, the ITO could not have assumed jurisdiction merely on the basis of PAN allocation.

The Tribunal held that since the assessment was framed by an Assessing Officer who lacked pecuniary jurisdiction, the notice issued under section 143(2) was invalid, and consequently, the entire assessment proceedings were vitiated. An assessment framed by a non-jurisdictional Assessing Officer is bad in law and liable to be set aside.

Accordingly, the assessment order was quashed, and the appeal of the assessee was allowed.

Section 271(1)(c) read with section 54F – Penalty – Wrong claim of exemption – Bona fide explanation due to builder’s default

75. [2025] 126 ITR(T) 172 (Delhi – Trib.)

DCIT vs. Sahil Vachani

ITA NO.: 2604 (DEL) OF 2023

A.Y.: 2016-17

DATE: 23.06.2025

Section 271(1)(c) read with section 54F – Penalty – Wrong claim of exemption – Bona fide explanation due to builder’s default

FACTS

The assessee sold shares during the relevant previous year and earned long-term capital gains of ₹9.01 crore. In the return of income, the assessee claimed exemption of ₹6.31 crore under section 54F, contending that he had invested the sale consideration in a residential property.

During assessment proceedings, the Assessing Officer noted that although the assessee had entered into an agreement and made substantial payments towards the proposed residential property, the new residential house did not come into existence within the time prescribed under section 54F. The assessee accepted the disallowance of exemption and offered the amount to tax.

The Assessing Officer, thereafter, levied penalty under section 271(1)(c) on the ground that the assessee had furnished inaccurate particulars of income.

On appeal, the Commissioner (Appeals) deleted the penalty holding that the assessee had disclosed all material facts, furnished supporting documents, and the failure to complete construction was attributable to the builder and beyond the assessee’s control.

Aggrieved, the Revenue preferred an appeal before the Tribunal. Due to a difference of opinion between the Judicial Member and the Accountant Member, the matter was referred to a Third Member for resolution.

HELD

The Tribunal observed that the assessee had placed on record complete documentary evidence in support of the claim under section 54F, including agreements with the builder, bank statements evidencing payments, and TDS certificates. The assessee had also explained during assessment proceedings that the construction could not be completed within the statutory period due to reasons attributable to the builder.

It was further observed that the assessee did not suppress the long-term capital gains, nor did he furnish any false particulars. The claim under section 54F was made on the basis of disclosed facts and supporting documents. Merely because the claim was ultimately found to be unsustainable in law does not automatically attract penalty under section 271(1)(c).

The Third Member placed reliance on the decision of the Supreme Court in CIT vs. Reliance Petroproducts (P.) Ltd., holding that making an incorrect claim in law, by itself, does not amount to furnishing inaccurate particulars, when all material facts are disclosed.

The Tribunal held that the explanation offered by the assessee was bona fide, supported by evidence, and the assessee had voluntarily offered the amount to tax once the exemption was disallowed. There was no finding that the explanation was false or lacking in good faith.

Accordingly, it was held that the penalty under section 271(1)(c) was not leviable, and the order of the Commissioner (Appeals) deleting the penalty was affirmed. The Revenue’s appeal was dismissed.

Merely because the assessee jointly owned another property as on the date of transfer of the asset, his claim for deduction under section 54F could not be rejected.

74. (2025) 180 taxmann.com 720 (Del Trib)

Kusum Sahgal vs. ACIT

A.Y.: 2016-17

Date of Order: 21.11.2025

Section : 54F

Merely because the assessee jointly owned another property as on the date of transfer of the asset, his claim for deduction under section 54F could not be rejected.

FACTS

During the relevant previous year, the assessee received full value of consideration with respect to transfer of shares aggregating to ₹118 crores and, inter alia, claimed deduction under Section 54F for ₹21.28 crores on account of investment in residential property in Gurgaon. The case was selected for scrutiny assessment under CASS for limited scrutiny. The AO contended that since the assessee jointly owned more than one residential property on the date of transfer of shares, he was not entitled to claim deduction under section 54F and therefore, made an addition of ₹21.28 crores.

Aggrieved, the assessee went in appeal before CIT(A) who upheld the action of the AO in disallowing deduction under section 54F.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that the assessee claimed deduction under section 54F for investment made in purchase of residential property at the Camellias, Golf Drive DLF-5, Gurgaon which was an ongoing project of Camellias under construction by DLF. Additionally, as on the date of sale of the shares / original asset, the assessee had a commercial flat at Rajendra Place, an agricultural property (under which there was no ownership of the assessee in possession of the land) at Mehrauli and one residential flat at Greater Noida which was owned to the extent of 50% by the assessee.

Following the order of Mumbai ITAT in ITO vs. Sheriar Phirojsha Irani [IT Appeal No. 2835/Mum/2024, dated 27-09-2024] and other judicial precedents, the Tribunal held that joint ownership at the time of sale of original asset does not disentitle the assessee to claim deduction under section 54F.

In the result, the orders of the AO and CIT(A) were set aside and the appeal of the assessee was allowed.

Where the amount received by the assessee from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied, it could not be regarded as a corpus donation exempt under section 11(1)(d).

73. (2025) 180 taxmann.com 641 (Ahd Trib)

Dudhsagar Research and Dement Association vs. DCIT

A.Y.: 2016-17 and 2017-18

Date of Order: 17.11.2025

Section: 11(1)(d)

Where the amount received by the assessee from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied, it could not be regarded as a corpus donation exempt under section 11(1)(d).

FACTS

The assessee-trust was registered under section 12A since 1975 and was engaged in activities of medical relief to animals, progeny testing, vaccination, artificial insemination, bull rearing, and education in dairy technology. It received ₹7.23 crores from milk supplying societies as corpus donations which were exempt under section 11(1)(d).

The case was selected for scrutiny. The AO held that the corpus donation of ₹7.23 crores received from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied and hence did not qualify as a corpus donation under section 11(1)(d). Accordingly, he treated the said amount as income under section 2(24)(iia). He also invoked proviso to section 2(15) on the ground that the assessee was engaged in activities which fell within “advancement of any other object of general public utility” and its main source of income was sale of frozen semen doses which were in the nature of business, etc. and thereby, denied exemption under section 11.

The assessee filed an appeal before CIT(A) who confirmed the action of the AO; but following the order of ITAT in assessee’s own case for AY 2014-15, he allowed statutory deduction of 15% on the receipts treated as revenue income.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the issue of nature of amount received by the assessee from milk supplying societies, following the order of ITAT in assessee’s own case for AY 2014-15 in Dudhsagar Research & Development Association v. ACIT, (2024) 159 taxmann.com 1465 (Ahd Trib), the Tribunal upheld the finding of the AO and CIT(A) that the donations received from milk supplying societies, being compulsorily collected and linked to the quantity of milk fat supplied, did not satisfy the condition of being “voluntary contributions” with “specific direction” as required under section 11(1)(d) and therefore could not be treated as corpus donations.

However, on the alternative claim raised by the assessee of allowing statutory deduction of 15% on such amount, the Tribunal held that this issue was covered in favour of the assessee by the decision of the coordinate Bench in assessee’s own case for AY 2014-15 (supra) wherein it was held that once the corpus donation was treated as revenue receipt, the said receipts were liable to be governed by sections 11 and 12 and the assessee was eligible for deduction in accordance with law including the statutory deduction of 15%.

In the result, the Tribunal partly allowed the appeal of the assessee.

Where milk procurement from farmers was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to the charitable object of the assessee-society of providing fair and remunerative prices to small and marginal farmers and thereby protecting them from exploitation by middlemen, the activities of the assessee fell within “relief of poor” under section 2(15) and exemption under section 11 could not be denied to it on the ground that it was carrying on commercial activity.

72. (2025) 180 taxmann.com 722 (Cochin Trib)

Malanadu Farmers Society vs. DCIT

A.Ys.: 2016-17 and 2022-23

Date of Order : 19.11.2025

Section: 2(15)

Where milk procurement from farmers was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to the charitable object of the assessee-society of providing fair and remunerative prices to small and marginal farmers and thereby protecting them from exploitation by middlemen, the activities of the assessee fell within “relief of poor” under section 2(15) and exemption under section 11 could not be denied to it on the ground that it was carrying on commercial activity.

FACTS

The assessee was a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 and also registered under section 12A of the Income-tax Act, 1961. The primary object of the assessee was to conduct social activities aimed to for improving the living conditions and welfare of the poor and marginal section of the society. It was engaged in procurement, chilling, processing and sale of milk sourced from small and marginal farmers. It filed its return of income declaring Nil income after claiming exemption under section 11.

The AO issued notice under section 148A on the ground that the assessee was not a charitable organisation but a business community where the major activities of the assessee were trading and processing of milk. He further held that the assessee’s activities cannot be regarded as “relief of poor”. Accordingly, the AO denied exemption under section 11 and an addition of ₹13.93 crores was made relating to the profit earned by trading milk.

Being aggrieved, the assessee filed an appeal before CIT(A) who confirmed the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) The assessee had consistently carried out activities such as farmer-training programmes, cattle-rearing demonstrations, financial assistance, welfare schemes, subsidies, and other public-oriented initiatives aimed at improving the livelihood of economically weaker farming communities.

(b) CBDT Circular No. 11/2008 dated 19.12.2008 categorically clarifies that proviso to Section 2(15) does not apply to the first three limbs of the definition of “charitable purpose”—namely (i) relief of the poor, (ii) education, and (iii) medical relief. This circular further clarifies that “relief of the poor” includes a wide range of welfare activities benefiting small and marginal farmers, and that entities engaged in such objects are not disentitled merely because they incidentally carry-on commercial activities, provided the conditions of Section 11(4A) are satisfied.

(c) In view of the consistent judicial position, binding ITAT order in assessee’s own case for AY 2017-18 [Malanadu Farmers Society v. DCIT, IT Appeal Nos. 632 and 633 (Coch) of 2022, date of pronouncement 08.03.2023], CBDT Circular 11/2008 dated 19.12.2008, and holistic appreciation of facts, the assessee’s activities fell squarely within the definition of “relief of the poor” under section 2(15).

(d) The assessee had demonstrated with supporting documents that milk procurement was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to its charitable object of providing fair and remunerative prices to small and marginal farmers, thereby protecting them from exploitation by middlemen.

(e) The dominant purpose of the assessee was relief of poor, small and marginal farmers; milk procurement and processing activities were merely incidental and inseparable from its charitable objectives. Farmers received higher prices compared to cooperative benchmarks, which directly contributed to their upliftment.

The Tribunal also noted that the assessee had also complied with the conditions under section 11(4A).

Accordingly, the Tribunal held that the denial of exemption under section 11 to the assessee was unjustified and deserved to be deleted.

Assessment order passed u/s 143(3) by ACIT is valid despite notice u/s 143(2) having been issued by ITO and ACIT since the territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common and within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit.

71. TS-802-ITAT-2025 (Ahd. Trib.)

Rupen Marketing Pvt. Ltd. vs. DCIT

A.Y.: 2015-16

Date of Order: 18.6.2025

Sections: 143(2)

Assessment order passed u/s 143(3) by ACIT is valid despite notice u/s 143(2) having been issued by ITO and ACIT since the territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common and within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit.

In an assessment, selected for limited scrutiny, merely because the AO had exceeded his jurisdiction in making certain additions, the entire assessment cannot be held as void ab initio. The additions made in excess of the issues under consideration can only be held as illegal.

FACTS

For AY 2015-16, the assessee filed its return of income declaring total income of ₹30,11,970. The case was selected for limited scrutiny to examine 4 issues viz. (i) import turnover mismatch; (ii) customs duty payment mismatch; (iii) payment to related persons mismatch; and (iv) duty drawback received / receivable.

In the course of assessment proceedings, there was no compliance to notices issued under section 143(2) as well as section 142(1) of the Act by DCIT-Circle 3(1)(2), Ahmedabad. The details requisitioned were not furnished. The AO having noticed various discrepancies between data reported in return and information as per ITS recorded a finding that correctness and completeness of accounts was not verifiable and that the assessee had not followed the method of accounting in accordance with the accounting standard stipulated under section 145(2) of the Act. The AO completed the assessment under section 144 of the Act by making an ad hoc addition of ₹2,50,00,000 to the returned income.

Aggrieved, the assessee preferred an appeal to the CIT(A) who set aside the assessment to the file of the AO with a direction to make a fresh assessment after providing opportunity of being heard to the assessee and after verification of the facts of the case.
Aggrieved by the order of CIT(A), the assessee preferred an appeal to the Tribunal contending that the CIT(A) erred in not appreciating that the assessment order was bad in law and was required to be quashed as void ab-initio and bad in law since DCIT-Circle 3(1)(2), Ahmedabad did not have jurisdiction over the case of the assessee, the AO exceeded his jurisdiction and assessed income as if the case was selected for complete scrutiny.

HELD

The Tribunal observed that the ground of jurisdiction of DCIT, Circle 3(1)(2) over the case of the assessee pertaining to jurisdiction needs to be adjudicated first since it goes to the root of the matter. It noted that the assessee contended that the DCIT did not have correct and proper jurisdiction to pass the impugned assessment order since the notice dated 04.07.2017 was issued by the ITO, Ward 3(1)(3), Ahmedabad under Section 142(1) r.w.s 129 of the Act. The Tribunal noticed that identical computer generated notice under Section 143(2) of the Act was issued by the ITO, Ward – 3(1)(3), Ahmedabad as well as by the ACIT, Circle – 3(1)(2), Ahmedabad on 26.07.2016.

The Tribunal held that merely because the notices were issued both by the ITO as well as by the ACIT, it can’t be concluded that the ACIT was having no jurisdiction over the case. The territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common. Within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit. The CBDT vide INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-I)], DATED 31 1-2011 had fixed pecuniary limit for purpose of distribution of work between officers.

It held that since the income declared by the assessee in the current year was above ₹30 lacs and the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO, it cannot be presumed that the jurisdiction for the current year will remain with the ITO. The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO, the jurisdiction was required to be transferred to the ACIT/DCIT because the returned income of the assessee in the current year was in excess of ₹30,00,000/-. Therefore, the contention of the assessee that the AO had no jurisdiction over the case was not accepted. It held that the jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice under section 143(2) of the Act dated 26.07.2016. Therefore, the assessment order as passed by the DCIT, Circle – 3(1)(2), Ahmedabad cannot be held as without jurisdiction. Accordingly, the ground no.-2 raised by the assessee in respect of jurisdiction over the case is dismissed.

As regards conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition of ₹2,50,00,000/- without identifying the nature of addition, the Tribunal noticed that the case was selected for limited scrutiny on specific issues as already mentioned earlier. The AO had also discussed those issues in the assessment order and pointed out specific discrepancy in respect of import turnover mismatch and duty draw back mismatch. However, since no compliance was made by the assessee before the AO, he had rejected the books of account and made ad hoc addition of ₹2,50,00,000/- in respect of the mismatch on the issues of limited scrutiny as well as the other discrepancies as noticed in the course of assessment. It held that the objection of the assessee that AO was not empowered to exceed the limited issues on which the case was selected for scrutiny, is justified. However, merely because the AO had exceeded his jurisdiction in
making certain additions, the entire assessment cannot be held as void ab initio. The additions made in excess of the issues under consideration can only be held as illegal.

The Tribunal observed that the AO had specifically pointed out discrepancies to the extent of ₹2,11,04,500/- and ₹51,538/-, in the assessment order, in respect of import duty vis-à vis purchase mismatch and export duty drawback mismatch, which were two of the issues for which the case was selected for limited scrutiny. Therefore, the AO was entitled to make addition to the extent of the total difference of ₹2,11,56,038/- as identified in the assessment order. Only the addition made in excess of the identified difference of ₹2,11,56,038/- can be held as beyond jurisdiction. It held that the objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stood rectified by the AO. Further, the entire addition can’t be held as beyond jurisdiction and the assessment order can’t be quashed for this reason.

Minimum Guarantee Fee paid to various hotels / guest houses for not meeting contractual obligations for unsold rooms and loss from sold rooms is not rent as per section 194-I of the Act.

70. TS-1561-ITAT-2025 (Delhi Trib.)

Oravel Stays Ltd. vs. DCIT

A.Y.: 2020-21

Date of Order : 21.11.2025

Section: 194-I

Minimum Guarantee Fee paid to various hotels / guest houses for not meeting contractual obligations for unsold rooms and loss from sold rooms is not rent as per section 194-I of the Act.

FACTS

The assessee engaged in operating online platform for providing OYO rooms at various hotels, guest houses, etc for facilitating reservation / booking of hotel rooms through the appellant-assessee’s OYO platform, had entered into agreements with various hotels, etc. for facilitating booking of hotel rooms, etc. through its e-platform; OYO.

As per the said agreement, the hotel conducts its operations in terms of providing lodging and accommodation services, whereas the appellant assessee provides technology, sales and marketing services to various hotels relating to the provision of lodging and accommodation services through its e-platform. The agreement was based on ‘Minimum Guarantee Revenue Model’ (“MGRM’). As per the agreement, the assessee appellant assured minimum revenue benchmark, which hotels/guest houses may/will receive or likely/expect to receive from the appellant assessee e-platform. In case, the benchmark is exceeded, then the hotel/guest house was required to pay service fee to the appellant assessee otherwise the appellant assessee was required to pay the service fee in case of shortfall in achieving the benchmark. The agreement further provided that in case the rooms are sold at price lesser than the agreed amount between the appellant assessee and hotels, the difference/loss was to be borne by the appellant assessee.

Survey operation under section 133A of the Act was carried out at the business premises of the assessee and based on information gathered, proceedings under section 201 were initiated which culminated into a liability of ₹3,33,19,101 vide order dated 7.2.2020 passed under section 201(1) / 201(1A) of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where the main plank of the argument was that the assessee did not have any exclusive and absolute right to use the hotel / guest house rooms as per the agreement. The said rooms were available to all for booking through the e-platform of the assessee.

HELD

The Tribunal, in view of the decision of the Apex Court in the case of Japan Airlines Co. Ltd. [(2015) 377 ITR 372 (SC)] held that following parameters are required to be looked into before invoking section 194-I of the Act viz. – (i) character of services as per agreement and business model; and (ii) right of exclusive use of room. It observed that in the present case, as per the agreement, the appellant-assessee did not have exclusive right to use the room of any hotel / guest house for itself. The booking of the room was available to general public at large through e-platform of the appellant-assessee. A perusal of the agreement revealed that there was no lessor-lessee relationship between hotel / guest house owners and the assessee which gave exclusive right to the appellant assessee to use the said rooms for itself only. The Tribunal, on a bare reading of the agreement, did not find any substance in the observations / conclusions of the CIT(A).

The Tribunal held that the guarantee fee paid to various hotels/guest houses for not meeting the contractual obligations for unsold rooms (booking of minimum number of rooms not met through e-platform of the appellant assessee) and loss from sold rooms (booking of rooms at a lesser price than the minimum agreed room tariff through e-platform of the appellant assessee) in accordance with the terms and conditions of the agreement is not rent as per section 194-I of the Act as the same has been paid for not using any room for itself but for the default on the part of appellant assessee to secure the number of bookings of rooms at a minimal tariff (for unsold rooms and loss from sold rooms).

The Tribunal held that the AO is not justified to treat payments aggregating to ₹31,25,07,038 as rent liable for TDS under section under section 194-I of the Act. It deleted the TDS liability upheld by the CIT(A) vide impugned order.

Penalty under section 270A is not leviable merely because assessee has declared income under a head different from which the Assessing Officer assessed it.

69. TS-1558-ITAT-2025 (Hyd. Trib.)

Penninti Vivekananda Rao vs. ADIT

A.Y.: 2020-21

Date of Order: 19.11.2025

Section: 270A

Penalty under section 270A is not leviable merely because assessee has declared income under a head different from which the Assessing Officer assessed it.

FACTS

The assessee filed return of income for assessment year 2020-21 declaring income under the heads `Capital gains’ and `Income from Other Sources’. The amount of income declared under the head `Capital gains’ interalia included ₹3,22,68,272 arising from surrender of three Equity Plus Funds issued by Bajaj Allianz Life Insurance Co. Ltd. (“Bajaj Equity Plus Fund”).

While assessing the total income of the assessee, the Assessing Officer (AO) assessed the gain on surrender of Bajaj Equity Plus Fund under the head “income from other sources” and not under the head “capital gains” as was returned by the assessee. The AO also initiated proceedings for levy of penalty under section 270A of the Act for misreporting of income. The assessee applied for grant of immunity which application was rejected. The AO, vide order dated 10.3.2023, levied a penalty of ₹2,48,02,158 under section 270A of the Act.

Aggrieved, assessee preferred an appeal to CIT(A) who upheld the penalty levied by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

At the outset, the Tribunal noticed that the assessee has offered income of ₹3,22,68,272 with regard to surrender of Bajaj Equity Plus Fund and therefore the objection of the DR that the assessee had not offered income from surrender of Bajaj Equity Plus Fund is factually incorrect. The Tribunal held that the assessee had offered income of ₹3,22,68,272 with regard to surrender of Bajaj Equity Plus Fund in the return of income filed by him. Therefore, the assessee has disclosed all facts fully and truly in the return of income.

The Tribunal observed that the only issue is whether where the assessee has offered an income under the head capital gains instead of the head income from other sources, whether penalty for misreporting of income can be levied on the assessee under section 270A(9) of the Act or not. Since the assessee disclosed the income in the return of income, the Tribunal held that there is no misrepresentation or suppression of facts on part of the assessee. Consequently, it held that the case of the assessee does not fall under any of the clauses (a) to (f) of section 270A(9) of the Act. The situation, according to the Tribunal, was merely of reporting of income under an incorrect head and nothing more.

The Tribunal noticed that the Mumbai Bench of the Tribunal in the case of D C Polyester Ltd. vs. DCIT [ITA No. 188/Mum./2023; A.Y.: 2017-18; Order dated 17.10.2023] has held that penalty under section 270A of the Act cannot be levied merely because of a change of head of income. Following the ratio of this decision, the Tribunal held that in the present case also, no penalty can be levied under section 270A(9) of the Act. The Tribunal directed the AO to delete the penalty.

Assessee is liable to deduct tax at source under section 194-IC even though the agreement has been entered into with a person who is not owner of land but has leasehold rights therein.

68. ITA Nos. 2313, 2314,2315 & 2316/Mum/2025 (Mum.)

Sugee Seven Developers LLP vs. ITO

A.Y.s: 2020-21 to 2023-24

Date of Order : 10.10.2025

Section: 194-IC

Assessee is liable to deduct tax at source under section 194-IC even though the agreement has been entered into with a person who is not owner of land but has leasehold rights therein.

FACTS

During the course of survey, the Assessing Officer (AO) noticed that the assessee has deducted TDS @ 1% on payments made to Shri Premal Dayalal Doshi and called upon the assessee to show cause why the TDS under section 194-IC as per which tax should have been deducted at 10% is not applicable in the present case.

The assessee contended that Shri Premal Dayalal Doshi has only a leasehold right in the land which does not fall in the definition of specified agreement under section 45(5A) and therefore TDS was deducted under section 194-IA @ 1%. The assessee’s contention was that provisions of section 194-IC is not applicable since the term specified agreement includes only those agreements entered into with the owner and the assessee’s agreement is with the person holding only leasehold rights.

Aggrieved, assessee preferred an appeal to CIT(A) upheld the order of the AO.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal having perused the definition of the expression `specified agreement’ under section 45(5A) and also the Explanatory Memorandum to the Finance Bill, 2017 vide which the provisions of section 45(5A) have been introduced held that the legislative intention to introduce sub-section (5A) was to define the year of taxability for transfers under a JDA to minimise the genuine hardship of the assessee who may face capital gains in the year of transfer i.e. year of entering into JDA. If the narrower interpretation, as contended by the assessee, is to be accepted then it would lead to anomaly that transfer by the leasehold right owner under JDA would go out of the tax net as the transferor is not the owner as mentioned in the definition of `specified agreement’.

The Tribunal held that in its view the interpretation as argued on behalf of the assessee cannot be accepted since the legislative intent behind introduction of sub-section (5A) is to ease the tax burden on the assessee and such beneficial provision if interpreted as not applicable to transferor holding leasehold rights who has transferred under the JDA would go against the legislative intent.

On a perusal of the JDA, the Tribunal observed that land has been given on perpetual lease in the year 1938 and since then the land has been held by various persons and Shri Premal Dayalal Doshi has acquired the land along with the conditions as prescribed for the perpetual lease. It also noticed that Shri Premal Dayalal Doshi is holding the right to give the land for development and is entitled to receive consideration in monetary and non-monetary form. Given these facts and the legislative intent, as discussed, the Tribunal held that it is unable to agree with the submission that in the present case, the provisions of section 194-IC are not applicable.

Article 5 of India-Japan DTAA – Seconded employee who worked under the supervision and control of the Indian entity could not constitute fixed place permanent establishment of the Foreign Company

16. [2025] 177 taxmann.com 434 (Delhi – Trib.)

Mitsui Mining and Smelting Company Ltd. vs. ACIT (IT)

IT APPEAL NO.1407 (DELHI) OF 2025

A.Y.: 2022-23 Dated: 31 July 2025

Article 5 of India-Japan DTAA – Seconded employee who worked under the supervision and control of the Indian entity could not constitute fixed place permanent establishment of the Foreign Company

FACTS

The Assessee, a tax resident of Japan, was engaged in manufacturing of engineered and electronic materials. It had a subsidiary in India (“I Co”). I Co was engaged in manufacturing of converters used in automobiles. During the relevant AY, the Assessee filed its return and offered certain receipts as royalty and fees for technical services and claimed reimbursements were not taxable. The AO noted that I Co had reimbursed the Assessee towards salary of an employee who was seconded by the Assessee to I Co.

Based on the secondment agreement, the AO observed that employees exercised control over I Co’s premises and they carried out operations of the Assessee, which constituted Permanent Establishment (“PE”) for the Assessee. The DRP upheld the action of the AO.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

The following facts were clear from the secondment agreement:

  • The seconded employee was required to integrate herself into business of I Co to facilitate its operation.
  • The employee should work in her personal capacity, and I Co was to have exclusive control over her.
  • Scope of work of seconded employee was to be determined by I Co, and Assessee was not liable for any loss arising from performance of the employee.
  • The agreement categorically provided that the Assessee shall not have any right or control over any asset, structure, or seconded employee of I Co.

Based on the above, the ITAT held that no employer-employee relationship subsisted between the Assessee and the seconded employee.

The ITAT further held that the activity of secondment cannot constitute PE, as the Assessee did not have any control over the premises of I Co and did not carry out its business there.

Articles 8 and 11 of India-Ireland DTAA – Consideration received towards lease of aircraft is taxable as operating lease in terms of Article 8 of India-Ireland DTAA and not as interest in terms of Article 11; therefore, right to tax such income is vested only with Resident State.

15. [2025] 176 taxmann.com 902 (Delhi – Trib.)

Celestial Aviation Trading 15 Ltd. vs. ACIT (IT)

IT APPEAL NOS.1476 TO 1478, 1493 & 1616 (DELHI) OF 2025

A.Y.: 2022-23

Dated: 25 July 2025

Articles 8 and 11 of India-Ireland DTAA – Consideration received towards lease of aircraft is taxable as operating lease in terms of Article 8 of India-Ireland DTAA and not as interest in terms of Article 11; therefore, right to tax such income is vested only with Resident State.

FACTS

The Assessee, a tax resident of Ireland, was engaged in the business of leasing aircraft. It had entered into Aircraft Specific Lease Agreement (“ASLA”) with an Indian company (“I Co”) to lease aircrafts. I CO has also entered into a Common Terms Agreement (“CTA”) for aircraft leasing. The Assessee was of the view that ASLA was in the nature of an operating lease, and in terms of Article 8 of India-Ireland DTAA, the consideration was taxable only in Ireland. Therefore, the Assessee filed a nil return of income.

The AO was of the view that the agreement was a finance lease. Hence, the receipts under ASLA were in the nature of interest in terms of Article 11 of DTAA and taxable @10%. The DRP observed that the aircraft lease had a substantial economic life (8 years) and upheld the draft assessment order.

Aggrieved with the final order, the Assessee appealed to ITAT.

HELD

CTA was a standard agreement entered into for all aircraft leases and should be read alongside ASLA to understand the nature of the transaction. The following facts emerged from the agreement:

  • The aircraft lease was for 120 months and could be further extended by the lessee through written notice to lessor.
  • ASLA provides that the lessor is the owner of the aircraft, and CTA requires the lessee to display the owner’s name in an identified location.
  • Clause 10 of ASLA provides that deposits paid by the lessee in cash or by letter of credit shall be refunded after the lease period.
  • CTA provides that aircraft shall be returned to the lessor at the end of lease period and lessee cannot sub-lease it without lessor’s consent.
  • CTA requires the lessee to indemnify the lessor for any loss and breach of condition. On breach, the lessor can either sell or re-lease the aircraft.

Under a finance lease, the asset is transferred to the lessee after the lease term at a pre-agreed price. As per RBI Circular No. 24 dated 01.03.2002, finance lease requires prior approval of RBI for transfer of ownership.

As per DGCA regulations, the economic life of an aircraft is 20 years. Hence, observation of DRP that the lease period constitutes the aircraft’s substantial economic life is erroneous.

Based on the above, the ITAT held that the arrangement constituted an operating lease and consequently, consideration received for leasing was taxable only in Ireland in terms of Article 8 of India-Ireland DTAA.

Understanding Scope 2 Emissions And Why They Matter

Global warming and climate change, driven by greenhouse gas (GHG) emissions, are among the greatest challenges to sustainable development worldwide. It is imperative for organisations to step up and build strategies to address the risks related GHG emissions. Scope 2 emissions are indirect GHG emissions of an organisation arising from the purchase and consumption of energy in the form of electricity, heat, steam and cooling. Accounting, analysing and managing Scope 2 emissions provides a practical entry point for organisations in managing their GHG emissions. Scope 2 emissions reduction offer significant and enduring benefits for the organisation.

INTRODUCTION

Global warming and climate change pose a key challenge in sustainable development of the nations. Governments all over the world are taking steps to reduce their carbon footprint (Greenhouse Gas emissions) by setting nationally determined targets and introducing regulations on energy efficiency and emissions reduction. It is thus imperative for organisations (companies, government agencies, small businesses institutions etc.) to develop strategies to address the risks related to Greenhouse Gas (GHG) emissions to ensure long term resilience and align with national climate policies.

GHG emissions of an organisation has three sources1 viz. emitted directly from its business operations i.e. from the sources owned and operated by it (Scope 1 emissions), indirect emissions due to purchase and consumption of energy (Scope 2) and indirect emissions in its value chain (Scope 3 emissions). Total emissions from Scopes 1,2 and 3 emissions comprise the GHG Inventory of any organisation. In current times, understanding and improving the GHG inventory of the organisation makes good business sense for its long-term sustenance.

  1. Operational boundary as per GHG Protocol Corporate Standard

WHAT IS SCOPE 2 EMISSIONS?

Scope 2 emissions are indirect GHG emissions of an organisation arising from the purchase and consumption of energy in the form of electricity, heat, steam and cooling2. Electricity is purchased by organisations from a common grid or a dedicated power generation facility. It is used to run equipment, IT infrastructure, general lighting, air conditioning etc. Around 55% of the electricity generation in India happens using fossil fuels like coal, natural gas etc. in thermal power plants.3 Burning of fossil fuels for electricity generation at the power generation facility results in GHG emissions in the atmosphere.

2. This article focuses on energy generated from electricity only

3. Centra Electricity Authority Report Dec 2024

Scope 2 emissions are indirect in nature because the emissions are a consequence of activities of the organisation (running of equipment, IT infrastructure, general lighting, air conditioning etc) but occur at sources owned or controlled by another organisation i.e. power generation facility. For e.g. a manufacturing company consuming electricity from a grid which is fed by a distant thermal power plant. Here, the actual emissions occur at the thermal power plant by burning of fossil fuels. However, since these emissions are triggered by the operations of the organisation by the act of purchase of electricity, they are accounted as Scope 2 emissions of the organisation.

Note: Under Scope 2 accounting, the key criterion is purchase (or acquisition) of energy, rather than its consumption.

Thermal Power Plant

WHAT IS THE SIGNIFICANCE OF SCOPE 2 EMISSIONS ACCOUNTING?

In 2019, 34% of the global GHG emissions was contributed by electricity and heat production4. This is primarily due to burning fossil fuels for energy generation. Accounting for Scope 2 emissions by an organisation is an acknowledgement of causing emissions by sourcing electricity from “dirty” sources. Consistent Scope 2 accounting opens the doors for identification of GHG emissions reduction opportunities. It helps organisations to identify specific sources of emissions and develop focussed strategies for switching to low emissions electricity sources. Scope 2 accounting can also help setting reduction targets and track progress over time. Transparent reporting of Scope 2 emissions allows comparison of performance with peers and setting industry benchmarks. The significance of accounting for Scope 2 emissions is evident from the fact that all sustainability reporting frameworks like Global Reporting Initiative (GRI), Corporate Sustainability Reporting Directive (CSRD) and Business Responsibility and Sustainability Reporting (BRSR) require organizations to mandatorily report their Scope 2 emissions.

4 IPCC's 6th Assessment Report

WHAT ARE THE VARIOUS ELECTRICITY GENERATION/DISTRIBUTION METHODS?

a. From the Grid: Most organisations purchase or acquire some or all their electricity from the shared electricity distribution network called electricity grid. The grid is fed electricity from various types of power plants viz. thermal, hydel, solar, wind etc. This electricity is then consumed by the organisations from the common grid without being able to identify the specific power plant producing the electricity at any given time. In this case, the organisations shall account for the emissions from purchase of such electricity under Scope 2 using the grid average emissions factor.

Power Distribution Mechanism

b. From direct line transfer: Organisations in many industrial parks or collection of facilities are fed electricity directly from a local power plant owned by a third party. In such cases, the organisations shall account for the emissions from purchase of such electricity under Scope 2 under the supplier specific emissions factor.

c. From owned /operated equipment: Many big organisations have their own captive power plants (thermal or renewable) for power supply. In such cases, since the power plant is owned and operated by the company, its emissions will be accounted under Scope 1 based on actual fuel consumption.

d. From distributed generation/consumption: Some organisations own and operate small power plants (thermal or renewable) in proximity to their operations. The organisation may consume the output of this power plant; sell excess power generated to the common grid and purchase additional power from the grid to cover any additional demand. In this case, the organisations shall account for the emissions from onsite generation of such electricity under Scope 1 and purchased electricity under scope 2 for the gross units purchased from the grid (without adjusting the units sold to the grid) using the grid average emissions factor.

HOW TO CALCULATE SCOPE 2 EMISSIONS?

The first step in calculation of Scope 2 emissions is to ascertain the activity data points in the organisation. This comprises of all energy meters which record purchase and consumption units of electricity in the organisation’s facilities. The energy meters provide the units of electricity consumption (activity data). The second step is to determine if any of the organisation’s facility operates in a location with availability of information on source of electricity in the form of contractual instruments. Based on this information, in step three the appropriate emissions factors are chosen. In the fourth step, facility level emissions are calculated.

Scope 2 emissions = Units of electricity consumed (Activity Data) x Emission

In the final step, emissions data from all facilities of the organisation are rolled up to get emissions at organisational level.

Activity Data

Activity Data is the gross units of energy consumed by the organisation purchased/acquired from an entity outside the organisation. The electricity consumption as per the meter or the electricity bills in MWh or KWh units is the most accurate activity data. In cases where the electricity meter is shared, the activity data needs to be arrived at by allocating the units based on the floor area space occupied in the premises.

Activity data also includes quantity of energy certificates purchased by the organisation from the energy market (in certain locations). Energy Certificates convey an energy generation claim with specific attributes (like associated emissions). Generally, energy certificates and the underlying electricity are bundled together i.e. the consumer of the electricity also holds the energy certificates. However, in certain locations, the energy certificates can be unbundled from the electricity i.e. they can be bought from the market without purchasing the associated electricity. For e.g. Renewable Energy Certificates (RECs) are purchased by large organisations from the power exchanges to meet renewable energy targets.

Emission Factors

Scope 2 emissions accounting is the method of “allocating” the GHG emissions in power generation process to the end consumers of a grid. This allocation is done by applying specific emission factors for each unit of electricity consumed. The choice of emissions factors depends upon the type of electricity consumed i.e. from an identified power source or from the common grid. There are two types of methods to ascertain the emissions factor viz. location based, and market based. Which method to use depends upon the availability of information on source of electricity at the physical location of the facility.

Scope 2 Emissions

a. Location based method:

This method is used by facilities in all locations. The emission factor used is the “grid average emission factor” which is based on the statistical emissions information and electricity output aggregated and averaged within a defined location (country or a region) for a defined time-period. For e.g. the total CO2 emissions in India for electricity generation in FY 2023-24 was 1204.51 million tCO2e. The electricity generated from all power plants (including renewable energy) was 1655.70 million MWh. Therefore, the weighted average emission factor for India grid for FY 2023-24 was 1204.51/1655.70 = 0.7275. These emission factors are generated for a year or for shorter periods in certain locations.

5. CO2 Baseline database for the Indian Power Sector Version 20.0, Dec 2024

Example:

ABC has consumed 1100MWh of energy in FY 2024-25 from the national grid. The grid has published the latest average grid emission factor for the FY 2023-24 as 0.72 tCO2e/MWh.

Scope 2 emissions of ABC

1100 MWh X 0.72 tCO2e/MWh = 792 tCO2e
Total Scope 2 Emissions for FY 2024-25 under location-based method: 792 tCO2e.

b. Market based method6:

6. Only a few Countries in the world have established energy markets to support this method

This method is used by facilities which consume electricity from a grid with access to supplier specific data or energy specific data in the form of certificates or contractual instruments. These certificates provide information like source of electricity, supplier labels, supplier emission factor among others. In such markets, organisations also have access to purchase additional energy certificates (like renewable energy certificates). The energy certificates must meet the Scope 2 Quality Criteria for eligibility to be considered under Market based method.

These criteria are:

  1.  Should convey the GHG emission rate associated with each unit of electricity produced
  2. Should be uniquely identified and should enable tracking, redeeming and retiring/cancellation by the organisation.
  3.  Should be issued and redeemed as close as possible to the period of energy consumption to which the certificate is applied.
  4. Should be from the same market in which the organisation consumes the electricity.
  5. Should state that underlying electricity when unbundled from its certificate shall have a GHG emission rate of residual mix / grid average emission rate.

It may be noted here that the emission factor in market-based method is based on the contractual instruments it owns and not based on actual electricity consumption. In such a scenario, there sometimes exists some units of electricity consumed which are not associated with any contractual instruments. Emissions for such untracked units of electricity are calculated using Residual Mix emission factor. This factor is given by the supplier in the energy certificate/contractual instrument.

Difference between Location based method and Market based method:

Location-based Method Market-based Method
Applicable in areas without access to supplier-specific data Applicable only when supplier-specific or contractual instruments (e.g., RECs) are available
Power source type (renewable/non-renewable) is generally unknown Power source type is known through energy attribute certificates or contractual instruments
Emission factor represents average emissions from the regional/national grid Emission factor reflects emissions from specific sources as per contractual instruments
Based on total electricity consumed Based on the quantity allocated through certificates; unmatched electricity is residual mix

Example 1:

ABC has contractual agreement with XYZ power supplier to supply 1000 MWh of energy in FY 2024-25. XYZ provides energy certificates meeting Scope 2 criteria for the same with an emission factor of 0.5 tCO2e/MWh. During FY 2023-24, ABC consumes 1100 MWh of energy. Residual Mix Emission Factor = 0.70 tCO2e/MWh. Latest available Grid Average Emission Factor for FY 2022-23 = 0.72 tCO2e/MWh.

Scope 2 emissions of ABC

For consumption tracked by energy certificates,

1000 MWh X 0.5 tCO2e/MWh = 500 tCO2e

For consumption not tracked,

100 MWh (1100 – 1000) X 0.70 tCO2e/MWh = 70 tCO2e

Total Scope 2 Emissions for FY 2024-25 under market-based method: 570 tCO2e.

Total Scope 2 Emissions for FY 2024-25 under location-based method: 792 tCO2e (1100*0.72)

Example 2:

ABC has purchased 1000MWh of Renewable Energy Certificates (RECs) meeting Scope 2 criteria in FY 2024-25 from energy exchange. These RECs have an emission factor of 0 tCO2e/MWh. During FY 2023-24, ABC consumes 1100 MWh of energy from the grid. Latest available Grid Average Emission Factor for FY 2022-23 = 0.72 tCO2e/MWh.
Scope 2 emissions of ABC

For consumption being covered by RECs,

1000 MWh X 0 tCO2e/MWh = 0 tCO2e

For consumption not covered by RECs,

100 MWh (1100 – 1000) X 0.72 tCO2e/MWh = 72 tCO2e

Total Scope 2 Emissions for FY 2024-25 under market-based method: 72 tCO2e.

Total Scope 2 Emissions for FY 2024-25 under location-based method: 720 tCO2e. (1000*0.72)

REPORTING OF EMISSIONS UNDER SCOPE 2

Scope 2 emissions are reported in accordance with GHG Protocol Corporate Standard. The following are the points worth noting with respect to Scope 2 emissions reporting for any period:

  •  The organisations whose entire operations exist in a market where supplier specific data of electricity in the form energy certificates is not available shall report Scope 2 emissions only under location-based method.
  •  The organisations whose at least one of operations exist in a market where supplier specific data of electricity in the form energy certificates is available shall report Scope 2 emissions under both market-based and location-based method (for all locations). The locations which do not support market-based method shall show same emissions value under both market-based and location-based methods.
  •  Organisations should provide a reference to an assurance report (internal or external) for confirming the chain of custody of purchased energy certificates or other contractual agreements.
  •  Organisations should provide the disclosure of the methodologies used for Scope 2 emissions calculations. They should disclose the source from where the emission factors were derived.
  •  Organisations should disclose the information of the base year7 selected for Scope 2 emissions. Any context which has triggered base year emissions recalculations need to be disclosed.
  • Organisations should disclose the basis of goal setting i.e. based on location-based method total or market-based method total.
7. The earliest period after which the organisation has started tracking its Scope 2 Emissions. It is used for setting reduction targets

THE INDIAN CONTEXT

In India, electricity sector is managed by Central Electricity Authority (CEA). It is responsible for planning and development of power plants and other electricity systems. The sector is regulated by Central Electricity Regulatory Commission (CERC). This regulatory body determines tariffs, regulates interstate transmissions and issue licenses of trading and transmissions. The total power generation capacity was 441970 MW as on 31st March 2024 of which 55% used fossil fuels.

The whole of India was converted into a single grid in 2013. This involved the integration of all five regional grids into a single, synchronous grid operating at a single frequency. India has a single grid average emission factor published by the CEA. This weighted average emission factor describes the average CO2 emitted per unit of electricity generated in the Indian grid. It is calculated by dividing the absolute CO2 emissions of all power stations (including generation from Renewable sources and grid connected captive stations) by the total net generation injected into the grid. The latest grid average emission factor available is as of Dec 2024 which is available on the CEA website.

India has an established power market consisting of multiple power exchanges like India Energy Exchange (IEX) and Power Exchange of India Ltd (PXIL), providing a nationwide automated trading platform for the physical delivery of electricity, renewable energy, and certificates. Energy exchanges are also instrumental to facilitate exchange of Energy Saving Certificates (ESCerts) amongst Designated Consumers in meeting their Specific Energy Consumption targets under the PAT Scheme8.

8. Under the PAT (Perform Achieve Trade) Scheme, all major energy intensive sectors of India are called Designated Consumers.

 These DCs have been given targets to reduce their specific energy consumptions.

India also has a central agency known as Renewable Energy Certificate (REC) Registration Agency for registration of Renewable Energy generators. The value of 1 REC issued to the generators is equivalent to 1 MWh of electricity injected into the grid from renewable energy sources. The generators can either sell the renewable energy and attributes (bundled REC) at the stated tariffs or sell the electricity generation and environmental attributes associated with renewable energy generation separately (unbundled REC) on the power exchanges. These RECs are bought by Power Distribution Companies, Captive Power Plants (to meet their Renewable consumption obligations) and other organisations voluntarily as a part of their CSR activity. Once the transaction is successful on the exchange, the RECs are redeemed by the central agency.

Procedure of trading and redemption of RECs at Power exchanges

  1. During the Power Exchange bidding window, sellers (Renewable Energy generators) place offers and buyers (Power Distribution Companies) place bids.
  2. After bidding closes, Power Exchange sends bid volumes to Registration Agency for verification if the bid volume is within the valid RECs held by the sellers.
  3. Power Exchange calculates market price and volume
  4. Final trades are sent to Registration Agency which extinguishes/retires the sold RECs on a first-in-first-out basis. Once retired, a REC can no longer be claimed or traded.

Reporting of Scope 2 emissions in India require reporting under both market-based and location-based methods. RECs purchased from the energy exchanges meet the scope 2 quality criteria and is actively used by organisations to claim that their electricity consumption is “renewable,” even if the Indian grid mix is fossil heavy.

WHY IS REDUCTION IN SCOPE 2 EMISSIONS A LOW HANGING FRUIT FOR ORGANISATIONS?

Scope 2 emissions happen to be one the largest sources of Greenhouse Gas emissions globally of which electricity forms a major portion of the energy consumed. Scope 2 emissions reduction is a low hanging fruit since they can be managed by the organisation through relatively simple steps without changing its core business operations. These steps include:

a) Reduce overall energy demand of the organisation: The easiest and the most sustainable approach to achieving long-term reductions in
Scope 2 emissions is through investments in energy-efficient equipment and power quality correction technologies. Reduction in energy demand directly reduces Scope 2 emissions.

b) Tata Communications Ltd have reduced Scope2 emissions from 88,308 mtCO2e in FY 2021-22 to 68,911 mtCO2e in FY 2024-25.

 They consider “increase in energy efficiency by optimising energy consumption in facilities and data centres” as immediate focus action item. They ensure all their energy consumption across all operations is monitored, measured and reviewed. This helps in identifying performance issues, taking corrective actions and benchmarking them with the best practices.

 Source: Company Annual Report FY 2024-25

b) Optimise energy procurement: The next significant step for organisations is to transition their electricity supply towards low-emissions sources, such as renewable power plants (e.g., solar installations). These can effectively provide clean energy for townships, guest houses, offices, and other smaller facilities and directly reduce Scope2 emissions.

GHCL Ltd ‘s power requirements up to FY 2023-24 were primarily met through four captive power plants with a combined capacity of 38.7 MW, operating on fossil fuels such as coal and pet coke.

It commissioned 6.7 MW off-site renewable energy capacity in FY 2024–25. Collectively, these plants generate 46.5% of total electricity. This initiative has contributed to successfully reduce their Scope 1 and Scope 2 emissions by 8% from FY 2021 22 against their internal target of 30% reduction by FY 2030.
Source: Company Annual Report FY 2024-25

c) Purchasing Renewable Energy Certificates (RECs) from the Power Exchange: When the organisation purchases an REC, they claim the environmental attributes of that renewable generation — specifically that it displaced an equivalent amount of fossil-based electricity on the grid and the associated emissions. At a broader, systemic level, this market-based mechanism directs demand toward renewable energy, thereby supporting the expansion of the renewable market and progressively reducing dependence on fossil fuel generation and reducing Scope 2 emissions.

Capgemini India declared in 2023 that it runs entirely on renewable energy, helping avoid over 70,000 tonnes of carbon emissions each year. 17% of this renewable energy was covered by buying Renewable Energy Certificates (RECs), which play a key role in offsetting grid electricity emissions and achieving their Scope 2 emission reduction target.

Source: Press release dated 01st Oct 2023

PRACTICAL CHALLENGES IN SCOPE 2 EMISSION REDUCTION

  • Power Purchase Agreements (PPAs) can be legally complex and involve long negotiation cycles that many organizations may find difficult to navigate.
  • Upgrading to energy-efficient systems (like HVAC, LED, motors) requires capital upfront, despite long-term savings. Assessing what to upgrade and how to prioritise can be difficult for organisations. Also, retrofitting or replacing systems require downtime,
    which can be challenge especially in manufacturing or critical facilities.
  • When a company tries to buy electricity directly from a renewable power plant instead of the local distribution company, it they may additional charges to discourage such direct purchases and protect their revenue.

CONCLUSION

For organisations seeking long-term resilience and growth, integrating sustainability into core business strategies and operations is imperative. Leadership must place the reduction of the organisation’s GHG emissions at the forefront of priorities. Accounting, analysing and addressing Scope 2 emissions provides a practical entry point in this direction, offering significant and enduring benefits for the organisation.

References:

  • GHG Protocol Scope 2 Guidance – https://www.ghgprotocol.org
  • Central Electrical Authority – https://cea.nic.in/
  • India Energy Exchange – https://www.iexindia.com/
  • Renewable Energy Certificate Registry of India – https://www.recregistryindia.nic.in/
  • Intergovernmental Panel on Climate Change – https://www.ipcc.ch/

Tech Mantra

PDFgear

PDFg

PDFgear helps you read, edit, convert, merge and sign PDF files across devices. It is completely free and you do not even need to signup. Just download it and start using it. The files remain on your system and do not even go out for processing!

It also offers dozens of tools to help you complete simple and quick PDF tasks directly in your web browser. You can edit, flatten, convert to and from Word or Images, add / delete PDF pages, split, merge and compress PDFs and much more.

PDFgear is truly free and is available on Windows, Mac, Android and iOS. It also incorporates free AI tools which may become chargeable as they move ahead.

Go ahead, take the first step towards PDF FreeDom today!

https://www.pdfgear.com/

Floating Notes

Floating
This is another Notes App with a difference – you can take notes and sync them on all your devices – but the notes will float on your screen above other apps. So, if you have something important to remember, it will always be on the screen for you!

You can minimise notes to the edge of the screen as only icons and schedule notes to appear only at certain times. You can also choose among a lot of icons and colors for your notes. You can change the transparency of the floating notes and also add checklists to track your progress while using other apps. And, of course, when you are watching movies or playing games, you can turn off visibility for a while!

Overall, a totally different Notes Experience!

Android : https://tinyurl.com/floatingnotes

URLCheck

URL
This app acts as an intermediary between your receiving any links by email or WhatsApp or any other app and the actual link where you will land up. When you click on a link and choose this app to open it, it will show a dialog with some information about the link. If it is a shortlink, it will show you the final destination; if it is not a secured site, it will indicate the same; and if it is a scam site, it will also alert you. If the target website has tracking parameters, it will show you the same – in all cases, you have the option to avoid that site!

An interesting free tool to avoid scams and dangerous links!

Android : https://tinyurl.com/urlch

Typi – Type with AI

Typing

Typi is an AI-powered solution that can provide instant answers to your queries. Whether you have a question about a particular topic or need help with a problem, Typi is here to assist you. With Typi, you can type your question anywhere on your device, and let Typi do the rest.

If you are typing an email or message and you make some typing / grammatical mistakes, instead of correcting each mistake individually, just type “?fixg” and all your errors will be rectified for the entire text. Or, if you have a long winding message and want to make it short, at the end, just type “?short” and voila – the entire message will be summarised. If you want your text to be converted to something more polite, just type “?polite” at the end and be amazed with the results!

But what if you’re looking for a quick and concise answer? That’s where “?typic” comes in. By adding “?typic” to your question, you can get a short and to-the-point response that’s perfect for when you’re in a hurry.

In short, it brings Gemini’s AI power to your keyboard without needing to switch apps.

Pretty neat and useful!

Android : https://tinyurl.com/typewithai

Learning Events at BCAS

1. CA Pariksha Pe Charcha held on Saturday, 6th December 2025@ Virtual.

Speakers: CA K S Ranjani, CA Heramb Maheshwari, CA Utsav Shah, CA Nidhish Naik, CA Naman Gupta, CA Ansh Bhorawat & CA Anjali Shukla

The Human Resource Development Committee of BCAS organised “CA Pariksha Pe Charcha”, an interactive learning session designed to guide CA students in their exam preparation journey. The program commenced with an inspiring keynote by CA K S Ranjani, who spoke on resilience, overcoming setbacks, and developing a success-oriented mindset. This was followed by an insightful session by CA Heramb Maheshwari (AIR 1 – November 2024), who shared his exam preparation journey, practical exam strategies and clarified ICAI evaluation myths.

A dynamic panel discussion featuring top rankers from the September 2025 CA Final exam brought real-life perspectives on study routines, discipline, answer writing, and balancing mental well-being. Students from across the country participated enthusiastically, making the session highly engaging and impactful.

Overall, the program provided a blend of motivation, actionable techniques, and relatable experiences, helping students approach their CA journey with clarity, confidence, and a structured plan.

Scan to watch on Youtube

CA Pariksha Pe Charcha

2. Webinar on New Labour Codes: Legal Framework, Financial Impact & Practical Implementation held on Friday, 5th December 2025@ Virtual.

The Finance, Corporate and Allied Laws Committee of the Bombay Chartered Accountants’ Society organised a webinar on “New Labour Codes: Legal Framework, Financial Impact & Practical Implementation” on Friday, 5th December 2025.

The Finance, Corporate and Allied Laws Committee of the Bombay Chartered Accountants’ Society organised a webinar on “New Labour Codes: Legal Framework, Financial Impact & Practical Implementation” on Friday, 5th December 2025.

The programme was conducted in two segments. Adv. Sundeep Puri covered the legal and conceptual aspects of the Codes, explaining the structure, intent and major changes introduced. CA Alok Agarwal and CA Bhavin Rajput discussed the financial, compliance and implementation-related implications, highlighting areas requiring organisational preparedness, policy review and systems alignment.

The webinar received an encouraging response from members across practice and industry. 316 participants enrolled for this webinar from 50+ cities and towns across India. Participants appreciated the clarity of explanations and the practical insights shared by the speakers.

Scan to watch online at BCAS Academy

Webinar on New Labour Codes

3. AARAMBH – Making Articleship Count held on Thursday, 04 December, 2025 @ HR College of Commerce & Economics, Churchgate, Mumbai

AARAMBH

Every meaningful journey begins with a purposeful start. Aarambh, meaning a new beginning, represents BCAS’s commitment to guiding CA students at one of the most defining stages of their professional journey – the commencement of articleship.

Through the Aarambh – Making Articleship Count Initiative, BCAS fulfils its professional social responsibility by engaging directly with students and sharing practical insights, real-life experiences, and guidance from young Chartered Accountants who have recently walked the same path. The sessions are designed to bridge the gap between academic learning and professional realities, enabling students to approach articleship with clarity, confidence, and a long-term perspective.

The first session under this initiative was held at H.R. College of Commerce & Economics, Churchgate, Mumbai, on Thursday, 4th December 2025. The programme was made possible through the wholehearted support and cooperation of Principal Mrs. Pooja Ramchandani and Director – Placement, Dr. Navin Punjabi.

The programme witnessed enthusiastic student participation, driven by an engaging panel discussion and vibrant interaction. The presence and encouragement of the team BCAS – President CA Zubin Billimoria, Hon. Joint Secretary CA Mrinal Mehta, Managing Committee member CA Anand Kothari, and the panelists from Core Group CA Mahesh Nayak, CA Aditya Pradhan and CA Vatsal Paun, further reinforced the Society’s collective commitment to nurturing the future torch-bearers of the profession.

BCAS remains steadfast in its mission to mentor, inspire, and support the next generation of Chartered Accountants, contributing meaningfully to the profession and to the nation at large.

4. FALCON – Making Articleship Count held on Wednesday 03rd December, 2025 at N M College of Commerce & Economics, Vile Parle, Mumbai

FALCON

The falcon bird symbolises vision, power and victory. With this initiative, BCAS offers young CA aspirants an opportunity to interact and learn from young Core Group members – those who have walked the path before them. The panellists dwell on the topics of Articleship, Post Qualification, Professional Association & Networking, and Leadership. To ensure that the aspirants feel both comfortable and confident to engage with the panellists, the initiative has BCAS meet them on their home turf – be it college, or coaching class or even CA firm.

The first session under this initiative was held at N M College of Commerce & Economics on Wednesday, 3rd December 2025. Principal Dr Parag Ajgaonkar and Vice Principal CA Dr Savita A Desai of the college personally welcomed the visiting team from BCAS comprising the President, CA Zubin Billimoria, Managing Committee member, CA Preeti Cherian and the three panellists – Managing Committee members, CA Samit Saraf and CA Sneh Bhuta and Core Group member, CA Vedant Gada. The session was ably supported by the Association of Accountancy Committee of N M College. The audience, comprising degree college students who are set to embark on this wondrous journey, found the discussion both informative and helpful.

From the BCAS perspective, engaging with the students as they commit themselves to a demanding, yet extremely satisfying career choice is imperative – these students are the face of tomorrow of the profession.

In the words of the American author, Mercedes Lackey, “The hatched chick cannot go back to the shell, the falcon who has found the sky does not willingly sit the nest.”

5. CATHON (Marathon) – Run for Fitness, Fun and Purpose held on Sunday, 30th November 2025 @ Iconic Bandra Fort, Mumbai.

CATHON

India’s Second Edition of CA-Thon 2025 – A Run for Fitness, Fun & Purpose was organized on Sunday, 30th November 2025 near Bandra Fort, Mumbai under the aegis of the Seminar, Membership & Public Relations (SMPR) Committee.

The event attracted 2,000+ participants – Chartered Accountants and non-Chartered Accountants alike – between the age group of 8 to 70 years – drawn from all walks of life, from different corners of the country. An added feature this year was the participation of select CA firms that enlisted their team members for the run.

The annual event helped increase the visibility of Brand BCAS, cement relationships within the community, promote health and fitness among participants drawn from all walks of life and contribute to a righteous cause (part of the proceeds went to donating professional sewing machines to women from marginalized communities, to help them become entrepreneurs in their own right). BCAS Foundation also joined hands in supporting these women through this donation.

Through this annual run, the CA-Thon hopes to encourage runners to incorporate physical activity as part of their daily routine, thereby leading to an agile and healthy life, which is one of the cornerstones of financial well-being.

6. Webinar on Tax Law in Transition- Impact on Landmark Rulings After Introduction of New Income Tax Act 2025 and Recent decisions covering the Real Estate sector held on Saturday, 29th November 2025 @ Virtual.

The Direct Tax Committee of the Bombay Chartered Accountants’ Society organized a Webinar on Tax Law in Transition – Impact on Landmark Rulings after New Era of Reform and Recent Decisions covering the Real Estate Sector.

The session focused on how the real estate sector continues to face complex tax challenges, especially due to frequent litigation, changing business models, and evolving regulatory rules. Participants were taken through key judicial developments and how these decisions affect day-to-day tax positions in the industry.

CA Harsh Kothari spoke on the impact of the New Income Tax Act on landmark decisions under the old Act. He explained how the restructured law attempts to simplify provisions but also creates new interpretational considerations. His session focused on how earlier judicial principles may continue, where they may no longer apply and what tax professionals should keep in mind while interpreting the new Act. The webinar offered clear and practical insights for professionals in a period where both the law and its interpretation are going through a significant transition.

CA Anil Sathe presented a clear and insightful overview of recent and significant rulings impacting the real estate industry. He explained how courts have interpreted issues such as development agreements, joint development models, withholding implications, timing of income recognition, and capital gains triggers. His session helped participants understand how these rulings guide practical tax positions and compliance for developers, landowners, and investors.

Scan to watch online at BCAS Academy

Webinar on Tax Law in Transition

7. Women’s Study Circle meeting — SAKHI CIRCLE! held on Friday, 28th November 2025@ Virtual.

The inaugural session of the Women’s Study Circle was an inspiring and interactive experience. The theme, ‘Celebrate Your Uniqueness’, encouraged participants to embrace individuality and make conscious choices about their personal and professional lives.

CA Nandita Parekh opened the session with a powerful quote from Michelle Obama:

“Each of us carries a bit of inner brightness, something entirely unique and individual. A flame that’s worth protecting. When we recognise our own light, we become empowered to use it.”

Through two engaging stories—one about Michelle Obama’s journey and another about a monkey— CA Nandita Parekh illustrated the importance of self-worth and clarity in decision-making. She posed thought-provoking questions:

– What do you truly want?

– What are you holding on to, and what can you let go?

– Are you trying to fit in or do you truly belong?

The discussion highlighted how women’s paths are diverse and often non-linear.

The session emphasized that success is not about fitting into a mould but about defining your own balance between career, family, hobbies, and aspirations.

Key Takeaways:

– Embrace individuality and celebrate your uniqueness.

– Define priorities and make conscious choices.

– Build support systems and networks for growth.

Motivational Highlight:

“Celebrate who you are today, while creating space for who you want to become.”

8. Lecture Meeting on Boosting Business and Professional Productivity through AI held on Wednesday, 26th November 2025 @ Virtual.

A public lecture meeting was conducted by the Bombay Chartered Accountants’ Society virtually on zoom platform on 26th November 2025.

The speaker CA Umesh Sharma explained how Artificial Intelligence can significantly enhance professional and business productivity, particularly for chartered accountants. The speaker highlighted several core technologies, including machine learning, natural language processing, and generative AI, emphasizing their roles in fraud detection, financial advisory, and process automation. He outlined a strategic framework for AI implementation, moving from individual skill-building to sector-wide integration while maintaining essential human judgment and ethical standards. Practical advice was provided for firms of all sizes to address operational challenges, such as managing document chaos and improving client relations through digital dashboards. Ultimately, the speaker encouraged professionals to view AI as a powerful assistant rather than a threat, urging proactive learning and technical adaptation to stay competitive in a changing financial landscape.

The lecture was well-attended, with over 260 participants joining online.

Scan to watch online on Youtube

Lecture Meeting on Boosting Business and Professional Productivity

9. FEMA Study Circle Meeting on How to Study FEMA held on 25th November 2025 @ Virtual

The FEMA Study Circle held a meeting on the topic “How to study FEMA” which dealt with the core fundamentals of gaining expertise in FEMA.

The session was chaired by CA Naresh Ajwani and led by group leader, CA Vivek Vithlani.

The chairman provided a deep insight into the unique aspects of the exchange control law, which makes this topic worthy of being taken for beginners.

The group leader explained the approach which is required to study and gain expertise in any law in general. Along with the approach, he shared the chronology of steps which he has developed over the years to understand any law. Further, the group leader showed how the generic approach and step-wise chronology can be applied to FEMA in particular and the nuances pertaining to the same. Light was also thrown on different legal documents issued by the Central Government and the RBI to show a 360-degree view of FEMA.

The meeting was concluded by summarising the milestones of gaining expertise in any law.

10. Power Summit 2025 held on 21st & 22nd November 2025 @ Lemon Tree Premier – Pune.

Power Summit

Human Resource Development Committee of BCAS organised a two-day residential program “The Power Summit 2025” on 21 & 22 November 2025 at Hotel Lemon Tree Premier, Pune. This was the 10th season of the Power Summit with the first one being held in 2011.

The theme for the Power Summit was Growth, Governance & Generational Transition – Shaping The Firms of 2030. The Power Summit hosted about 95 participants coming from cities across the country. There were certain participants who had been part of all the previous ninePower Summits as well as participants attending for the first time. This diversity added to the charm of the Summit.

The presentation and panel discussions over the two days were creative, intriguing, and interwoven in a manner that left all participants with valuable insights and a renewed determination to progress along their growth trajectory.

A brief snapshot of the presentation and panel discussions is as follows:

Topic Speaker / Panellist
& Moderator		 Key Learnings for Participants
Grow In Continuum: Succession Planning Strategies

for Proprietorship & Small Firms

 CA Jayraj Sheth Participants learnt from Jayraj’s presentation about key areas such as exploring when to begin succession planning, grooming successors and client transition strategies.
Partnership Deeds – Beyond the Fine Print,

ICAI – Latest Updates.

 

 Speaker: CA Vishal Doshi | Moderator: CA Ameet Patel Candid discussion with Vishal gave insights into how ICAI, at institution level, is perceiving and looking at mergers, multi-disciplinary partnerships etc. Also, Vishal shared updates on the latest progress happening at ICAI level on these topics.
Fireside Chat: Women in Leadership: The Evolving Role

of Women Professional

 

 Speaker: CA Priti Savla | Moderator: CA Nandita Parekh The chat highlighted the various initiatives taken by ICAI for empowering Women Professionals. Also, the personal journey of Priti, motivated and inspired all the participants.
Mergers and Expansion –

Why some work, why many fail

 

 Panellists: CA Manish Sampat, CA Naman Shrimal  | Moderator: CA Vaibhav Manek The power packed discussion with the panellists left the participants with lots of food for thought on various merger models, geographic / vertical expansion, profit-sharing agreements, reasons for things not working out and practical suggestions on how to navigate these challenges.
Practice Excellence- Preparing For Growth/ Merger Panellists: CA Paresh Shaparia, CA Subhash Saraf | Moderator: CA Ameet Patel The practical experience shared by both the panellists gave interesting insights to all participants on how to get oneself or one’s own firm ready for Growth and Merger. Key takeaways being around areas of practice reviews, policy documentation, MIS systems etc.
Professional Firms @ 2030

What will it take?

 

 Panellists: CA Nilesh Vikamsey, CA Naman Shrimal | Moderator: CA Vaibhav Manek The panellists shared multiple perspectives on what would be the key drivers for a successful CA Firm in 2030. Also, they shared interesting suggestions on future-proofing professional firms in the next decade.
Legal Insights on the Professional Service Firms – How to Navigate the Regulatory Landscape and Prepare for Risks and Liabilities Panellists: Mr. Shreyas Jayasimha, Ms. Radhika Iyer | Moderator: Vaibhav Manek It was an interesting panel discussion to provide a flavour to all the participants on the kind of legal risks that a professional is carrying in today’s time and practical suggestions on ways to navigate them. There was also discussion on how different professionals can collaborate to create a win-win situation for everyone.
Walk & Talk: Challenges of Firm Growth CA Nilesh Vikamsey, CA Ameet Patel, CA Nandita Parekh This was the concluding session in which the discussions focused on real-world barriers in expansion and how peers have navigated them. Interesting Q&As and discussions were done with the participants as well.

The Summit successfully generated substantial interest among the participants, thereby motivating them to strategically plan for their growth. The participants expressed their profound gratitude to the organising team for their exceptional work and the provision of a high-quality program. All participants shared their testimonials and gratitude via WhatsApp groups and social media platforms.

11. Direct Tax Laws Study Circle Meeting on Succession Planning from a Direct Tax Perspective held on 20th November, 2025@ Virtual.

Succession planning plays a vital role in ensuring smooth intergenerational transfer of wealth and preventing disputes. The session highlighted key tax provisions, legal mechanisms, and practical considerations in designing an effective succession structure.

The following major areas were discussed during the session:

  1.  Succession Modes – Wills, trusts, nominations, and family arrangements are the primary structuring options, each carrying different tax outcomes.
  2.  Legal Representative Liability – Responsibility of Legal heirs with respect to tax liabilities of the deceased, including interest and penalty till the date of death.
  3. Taxation of Executors [S. 168] – Separate assessment of the executor on the income of the estate until its complete distribution.
  4. Nominee vs. Legal Heirs – The difference between the two was highlighted with an example of a judgment of the Supreme Court in the case of Shakti Yezdani, wherein it was held that a nominee merely facilitates transmission and does not override the rights of legal heirs.
  5. Will-based transfers – Tax Neutrality – transfers under a Will are not regarded as a “transfer” under Section 47(iii), and inheritance is specifically exempt under Section 56(2)(x). Thus, passing assets through a Will is a tax-efficient mechanism.
  6. Family Arrangements – Not a Transfer – The session clarified that a genuine family settlement based on antecedent rights is not treated as a transfer for capital gains. It simply realigns existing rights in property to preserve peace and prevent litigation within the family.
  7. Situations wherein Family Settlements become taxable – The session clarified that If parties lack pre-existing rights—as in P.P. Mahatme (Bom HC)—payments received may be treated as taxable capital gains. Antecedent rights are therefore key to determining tax neutrality.
  8. Specific vs. Discretionary Trusts – The speaker clarified that certain trusts have identifiable beneficiaries with defined shares, while discretionary trusts allow trustees to decide distributions. Discretionary trusts are generally taxed at the maximum marginal rate unless specific exceptions apply.

Conclusion: The session was highly interactive, with participants actively engaging and gaining practical clarity on the tax and legal aspects of succession planning. The discussions helped simplify complex concepts and gave attendees a clear understanding of how to apply the right tools in real-life situations. Overall, the audience left with valuable insights to plan succession more confidently and effectively.

12. Felicitation of Chartered Accountancy pass-outs of the September 2025 Batch held on Monday, 17th November, 2025@ Sydenham College

Felicitation of Chartered Accountancy pass-outs Nov

The Seminar, Membership and Public Relations (SMPR) Committee hosted a felicitation ceremony on 17th November 2025 in the auditorium of the Sydenham College of Commerce & Economics, Churchgate, to honour the newly qualified Chartered Accountants from the September 2025 batch. Out of the 450 registrations, over 325 enthusiastic newly qualified CAs participated in the event. The guest and mentor for the event was CA (Adv.) Kinjal Bhuta, Treasurer of BCAS. In her address, she reminisced about her early days, the support she received from her clientele and elders in the profession, and how her association with BCAS has helped in shaping her career and growth as a professional. She shared six life lessons with the audience and invited them to come within the BCAS fold and partake of the bouquet on offer.

AIR 16, Nidhish Naik, AIR 28 Ansh Bhorawat, AIR 34 Naman Gupta and AIR 46 Anjali Shukla were then felicitated. A celebratory cake was cut post which all the other newly passed CAs were felicitated. The ceremony served as a warm welcome of the newly qualified CAs into the wider professional fraternity.

Scan to watch online on Youtube

Felicitation of Chartered Accountancy pass-outs

13. ITF Study Circle meeting – Black Money Act – Penalty for Non-Disclosure of Foreign Assets: Key Rulings held on 14th November, 2025@ Virtual.

The International Tax and Finance Study Circle organized a meeting (online) on 14 November 2025 to discuss key rulings with respect to penalty for non-disclosure of foreign assets under the Black Money Act:

Chairman of the session – CA Sushil Lakhani

Group Leader CA Kush Vatsaraj

  •  The session opened with the initial remarks from the chairman on the topic.
  • Post that, the group leader discussed the rationale of the Black Money Act and the basic provisions to set the context for the group.
  • Next the group leader discussed a number of rulings with respect to levy of penalty under the Black Money Act, including rulings under other laws but applicable to penalty under the Black Money Act.
  • The group leader discussed a recent Special Bench ruling with respect to the penalty being discretionary in greater detail
  • The participants debated various nuances with respect to the levy of penalty under the Black Money Act, especially with respect to some divergent views adopted by appellate authorities.
  • The group leader took the group through a number of scenarios with respect to the levy of penalty under the Black Money Act and shared his insights on the same. The chairman of the session also shared his insights.
  • The session closed with the floor being opened up for Q & A. Participants raised a number of questions and the same were answered by the group leader and the chairman of the session. Other participants also shared their practical experiences.

14. BCAS NXT – Learning & Development Bootcamp – A Deep Dive into GST Annual Return (GSTR-9) and Reconciliation Statement (GSTR -9C) held on 14th November, 2025@ Virtual.

The Human Resource Development Committee organized a BCAS NXT Learning & Development Bootcamp on “A Deep Dive into GST Annual Return (GSTR-9) and Reconciliation Statement (GSTR-9C)” on Friday, 14th November 2025, from 4:00 PM to 6:00 PM.
The session was led by Ms Riya Bhavesh Shah, a CA Final student, who delivered a detailed presentation covering each table in the GSTR-9 and GSTR-9C forms, the correct placement of data, and the importance of accurate and timely filing. The session also highlighted the consequences of late filing, recent procedural changes, and updates in reporting requirements. CA Ashwin Chotalia, the mentor for the session, provided valuable insights and guidance throughout, offering expert interventions as needed.

The bootcamp was held in person at Gokhale &  Sathe Chartered Accountants and was also streamed online, with active participation from students across India.

 

More than 250 students benefited from this session.

Scan to watch online on Youtube

BCAS NXT - Learning & Development Bootcamp

15. Finance, Corporate & Allied Laws Study Circle – Financial Wellness for Professionals held on Thursday, 13th November 2025 @ Virtual

The session on “Financial Wellness for Professionals” by Mr Tarun Birani focused on helping high-earning professionals move from income dependence to true wealth independence through structure and discipline. Using interactive polls and case studies, he highlighted how lifestyle inflation, safety bias and scattered assets often keep professionals financially vulnerable despite strong incomes.

Tarun introduced a clear Wealth Allocation Framework, classifying assets into safety, stability and aspirational buckets, and showed how goal-based cash flows, risk assessment and stress testing can convert affluence into resilient, long-term wealth. He emphasised the power of disciplined equity allocation, behaviour management and periodic rebalancing over market prediction or product selection.

Through real-life client stories, he demonstrated the dangers of concentration in business / profession and real estate, lack of liquidity buffers and poor succession planning, and contrasted this with the benefits of structured family wealth architectures and family offices.

The session concluded with practical action points for professionals to document their finances, separate business and personal wealth, and work with fiduciary, conflict-free advisors to achieve financial wellness with peace of mind.

16. Half-Day Panel Discussions on Transfer Pricing Benchmarking and Compliances held on Friday, 10th October 2025 @ Virtual

The Society successfully conducted its Half-Day Panel Discussions on Transfer Pricing Benchmarking and Compliances via an online platform on Friday, 10th October, 2025 from 2:00 pm to 6:30 pm.

Based on participants’ feedback and consultation with seniors in the Committee, this year BCAS has come up with unique concept of sharing the recordings of the transfer pricing workshop undertaken in October 2023 along with recordings of panel discussions conducted in October 2024 to the participants as pre-reading for the workshop followed by two live panel discussions to take forward the learnings by discussing the intricate and practical issues on transfer pricing making the same more interactive. Details of these two live panel discussions:

Session Topic Panel Members/ Faculties
1 Panel Discussion on Indian TP Compliance – Beyond Documentation, Towards Value Creation Moderator – CA Anjul Mota Panelists- CA Namrata Dedhia, CA Naman Shrimal and CA Stuti Trivedi
2 Panel Discussion on Burning Issues in Indian TP – From Litigation to Strategic Risk Management Chairman cum Moderator – CA Vispi Patel  Panelists- CA Bhavesh Dedhia, CA Suchint Majmudar and CA Vijay Iyer

Participants were also provided an option to share the queries or issues to the panellists by way of Google form before the respective panel discussion which the panellists addressed during the panel discussion. Eminent tax professionals of the country were the panelists as well as moderator for such panel discussions.

Both the live sessions including the recorded sessions covered all the concepts of Transfer Pricing under the Income Tax Act, 1961 and the other relevant provisions.

More than 54 Participants from 15 states spread over 30 cities attended these live panel discussions which was well-received and appreciated by the participants.

Scan to watch online on BCAS Academy

Half-Day Panel Discussions on Transfer Pricing Benchmarking and Compliances

II. REPRESENTATIONS

1. BCAS Seeks Extension for GSTR-9 and GSTR-9C Due to Increased Compliance Complexity

On 11 December 2025, BCAS submitted a representation to the Hon’ble Finance Minister, highlighting challenges in filing GSTR-9 and GSTR-9C for FY 2024-25. Recent notifications have withdrawn long-standing relaxations, increasing compliance complexity. Key concerns include detailed ITC reporting (Table 7), new import reconciliation requirements (Table 8H1), changes in auto-population (Table 8A shifting from GSTR-2A to GSTR-2B), and technical glitches on the GST portal causing mismatches.

For GSTR-9C, withdrawal of turnover reconciliation relaxations and mandatory cross-year ITC reporting have made preparation more onerous. Tight timelines due to dependence on audited financial statements further exacerbate the challenge.

BCAS has requested a three-month extensionfor filing to allow professionals sufficient time to adapt, ensure data accuracy, and avoid inadvertent errors.

Readers can read the full representation by scanning the QR code or visiting our website www.bcasonline.org

QR Code:

BCAS Seeks Extension for GSTR-9 and GSTR-9C

III. BCAS OUTREACH

• BCAS Delegation Meets Chief Executive, Indian Banks’ Association

BCAS Delegation Meets Mr Atul Kumar

A delegation of BCAS – Bombay Chartered Accountants’ Society, led by CA Zubin Billimoria, President, and CA Kinjal Shah, Vice President, met Mr. Atul Kumar Goel, Chief Executive of the Indian Banks’ Association(IBA).

The delegation briefed Mr. Goel on the key initiatives and activities of BCAS and discussed potential areas of future cooperation between BCAS and IBA.

Mr. Daljit Dogra, Board Member of IBA and Managing Director of Zoroastrian Cooperative Bank, was also present and facilitated the interaction.

BCAS looks forward to a long-term and mutually beneficial professional association with the Indian Banks’ Association.

• Meeting of Office Bearers with Mr. Sudhir Hirdekar, ACP Crime Branch, Mumbai Police

IV. BCAS IN NEWS & MEDIA

  •  BCAS has been featured in several news and media platforms, showing our active involvement, professional contributions, and commitment to the field. This reflects the growing recognition of BCAS in the public and professional space.

Link: https://bcasonline.org/bcas-in-news/

QR Code:

News and Views

Real Estate Investment Trusts (REITs): Decoding the Structure, Purpose, and Investment Merits

REITs, introduced to India via SEBI Regulations 2014, democratize access to high-quality commercial real estate by enabling fractional ownership. These trusts, overseen by a Sponsor, Trustee, and Manager, must distribute 90% of net cash flows to unit holders, offering stable yields and liquidity through stock exchange listings. Currently, seven Indian REITs manage assets worth approximately ₹2.3–2.5 lakh crore. While adoption is hindered by limited awareness and interest rate sensitivity, recent SEBI reforms—including SM REITs—aim to mainstream the asset class as it expands into data centers and logistics.

I. INTRODUCTION

Real Estate Investment Trusts (REITs) are among the most significant innovations in global real estate and financial markets, offering a transparent and accessible avenue for investors to participate in income generating commercial assets. Originating in the United States in the 1960s, to provide retail investors access to large scale real-estate which was previously available only to institutions, REITs have since evolved into a widely adopted global investment structure. Today, jurisdictions such as the US, Singapore, Japan and Australia operate mature REIT markets known for strong governance, liquidity and stable yields, effectively integrating real estate with capital markets.

In India, the REIT framework was formally introduced through the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014, marking a major step toward transparency and institutionalisation in the real estate sector. These regulations established standardised valuation practices, stringent disclosure norms and investor protection mechanisms aligned with international standards. Structurally, a REIT is a securitised trust that owns, operates or finances income generating assets. Investors purchase units of the REIT, which are mandatorily listed on recognised stock exchanges, thereby obtaining equity like liquidity supported by stable real estate backed cash flows. REITs must invest a significant majority of their assets in completed revenue generating properties and are required to distribute at least 90 percent of Net Distributable Cash Flows to unit holders, ensuring steady income. Through professional management, portfolio diversification and mandatory disclosures, REITs provide an efficient and investor friendly mechanism for participating in long term real estate performance across global and Indian markets.

The Indian REIT market currently comprises of seven SEBI-registered REITs, as per SEBI website with data uploaded up to 18th December 2025. Collectively, these REITs manage aggregate assets under management (AUM) of approximately ₹2.3–2.5 lakh crore (As per IRA), representing a substantial institutional real estate footprint in India. The underlying asset base is predominantly Grade-A commercial office real estate, with a portfolio comprising large, consumption-oriented retail malls and urban shopping destinations. Together, these seven REITs reflect the growing depth, diversification, and institutionalization of India’s commercial and retail real estate ecosystem under the SEBI (REITs) Regulations, 2014.

II. THE REIT STRUCTURE

The operational structure of a REIT is carefully designed to achieve transparency, accountability, and operational efficiency. The framework rests on three primary pillars, the Sponsor, the Trustee, and the REIT Manager, each of whom plays a critical and independent role in ensuring the success of the REIT. Additionally, much of the asset ownership is maintained through Special Purpose Vehicles (SPVs), which hold the individual properties under the REIT umbrella.

The Sponsor is the promoter entity or group responsible for establishing the REIT and transferring eligible real estate assets or SPV shareholding to the trust. Sponsors typically consist of experienced real estate developers or investment entities with extensive track records.

The Trustee functions as an independent fiduciary responsible for safeguarding unit holders’ interests. The Trustee ensures regulatory compliance, monitors the performance and actions of the REIT Manager, and oversees the custody of the assets held by the trust.

The REIT Manager acts as the operational driver of the REIT. It is entrusted with property management, leasing strategies, financing decisions, investor communication, risk management, and overall commercial performance. The Manager’s responsibilities have a direct bearing on asset occupancy, yield generation, and long-term value creation.

The structural relationship between these entities, including the SPVs, enables REITs to maintain governance, operational flexibility, and scalability.

structural relationship between these entities, including the SPVs, enables REITs to maintain governance, operational flexibility, and scalability.

REITs

III. NEED FOR REITs AS AN INVESTMENT PRODUCT

Real Estate Investment Trusts emerged globally as a structural reform to address opacity, inconsistent valuations, and fragmented ownership that historically characterised real estate markets. By placing income generating assets within a regulated trust framework, REITs introduced standardised valuation practices, periodic disclosures, governance oversight, and compliance-based transparency. This transformed real estate into a securitised and publicly monitored investment class comparable to mainstream financial instruments. Mature markets such as the United States, Singapore, Japan and Australia illustrate how REITs enhance market integrity, attract long term institutional capital, and broaden investor participation. India adopted this global model through the Securities and Exchange Board of India Real Estate Investment Trusts Regulations 2014, aligning domestic real estate investing with international best practices and creating an institutional mechanism for transparency and financial discipline.

The central rationale behind REITs both globally and in India has been the democratization of real estate ownership and the mobilisation of patient capital into high quality commercial assets. Traditional real estate investment required significant capital, involved high transaction costs, and offered limited liquidity, restricting participation largely to wealthy individuals and institutions. REITs resolve these barriers by enabling fractional ownership through exchange listed units, combining the liquidity of public markets with the stability of asset backed cash flows from completed real estate. In the Indian context, this structure has enabled capital inflows into Grade A offices, retail centres, logistics parks and industrial facilities, allowing developers to deleverage and reinvest while converting illiquid property holdings into monetizable financial assets.

Finally, the introduction of REITs was intended to deepen and diversify the products & capital markets themselves. Prior to REITs, Indian capital markets were largely dominated by equity and debt instruments, offering limited avenues for investors seeking steady, asset-backed, yield-oriented products. REITs fill this structural gap by offering predictable income distributions, relatively lower volatility, and a strong linkage to economic productivity through commercial real estate performance. Their regulated nature, mandatory distribution of 90% of Net Distributable Cash Flows (NDCF), and governance standards elevate them far above conventional property transactions. In essence, REITs represent a hybrid investment class, combining the liquidity of public markets with the stability and cash-flow resilience of high-quality real estate, thereby strengthening financialization, market depth, and investor choice within the broader investment ecosystem.

IV. REITs AND KEY MERITS OF INVESTING IN REITs

1. Income Stability, Liquidity and Professional Management

REITs are preferred for their predictable income, supported by the mandatory distribution of at least ninety percent of net distributable cash flows. Their listing on recognised stock exchanges provides liquidity and enables convenient entry and exit, unlike traditional real estate which is costly and slow to transact. Professional management ensures efficient leasing, tenant retention and asset maintenance, leading to sustained occupancy and stable long term cash flows.

2. Dual Benefit of Yield and Capital Appreciation with Diversification Advantages

REITs deliver a combination of steady rental yields and potential capital appreciation as high quality commercial properties typically gain value over time. Their diversified portfolios across cities and tenant categories reduce concentration risk and protect against localized market disruptions. Periodic rent escalations in commercial leases also offer inflation aligned income growth, enhancing overall financial returns.

3.SEBI Regulatory Framework and Superior Investor Protection

a) Transparency and Standardised Valuation

SEBI’s regulatory framework ensures transparency through quarterly financials, annual audited accounts and compulsory independent valuations based on uniform methodologies. Public disclosure of valuation assumptions eliminates the opacity historically associated with real estate.

b) Prudent Asset Composition and Leverage Controls

Regulations require at least eighty percent of REIT assets to be completed and income generating, significantly reducing development risk. Borrowings cannot exceed forty nine percent of asset value without credit rating and approval from seventy five percent of unit holders, ensuring financial discipline.

c) Governance Safeguards

A clear separation between the sponsor, trustee and manager, along with mandatory arm’s length related party transactions and independent unit holder approval, reduces conflicts of interest and enhances institutional credibility.

V. REITs NOT AS FIRST CHOICE PRODUCTS, WHY?

Despite a supportive regulatory framework, REITs have not yet emerged as a first-choice investment product for Indian investors primarily due to a combination of limited awareness, yield sensitivity, and market perception issues. REITs compete directly with traditional fixed-income products and direct real estate, yet their distribution yields fluctuate with interest rate cycles, making them less attractive during high-rate environments. The relatively small size of the Indian REIT market, limited trading liquidity, and concentration in office and retail assets further restrict broad investor appeal. Also alternative products like Real Estate Mutual Funds, which offer a more efficient alternative to REITs for long-term investors, are better positioned to navigate the structural challenges of India’s predominantly unorganised real estate market by providing diversified, professionally managed exposure without the operational, legal, and liquidity risks associated with direct property ownership. As a result, while REITs are institutionally credible and regulated, they are still viewed as a niche, yield-oriented product rather than a core allocation, delaying their adoption as a mainstream first-choice investment.

To further increase participation, the REIT structure can be strengthened by rebalancing sponsor influence, internalising management functions, simplifying SPV layers, expanding asset eligibility, and enhancing investor control, thereby improving alignment, transparency, and long-term scalability in India’s unorganised real estate market.

VI. SEBI MEASURE TO GIVE EXPOSURE TO REITs

SEBI has recently undertaken a series of targeted regulatory initiatives to deepen investor participation in REITs and strengthen their role within India’s capital markets. Key measures include rationalisation of minimum investment and trading lot sizes, enhanced disclosure, valuation and governance standards, and greater capital-raising flexibility through follow-on offerings and debt issuances. A significant recent development is the reclassification of Real Estate Investment Trusts (REITs) as equity-related instruments, which facilitates enhanced participation by Mutual Funds and Specialized Investment Funds (SIFs) and supports greater institutional capital inflows (28 November 2025 Circular). In parallel, SEBI has introduced Small and Medium REITs (SM REITs) to enable fractional ownership of real estate assets under a regulated framework, thereby broadening access for retail and high-net-worth investors. Collectively, these measures reinforce SEBI’s intent to position REITs as a mainstream, liquid and yield-oriented asset class in the Indian investment ecosystem.

VII. FUTURE OUTLOOK

Real Estate Investment Trusts represent a structural transformation in how economies financialise and institutionalise real estate. Globally, REITs have bridged the gap between physical property ownership and modern capital markets by introducing transparency, standardised valuation, and regulatory discipline. India’s adoption of this framework places it within a mature international ecosystem where REITs already serve as essential vehicles for deepening markets, democratising ownership, and converting real estate activity into stable, tradable financial returns.

The strength of REITs lies in their ability to translate commercial real estate productivity into predictable income supported by institutional governance. In India, where real estate has long been marked by opacity and fragmentation, REITs have set new benchmarks of credibility and professionalism. They have opened access to high quality commercial assets for domestic investors while attracting global pension funds, sovereign wealth funds, and long horizon allocators seeking stability in a high growth market.

As India’s economic landscape expands, REITs are poised to diversify into next generation asset classes including data centres, digital infrastructure, industrial warehousing, last mile logistics, and technology enabled office ecosystems. This trajectory mirrors the evolution seen in mature global markets where REITs have successfully expanded into specialised segments such as healthcare, cold storage, hospitality and renewable infrastructure. With regulatory clarity improving and taxation frameworks stabilising, India is positioned to attract deeper pools of long-term international capital, strengthening its role as a compelling yield driven investment destination.

The future relevance of REITs in India therefore extends beyond real estate alone. They stand at the intersection of financial market development, urban growth, investment democratisation, and economic formalisation. If supported through progressive policies and continued institutional participation, REITs have the potential to become one of India’s most influential financial instruments over the coming decade, aligning the country more closely with global REIT markets while shaping a sophisticated, transparent and yield oriented investment environment.

Regulatory Referencer

I. DIRECT TAX: SPOTLIGHT

1. Capital Gains Account (Second Amendment) Scheme 2025 – Notification No. 161/2025 and 162/2025 dated 19 November 2025

II. FEMA

1. RBI modifies FEMA compounding directions and updates bank account details for receiving fees and compounding amounts

The RBI has decided to change the details of accounts where compounding application fee and compounding amount will be received. This is to streamline these receipts. Accordingly, Annexure I of the Master Direction has been modified.

[AP (DIR Series) Circular No. 15/2025-26,dated 24th November, 2025]

2. RBI bars Pakistani/Bangladeshi citizens from carrying Indian notes to/from Nepal & Bhutan under revised FEMA norms

The Foreign Exchange Management (Export and Import of Currency) Regulations, 2015 has been amended. After the amendment, regulation 8 adds the phrase ‘not being citizen of Pakistan or Bangladesh’, thus barring these citizens from taking out of India or bringing into India Indian currency through Nepal or Bhutan.

[Notification No. FEMA 6(R)/(4)/2025-RB,dated 28th November 2025]

3. RBI permits AD Category-II banks/entities & FFMCs to submit ‘LRS daily return’ directly on CIMS portal w.e.f. January 1, 2026

As of now, Authorised Dealer (AD) Category-I Banks are required to submit data related to transactions under the Liberalised Remittance Scheme on Centralised Information Management System (CIMS) by the next working day. This is done for their own data as also the data of AD Category-II banks/entities and FFMCs attached to them or maintaining an account with them in their ‘LRS daily return’.

From 1st January, 2026, AD Category-II Bank and Full-fledged money changers (FFMC) will directly file the details of LRS transactions undertaken by them in the ‘LRS daily return’ on CIMS. With this, it will enable AD Category-II banks and FFMCs to check cumulative amount remitted by a resident individual (PAN-wise) before facilitating their next requested LRS transaction. Accordingly, they may discontinue submitting LRS transactions through AD Category-I Banks.

[AP (DIR Series) Circular No. 17, dated 3rd December, 2025]

4. RBI proposes to mandate Authorised Dealers to disclose transaction costs for foreign exchange contracts to retail users

The RBI has released Draft circular on mandatory Disclosure of transaction cost for foreign exchange transactions. Public comments are invited until 9th January, 2026. The new draft proposes disclosure requirements related to transactions costs – remittance fees, foreign exchange rate, currency conversion charges, etc. – in relation to foreign exchange cash, foreign exchange tom and foreign exchange spot contracts offered to retail users. Comments can be sent to postal and email addresses provided in the Release.

[Press Release No. 2025-26/1666, dated 9th December 2025]

III. IFSCA

1. IFSCA mandates display of key global access risks, including market, currency and custody risks, at every login by their clients

Under clause 39 of the “Regulatory Framework for Global Access in IFSC” circular dated 12th August 2025 issued under the IFSCA (Capital Market Intermediaries) Regulations, 2025, Global Access Providers (GAPs) and Introducing Brokers (IBs) are required to have a system to ensure that key risks and disclaimers relating to global access are displayed at every login by their clients. The Authority specifies risks and disclaimers in Annexure 1 of the circular to be displayed by GAPs and IBs at every login by the clients. This compliance shall be fulfilled by 31st December 2025.

[Circular No. IFSCA/DSI/12/2025-Capital Market, dated 26th November 2025]

Recent Developments in GST

ADVANCE RULINGS

1. Shibaura Machine India Pvt. Ltd. (AAR Order No.32/ARA/2025 dt.18.8.2025)(TN)

Manufacturer expanding factory sought ITC on electrical works. AAR held that contract was a works contract creating immovable property; electrical installations not plant and machinery; ITC blocked under sections 17(5)(c),(d) of CGST.

FACTS

The facts are that the applicant is engaged in the business of manufacturing of injection moulding machinery and accessories. To expand their business operation and have constructed a new factory adjacent to its exiting factory, they have incurred capital expenditure towards procurement in relation to setting up of this factory. They also entered into a separate contract with supplier for installation, testing & commissioning of Electrical Works for the new factory. The said electrical work falls under SAC 995461 – Electrical installation services including electrical wiring & fitting services, fire alarm installation services, burglar alarm system installation services, leviable to GST at the rate of 18%.

Under above background, applicant sought AR on following questions:

“1) Whether Input Tax Credit (ITC) is eligible on electrical works carried out for expansion of factory for manufacturing activity?

2) What should be the basis to arrive the timeline to avail ITC on tax invoice raised by Supplier to bill “Advance Component” of the Contract and Subsequent Adjustment of Advance in the Service Bills showing both Gross and Net amount.”

In the course of hearing details of contract were given. The contract was divided in six parts as under:

S. No. Particulars Amount (exclusive of GST) Remarks
1 LT Panels 3,93,11,861 Design, supply and installation of LT switchgear panels
2 Busduct 3,91,85,553 Design, supply and installation of Aluminium busduct
 3 LT Electrical Works 11,09,38,208 Supply and installation of MCB distribution boards, power receptacles, circuit mains & points, cable trays, earth electrodes and etc.
4 Lightning Protection Works 87,95,062 Supply and installation of external lightning protection system
5 Light Fixtures 1,73,21,086 Supply, installation, testing and commissioning of complete light fixtures
6 Civil Works 62,83,369 Associated miscellaneous civil works excavation & back filling and laying heavy duty pipes.

Citing definition of ‘business’ in section 2(17), it was argued that even capital goods are eligible for ITC and also submitted that the blocking provision of section 17(5)(c) or (d) will not apply as it is part of plant and machinery. Additionally, it was argued that it is not immovable property as it can be removed without damage and re-installed.

HELD

After referring to relevant provisions, the ld. AAR observed that from the scope of the contract entered into between the parties, it could be seen that the agreement is not just for installation/commissioning of electrical works, but it is a composite contract of Works Contract Service involving “Supply, Installation, Testing and Commissioning of Electrical Works”, as indicated in table above, wherein the break-up of the cost involved on Supply and Installation of Electrical works has been provided separately.

Considering above, ld. AAR held that the work is in respect of immovable property. Regarding the accounting of above work as ‘plant and machinery’, the ld. AAR observed that merely accounting an immovable property as a movable property or accounting a particular item under a different head, does not preclude the immovable nature of the item being accounted.

The ld. AAR distinguished the ARs cited by applicant and took note of subsequent AR orders denying ITC on electrical work. Ultimately the ld. AAR held that the GST paid on the electrical installation work carried out for expansion of factory for manufacturing activity is not eligible for availment of Input Tax Credit (ITC) by the applicant, as it is blocked under Sections 17(5)(c) and 17(5)(d) of the CGST/TNGST Acts, 2017.

2. Orsino Hotels & Resorts LLP (AAR Order No.09/WBAAR/2025-26 dt.22.8.2025) (WB)

AAR held hotel accommodation with meal plans is composite supply; food has no separate GST rate. Accommodation taxed at 12% or 18% based on tariff; walk-in restaurant services taxed at 5% or 18% for specified premises.

FACTS

The applicant was engaged in hotel business through its property named Orsino Spa Resort (formerly known as Hotel Pine Tree Spa Resort) located in Darjeeling. The resort comprised of 45 rooms, offers various amenities such as a spa, banquet facilities, a bar, a multi-cuisine restaurant and a cafe. The hotel also offered various meal plan options along with the accommodation service as per the industry practices like American Plan (AP), which included all the 3 meals i.e. breakfast + lunch + dinner, Continental Plan (CP), which includes breakfast and European Plan (EP), which provided only accommodation service.

The hotel also provided separate restaurant services to the walk-in-guests.

Applicant sought to obtain AR on following questions:

“(i) What is the appropriate classification and applicable GST rate for the food component provided under the American Plan (AP) or Continental Plan (CP) when the total value of the combined supply (AP, CP) exceeds ₹7,500 and the tax invoice distinctly enumerates the two supplies separately?

(ii) The separate restaurant services provided to walk in guests shall be taxable at which rate in above case, considering the recent Notification No. 05/2025 Central Tax (Rate) dated 16.01.2025?”

The applicant explained that it charges GST on the composite supply of services provided i.e. bundled supply of accommodation along with meal options though, there is a clear demarcation of charges between accommodation and food services in the pricing structure/tax invoice.

HELD

The ld. AAR referred to relevant legal terms like meaning of hotel, which usually means an establishment that provides paid Lodging accommodation on short term basis, and it may provide food and other varied services to guests.

The ld. AAR similarly analysed the relevant terms like room, tariff, value of supply (for hotel) etc. The ld. AAR also referred to recent changes in the GST Act in respect of accommodation service given by the hotels and especially in respect of specified premises.

Regarding ‘accommodation service’, the ld. AAR observed that accommodation service is not something to do with lodging only but includes other things as well that are necessary for lodging for a short period of time. The ld. AAR observed that Food is one such thing, among many others. The ld. AAR referred to definition of ‘Composite Scheme’ given in section 2(30) and held that food is composite service with accommodation service.

After noting Notification relating to hotel including amendments, the ld. AAR observed that supply of hotel accommodation service is to be taxed either under serial no. 7(i) or under serial no. 7(vi) of the Notification No. 11/2017- Central Tax (Rate) Dated 28.06.2017 depending on the value of supply of a unit of accommodation. If the value is less than or equal to ₹7500/-, the supply is to be taxed under serial no. 7(i) i.e. 12%. On the other hand, if the value of supply is more than ₹7500/-, the supply is to be taxed under serial no. 7(vi) i.e.18%. There will not be any separate rate of tax for food and accommodation.

Regarding the restaurant services provide to walk-in-customers, the ld. AAR held that the restaurant service provided by the applicant to the walk-in guests will be taxable under serial no. 7 (ii) of Notification No. 11/2017- Central Tax (Rate) Dated 28.06.2017 as amended, read with the corresponding State Tax notification, i.e. @ 5%. The ld. AAR further held that in any Financial Year, the hotel charges a rate of above ₹7,500/- for any unit of accommodation (inclusive of the food charges in the applicable plan, even if indicated separately in the invoices) and if the premises qualify to be considered as “specified premises”, for the next Financial Year, appropriate rate of GST will be 18% for the said restaurant services provided to walk-in guests.

The ld. AAR thus disposed of application by ruling that under the American Plan (AP) or Continental Plan (CP), the food component will have no separate treatment for the purpose of taxation, since it is clearly a case of “composite supply” and rate of tax to be decided accordingly.

3. MRF Limited (AAR No.33/ARA/2025 dt.1.9.2025)(TN)

AAR held that from 1 April 2025, common input service invoices must be received directly under ISD registration; routing through regular registration and onward invoicing is impermissible under amended ISD provisions.

FACTS

MRF Limited (the applicant), are the leading manufacturer of automobile Tyres and Tubes and allied products having H.O. in the State of Tamil Nadu and are registered under GSTIN No. 33AAACM415G1ZU. They have also having units in the States of Telangana, Kerala, Goa, Gujarat and Union Territory of Puducherry.

The Applicant also holds GST Input Service Distributor (ISD) registration being No. 33AAACM4154G2ZT for its Head Office in terms of Section 24(viii) of the CGST Act, 2017 for distribution of Input Tax Credit (ITC) attributable to MRF Tamil Nadu and other States or exclusively to one or more State/s of the applicant, having the same PAN, in terms of Section 20 of the CGST Act, 2017 read with Rule 39 of the CGST Rules, 2017. The HO received many common input services such as Advertising, Auditing, Banking, Annual Maintenance Contract, Manpower recruitment, Consultancy, Repair & Maintenance etc. which are attributable to and consumed at different States including Tamil Nadu (more than one location or at all locations).

The applicant submitted that presently the suppliers of all such common input services issue their GST invoices to MRF HO mentioning the Regular GST Registration Number of the applicant and MRF HO currently books the cost of all such common input services in MRF HO books. The MRF HO raises tax invoices to the concerned States proportionate to or attributable to such states, added with 2% mark-up value.

There are changes in ISD mechanism from 1.4.2025 vide amendment in section 2(61) and section 20 of CGST Act. CBIC has issued Notification No. 16/2024-Central Tax dated 6th August, 2024 to notify 1st April, 2025 as effective date for application of amendments.

Under above background, the applicant raised following questions for AR.

“1) Whether the Applicant can comply with the amended provision of section 2(61) and section 20 of the CGST Act, 2017 as amended by notification 16/2024-Central tax dated 6th August 2024 by following the procedure as stated at para 12 a) to 12 d) of the statement of containing applicant’s interpretation of law (Annexure ‘B’) in terms of Rule 54(1A) of the CGST Rules, 2017.

2) Whether the Applicant can continue to receive the Input Service Invoices issued by the Service Provider/Supplier of Service for the Common Input Service (Which are attributable to one or more State/s) in the name of and addressed to Applicant’s Regular Registration and subsequently transfer the same in terms of Rule 54(1A) of CGST Rules, 2017 to MRF HO ISD Registration for subsequent distribution of the common Input Tax Credit through ISD Mechanism?”

HELD

The ld. AAR noted the amendments and observed that from 1st April 2025, to receive common input service invoices, for distribution to other branches/States, the taxpayer should necessarily be registered as an ISD. The ld. AAR further observed that the applicant’s practice of receiving the invoices from vendors pertaining to common input services, in the name of MRF HO and raising invoices in the name of their ISD registration and thereby distributing the common credit to the various branches/States is not consistent with the legal position from 1st April 2025, as method to receive and distribute such ITC of common input services only through ISD mechanism is made mandatory from 1.4.2025.

The ld. AAR passed AR accordingly.

4. Theni Nattathi Kshatriya Kula Hindu Nadargal Uravinmurai Dharma Fund (AAR No.35/ARA/2025 dt.2.9.2025)(TN)

AAR held outpatient consultation is exempt, but medicines supplied to outpatients are taxable; not a composite supply, as patients may buy medicines elsewhere; separate supplies, not eligible for healthcare exemption.

FACTS

The facts are that applicant is registered under the GST Act. The applicant is dedicated to serving society through their hospital. The applicant’s hospital provides essential healthcare services to both, inpatients and outpatients, and they operate separate pharmacies within the hospital premises for their convenience. The applicant highlighted that from pharmacy;

  •  Medicines are supplied exclusively to patients with prescriptions issued by their hospital doctors.
  •  No medicines are dispensed to walk-in patients without a prescription from their hospital doctors.

The applicant submitted that the services are covered by entry Sl.No.74 of Notification No. 12/2017 CT(R) dated 28.06.2017, which exempts services by way of healthcare provided by a clinical establishment.

It was emphasised they operate pharmacies within the hospital premises for the convenience of patients and medicines are supplied to patients only on a prescription issued by their own hospital doctors. The applicant considers that medicines supplied to outpatients based solely on their hospital doctor’s prescription is exempt, as the same is liable to be treated as a ‘composite supply’ along with the main supply of ‘Healthcare service’, which is exempt.

With above background following questions were raised.

“1. Whether Consultation service and medicines supplied to out-patients attracts GST?

2. Can we treat consultation and supply of medicine to outpatient as composite supply?

3. If the above is a Composite Supply, is a single invoice required, or are multiple invoices with the same registration number sufficient?”

HELD

The ld. AAR referred to scope of entry 74 about healthcare services and the ‘Scheme of Classification of Services’, annexed to GST Rate Notification No. 11/2017-CT(Rate) dated 28.06.2017, as amended. The ld. AAR also referred to clarification provided in the Circular no.32/06/2018-GST, dated 12.2.2018, wherein supply to other than inpatients is held taxable.

The ld. AAR also made reference to Section 2(30) of CGST Act, 2017, which defines “Composite Supply”.

The ld. AAR observed that while providing health care related services to out-patients, medicines and consumables, which is only of advisory nature, are prescribed to them by the Doctor who attends to the patient. It is also noted that for such out-patient, there is no mandate to procure such prescribed medicines only from the pharmacy attached to the hospital, and they are at liberty to procure the same from the hospital or other pharmacies of their choice.

The ld. AAR held that the supply of Medicines in the course of providing health care services to out-patients visiting the hospital for diagnosis or medical treatment or follow up procedures cannot be considered as part of a composite supply involving supply of health care service, as they are different supplies independent of each other.

Accordingly, the ld. AAR answered the questions in negative.

5. Sripsk Developers LLP (AAR No.11/ARA/2025 dt.2.9.2025)(TN)

AAR held construction of service apartments, despite RERA residential registration, is commercial in nature; based on usage, features and KMC approval, classified as commercial buildings, taxable at 12% under GST.

FACTS

The applicant, a Contractor, has made this application seeking an advance ruling in respect of following question:

“Classification of construction services being rendered to customers on account of construction of proposed B+G+31 Storey Service Apartment Building at 27, Matheshwartola Road, Kolkata – 700 046 in terms with Notification No. 03/2019-Central Tax (Rate) dated 29-03-2019 (as amended). Whether the Service Apartment being constructed would fall under construction services of multi-storied residential buildings or construction services of commercial buildings?”

M/s.PS Group Realty Limited & Others acquired land (referred to as landowner) with restrictions from Kolkata Municipality Corporation and West Bengal Trade Promotion Organisation, that the said land shall be used for setting up the Hotel Cum Convention Centre and other commercial venture/ enterprise excluding residential units and for no other purpose.

The land owner granted development rights to applicant (also referred to as developer) for the development and construction of three building blocks, wherein the PHASE-1 will comprise the Service Apartment & the Multi-Level Car Parking and PHASE-2 will comprise the Hotel and both together shall constitute the “Complex” and thereafter market, promote and sell/transfer and otherwise deal with the Service Apartment Units by executing necessary Definitive Agreements.
The applicant obtained necessary permission from Kolkata Municipal Corporation under Section 393 of KMC Act,1980 read with 69(I)(B) of KMC Building Rules,2009 vide BP No. 2024070124 dated 20-12-2024, valid upto 19-12-2029, for proposed complex as Service Apartment Building.

The West Bengal Real Estate Regulatory Authority (WBRERA) issued Registration Certificate of Project in Form ‘C’ under Rule 6(1) of RERA Rules bearing Project Registration No. WBRERA/P/KOL/2025/002336 which was granted as ‘Residential Project’. Since the property was for residing and there was no separate category as service apartment, the registration was granted under ‘Residential Project’.

HELD

The AAR noted that the perception of service apartment is different from that of residential apartment. The service apartments, unlike residential apartments, can be given on rent for long term as well as for short term, as per requirement. The service apartments are generally treated akin to hotel rooms and hence these apartments are classified as commercial in nature, in common parlance.

The question was raised in AR application as under GST perspective, the taxability of construction of residential building is different to that of construction of commercial complex.

For Residential apartments tax rate is 5%, whereas for commercial apartments it is 12%.

The ld. AAR, along with legal provisions also considered the features of said construction like, it will be fully furnished, will have hotel like services and others.

The ld. AAR, noting the difference between the residential apartment and service apartment, observed that, in addition to WBRERA, the KMC is also a ‘competent authority’ to sanction the project and KMC in the sanctioned plan has accepted project as ‘service apartment building’ and not as ‘residential apartment building’.

The ld. AAR observed that simply because WBRERA has classified complex Service Apartment as residential apartment, neither the nature and purpose of the project nor the classification made by the KMC as a ‘competent authority’ becomes redundant. The project remains to be a project of commercial apartments and ruled that the Service Apartment, being constructed by the applicant, will fall under construction service of commercial buildings, liable to tax accordingly.

6. Link Up Textiles Pvt. Ltd. (AAR No.42/ARA/2025 dt.8.10.2025)(TN)

AAR classified men’s cotton pyjama sets under HSN 620721; one top and bottom constitute one piece. Though packed in two sets, per-set value below ₹1,000 attracts 5% GST.

FACTS

The applicant is exporting Men’s Pyjama Set consisting of a top (Kurta/Shirt) and bottom (pyjama/trouser) made of cotton, (TOP-67% Cotton, 29% Polyester, 4% Spandex Woven Shirt; Bottom – 67% Cotton, 29% polyester, 4% Spandex woven pant) in 2 sets/pack. The set is designed for comfort and general use and is typically categorized under apparel and clothing accessories.

The applicant contemplates that the above said product falls under Chapter 62 of the HSN Classification, specifically under HSN Code 6207 or 6211, which pertains to men’s nightwear and similar apparel, and the GST rate should be as per Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017. It can be 5% (if the sale value per piece does not exceed ₹1000) or 12% (if the sale value per piece exceeds ₹1000).

Vide application dated 18.2.2025, the applicant has sought advance ruling on the following questions:

“1) Under which HSN Code should men’s pyjama sets with above mentioned description be classified?

2) What is the applicable GST rate on such men’s pyjama sets which are packed in 2 sets as per their buyer’s instruction and the cost of such packed pyjama sets are more than ₹1000.”

HELD

The ld. AAR noted the contents of purchase order as also the invoice issued by the applicant.

The ld. AAR also considered the composition of product as given above and HSN 620721, which covers goods described as under:

“Mens or boys singlets and other vests, underpants, briefs, nightshirts, pyjamas, bathrobes, dressing gowns and similar articles – night shirts and pyjamas : of cotton”

The ld. AAR also noted different rates under entry 223 of Schedule I (5%) and entry 170 in Schedule II (12%) as per selling price.

The ld. AAR also observed that the goods are sold under different names and the product supplied by the applicant is for export and consists of ‘kurta-pyjama’ as pyjama set. Accordingly, the ld. AAR held that the combination of top and bottom or a ‘pyjama set’ shall be treated as a ‘piece’ and should be classified accordingly.

The ld. AAR also noted that the applicant is packing 2 sets of pyjamas in a single pack as per the requirements of their customer abroad i.e. 2 Shirts and 2 Paints in one pack. The price of one Pack consisting of two pyjama sets is ₹1371/-. Hence, the price of one pyjama set or a piece of apparel consisting of 1 Shirt and 1 Pant is only ₹686/- which is less than ₹1,000/-. The ld. AAR held that the product is qualified to be classified under Schedule-I chargeable to GST at the rate of 5%.

Goods And Services Tax

I. SUPREME COURT

81. (2025) 35 Centax 222 (S.C.) Commissioner Trade and Tax Delhi vs. Shanti Kiran India (P) Ltd. dated 18.12.2025

ITC cannot be denied to a bona fide purchaser when seller was registered on the date and transactions were genuine, even if seller’s registration is cancelled subsequently on account of non-payment of tax to Government.

(Editor’s Note: While the below judgement pertains to Delhi VAT, important principles emanating from it are likely to be relevant for GST law. Accordingly, this case has been considered in this feature).

FACTS

Respondent was a registered dealer under the Delhi Value Added Tax Act, 2004, who purchased goods from registered selling dealer and paid VAT as charged in valid tax invoices. At the time of the transactions, the selling dealers were duly registered; however, their registrations were cancelled subsequently for failure to deposit the tax collected with the Government. Despite the genuineness of the transaction, the petitioner sought to deny ITC to the respondent on the ground that the selling dealers had defaulted in tax payment. The Delhi High Court allowed ITC to the respondent, holding that bona fide purchasers cannot be penalised for the seller’s subsequent default. Being aggrieved petitioner approached the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court held that input tax credit under section 9(1) of the Delhi VAT Act cannot be denied to a purchasing dealer when, on the date of the transaction, the selling dealer was duly registered and the purchase transactions and invoices were genuine. Subsequent cancellation of the seller’s registration or failure of the seller to deposit the collected tax with the Government does not disentitle the bona fide purchaser from claiming ITC. The Court upheld the High Court’s view that the Department’s remedy lies against the defaulting selling dealer and not in denying ITC to the purchaser. Accordingly, the appeal filed by the Department was dismissed.

82. State of Karnataka vs. Taghar Vasudeva Ambrish[2025] 181 taxmann.com 199 (SC) dtd.04-12-2025

Leasing of a residential building to a company for providing hostel services is eligible for exemption under GST

FACTS

The assessee is the co-owner of a residential property situated in Bangalore. The property consists of 42 rooms. It is a four-story building with a terrace and a common area. The assessee, along with the other co-owners, executed a lease deed in favour of M/s DTwelve Spaces Private Limited (for short, “the lessee”). The lessee, in turn, leased out the residential property as a hostel to provide long-term accommodation to students and working professionals, with the duration of stay ranging from 3 months to 12 months. The Central Government, by way of Notification No.9/2017- Integrated Tax (Rate) dated 28.06.2017, granted exemption from payment of goods and services tax in respect of services, which include renting services, which are provided with respect to a residential dwelling for use as a residence. The assessee sought clarification from the advance ruling authority (AAR) as regards the eligibility to claim exemption on the rent received by him from the lessee by letting the property. The AAR held that the services viz. Renting of residential dwellings for use as a residence does not fall under Entry 13 of the Exemption Notification, as the lessee is not itself using the premises in question. Being dissatisfied with the ruling of the AAR, they filed an appeal before the Appellate Authority (AAAR). The AAAR affirmed the AAR’s ruling. Aggrieved, the assessee filed a petition in the High Court.

The High Court allowed the writ petition, holding that the assessee is entitled to avail the benefit under the exemption notification. Aggrieved by the same, the department filed an appeal before the Hon’ble Supreme Court.

HELD

The Hon’ble Court, discussing the rule of purposive interpretation held that giving Entry 13 of the Exemption Notification a narrow interpretation by holding that it is available only when the property so rented is used by service recipient themselves would ultimately lead to legislative intent being defeated as the exemption is extended to cases wherein residential dwelling is rented out and ultimately used as residence, irrespective of the person using it. The legislative intent behind this exemption clause is that a rented property, which is used as a residence, should not suffer 18% GST or IGST. However, if Entry 13 is given such a narrow interpretation, then exemption will not be available in cases where a lessee has subleased the property for use as a residence.

The Hon’ble Court further held that the exemption envisaged under Entry 13 is an activity-specific exemption and not a person-specific exemption. Hence, in the present matter, the ultimate use of the property remained unchanged. In other words, it remained as ‘use for residence’ by students/working women. However, if GST is levied on this transaction between the assessee and the lessee, the same will be passed on to the students and working professionals, which would ultimately lead to a situation where the legislative intent behind granting exemption for residential use is defeated.

The Hon’ble Court also referred to the Explanation added to Entry 13 w.e.f. 01.01.2023 to hold that even if the rent is paid by a registered person, the exemption will be available if it is used for the purpose of one’s own residence and is rented in one’s personal capacity. Therefore, the intention from the beginning was to ensure that rental agreements for use of the property for residential purposes are granted exemption from GST. Accordingly, the Hon’ble Court declined to interfere with the judgment of the High Court and dismissed the appeal of the department.

II HIGH COURT

83. (2025) 35 Centax 55 (Del.) Puneet Batra vs. Union of India dated 09.09.2025

Computers seized from an advocate’s office cannot be accessed by GST authorities without his presence and consent, as such access would violate attorney–client privilege and confidentiality

FACTS

Petitioner, an advocate associated with M/s. Bass Legal LLP, had provided tax and legal services to an entity namely M/s. Martkarma Technology Pvt. Ltd. (‘Martkarma’). After the Respondent conducted a search at the premises of Martkarma, the petitioner was unable to communicate with the said entity and as a result, withdrew the power of attorney held in respect thereof. Thereafter, the Respondent issued four summons to the petitioner, pursuant to which the petitioner ultimately appeared in person upon issuance of the fourth summons for recording of his statement. Subsequently, the Respondent conducted a search at the petitioner’s office under section 67 of the Central Goods and Services Tax Act, 2017,
during which documents and a CPU containing extensive professional data were seized. The search was carried out in the absence of the petitioner, though a partner of the firm was present, and photographic material indicates that the Respondent accessed the computer system during the operation.
Aggrieved by the seizure of the CPU and the risk posed to the confidentiality of information relating to unrelated clients stored therein, the petitioner approached the Hon’ble High Court seeking appropriate relief.

HELD

The Hon’ble High Court held that Respondent cannot open or access a computer seized from a petitioner’s office without the petitioner’s presence and consent. Such access would violate confidentiality and attorney–client privilege. The Court allowed examination of the CPU only under strict safeguards, including presence of the petitioner, lawyers/forensic experts and senior IT officials, cloning of the hard drive with a copy to the advocate, limited access to client-specific data, sealing of the CPU thereafter and restraint on any coercive action against the petitioner.

84. (2025) 36 Centax 132 (Chhattisgarh) Golden Cargo Movers vs State of Chhattisgarh dated 15.10.2025

A GST demand order cannot exceed the amount proposed in the SCN or impose penalty without notice, failing which the order and consequential recovery actions are liable to be quashed under section 75(7) of the CGST Act

FACTS

Petitioner, a GST-registered service provider, filed its annual return for F.Y. 2018–19 classifying its services as goods transport services and claiming exemption from GST. Upon scrutiny, Respondent alleged that the services were in fact classifiable as supporting services in transport, taxable at 18% and accordingly issued a SCN in Form DRC-01 under section 73 proposing tax and interest of ₹1.32 crore. As the petitioner did not pay the proposed amount, the respondent passed a final order in Form DRC-07 determining a higher liability of about ₹5 crores, including penalty and initiated recovery proceedings by attaching the petitioner’s bank account and immovable property. Aggrieved by the final demand exceeding the amount proposed in the SCN and inclusion of penalty without notice, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that the final order passed under section 73 determining a tax liability higher than the amount proposed in the SCN and including penalty without any proposal in the notice, violated the statutory mandate of section 75(7) of the CGST Act. Consequently, the assessment order in Form DRC-07 and the consequential attachment of the petitioner’s bank account and immovable property were quashed, with liberty granted to the department to initiate fresh proceedings in accordance with law after giving due opportunity of hearing.

85. (2025) 36 Centax 213 (Mad.) A.S.R. Constructions vs. State Tax Officer dated 28.10.2025

Interest on delayed GST payment should be computed only from the due dates of the specified returns to the actual payment date in the electronic ledger

FACTS

Petitioner was issued a SCN proposing levy of interest on alleged delayed payment of outward tax liability reflected in GSTR-9 for the period April 2021 to March 2022. Although the petitioner had already discharged the entire tax liability by debiting the electronic ledger on 19.12.2022, which was prior to issuance of the SCN, the respondent nevertheless computed and confirmed interest by treating the tax as unpaid even beyond the said date. Aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that interest on delayed payment of GST can be levied only for the period during which the tax actually remained unpaid, i.e., from the statutory due dates for payment under section 39 (GSTR-3B) up to the date of actual debit in the electronic ledger. Since the petitioner had discharged the entire tax liability on 19.12.2022, interest could not be charged beyond that date merely because the liability was disclosed later in GSTR-9 or noticed in the show cause notice. Accordingly, the matter was remanded to the respondent for fresh computation of interest.

86. (2025) 34 Centax 375 (Mad.) K.S Traders vs. Deputy Commercial Tax Officer (Int), Virudhunagar dated 26.8.2025.

Minor mismatches between e-invoice and e-way bill dispatch details do not justify detention or penalty under GST if tax obligations are otherwise complied with.

FACTS

Petitioner an importer of timber, dispatched a consignment to a customer in Vilathikulam, Thoothukudi District, raising an e-invoice on 23-06-2025 from its registered premises at Shencottah. The following day, an e-way bill was generated for the same consignment, but it listed the place of dispatch as Tuticorin instead of Shencottah, creating a mismatch between the e-invoice and e-way bill. On this ground, the consignment was intercepted and seized by the respondent. Petitioner paid the tax and penalty as recorded in the release order and challenged the detention and penalty before the Hon’ble High Court.

HELD

The Hon’ble High Court held that the minor discrepancy between the place of dispatch mentioned in the e-invoice and the e-way bill did not justify interception, detention or penalty under section 129 of the GST Act. The Court observed that the petitioner had complied with tax obligations and the mismatch was a technical, venial error due to differences in office and dispatch locations. Following the precedent in Jindal Pipes Ltd. vs. Deputy State Tax Officer (Int) — (2024) 21 Centax 361 (Mad.), the Court allowed the writ petition, directing that the amount paid by the petitioner be credited to the electronic cash ledger for adjustment against future tax liability.

87. (2025) 35 Centax 280 (A.P.) TUF Metallurgical Pvt. Ltd. vs Union of India dated 18.09.2025.

Export duty cannot be levied on supply of goods from DTA to SEZ in the absence of an express charging provision in the SEZ Act, and any rule imposing such duty is ultra vires.

FACTS

The Petitioner, a unit located in the Special Economic Zone (SEZ), was engaged in manufacturing Low Carbon Ferro Chrome entirely for export and procured its primary raw material (Chrome Concentrate) from mines situated in Odisha within the Domestic Tariff Area (DTA). Petitioner sought permission from the Respondent to procure such raw material from the DTA without payment of export duty. Respondent rejected the request by invoking the 5th proviso to Rule 27(1) of the Special Economic Zones Rules, 2006, which mandates levy of export duty on supplies from DTA to SEZ where such duty is leviable. Aggrieved, the petitioner filed a writ petition before the Hon’ble High Court challenging both the rejection order and the constitutional validity of the said proviso.

HELD

The Hon’ble High Court held that export duty cannot be charged on supply of goods from DTA to SEZ units because the SEZ Act, 2005 does not authorize such levy. Section 55 only allows the Government to make rules for granting exemptions and not to impose duties. The Court observed that while section 30 of the SEZ Act clearly provides for customs duty when goods move from SEZ to DTA, there is no similar provision for supplies from DTA to SEZ, and the earlier provision under section 76F of the Customs Act enabling such levy had been consciously omitted. Therefore, the 5th proviso to Rule 27(1) of the SEZ Rules, 2006, which imposed export duty on DTA to SEZ supplies, was held to be beyond the law and was struck down by the Hon’ble High Court.

88. (2025) 36 Centax 200 (Ori.) Swastik Marketing vs. Chief Commissioner of CT and GST dated 25.09.2025.

No coercive recovery can be initiated against an assessee when the GST Appellate Tribunal is not constituted.

FACTS

Petitioner was issued an order dated 02.01.2025 under section 130 read with section 122 of the CGST Act demanding fine and penalty on the allegation of sale of goods without issuing tax invoices. Notably, the said order itself directed the petitioner to appear and show cause on or before 01.02.2025. Despite granting the petitioner time to appear and show cause, the respondent had already passed a final demand order. The petitioner’s statutory appeal was subsequently dismissed by the respondent solely on the ground of delay, without considering the reasons for such delay or the merits of the case. As the GST Appellate Tribunal under section 109 had not yet been constituted, the petitioner approached the Hon’ble High Court by filing a writ petition seeking protection against coercive recovery of the demand.

HELD

The Hon’ble High Court held that since the GST Appellate Tribunal under section 109 of the CGST Act had not yet been constituted, the petitioner could not be compelled to pursue the statutory appellate remedy and therefore no coercive action could be taken for recovery of the demand. The Court further noted that a final demand order had been passed on 02.01.2025 despite the respondent itself granting time to the petitioner to appear and show cause up to 01.02.2025, which prima facie vitiated the proceedings. In these circumstances,
the Court directed that no coercive steps be taken against the petitioner in respect of the impugned demand.

89. (2025) 36 Centax 226 (All.) Archana Plasmould vs. State of U.P. dated 10.11.2025

Penalty under section 129(3) of the CGST Act cannot be imposed merely for non-generation of Part-B of the e-way bill when goods are accompanied by valid documents and there is no intention to evade tax.

FACTS

Petitioner was transporting goods which were intercepted and detained during transit solely on the ground that Part-B of the e-way bill had not been generated. At the time of interception, the goods were accompanied by valid tax invoices and all other requisite documents and there was no discrepancy in the description, quantity or value of the goods. The petitioner consistently explained that Part-B of the e-way bill could not be filled due to an undisputed technical glitch and that there was no intention to evade payment of tax. Despite this, the Respondent imposed a penalty under section 129(3) of the CGST Act, which was subsequently affirmed in appeal by the Respondent. Being aggrieved, the petitioner approached the Hon’ble High Court challenging the detention and penalty proceedings.

HELD

The Hon’ble High Court held that mere non-filling of Part-B of the e-way bill, when accompanied by valid tax invoices and other requisite documents, does not by itself justify detention or imposition of penalty under section 129(3) of the CGST Act. The petitioner’s explanation that Part-B of the e-way bill could not be generated due to a technical glitch remained undisputed. Further, since the respondent recorded no finding of any intention to evade payment of tax, the essential ingredient of mens rea was absent. Accordingly, the penalty and detention orders were held to be unsustainable in law, quashed by the Court, and the writ petition was allowed with a direction to refund the amount deposited.

90. [2025] 181 taxmann.com 390 (Punjab & Haryana) Laxmi Metal and Machines vs. Union of India dated 28.11.2025.

For calculating the period of limitation, the day on which the order is communicated/served is to be excluded and the period of 3 months will be counted from the immediate next day.

FACTS

Petitioner is a partnership firm engaged in the business of trading in used imported machinery. Petitioner filed a refund application in Form RFD-01 on 09.11.2023 seeking a refund of the amount paid under protest. Proper Officer rejected the refund claim vide Order-in-Original dated 24.01.2024, and the same was communicated to the appellant on 01.02.2024. Petitioner filed an appeal on 01.06.2024 before the Appellate Authority. Appellate Authority rejected the appeal filed by the appellant on the grounds that the said appeal is time-barred.

HELD

The Hon’ble High Court, relying upon the decision in the case of Pramod Kumar Tomar vs. Asst. Commissioner Mundka Division Delhi West [2024] 162 taxmann.com 335/104 GST 222/86 GSTL 411 (Delhi), held that the First Appellate Authority erred in computing limitation, as the day on which the order was passed or communicated had to be treated as Day Zero. The Court further held that the assessee was entitled to a one-month extended period under the statute. Accordingly, it held that in the given factual matrix, an appeal was filed within the period of limitation, i.e. on 01.06.2024.

91. [2025] 181 taxmann.com 487 (Allahabad) Saniya Traders vs. Additional Commissioner Grade-2 dated 03.12.2025.

Cancellation of GST registration subsequent to the transaction cannot be the ground for disallowing the ITC under section 74 of the CGST Act, especially where goods are purchased, and full payment is made through banking channels and the transaction is reported in GST returns by the supplier and tax is also paid.

FACTS

The petitioner is a registered dealer engaged in the business of supplying scrap and waste. The petitioner purchased old scrap batteries from a supplier who, in turn, issued a tax invoice and also an E-way bill. The said sale is duly reflected in GSTR No. 1 of the supplier. The petitioner also discharged its tax liability while making payment to the supplier. The said transaction has duly been shown in the GSTR returns. The seller has also paid tax as per section 49 of the Act. All payments were made to the supplier, including IGST, through the banking channel.

An inspection was conducted by the Central Investigation Bureau and it was alleged that 42 suppliers located in Uttar Pradesh were engaged in fictitious invoices without actual movement of goods. On the said basis, the purchases declared by the petitioner were treated as purchases from a non-existing supply firm. Further, an allegation was made that no trading activity was found at the place of such supply. Accordingly, the order was passed under section 74, reversing the input tax credit along with interest and a 100% penalty and an appeal filed against the said order also came to be dismissed. Aggrieved by the same, the petitioner came before the Hon’ble Court.

HELD

The Hon’ble Court observed that the petitioner has shown its purchases from a registered dealer, who was registered at the time of the transaction. The seller has filed its return till 2021, both GSTR-1 and GSTR-3B, but for the supply made to the petitioner, payment of tax was made and deposited with the department. Further, the petitioner made the payment through the banking channel. The Hon’ble Court observed that it is nobody’s case that at the time of the transaction, the petitioner and its supplier were not registered, but on subsequent dates to the transaction, the registration of the supplier was cancelled. The Court further observed that although under the GST Act, the authorities are empowered to cancel the registration from the date of inception, i.e. the date of registration, but in the present case, the authorities, in their wisdom, have cancelled the registration of the seller on a subsequent date, i.e. after the date of the transaction. In these circumstances, the Hon’ble Court held that the proceedings under section 74 of the GST Act cannot be initiated against the dealer as the case in hand is not that of ITC wrongly availed or utilised by reason of fraud or wilful wrong statement of facts or by means of fraud and upon adjudication. Relying upon the Apex Court decision in the case of Commissioner of Trade and Tax, Delhi vs. Shanti Kiran India (P.) Ltd [2025] 179 taxmann.com 665 (SC), (2025) 35 Centax 222 (SC) (refer above Supreme Court), the Hon’ble Court held that on the date of the transaction, the selling dealer was registered. Neither the transaction nor the invoice in question can be doubted, and hence, the ITC should have been granted. Accordingly, the impugned order was quashed.

92. [2025] 181 taxmann.com 92 (Allahabad) Chaurasiya Zarda Bhandar vs. State of U.P dated 19.11.2025.

Interest and Penalty cannot be demanded in the order, if the same is not proposed in the show cause notice, as the same will be beyond the scope of the notice.

FACTS

A show cause notice was issued to the petitioner, wherein, for the financial year 2019-20, a tax liability was shown against the petitioner and he was required to show cause as to why the same may not be recovered. There was no proposal to impose any interest or penalty. The petitioner has referred to section 75(7) to indicate that the amount of tax, interest and penalty demanded in the order shall not be in excess of the tax determined by the proper officer and no demand shall be confirmed on the ground other than the grounds specified in the notice.

HELD

Since SCN contained no proposal for interest or penalty, imposition thereof in the impugned order was contrary to the statutory mandate that demand shall not travel beyond SCN. The impugned assessment and demand order was arbitrary and unsustainable and therefore was quashed.

इष्टम् धर्मेण योजयेत् !

The two verses discussed in this article are adopted from ‘Samayochit Padyamalika’ – Collection of appropriate verses. They are also there in Panchatantra. It gives a message that whatever we desire and we wish to achieve should be secured in a righteous way. It is to be noted that the word ‘Dharma’ in Sanskrit scriptures is used in the sense of ‘duty’, ‘proper conduct’ and not in the sense of ‘religion ‘(way of worship, etc.) as we understand today. So it is not used in the sense of a community or sect.

सत्कुले योजयेत्कन्यां पुत्रम् विद्यासु योजयेत् !

व्यसने योजयेच्छत्रुमिष्टं धर्मेण योजयेत् !!

Literal meaning of first shloka –

One should get one’s daughter married into a family of high morals, good culture, etc. (Elite family). One should get one’s son connected to ‘studies’ ‘learning’ (vidyabhyas). One should get one’s enemy connected to some calamity (put an enemy into a difficulty); and thus, one should achieve one’s desired object in a manner acceptable to the Dharma.

उत्तमं प्रणिपातेन शूरं भेदेन योजयेत् !

नीचमल्पप्रदानेन इष्टम् धर्मेण योजयेत् !!

Literal meaning of second shloka –

One should make friends with a superior or powerful person by bowing before him politely (by giving respect). One should win a brave person’s heart by the strategy of ‘divide and rule’. (That’s what Britishers did in India by creating divisions among Indian people. Shivaji Maharaj also adopted that strategy while fighting against five Mughal kingdoms). One should get a lower category person on one’s side by paying him something. Thus, one should secure the desired object by following the principles of Dharma.

In Panchatantra, four Brahmanas acquired theoretical knowledge without understanding its proper application. They interpreted the ‘shastras’ in a weird manner. They took certain principles ‘literally’ without understanding the spirit behind them. Once they saw a donkey sitting in a cemetery. They remembered the principle that a true friend is the one who accompanies you everywhere – to the king’s palace or to the cemetery (राजद्वारे श्मशाने च). They treated the donkey as their friend. Then they saw a camel running very speedily. They remembered that Dharma also should move ‘swiftly’. So they tied the donkey to the camel! They became a laughing stock in the society.

In today’s times, in the international politics ‘there is a principle that there are no permanent friends nor permanent foes; there are only permanent interests’.

Likewise, in our personal life also, we should protect our interests; in a right or proper manner. We should not resort to undesirable or immoral means. Today, India has been able to procure many things for our country from those nations who may be enemies of each other! We are trying to win friendship with all the nations by appropriate strategies which are proper and not crooked.

Similarly, with our enemies, we may try to put them into difficulties like internal quarrels, splits, etc. The Government is also trying to provide good facilities of learning and opportunities to progress for our youth. The Government also is trying to provide better security, support, facilities and opportunities for women. We are smoothening our relations with super-powers; and offer help to smaller countries.

In short, इष्टम् धर्मेण योजयेत्!

Miscellanea

1. ECONOMIC & MARKETS

# Spare parts are quietly reshaping the Luxury Automotive Economy

Luxury automakers are increasingly relying on proprietary engineering, making verified spare parts crucial for maintaining performance and asset value. Unlike mainstream vehicles, luxury cars require brand-specific components to ensure optimal functioning, as even minor deviations can lead to significant technical risks. Platforms like SparesUSA have emerged to provide access to vetted parts, addressing the growing demand for factory-authenticated components.

The distinction between luxury and mainstream vehicles lies in their manufacturing processes, where luxury cars are integrated systems that require precise specifications. As traditional dealership networks lose their exclusivity, specialized platforms are becoming essential for sourcing the right parts globally. This shift has transformed the aftermarket, making access to verified components a necessity for preserving the integrity and performance of high-end vehicles.

(Source: International Business Times – By Karcy Noonan – 18 December 2025)

2. WORLD – SCIENCE

# Neutron Star Explained: How Collapsed Stars Become the Universe’s Densest Stellar Remnants

Neutron stars, formed from the remnants of massive stars after supernova explosions, are among the universe’s most extreme objects. When stars between eight and twenty times the Sun’s mass exhaust their nuclear fuel, gravity causes their cores to collapse, creating neutron stars that can contain more mass than the Sun within a city-sized volume.

These stars exhibit incredible densities, where protons and electrons merge into neutrons, creating neutron degeneracy pressure that prevents further collapse into black holes. Neutron stars have distinct internal structures, including a thin outer crust and a superfluid core, and are limited by the Tolman–Oppenheimer–Volkoff mass boundary, beyond which they collapse into black holes.
Neutron stars conserve angular momentum, leading to rapid rotation, with some pulsars spinning hundreds of times per second. Magnetars, a rare type of neutron star, possess intense magnetic fields that can cause starquakes and gamma-ray bursts.
Gravitational wave detections, such as GW170817, have linked neutron star mergers to the creation of heavy elements and refined our understanding of their properties.

As they cool over time, neutron stars emit neutrinos and later photons, allowing astronomers to study their ages and internal behaviours. Neutron stars play a crucial role in galactic chemistry by ejecting neutron-rich material during mergers, contributing to the formation of heavy elements essential for life. Overall, neutron stars serve as natural laboratories for exploring fundamental physics under extreme conditions.

(Source: International Business Times – By Glanze Patrick – 24 December 2025)

3. BUSINESS

# Top Global Energy Players Assemble at Wison Technology Seminar 2025

Over 250 decision-makers, technical experts, and industry partners from the global energy sector gathered at the Wison Technology Seminar 2025, held from December 2-4 2025 in Shanghai.
This event highlighted Wison’s leadership in sustainable energy technology and focused on topics such as the energy transition, floating wind, green hydrogen, carbon capture, and Power-to-X technologies.

This year’s seminar was larger and more diverse than the inaugural event, fostering connections among companies, technology partners, and asset owners. Featuring 56 speakers, the seminar included keynotes and panel discussions on policy frameworks, the global energy mix, net-zero targets, and technological innovation.

Wison signed strategic agreements with international partners, including ABB, Emerson, Schneider Electric, and Inprocess, to advance low-carbon technologies and system integration. The partnership with Inprocess will enhance Wison’s digitalisation efforts, incorporating technologies that support the design of floating liquefied natural gas (FLNG) and floating production, storage, and offloading (FPSO) vessels.

Participants also visited Wison’s Nantong shipyard to see the fabrication of FLNG vessels. Damien Nguyen, CTO of Wison New Energies, and Hengwei Liu, CTO of Wison Engineering, emphasized the importance of decarbonization, standardization, and digitalisation in energy systems, calling for improved collaboration and risk mitigation across the value chain.

Overall, the seminar served as a platform for exchanging ideas and identifying real-world use cases and collaboration opportunities.

(Source: International Business Times – Created By Matthew Edwards – 23 December 2025)

Revelation

Harshadbhai was in a jolly mood today. It was 28th of September, his birthday. He and his wife Priyanka were out on a stroll.

They met Pareshbhai with his wife Aparna. Pareshbhai also was in a celebration mood. It was their wedding anniversary.

Both Harshad and Paresh always used to complain that due to tax deadline of 30th September, they were never in a position to enjoy the birthday or anniversary. Today, the main reason of their good mood was the extension of time allowed by the Finance Minister! It was like a big Birthday Gift to both of them! Both were obviously chartered accountants and their pleasure was contained in small things like the hearing is adjourned, stay is granted in the client’s recovery proceedings, a client has agreed to pay a small fee next month, a ‘bad’ revenue officer has been transferred elsewhere; and so on!

They were close friends and they entered ‘Khau Galli ((Lane of eateries). There were many decorated and illuminated stalls. Chat, Bhelpuri, ragada pattice, pani-puri, vada, samosa, dhokla, farsan, South Indian dishes, sandwiches, tea, coffee, juices, ice creams so on and so forth. All mouth-watering dishes!

They tasted the dishes one by one, driven by the choices of their wives. While eating, the topic of chatting between Harshad and Paresh as usual was the CA practice.

Priyanka and Aparna were discussing about new sari, new dress, children’s schools, hobby class, tuitions, etc. etc. One common complaint was Harshad and Paresh both sit late in office, they don’t look after anything in the house, they don’t take the family for outing, no movie, no enjoyment!

Harshad and Paresh were cursing the practice with usual complaints like careless clients,complicated laws and regulations, corrupt departments, inefficient colleagues no staff, no articles, late sitting, no income but increasing expenses, clients’ expectations and the like. Both agreed that the practice had lost its charm and they cursed their fate.

The owners of the shops were all enjoying counting money at the counter! Harshad and Paresh envied them.

Finally, they sat in the ice cream parlour. Their chat was continuing. They concluded that rather than practice, they should have entered into this ‘food’ business. The owner of the shop was familiar. He overheard their grievance about the profession. He came to their table and mentioned the new variety of ice cream that had recently come into the market. He enquired whether they both were CAs; and he smiled. They also opened up and said they should have been in this business, rather than in practice! They were further shocked to learn that all the owners stayed in an elite colony where there were 3 to 4 cars in each family.

To their great surprise, he refused to accept the payment of the bill. He said it was complimentary from him to mark their anniversaries! They thanked him whole-heartedly. Ladies also were pleased.

At the time of parting, the owner revealed a secret – Sir, all the owners of these stall including the pan-wala were earlier practising as chartered accountants.

Transmission Of Securities

Transmission of securities occurs by operation of law upon a shareholder’s death, distinct from voluntary inter vivos transfers,. While nominees provide immediate administrative continuity, they act only as trustees; beneficial ownership remains governed by succession laws or Wills,. For transmission, companies require death certificates and legal evidence like probates or succession certificates, especially during disputes,. SEBI’s new “TLH” code (effective 2026) streamlines tax reporting for transfers from nominees to heirs,. To bypass complex probate processes, many individuals utilize private family trusts, removing assets from their personal estate during their lifetime.

INTRODUCTION

Securities have become the most valuable asset for many individuals. This is all the more true for promoters of listed companies. In such a scenario, when a shareholder dies, the transmission of the securities held by him in an effective and efficient manner becomes very vital. While the law in this respect is a mix of Legislation and Decisions, the practical aspects have issues at times. Let us examine the position with respect to the transmission of securities when a shareholder dies.

TESTATE OR INTESTATE SUCCESSION?

Depending upon whether the individual shareholder who dies left behind a valid Will, or not, the transmission would be testamentary (under a Will) or intestate (under the relevant succession law). In case of intestate succession, the law applicable would be the Hindu Succession Act, 1956 or the Indian Succession Act, 1925 of Portuguese Civil Code or the Uniform Civil Code (only where applicable) or the Shariah Law, depending upon the faith professed by the deceased.

LAW ON TRANSMISSION OF SHARES

A decision of the Gauhati High Court in Hemendra Prasad Barooah vs. Bahadur Tea Co. (P.) Ltd. [1991] 70 Comp Case 792 (Gauhati) has explained the meaning of transmission of shares. The word ‘transfer’ was an act of the parties or of the law, by which title to property was conveyed from one person to another. Inter vivos transfer was a transfer from one living person to another. It was a transfer of property during the lifetime of the owner and it was to be distinguished from succession where the property passed on death. Under section 211 of the Indian Succession Act, 1925, the executor of a deceased person was the legal representative for all purposes, and all the property of the deceased person vested in him as such. The word ‘transmission’ had been used in the Companies Act in contradistinction to the word ‘transfer’. ‘Transmission’ was referable to devolution of title by operation of law. It may be by succession or by testamentary transfer. As regards ‘transfer’, it had been used to mean inter vivos transfer. The executor of a deceased person was his legal representative for all purposes, and all the property of the deceased vested in him as such. Therefore, the right to the shares or other interest of the deceased member in the company devolved on the executor of the deceased by operation of law as distinguished from inter vivos transfer. But the executors did not become members of the company unless their names were registered. In such a situation, on death, the right of deceased to the shares or other interest as a member in the company devolved on executors as they are the legal representatives of the deceased. The right to the shares or other interest in the company, of the deceased member, passed or transmitted to the executors.

S.44 of the Companies Act, 2013 states that the shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the Articles of the company. The NCLAT Chennai Bench has explained the procedure for transmission of shares in its decision in the case of Emaar Hills Township Pvt. Ltd. vs. Telangana State Industrial Infrastructure Corporation, (2022) ibclaw.in 992 NCLAT.

In respect of `Transfer of Securities’, there are two parties to the `Contract’, i.e., Transferor and Transferee. Such a transfer is like any other `commercial transaction’. However, in the case of `Transmission of Shares’, there is no `Transferor’ or `Transferee’, as `Shares’ vests in favour of a `Person’, by an `Operation of Law’, like that of an `inheritance’ of `property’. Where `Transmission of Shares’ takes place, by an `operation of law’, there is no further requirement, to be carried out, like executing an `instrument of Transfer’ and `Company Law Register’; the `Securities’ on receipt of intimation of `Transmission’, in favour of a `Person’, to whom the `Shares’ are `transmitted’. Moreover, when `Title’ to the `Shares’, came to `Vest’ in another `Person’, by an `Operation of Law’, it was not essential to submit a Transfer Form.

A decision of the NCLAT, Chennai Bench in Avanti Metals Pvt. Ltd. vs. Alkesh Gupta, [2024] 158 taxmann.com 650 (NCLAT – Chennai) has succinctly summarised the law with respect to transmission of securities. The NLCAT analysed s.44 of the Companies Act and held that when s.44 of the Act provided that shares of any member in a Company were required to be transferred in the mode and manner provided for under the Articles of Association of the Company, the prescribed requirements were bound to be followed. In this case, the Articles required the production of a valid succession certificate. The NCLAT held that production of a succession certificate was a necessary requirement for transmission and since there was a dispute as to heirship of the deceased shareholder, the Company was within its right to refuse transfer of shares, until such succession dispute was resolved by a Competent Court of Law. It held that a Company cannot refuse `Transmission of Shares’, once the `legal heirs’ proved his/her entitlement to them, through a `Probate’, a `Succession Certificate’. It was pointed out that `transfer’ was an act of parties or law by which the title to the party was conveyed from one person to another. This would lapse by `Operation of Law’ or `Succession’. `Transmission of Shares’ on the basis of `Will’ could raise complicated issues which required an `evidence’, to be read by the parties and need to be determined by a Court of Law. It further held that a Will probated by a `Competent Court’ was binding on the parties, unless it is set aside by a `Competent Forum’. If the `Probate Proceedings’ were pending in a `Civil Court’, then the `Petition’ under the `Companies Act’ for `rectification of register’ would not be maintainable. Where there was a dispute as to the heirship of a `deceased shareholder’, the Company could refuse `transfer of shares’, until such dispute was resolved by a `Competent Court of Law’.

It relied upon the decision in the case of Thenappa Chettiar vs. Indian Overseas Bank Ltd. [1943] 13 Comp Case 202 (Madras) which held that a succession certificate can be granted, not merely in respect of a debt but also in respect of a security, which was defined in the Indian Succession Act to include a share in a company. The application for a certificate had to set out the right which the petitioner claimed and also the debts and securities in respect of which it was applied for. The grant of the certificate, specifying the debts and the securities, empowered the person to whom it was granted, not merely to receive the interest or the dividends on the securities, but also to negotiate or transfer them. The grant of a certificate gives to the grantee a good title to recover the debt or the security and affords full indemnity to all persons dealing with him. The High Court also held that transfer and transmission were quite distinct from each other. The former was based upon an act of parties; the latter was the result of the operation of law. In the case of a transmission of shares, they continued to be subject to the original liabilities, and if there was any lien on the shares for any sums due, the lien would subsist, notwithstanding the devolution of the shares.

The Supreme Court in Aruna Oswal vs. Pankaj Oswal [2020] 221 Comp Case 374 (SC) has held that a dispute as to inheritance of shares was eminently a civil dispute which could not be decided in proceedings of oppression and mismanagement.

ARTICLES OF ASSOCIATION

The Articles of Association of a Company generally provides for the procedure that a company will adopt in respect of an application made for transmission of shares. The Companies Act, 2013 Table F provides for the model form of the Articles. Regulation 23 states that on the death of a member, the survivor or survivors where the member was a joint holder, and his nominee or nominees or legal representatives where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares.

It further states that any person becoming entitled to shares in consequence of the death of a member may, upon such evidence being produced as may from time to time properly be required by the Board of Directors and subject as hereinafter provided, elect, either
(a) to be registered himself as holder of the share; or
(b) to make such transfer of the share as the deceased member could have made

Moreover, the Board of Directors shall have the same right to decline or suspend registration as it would have had, if the deceased member had transferred the share before his death.

JOINT OR SINGLE HOLDING?

Since most shares and securities are held in a dematerialised form, the transmission needs to be seen with the Demat Account. The hierarchy in a demat account is that on demise of a joint holder the 2nd holder would become the account holder and on the demise of both the holders, the nominee, if any, would become the account holder.

In case of a single holder in a demat account, the nominee, if any, would become the account holder.

However, it should be remembered that the joint holder and the nominee would only be the legal owner and not the beneficial owner of the account. In this respect the decision of the Supreme Court in Shakti Yezdani vs. Jayanand Jayant Salgaonkar, 2024 (4) SCC 642 has settled the issue once and for all. The issue of whether a nomination overrides a Will in respect of securities and demat accounts had been a contentious issue for long. The Supreme Court analysed various Supreme Court decisions in case of bank accounts, insurance policies, PPF, etc., which had held that a Will overrides a nomination. It then analysed the provisions of the Companies Act and the Depositories Act, 1996 and held that the same legal principle even applies in the case of securities and a demat account. The vesting of the shares/securities in the nominee under the Companies Act, 1956 and the Depositories Act, 1996 was only for a limited purpose, i.e., to enable the Company to deal with the securities thereof, in the immediate aftermath of the shareholder’s death and to avoid uncertainty as to the holder of the securities, which could hamper the smooth functioning of the affairs of the company. The Court rejected the argument that the intention of the shareholder was to bequeath the shares/securities absolutely to the nominee, to the exclusion of any other persons (including legal representatives) and hence, constituted a ‘statutory testament. The Court held that this was because the Companies Act did not deal with succession, nor did it override the laws of succession. It was beyond the scope of the company’s affairs to facilitate the succession planning of the shareholder. In case of a Will, it was upon the administrator or executor under the Indian Succession Act, 1925, or in case of intestate succession, the laws of succession to determine the line of succession. Ultimately, it concluded that the nomination process did not override the succession laws. Simply said, there was no third mode of succession that the scheme of the Companies Act, 1956 (pari materia provisions in Companies Act, 2013) and the Depositories Act, 1996 aimed or intended to provide!

SEBI LODR PROVISIONS

The SEBI (LODR) Regulations, 2015 also provide for the procedure of transmission of shares in the case of a listed company. R.40 provides that the listed entity shall comply with all procedural requirements as specified in Schedule VII to the Regulations with respect to transmission of securities. Further, transmission of securities held in physical or dematerialised form shall be effected only in dematerialised form. The key requirements specified in the Regulations are as follows:

(1) In case of transmission of securities, where the securities are held in single name with nomination, the following documents shall be submitted:

(a) duly signed transmission request form by the nominee;
(b) death certificate;
(c) PAN of the nominee

(2) In case of transmission of securities, where the securities are held in single name without nomination, the following documents shall be submitted:

(a) a notarized affidavit from all legal heir(s) to the effect of identification and claim of legal ownership to the securities. In case the legal heir(s) are named in a Succession Certificate or Probate of Will or Will or Letter of Administration an affidavit from these legal heir(s)/claimant(s) alone shall be sufficient;

(b) duly signed transmission request form by the legal heir(s)/claimant(s);

(c) death certificate

(d) PAN of the legal heir(s)/claimant(s)
(e) a copy of Succession Certificate or Probate of Will or Will or Letter of Administration or Court Decree; Where a copy of Legal Heirship Certificate is submitted, a No Objection Certificate from all non-claimants must also be given

(f) for cases where the value of securities is up to ₹5 lakhs per listed entity in case of securities held in physical mode, and up to ₹15 lakhs per beneficial owner in case of securities held in dematerialized mode, as on date of application, and where the documents mentioned in para (e) are not available, the legal heir(s) /claimant(s) may submit the following documents:

(i) no objection certificate from all legal heir(s) stating that they do not object to such transmission or copy of family settlement deed executed by all the legal heirs; and

(ii) a notarized indemnity bond indemnifying the Share Transfer Agent/ listed entity,

The listed entity may, at its discretion, enhance the value of securities from the threshold limit of ₹5 lakhs, in case of securities held in physical mode.

SEBI’S NEW TLH CODE

In September 2025, SEBI introduced a new reporting code ‘TLH’ to simplify transmission of securities from nominees to legal heirs. It recognises that the nominee acts as a Trustee of the securities of the original security holder and transfers the securities to the legal heir as per succession plan.

As per earlier procedure for effecting such transfers, the nominee, while transferring the securities to legal heir had to effectuate an off-market transfer. This unfortunately in some cases led to the nominee being assessed for capital gains tax as on a transfer. SEBI recognised that while clause (iii) of Section 47 of the Income-tax Act, 1961, exempted such transmission from being considered as a “transfer”, this process caused inconvenience to the nominee.

In order to alleviate this inconvenience, a Working Group (“WG”) was formed. The WG, based on engagement with the CBDT, recommended that to address the issue, reporting entities should use the reason code “TLH” (i.e. Transmission to Legal Heirs), while reporting such transactions to the CBDT.

Accordingly, as a part of ease of doing investment and in order to streamline the process of transmission of securities from nominee to legal heir and resolve the above-mentioned issues related to taxation, SEBI has now specified that a standard reason code viz. “TLH” shall be used by the reporting entities while reporting the transmission of securities from nominee to legal heir, to the CBDT so as to enable proper application of the provisions of the Income Tax Act, 1961. This should be used in Demat Slips executed by the nominee who is transferring shares to the legal heir. SEBI has directed RTAs, Listed Issuers, Depositories and Depository Participants to make necessary system changes and implement this proposal with effect from 1st January 2026.

TRUSTS AS AN ALTERNATIVE SOLUTION

The entire judicial debate explained above over nominee vs beneficial owner, transmission, succession certificates/probates is relevant only in the case of securities held by the deceased in his individual name. Thus, these issues come to the fore when the shares where held by an individual and he/she passes away. However, in case the same are settled on a private family trust then all these problems cease to exist. A transfer to a trust is made during one’s lifetime and the shares then cease to be a part of the settlor’s estate. Accordingly, transmission and succession to these shares is not relevant even after the settlor passes away since they would constitute assets of the trust and not of the estate. In countries levying Estate Duty/Inheritance Tax, gifting assets to a trust could sometimes also help reduce this tax incidence. However, the trusts need to be structured properly after paying due heed to income tax/gift tax and other relevant issues. This has led to promoters of several listed companies parking their promoter holdings in private irrevocable trusts. Some press reports indicate that nearly one-third of all companies listed on the NSE have promoter holding parked in trusts and this number is rapidly increasing.

CONCLUSION

Promoter shares and for that matter shares, in general, form a large component of the estate of many families. If due care and caution is not paid to their succession/inheritance, then these could get locked up in legal tangles and controversies.

India’s New Labour Codes

India’s four Labour Codes—the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions (OSH) Code, 2020—seek to consolidate 29 central labour laws into a unified framework governing wages, industrial relations, social security and workplace safety. The Codes have been passed and notified, but are yet to be brought into force; implementation will follow separate commencement notifications, and recent policy statements indicate an intention to make them fully operational from 1 April 2026, after re-publication and finalisation of rules by the Centre and States.

The reforms introduce several cross cutting features: a uniform definition of “wages” with a 50% cap on specified exclusions; broader definitions of “worker” and “employee”; an inspector cum facilitator regime; digitisation of registers and returns through portals such as Shram Suvidha; and a common licensing framework, particularly relevant for contract labour and inter State migrant work. At the Code specific level, key changes include a statutory floor wage and universalised wage coverage, expanded social security to gig and platform workers funded partly by aggregator contributions, higher thresholds for prior permission on lay off and closure and for standing orders, recognition of a sole negotiating union with 51% membership, rationalised applicability thresholds under the OSH Code, and formal recognition of fixed term employment.

For professionals, three areas deserve immediate attention: restructuring of CTCs and payroll systems around the new wage definition; re assessment of contract labour and outsourcing strategies in light of new thresholds and licensing; and readiness for digital compliance and transitional issues once commencement notifications are issued. The Codes have the potential to ease doing business and extend social protection, but their success will depend on state-level rule-making, administrative capacity, and how stakeholders navigate the trade offs between flexibility and security.

1. INTRODUCTION

For decades, India’s labour law landscape has been characterised by a dense web of central and state statutes, many with overlapping subject matter, conflicting definitions and dated assumptions about the nature of work. Employers have struggled with fragmented compliance and multiple inspections, while a large majority of the workforce, especially in the unorganised and informal sectors, has remained outside effective social security coverage.

The four Labour Codes are designed to move from a purely regulatory mindset to a facilitative, risk-based framework, recognising contemporary forms of work such as platform work and fixed-term employment. All four Codes have received Presidential assent and stand notified in the Gazette, but they will come into force only on dates to be appointed by separate notifications under the respective commencement provisions. Recent ministerial statements and press releases indicate that the government’s present plan is to make the Codes fully operational from 1 April 2026, aligning with the financial year and allowing time to finalise central and state rules.

The principal reason for the delay has been the federal nature of labour as a Concurrent List subject: the Centre must frame rules on matters within its ambit, while States and Union Territories must frame their own rules where empowered. As of late 2025, most States and UTs have pre-published draft rules under some or all of the Codes, but a small number still lag behind, and several jurisdictions are revisiting their drafts in light of stakeholder feedback. This staggered readiness explains why commencement has been repeatedly deferred, despite the Codes having been passed in 2019–2020.

Decoding Indias New Labour Codes A Modern Framework for Work

2. KEY THEMES CUTTING ACROSS ALL CODES

Broader definitions of “worker” and “employee.”

Across the Codes, the definitions of “worker” and “employee” are significantly broader than in many legacy statutes, generally covering persons employed in any industry to do manual, unskilled, skilled, technical, operational, clerical or supervisory work, subject to specified wage ceilings for certain categories. This enlarged coverage is particularly relevant for supervisory and middle management layers that were previously excluded under some laws by virtue of salary thresholds or nature of duties tests.

For advisory and litigation practice, this implies that classification disputes may shift from the question of “workman versus non-workman” to the precise application of statutory exclusions and state-specific rules. Employers will need to revisit designation structures and job descriptions to ensure they align with the new definitions.

Uniform definition of “wages” and the 50% rule

Perhaps the single most consequential reform is the adoption of a uniform definition of “wages” across all four Codes. While details differ slightly between Codes, the core construct is common: wages include basic pay and dearness allowance and specified components, while certain allowances and benefits are expressly excluded; however, if the aggregate value of such exclusions exceeds 50% of total remuneration, the excess is deemed to form part of wages.

This “50% rule” directly affects calculations for provident fund, gratuity, bonus, retrenchment compensation and other wage-linked benefits, substantially limiting the scope to depress contribution-bearing wage elements by inflating allowances. For many Indian CTC structures—traditionally built around a relatively low “basic + DA” portion with multiple allowances—this will translate into higher long-term social security costs, lower immediate take-home for employees, and a need for complete redesign of salary templates.

Inspector cum facilitator and digitisation

All four Codes envisage a shift from the conventional “Inspector Raj” to an inspector cum facilitator model, emphasising guidance and graded enforcement before prosecution in many situations. Inspection schemes are to be computerised and risk based, with provisions for web based scheduling, random selection and online submission of documents.

Digitisation is a central theme: electronic registers, e returns and online licences are encouraged or mandated, with the Shram Suvidha portal and linked systems expected to play a central role in unified filings. While larger enterprises may find this consistent with existing HRIS/ERP practices, smaller establishments will need to build digital competencies and address issues such as data accuracy, security and document retention.

Common licensing and single registration

The Codes introduce a move towards common licensing, particularly for contractors and staffing entities, and single registration for establishments covered by the OSH provisions. Instead of multiple location specific licences under different Acts (for example, separate contract labour licences for individual sites), a single licence may cover multiple establishments, subject to prescribed conditions.

Similarly, the OSH Code enables one registration for an establishment carrying on more than one activity that would previously have required distinct registrations (such as factory, motor transport and contract labour). This is intended to simplify compliance and make growth across locations easier, but also raises the bar for centralised compliance management within organisations.

3. THE CODE ON WAGES, 2019

Consolidation and coverage

The Code on Wages consolidates four key enactments: the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act and the Equal Remuneration Act. A significant change is that the Code applies to all employees across all sectors for its wage related provisions, moving away from the earlier concept of “scheduled employments” under the Minimum Wages Act.

This universalisation reduces fragmentation and makes it easier to understand wage obligations vis à vis different categories of employees; however, detailed state specific minimum wages and rules will still require careful attention by employers with multi state operations.

National floor wage and minimum wage

The Wage Code introduces a statutory national floor wage to be fixed by the Central Government, taking into account factors such as living standards and geographical differences. States will continue to fix minimum wages for different skill levels and industries, but cannot set them below the notified floor wage.

The distinction between the central floor wage and state minimum wages is important in advisory work, especially when analysing cross border wage disparities and potential relocations of labour intensive activities. The floor wage is intended to reduce extreme regional differentials while allowing states to respond to local cost of living conditions.

Wage definition, overtime and payment modes

Under the Wage Code, the uniform wage definition and 50% cap on exclusions determine the base for overtime, bonus and other wage linked entitlements. Overtime pay must be at least double the normal rate of wages, requiring payroll systems to correctly compute overtime on the statutory wage base, including any deemed additions under the 50% rule.

The Code also rationalises wage periods, prescribes time limits for payment, and clarifies permissible deductions, while facilitating digital payment modes and electronic record keeping. This aligns wage practice with broader financial inclusion and digitisation policies.

Impact on CTC structuring

From a practitioner’s standpoint, the 50% rule is the central driver of CTC impact under the Wage Code. Employers must map each pay component to either the “wage” or “exclusion” bucket, simulate the impact on provident fund, gratuity and other benefits, and consider re balancing fixed and variable pay.

In many cases, the employer’s cost of compliance will rise because contribution-bearing wages will effectively increase, even if the total CTC remains unchanged. Employees may initially perceive a reduction in take-home salary due to higher statutory deductions, but the long-term benefit accrual in PF and gratuity will be more robust. Transparent communication and change management will therefore be critical.

4. THE CODE ON SOCIAL SECURITY, 2020

Consolidation and scheme architecture

The Code on Social Security, 2020 consolidates nine central labour Acts into a single statute. Those Acts are:

  1.  The Employees’ Compensation Act, 1923
  2. The Employees’ State Insurance Act, 1948
  3. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  4. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
  5.  The Maternity Benefit Act, 1961
  6.  The Payment of Gratuity Act, 1972
  7.  The Cine Workers Welfare Fund Act, 1981
  8. The Building and Other Construction Workers’ Welfare Cess Act, 1996
  9. The Unorganised Workers’ Social Security Act, 2008

The Code enables the Central Government to frame schemes for different classes of persons, with institutions such as the National Social Security Board advising on schemes for unorganised, gig and platform workers. The effectiveness of this architecture will ultimately depend on how schemes are designed and funded, and on the capacity of implementing agencies.

Gig and platform workers – registration and aggregator contributions

A path-breaking feature is the explicit recognition of “gig workers” and “platform workers”, who are often engaged as independent contractors and were largely outside traditional social security statutes. The Code contemplates mandatory registration of unorganised, gig and platform workers on a designated portal, typically using Aadhaar-based identity, as a precondition to claim benefits under the relevant schemes.

Aggregators—such as ride-hailing companies, food delivery platforms and similar digital intermediaries—are required to contribute a notified percentage of their annual turnover, within a statutory band, subject to an overall cap as a proportion of the amounts payable to such workers. These contributions, along with government funding and worker co contributions where prescribed, will form the corpus for benefits like accident insurance, health cover and old age support. From a tax and advisory perspective, this will influence pricing, margin structures and the design of platform contracts.

Aadhaar linkage and unorganised sector schemes

The Code provides for Aadhaar based identification in accessing benefits, and in practice Aadhaar linkage is expected to be embedded in registration and claim processes. This can reduce duplication and leakages but may pose inclusion challenges for workers lacking robust documentation or digital literacy, especially in remote areas.

For the unorganised sector more generally, the Code contemplates schemes on health, maternity, disability, old age and other contingencies, to be implemented through existing and new institutions. The key compliance question for employers will be the extent to which they are treated as “aggregators” or “principal employers” under different schemes and rules, especially in complex supply chains.

Gratuity and fixed term employment

The Social Security Code introduces important changes in gratuity eligibility for fixed term employees, aligning it with their actual period of service rather than the earlier five year continuous service requirement. Fixed term employees will be entitled to gratuity on a pro rata basis if they complete one year of service, improving benefit equity compared to permanent workers.

This interacts with the IR Code’s formal recognition of fixed term employment and will influence contract structuring, costing and actuarial valuations. Employers will need to review their gratuity funding policies and consider the volatility introduced by larger numbers of shorter tenure employees becoming eligible for gratuity.

5. THE INDUSTRIAL RELATIONS CODE, 2020

Consolidation and recognition of trade unions

The Industrial Relations Code consolidates the Trade Unions Act, Industrial Employment (Standing Orders) Act and Industrial Disputes Act into a unified regime for trade union registration, standing orders and dispute resolution. One of its most significant changes is the formal recognition framework for negotiating unions.

Where a trade union has at least 51% of workers in an industrial establishment as members, it must be recognised as the sole negotiating union. If no union meets this threshold, a negotiating council is constituted comprising representatives of unions with at least 20% membership, ensuring that collective bargaining is channelled through a defined structure. This reduces multiplicity at the bargaining table but may intensify inter union competition to reach the 51% mark.

Thresholds for lay off, retrenchment and closure

The IR Code raises the threshold at which prior government permission is required for lay off, retrenchment and closure in certain industrial establishments from 100 to 300 workers. Establishments below this threshold may proceed without prior permission, subject to compliance with notice, compensation and other procedural safeguards.
The threshold for mandatory standing orders is also increased from 100 to 300 workers. These changes are aimed at providing mid sized enterprises and MSMEs with greater flexibility to respond to market conditions, but unions view them as weakening job security. In practice, states may exercise their power to further increase the threshold, leading to some jurisdictional variation.

Fixed term employment and unfair labour practices

The IR Code formally recognises fixed term employment, requiring that fixed term employees receive the same wages and benefits as permanent workers doing similar work, including eligibility for gratuity on a pro rata basis under the Social Security Code. This provides a lawful alternative to prolonged contractual arrangements with less clarity on rights and obligations.

The Code also consolidates and clarifies lists of unfair labour practices attributable to employers and workers, modernising the grounds for complaint and enforcement. This will be particularly relevant in adjudication and conciliation proceedings under the new regime.

Regulation of strikes and lock outs

A major change is the extension of the requirement of 14 days’ prior notice for strikes (and lock outs) from public utility services to all industrial establishments. Strikes and lock outs are also prohibited during conciliation proceedings and for prescribed cooling periods thereafter, and an expanded definition of “strike” can cover concerted mass casual leave above a set threshold.

From an employer’s standpoint, these provisions offer greater predictability and time to engage in negotiation or contingency planning. Unions argue that the combination of higher thresholds for retrenchment permissions and tighter strike conditions constrains collective bargaining leverage.

6. THE OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITIONS CODE, 2020 (OSH CODE, 2020)

Consolidation and applicability thresholds

The OSH Code consolidates 13 enactments relating to occupational safety, health and working conditions, including the Factories Act, Mines Act, Contract Labour Act and others. A key policy objective is to rationalise applicability thresholds, especially for smaller establishments, while maintaining safety oversight in higher-risk environments.

For factories, the threshold is raised to 20 workers where power is used and 40 workers where power is not used, compared with the earlier 10 and 20, respectively. For contract labour, the applicability threshold increases from 20 workers to 50 workers. These changes may relieve very small units from some regulatory burdens, but at the same time call for more robust self-regulation where statutory coverage does apply.

Single registration and duties of employers and workers

The OSH Code provides for single registration for an establishment, covering multiple activities which were previously subject to separate registrations. It also codifies duties of employers, employees and other persons, including obligations relating to safe premises, risk assessments, medical examinations, safety committees and reporting of accidents and dangerous occurrences.

Women are explicitly permitted to work in all establishments, including at night, subject to their consent and compliance with prescribed safety conditions and facilities. This aligns with broader gender equality policies but requires employers to plan carefully for transport, security and workplace design issues for night shift operations.

7. SELECTED COMPARATIVE TABLES

Old–new parameters

Parameter Earlier framework (illustrative) Position under Codes
Wage definition Multiple definitions in EPF, ESI, MW, Bonus. Uniform definition with 50% cap on exclusions.
National floor wage No binding statutory floor; advisory concept. Statutory floor wage by Centre; States’ minima cannot go below.
Lay off/closure permission Prior permission from 100 workmen onwards. Threshold raised to 300 workmen; states may enhance.
Standing orders Applicable from 100 workmen. Applicable from 300 workers.
Contract labour applicability From 20 contract workers. From 50 contract workers under OSH Code.
Gig/platform workers Not recognised. Recognised with aggregator contribution obligations.
Limitations for wage claims Varied/long limitation periods. Harmonised (e.g., three years under the Wage Code).
Inspection model Inspector-driven, often discretionary. Risk-based inspector cum facilitator with e systems.

ILLUSTRATIVE OSH APPLICABILITY THRESHOLDS

Establishment type Earlier threshold OSH Code threshold
Factory (with power) 10 or more workers. 20 or more workers.
Factory (without power) 20 or more workers. 40 or more workers.
Contract labour 20 or more contract workers. 50 or more contract workers.

8. IMPACT AND CRITICAL VIEWPOINTS

Employer and HR perspective

From an employer’s perspective, the Codes simultaneously offer simplification and introduce new cost and capability burdens. On the one hand, higher thresholds for lay off permissions and standing orders, common licensing and digital filings can materially improve ease of doing business, particularly for MSMEs and multi-location enterprises. On the other hand, the 50% wage rule, aggregator contributions for gig workers and expanded gratuity coverage will increase statutory outgo in many cases and demand significant changes to HR, payroll and compliance systems.

Administrative readiness is a further concern: employers will have to navigate overlapping regimes during transition, manage contractual amendments, and align internal policies with central and state rules that may not be perfectly harmonised at the outset. Early years of implementation can be expected to see interpretative disputes and litigation around definitions, thresholds and the interaction between central Codes and state rules.

WORKER AND UNION PERSPECTIVE

Trade unions have welcomed the promise of wider social security coverage but remain sceptical of higher thresholds for prior permission on retrenchment and closure, and of tighter strike notice and prohibition provisions. There is concern that flexibility on fixed term employment, coupled with reduced state control over closures in mid sized units, may encourage increased use of short term contracts and weaken job security.

For workers in the gig and unorganised sectors, the Codes create a statutory framework for social security where none existed earlier, but the real test will lie in the design and funding of schemes, ease of registration and claim processes, and the capacity of institutions to reach highly dispersed and mobile worker populations.

Administrative and system readiness

Regulators face their own readiness challenges: creating interoperable digital systems (such as upgraded Shram Suvidha type platforms), training inspector cum facilitators, issuing clear guidance circulars, and ensuring consistent interpretations across regions. The multilingual publication of rules and the development of user friendly interfaces for small employers and workers will be critical to genuine inclusiveness.

These factors, together with ongoing state level rule making, help explain why commencement has been calibrated and repeatedly deferred, and why a synchronised 1 April 2026 roll out is being projected as the current target.

9. CONCLUSION – READINESS ROADMAP FOR PROFESSIONALS

The four Labour Codes represent one of the most far reaching overhauls of India’s labour regulatory framework since independence, with the potential to simplify compliance, enhance formalisation and extend social security coverage. Whether this potential is realised will depend on the quality and timeliness of rule making, the robustness of digital infrastructure, and how employers, workers and regulators adapt in practice.

For professionals, the immediate action agendabefore the anticipated 1 April 2026 commencement includes:

  • Conducting detailed impact assessments on CTC, PF and gratuity under the new wage definition.
  •  Reviewing contract labour, outsourcing and fixed term employment strategies in light of new thresholds and licensing norms.
  •  Upgrading HR, payroll and compliance systems for digital registers, returns and interaction with central and state portals.
  •  Tracking state wise rule making and tailoring advice and internal policies to jurisdiction specific requirements.
  • Training HR, IR and finance teams on the substantive changes, especially around gig worker contributions, recognition of unions and OSH thresholds.

If these steps are taken proactively, the transition to the new regime can be managed with reduced disruption, allowing businesses to focus on core operations while supporting a more formal, secure and transparent labour market over the next decade.

Selling a Business… But What about the Goodwill?

When a company plans to sell a division but doesn’t yet meet Ind AS 105 “held for sale” criteria, a goodwill impairment dilemma arises. Companies face three options: immediate separation for testing (View 1), waiting until disposal (View 2), or reallocating goodwill only if internal reporting structures have changed (View 3). The authors argue View 3 is most appropriate under Ind AS 36. It ensures goodwill follows how management actually monitors the business rather than future intentions. This prevents premature, irreversible impairments while avoiding the masking of losses within a larger group’s performance.

Companies buy businesses and may merge them with other units, and sometimes decide, ‘This bit no longer fits. Let’s sell it.’ When that happens, an important question pops up: If we’re planning to sell part of the business, what happens to the goodwill attached to it? That question gets especially tricky when the sale is planned but not yet near-enough to be classified as ‘held for sale’ under Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations. Let’s look at a simple case study.

ABC: FUTURE SALE AND GOODWILL ACCOUNTING

ABC Tech is a growing technology company. One of its acquired divisions, DataServe, provides cloud data services and has historically been managed as part of the Digital Services Group, a broader cash-generating unit (CGU) that includes several synergistic service lines. Goodwill from past acquisitions is carried on ABC’s balance sheet and is allocated to the Digital Services Group CGU, which includes DataServe.

Later in the year, ABC’s board formulates a plan to dispose of DataServe in the next 12-18 months as part of a strategic refocus. However, as of the March year-end, this plan is still in its early stages with no binding agreement or active sale process in place yet.

DataServe does not meet the Ind AS 105 criteria to be classified as ‘held for sale’, which require the asset to be available for immediate sale and the sale to be highly probable within one year (Paragraphs 7-8 of Ind AS 105). In other words, the idea is on the table, but the formal held-for-sale threshold (management commitment, active marketing, likely sale within 12 months, etc.) hasn’t been crossed.

This situation puts ABC’s finance team in a tough spot for the year-end impairment review. Normally, they would test the Digital Services Group (which includes DataServe) for goodwill impairment as a whole. But with DataServe potentially on the chopping block, questions arise:

View 1: Should they carve out DataServe as a separate CGU and allocate a portion of goodwill to it for impairment testing now?

View 2: Should they leave everything as-is until the sale becomes more certain or is completed?

View 3: Consider if internal management now views DataServe separately, and therefore reallocate goodwill if the internal reporting structure has in fact changed?

Each approach has implications for financial results and compliance. Let’s explore these three views and the accounting consequences.

THE GOODWILL ALLOCATION DILEMMA

At the heart of the issue is goodwill, that arose when ABC acquired businesses in the past. Goodwill is allocated to CGUs for impairment testing purposes, typically at the level at which management monitors the business (Ind AS 36.80). In ABC’s case, all goodwill from the Digital Services Group’s past acquisitions sits with the combined Digital Services CGU (of which DataServe is part). Under Ind AS 36, Impairment of Assets, goodwill must stick to the lowest level at which management monitoring occurs and cannot be arbitrarily moved around. Accounting standards only allow reallocating goodwill in very limited circumstances, mainly when a portion of the business is disposed of, or when the company reorganises its reporting structure.

So, with a sale on the horizon but not yet a done deal, ABC’s finance team faces a judgment call. The challenge is whether to change the impairment testing approach now by isolating DataServe, or to wait until the sale is imminent or complete or to change the level at which goodwill is internally monitored and carry out reallocation of goodwill on that basis. This decision can significantly affect the timing and amount of any impairment charge.

Recognizing an impairment now by separating DataServe could reflect DataServe’s standalone value perhaps revealing a shortfall if its recoverable amount (higher of fair value less costs to disposal and value in use) is below its carrying value including goodwill. On the other hand, keeping goodwill unallocated to DataServe means any weakness in that unit might be masked by the strength of the larger group, potentially deferring any loss recognition until the sale actually occurs. The risk of a misstep is high, a mistimed impairment could either needlessly dent the current year’s profits or, conversely, delay an inevitable write-down that then hits all at once when DataServe is sold.

The Goodwill Dilemma Accounting for a planned Business Sale

With this context in mind, the authors analyse the three views:

View 1: Immediate CGU Separation (Allocate Goodwill to DataServe Now)

Under this view, ABC would treat DataServe as an independent CGU immediately, even though it does not yet meet the criteria of ‘held for sale’ under Ind AS 105. That means-

  •  the splitting off a portion of goodwill from the Digital Services Group (using a reasonable basis such as relative fair values), and
  •  testing DataServe for impairment, separately at year-end.

To support this view, one may argue that the view reflects economic reality. If DataServe is going to be sold, its value should be tested on a standalone basis now. Early testing may avoid a surprise loss later and ensures transparency if DataServe’s recoverable amount is below its carrying value.

However, this view does not strictly meet the requirements of Ind AS 36, which only allows goodwill to be reallocated when:

(i) an operation is disposed of (Paragraph 86 of Ind AS 36),

(ii) the unit is classified as held for sale (arising from paragraphs 6-8, 15 and 38 of Ind AS 105 read with paragraph 87 of Ind AS 36, or

(iii) the internal reporting structure changes (Paragraph 87 of Ind AS 36).

A planned sale on its own is not one of these triggers. If the sale stalls or is significantly delayed, goodwill impairments cannot be reversed (para 124 of Ind AS 36). Thus, this approach risks an irreversible write-down ahead of the requirements of the standards.

View 2 — Keep Goodwill with the Digital Services Group (Wait for Disposal or Ind AS 105 Classification as held for sale)

Here, ABC would do nothing now. DataServe stays inside the existing Digital Services CGU, and goodwill continues to be tested only at the Digital Services CGU until the unit is either:

  •  classified as held for sale (paragraphs 6-8 of Ind AS 105), or
  •  actually disposed of ( paragraph 86 of Ind AS 36).

Ind AS 105 only requires separate measurement once held-for-sale criteria are met and Ind AS 36 requires goodwill to stay with its CGU group until a disposal event occurs or reporting-structure changes. In that case, the downside weaknesses in DataServe may be masked by stronger parts of the Digital Services CGU. This may delay recognition of impairment, leading to a larger loss on disposal when sale eventually happens.

View 3 — Reallocate Goodwill Only If Internal Reporting Has Changed

View 3 focuses on paragraph 87 of Ind AS 36, which requires reallocating goodwill when the internal structure in which goodwill is monitored changes. Under this view, the key question is – Has ABC started monitoring DataServe separately (e.g., standalone KPIs, budgeting, CODM (Chief Operating Decision Maker) review)?

If the answer is yes, then DataServe has effectively become a separate CGU and the goodwill should be reallocated immediately. If the answer is no, the goodwill stays with the Digital Services Group until held-for-sale classification or disposal.

This view avoids both extremes, namely:

  •  It prevents premature impairment (unlike View 1).
  •  It responds to eventual changes in the business (unlike View 2).

View 3 aligns accounting with economic substance and how management actually runs the businesses, which is central to CGU framework under Ind AS 36. In the authors’ view, View 3 is most appropriate under Ind AS framework, as it best reflects the following principles in Ind AS 36 and Ind AS 105:

  •  Paragraphs 80 of Ind AS 36 which ties goodwill allocation to how management monitors the business, not to intentions.
  •  Paragraph 86 of Ind AS 36 and together with paragraphs 6-8, 15 and 38 of Ind AS 105 which trigger allocation to a disposal group only upon disposal or held-for-sale classification.
  •  Paragraph 87 of Ind AS 36 which triggers reallocation only when internal reporting structure changes.

Therefore, goodwill should move only when the reporting structure moves. For ABC, unless DataServe has already been carved out in internal reporting, goodwill stays with the Digital Services Group until classification as held for sale or actual disposal. This approach avoids premature impairment, maintains compliance with Ind AS 36, and ensures stakeholders see losses when they truly arise not before, not after. However, one important flaw of this view is that management may not change the internal monitoring system of goodwill, so that as much as possible, impairment of goodwill is delayed beyond the current year. Therefore, for this view to operate smoothly, management should be above board, and the internal reporting structure should reflect the actual business realty.

ONE SIMPLE LINE TO REMEMBER

Goodwill should follow how the business is really being run, not just what might happen in future. If the way management organises and reports the business changes, goodwill moves too. If that has not changed yet, the goodwill does not move, even if a sale is in early stages of discussion. That is how one avoids both ugly surprises at a later date as well as unnecessary impairment charge, that is irreversible. Overall, all the views have some challenges, though View 3 seems most appropriate under the circumstances.

Search and seizure — Assessment of any other person — Satisfaction note — Time of recording satisfaction note — Permissible stages — If not recorded immediately after completion of searched person’s assessment —Proceedings are invalid — Delay of 22 months in recording satisfaction note — Contrary to Circular No. 24/2015 — Notice issued u/s. 153C quashed and set-aside.

56. Parag Rameshbhai Gathani vs. ITO (International Taxation)

(2025) 180 taxmann.com 662 (Guj.)

A. Y. 2017-18: Date of order 18/11/2025

Ss. 153C r.w.s 132 and 153A of ITA 1961

Search and seizure — Assessment of any other person — Satisfaction note — Time of recording satisfaction note — Permissible stages — If not recorded immediately after completion of searched person’s assessment —Proceedings are invalid — Delay of 22 months in recording satisfaction note — Contrary to Circular No. 24/2015 — Notice issued u/s. 153C quashed and set-aside.

A search action was carried out on 15/10/2019 upon one Mr. SRT who was a land broker and financer group of assessees. In the course of search, certain incriminating material was found and seized. Upon examination of the material, it was found that financial transactions were carried out with some individuals which included the name of the assessee. Assessment in the case of Mr. SRT was completed in August 2021.

Subsequently, the Assessing Officer of Mr. SRT (searched person) recorded a satisfaction note on 06/06/2023 and transferred the seized material to the Assessing Officer of the assessee. The Assessing Officer of the assessee recorded satisfaction note on 14/07/2023 alleging that the assessee had made payment of on money for purchase of property. Accordingly, the Assessing Officer issued notice u/s. 153C of the Income-tax Act, 1961 in the name of the assessee on 09/02/2024.

Against the said notice, the assessee filed petition before the High Court challenging the notice. The Gujarat Hon’ble High Court allowed the petition and held as follows:

i) As per the Circular No. 24/2015 dated 31/12/2015 and the judgement of the Hon’ble Supreme Court in the case of Calcutta Knitwears (2014) 43 taxmann.com 446 (SC), recording of the satisfaction note apply in three stages to the proceedings u/s. 153C of the Act. Though, the Assessing Officer had an opportunity to record the satisfaction note at two stages i.e. stage (a) and (b) as specified in the Circular, the same is not done. The next stage which was available was stage (c) on immediate completion of proceedings of the searched person in August, 2021, however, the satisfaction note was recorded on 06/06/2023, after a period of 22 months. The satisfaction note was drawn by the Assessing Officer of the petitioner on 17/10/2023.

ii) In the case of Jitendra H. Modi (2018) 403 ITR 110 (Guj.), this Court, by placing reliance on the decision of the Supreme Court in the case of Calcutta Knitwears (supra), has held that satisfaction recorded after 09 months could not be said to be immediate action and hence, the Coordinate Bench of this Court set aside the notices issued under Section 158BD of the Act. In the instant case, there has been a delay of 22 months in recording the satisfaction, which runs contrary to the decision in Calcutta Knitwears (supra) as well as provision ‘(c)’ of Circular No.24/2015 dated 31/12/2015, which uses the expression “immediately after the assessment procedure is completed.

iii) Twin reasons are assigned by the respondents in the affidavit in reply for delay in recording the satisfaction note, (a) COVID-19 pandemic; and, (b) adoption of Faceless Scheme. So far the reason of COVID-19 is concerned, the same runs contrary to the action of the respondents, since the assessment of the searched person was itself done during the pandemic, and in the affidavit-in-reply, the respondent has mentioned that the Omicron variant commenced in December 2021 and continued until February 2022. Thus, even after February, 2022, the satisfaction note has been recorded on 17/10/2023. The second reason of workload due to Faceless Scheme is also a lame excuse, since indubitably the exercise u/s. 153A and 153C of the Act falls outside the purview of the said scheme. Hence, both the reasons assigned appear to be an afterthought, hence the same are rejected

iv) There was no restricting factor on the Assessing Officer to record the satisfaction earlier. The expression “immediate” though is impossible to quantify in period, however, the same cannot be extended to such an extent which defeats the purpose of cost effective, efficient and expeditious completion of search assessments. The intention of using such term is to reduce and avoid long drawn proceedings and to bring certainty to the assessment. Thus, both the writ petitions succeed. The impugned notices issued u/s. 153C of the Act for the respective assessment years are hereby quashed and set aside.”

Revision u/s. 264 — Revision of intimation issued u/s. 143(1) accepting the returned income — Revision application filed pursuant to decision of Jurisdictional Tribunal in S. K. Ventures — — Rejection of application by CIT — Decision of Jurisdictional Tribunal not acceptable to the Department — High Court held — CIT bound to follow Jurisdictional Tribunal — Merely because order is challenged in appeal before the High Court cannot be the ground to not follow.

55. Dipti Enterprises vs. ADIT

2025 (11) TMI 1856 (Bom.)

A. Y. 2020-21: Date of order 17/11/2025

Ss. 264 of ITA 1961

Revision u/s. 264 — Revision of intimation issued u/s. 143(1) accepting the returned income — Revision application filed pursuant to decision of Jurisdictional Tribunal in S. K. Ventures — — Rejection of application by CIT — Decision of Jurisdictional Tribunal not acceptable to the Department — High Court held — CIT bound to follow Jurisdictional Tribunal — Merely because order is challenged in appeal before the High Court cannot be the ground to not follow.

The assessee firm was engaged in the business of real estate development. The assessee filed its return of income for the A. Y. 2020-21 after claiming deduction u/s. 80-IB(10) of the Income-tax Act, 1961 which, the assessee was claiming since A. Y. 2010-11. At the time of filing its return of income, the utility automatically calculated the tax liability u/s. 115JC of the Act and deemed total income of the assessee at ₹2,17,85,501. Since the tax payable as per the normal provisions was lower than the tax payable on the deemed total income determined in accordance with the AMT provisions, the total liability was determined at ₹49,97,467 based on the AMT provisions. The return of income filed was accepted u/s. 143(1) of the Act.

According to the assessee, the provisions of 115JC could not be applied to the projects which were already approved prior to the date of introduction of section 115JC. Since the assessee’s projects were approved prior to the date of enforcement of section 115JC the provisions of section 115JC were inapplicable. Therefore, the assessee filed an application u/s. 264 of the Act seeking revision of the of the intimation issued u/s. 143(1) of the Act on the ground that extra tax paid as per the return of income by applying the provisions of section 115JC of the Act be refunded. To support its view, the assessee relied upon the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (order dated 05.03.2019 bearing ITA No. 1248/Mum./2018).

The assessee’s application for revision was rejected on the ground that the decision rendered by the Tribunal was not acceptable to the Department and the decision of the Jurisdictional Tribunal was challenged in appeal before the High Court and was pending disposal. Therefore, no relief could be granted u/s. 264.

Against the said order, the assessee filed a writ petition before the Hon’ble Bombay High Court. The High Court allowed the petition and held as follows:

“i) Merely because the order of the appellate authority is “not acceptable” to the department, and is the subject matter of an appeal, can furnish no ground for not following a judicial precedent, unless its operation has been suspended by a competent Court. If this healthy rule is not followed, it would lead to undue harassment to assessees and result in chaos in the administration of tax laws.

ii) Secondly, we hold that the doctrine of binding precedents plays a vital role in tax jurisprudence. It is first required to be ascertained whether, in the facts and circumstances of the case and in law, a particular judicial precedent is factually and legally in consonance with the case in hand or not. If it is found that the precedent relied upon is distinguishable, then such parameters based on which it is distinguishable need to be described in the order. The Respondent has not assigned any cogent reasons for distinguishing the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (supra) from that of the Petitioner.

iii) If the assessee is pleading that its interpretation of the applicability of Section 115JC has already been decided by the jurisdictional Tribunal, then in such a case, the Respondent ought to have considered the facts and law of the said case. If the facts are identical, then it ought to have been followed. We are of the view that if in the facts and circumstances of the case and in law, the case of the Petitioner is in consonance with the facts in the decision rendered by the jurisdictional Tribunal, then it ought to be followed as a matter of judicial discipline.

iv) Even though in the return of income the taxes were determined and paid pursuant to Section 115JC, the same can be challenged by the Petitioner if being levied without the authority of law. Just because an assessee is under a bona fide mistake of law paid tax which was not exigible as such, cannot by itself, with nothing more, be a ground for the Respondent for not granting legitimate relief under the law we are of the view that provisions of Section 264 would also cover within its ambit a claim which is not made in the Return of Income Thus, we are of the view that provisions of Section 264 would also cover within its ambit a scenario where intimation is issued u/s. 143(1) accepting the returned income of the Petitioner.

v) The matter is remanded to the Respondent to pass a fresh order on the application of Petitioner to consider the applicability of the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (supra) and direct the Respondent to ascertain whether the relevant facts in the case of S.K. Ventures vs. ITO (supra) viz-a-viz facts of the present case are identical or not (w.r.t. ascertaining the applicability of the provisions of Section 115JC) within a period of four weeks from the date of uploading of the present order. If it is found that the facts in the case of S.K. Ventures vs. ITO (supra) are identical to the present case, then the ratio laid down in the said order should be followed.”

Offences and prosecution — Compounding of offences — Delay — Compounding application was rejected solely on the ground of delay of 36 months from date of filing complaint — Held, limitation period stipulated in CBDT guidelines — Guidelines treated as binding statutes without exercising discretion — Where Act provided no limitation period, rigid time-line through guidelines is impermissible — Held, mechanical rejection of application without considering facts and circumstances is improper — Order set aside and matter remanded for reconsideration exercising proper discretion.

54. L.T. Stock Brokers (P) Ltd. vs. CIT: (2025) 480 ITR 26 (Bom): 2025 SCC OnLine Bom 517

Date of order 04/03/2025

S. 279(2) of ITA 1961

Offences and prosecution — Compounding of offences — Delay — Compounding application was rejected solely on the ground of delay of 36 months from date of filing complaint — Held, limitation period stipulated in CBDT guidelines — Guidelines treated as binding statutes without exercising discretion — Where Act provided no limitation period, rigid time-line through guidelines is impermissible — Held, mechanical rejection of application without considering facts and circumstances is improper — Order set aside and matter remanded for reconsideration exercising proper discretion.

A complaint was filed by the Income Tax Department against the assessee company for offences under the Income-tax Act, 1961. The assessee filed an application u/s. 279(2) of the Act for compounding the offences. The Chief Commissioner’s the application by an order dated January 17, 2024, solely on the ground that it was filed beyond 36 months from the date of filing of the complaint against the petitioners. The Chief Commissioner has relied upon paragraph 9.1 of the CBDT guidelines dated September 16, 2022 ((2022) 447 ITR (Stat) 25) for compounding offences under the Income-tax Act, 1961.

The assessee filed a writ petition challenging the order. The Bombay High Court allowed the petition and held as under:

“i) The CBDT guidelines of 2014 ((2015) 371 ITR (Stat) 7) which in para 8 referred to the period of limitation, does not exclude the possibility that in the peculiar case where the facts and circumstances so required, the competent authority should consider the explanation and allow the compounding application. This means that notwithstanding the so-called limitation period, in a given case, the competent authority can exercise discretion and allow compounding application.

ii) The competent authority has treated the guidelines as a binding statute in the present case. On the sole ground that the application was made beyond 36 months, the same has been rejected. The competent authority has exercised no discretion as such. The rejection is entirely premised on the notion that the competent authority had no jurisdiction to entertain a compounding application because it was made beyond 36 months. Such an approach is inconsistent with the rulings of this court, the Madras High Court and the hon’ble Supreme Court ruling in the case of Vinubhai Mohanlal Dobaria vs. Chief CIT [(2025) 473 ITR 394 (SC); 2025 SCC OnLine SC 270.] relied upon by the learned counsel for the Revenue.

iii) We set aside the impugned order dated January 17, 2024 and direct the Chief Commissioner to reconsider the petitioner’s application for compounding in the light of the observations made by the hon’ble Supreme Court in Vinubhai Mohanlal Dobaria vs. Chief CIT [(2025) 473 ITR 394 (SC); 2025 SCC OnLine SC 270.]. This means that the Chief Commissioner will have to consider all facts and circumstances and decide whether such facts make out the case for exercising discretion in favour of compounding the offence.”

Charitable trust — Exemption u/s. 11 — Exception u/s. 13 — Salary paid to chairperson treated as payment to person prohibited u/s. 13(3) — AO held the payment is excessive and disallowed 30 per cent of the salary u/s. 40A(2)(a) — CIT(A) deleted addition finding salary reasonable — Tribunal dismissed the appeal filed by Department after examining qualification and experience of chairperson — Held, reasonable remuneration for services rendered did not constitute benefit u/s. 13(1)(c) — Assessee entitled to exemption u/s. 11.

53. CIT(Exemption) vs. IILM Foundation: (2025) 480 ITR 1 (Del): 2025 SCC OnLine Del 2540

A. Ys. 2009-10 to 2011-12: Date of order 21/04/2025

Ss. 11, 12 and 13 of ITA 1961

Charitable trust — Exemption u/s. 11 — Exception u/s. 13 — Salary paid to chairperson treated as payment to person prohibited u/s. 13(3) — AO held the payment is excessive and disallowed 30 per cent of the salary u/s. 40A(2)(a) — CIT(A) deleted addition finding salary reasonable — Tribunal dismissed the appeal filed by Department after examining qualification and experience of chairperson — Held, reasonable remuneration for services rendered did not constitute benefit u/s. 13(1)(c) — Assessee entitled to exemption u/s. 11.

The assessee was a charitable trust registered u/s. 12A of the Income-tax Act, 1961. The assessee was predominantly engaged in activities of imparting education through various educational institutions. The relevant assessment years are 2009-10 to 2011-12. The Assessing Officer held the salary paid to the assessee’s chairperson was excessive and not commensurate with her educational qualifications, experience and duties, and since she was a related party being chairperson, disallowed 30 per cent of the payments u/s. 40A(2)(a) of the Act.

The Commissioner (Appeal) deleted the addition finding that the salary is reasonable and following consistence with the A. Y. 2008-09. The Tribunal dismissed the appeal filed by the Revenue. The Tribunal examined the additional evidence regarding the chairperson’s qualifications and contributions and held that the salary was justified and not unreasonable. The Tribunal held that section 13(1)(c) r.w.s. 13(2)(c) did not bar payment of reasonable salary to persons mentioned in section 13(3) for services rendered.

The Delhi High Court dismissed the appeal filed by the Department and held as under:

“i) A plain reading of sub-section (1) of section 13 of the Act indicates that exemptions under section 11/12 of the Act would not operate so as to exclude from the total income of the previous year any income, which is directly or indirectly, for the benefit of the person referred to in sub-section (3) of section 13 of the Act. It is, thus, clear that if any part of the income of a trust for charitable or religious purposes is diverted for the direct or indirect benefit of a person referred to in sub-section (3) of that Act, that part of the income would not be excluded from the total income of the assessee by virtue of section 11/12 of the Act. In other words, the exemption under those sections would not be available to the extent that the said income of a charitable or religious purposes is applied for the benefit of a person specified in sub-section (3) of section 13.

ii) By virtue of clause (c) of sub-section 2 of the Act if any amount is paid by way of a salary or allowance to a person, which is specified under sub-section (3) of section 13 of the Act, it would be deemed that the income of the property or trust has been applied for the benefit of that person for the purposes of clauses (c) and (d) of sub-section (1) of section 13. However, if a person specified under sub-section (3) has rendered any service and the amount or allowance paid to such person is such, that is, reasonably paid for such services, the same cannot be deemed to have been applied for the benefit of the said person for the purposes of clause (c) or (d) of section 13(1) of the Act. This is apparent from the plain language of clause (c) of sub-section (2) of section 13 of the Act. The opening words of the said clause must be read in conjunction with the last words of the said clause—”if any amount is paid by way of salary, allowance or otherwise… in excess of what may be reasonably paid for such services”. Thus, if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid to such a person. Consequently, such payment would not fall within the exception of clause (c) of sub-section (1) of section 13 of the Act.

iii) The order of the Tribunal holding that the assessee had not violated the provisions of section 13(1)(c) in remunerating its chairperson for the services rendered was not perverse.

iv) In view of the above the questions of law as noted above is answered in favour of the assessee and against the Revenue.”

Appeal to High Court u/s. 260A — Additional question of law raised for first time in High Court — Jurisdiction of High Court — General principles — Assessee-company merged with another and ceased to exist — Assessment in name of non-existing entity(Merged company) — Question whether assessment order passed on non-existing entity is void — Question involving jurisdictional issue not raised before Tribunal — Whether merits consideration — Held by High Court that the additionally proposed question of law involved in these appeals is involving jurisdictional issue and hence included.

52. Reliance Industries Ltd. vs. P.L. Roongta: (2025) 479 ITR 763 (Bom): 2025 SCC OnLine Bom 3676

A. Ys. 1993-94 to 1995-96: Date of order 20/01/2025

Ss. 143(3) and 260A of ITA 1961

Appeal to High Court u/s. 260A — Additional question of law raised for first time in High Court — Jurisdiction of High Court — General principles — Assessee-company merged with another and ceased to exist — Assessment in name of non-existing entity(Merged company) — Question whether assessment order passed on non-existing entity is void — Question involving jurisdictional issue not raised before Tribunal — Whether merits consideration — Held by High Court that the additionally proposed question of law involved in these appeals is involving jurisdictional issue and hence included.

In this case the assessee-company had amalgamated with the another company. The Assessing Officer had knowledge of amalgamation. However, the assessment order was passed in the name of the non-existing amalgamating entity. As such the assessment was void. However, the ground that the assessment was void was not taken in appeal before the CIT(A) and also the Tribunal.

The question before the Bombay High Court was that whether the ground that the assessment order was void can be raised first time in the High Court in an appeal u/s. 260A of the Income-tax Act, 1961. The High Court allowed the writ petition and held as under:

“i) Mr. Mistri proposes the following question:

‘Whether on the facts and in the circumstances of the case and in law, the assessment order under section 143(3) of the Act passed on a non-existent entity is bad in law, void ab initio?’

ii) Section 260A(4) of the Income-tax Act, 1961 provides that the appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question. However, the proviso to this sub-section states that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

iii) Usually, for a case to “involve” such a question, the same should have been raised before the original authority or at least the appellate authorities. When a question was never raised before the original authority or the appellate authorities, then, typically, it would not be easy to hold that such a question was involved and, therefore, should be framed by exercising the powers under the proviso to sub-section (4) of section 260A of the Income-tax Act. However, to the above general proposition, there are exceptions. Suppose a question of law goes to the root of the jurisdiction, and there is no necessity to investigate new facts or if there is no serious dispute on the facts. In that case, such a question can be framed even though the same may not have been raised in the earlier proceedings before the original or appellate authority. Consent, per se, cannot confer jurisdiction upon an authority where such jurisdiction is inherently lacking.

iv) In Ashish Estates and Properties Pvt. Ltd. vs. CIT [(2018) 96 taxmann.com 305 (Bom).] , the co-ordinate Bench of this court held that a question which was not raised before the Tribunal should not ordinarily be allowed to be raised in an appeal u/s. 260A unless it was a question on the issue of jurisdiction or question, which went to the root of the jurisdiction.

v) In Santosh Hazari vs. Purushottam Tiwari [(2001) 251 ITR 84 (SC); (2001) 3 SCC 179; 2001 SCC OnLine SC 375; AIR 2001 SC 965.] , the hon’ble Supreme Court held that an entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstances of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.

vi) In CIT vs. Jhabua Power Ltd. [(2015) 13 SCC 443; 2013 SCC OnLine SC 1228; (2013) 37 taxmann.com 162 (SC).], the two questions set out in paragraph 3 of the order were sought to be raised for the first time before the hon’ble Supreme Court. Both the questions related to the issue of limitation and, in that sense, did go to the root of the jurisdiction. The court held that these two questions were required to be answered first by the Income-tax Appellate Tribunal. Therefore, the appeal was allowed, the decisions of the High Court and the Tribunal were set aside, and the matter was remanded to the Tribunal to decide the questions of law relating to limitation after affording an opportunity of hearing to both parties.

vii) For all the above reasons, we are satisfied that the question proposed by Mr. Mistri is involved in these appeals, and, therefore, we frame the above question in all these appeals. If answered in favour of the assessees, the question would go to the root of jurisdiction.”

Document Identification Number – mandate of Circular 19/2019 dated 14.08.2019 sets out the requirement of all communications from the department to bear a DIN. Section 154(7) – Rectification – Not permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed.

20. Siemens Limited vs. Deputy Commissioner of Income Tax, Circle, 8(2)(1), Mumbai & Ors

[WRIT PETITION NO. 2747 OF 2025 (BOM)(HC) dated 02/12/2025]

A.Y. 2005-06

Document Identification Number – mandate of Circular 19/2019 dated 14.08.2019 sets out the requirement of all communications from the department to bear a DIN.

Section 154(7) – Rectification – Not permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed.

The Petitioner challenged the validity of an order passed by Respondent under Section 154 of the Act, dated 29.03.2024. The impugned order did not bear a Document Identification Number (for short “DIN”). The Petitioner also challenged the intimation letter dated 10.07.2024 issued by Respondent, providing a DIN to the impugned order, when the impugned order was passed contrary to the Central Board of Direct Taxes Circular No. 19/2019 dated 14.08.2019.

The Petitioner filed its original Return of Income on 28.10.2005, declaring a total income of ₹253.76 Crores and filed a revised Return of Income on 30.03.2007 declaring a total income of ₹246.59 Crores. Since there were international transactions involved, Respondent No. 1 (AO) made a reference to Respondent No. 2 [the Transfer Pricing Officer (TPO)] under Section 92CA(1) of the Act for computing the Arm’s Length Price in relation to those international transactions entered into by the Petitioner. The TPO passed an order dated 20.02.2008 under Section 92CA(3) of the Act, recommending an addition of ₹47.53 Crores to the Arm’s Length Price in the transactions entered into by the Petitioner in 4 out of its 9 divisions, as there were mistakes in the recommendations / order of the TPO, the Petitioner filed Rectification Applications dated 25.02.2008 and 28.02.2008 to rectify various errors that had crept into the TPO’s order.

While this rectification was pending, Respondent No. 1 passed an Assessment Order dated 31.12.2008 under Section 143(3) of the Act, making the transfer pricing adjustment of ₹47.53 Crores recommended by the TPO, and in addition thereto, made other corporate tax additions aggregating ₹69.89 Crores, thereby assessing the total income of the Petitioner at ₹364.01 Crores.

Thereafter, the TPO passed an order dated 20.01.2009 under Section 154 of the Act, correcting the mistakes apparent on the record in his order dated 20.02.2008, and consequently, deleted the additions in (i) the AD & PTD Division, and (ii) the Medical Division – Manufacturing. However, the TPO did not rectify the mistake in the Medical Division – Distribution, and the Video Division.

On 29th January 2009, the Petitioner filed an Appeal before the Commissioner of Income Tax (Appeals) against the Assessment Order dated 31.12.2008, passed by Respondent No.1. In the meanwhile, to implement the TPO’s order dated 20.01.2009, Respondent No. 1 passed a rectification order dated 09.03.2011 under Section 154 of the Act revising the total income of the Petitioner to ₹337.52 Crores.

Subsequently, the CIT(A) passed an order dated 29.03.2019 under Section 250 of the Act, partly allowing the Appeal of the Petitioner, by which order he directed the TPO to recompute the adjustment made to the Arm’s Length Price of the international transactions in terms of his directions.

Being aggrieved by the order of the CIT(A), the Petitioner filed an Appeal to the Income Tax Appellate Tribunal on 06.06.2019 challenging both, the corporate tax issues, as well as the issues relating to the transfer pricing addition made to transactions in respect of two of its divisions.

The TPO passed an order dated 05.03.2020 giving effect to the order of the CIT(A) and deleted the transfer pricing adjustment of ₹34.92 Crores (i.e. in respect of transactions in the Medical Division – Distribution of ₹32.21 Crores, and in the Video Division of ₹2.71 Crores).
Consequently, Respondent No. 1 passed an order dated 16.03.2020 giving effect and deleted the transfer pricing adjustment of ₹34.92 Crores along with other reliefs granted by the CIT(A) of ₹24.01 Crores, and determined the revised total income of the Petitioner at ₹278.60 Crores.

Subsequently, when the appeal before the Tribunal initially came up for hearing, and the fact that the grounds relating to the transfer pricing addition had become infructuous in view of the order passed by the TPO was pointed out, the Members requested the Petitioner to file revised grounds of Appeal in Form No. 36 after excluding the grounds relating to the transfer pricing adjustment. Accordingly, the Petitioner filed a revised Form No. 36 on 20.06.2022 by excluding the transfer pricing grounds.

After all this, suddenly the TPO issued a notice dated 21.03.2024 whereby he proposed to rectify his order dated 05.03.2020 and withdraw the relief of ₹32.21 Crores granted in respect of the transactions in the Medical Division – Distribution. The Petitioner addressed a letter dated 26.03.2024 pointing out that there was no mistake apparent on record which could be rectified under Section 154 of the Act. However, the TPO passed a rectification order dated 27.03.2024 rectifying the order passed by him on 05.03.2020, while giving effect to the CIT(A) order, and thereby, made a revised transfer pricing adjustment of ₹32.21 Crores to the transactions of the Medical Division – Distribution.

Since the appeal before the Tribunal was still pending, the Petitioner filed another revised Form No. 36 on 12.04.2024, reinstating the transfer pricing grounds filed originally on 06.06.2019, in view of the order dated 27.03.2024 passed by the TPO.

Thereafter, Respondent No. 1 issued a notice dated 20.06.2024 seeking to initiate rectification proceedings under Section 154 of the Act and fixed the hearing on 01.07.2024. The Petitioner replied thereto by a letter dated 01.07.2024, pointing out that the proposed rectification proceedings are time-barred, as no rectification is permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended was passed, having regard to the provisions of Section 154(7). The Petitioner pointed out that Respondent No. 1 proposed to rectify his earlier order dated 16.03.2020, which could only be rectified till 31.03.2024 and that initiation of rectification proceedings under Section 154 was not permissible. Without prejudice to the above, the Petitioner also pointed out that the matter was outside the scope of Section 154 of the Act as the issue is highly debatable and cannot be termed as a mistake apparent on record and only a glaring, obvious or self-evident mistakes can be subjected to rectification proceedings under Section 154 of the IT Act.

An employee of the Petitioner, to his utter shock and surprise, saw the impugned order purportedly dated 29.03.2024 for the first time on the income tax portal on 17.07.2024. The impugned order was not received by the Petitioner, either by email, or by physical delivery.

Respondent No. 1, thereafter, uploaded the impugned letter dated 10.07.2024 (which too was never received either by email or by physical delivery by the Petitioner) and an employee of the Petitioner noticed the impugned letter for the first time on 17.07.2024 while accessing the income tax portal. The intimation letter mentioned that the order under Section 154 read with Section 250 of the Act dated 29.03.2024 has DIN ‘ITBA/REC/M/154/2024-25/1066567478(1).’

The Petitioner challenged the impugned order and the impugned letter issued by Respondent No. 1 by filing a writ petition. The primary challenge was that:- (i) the impugned order is illegal inasmuch as it does not, on the face of it, have a DIN and is, thus, contrary to the mandate of the CBDT Circular 19/2019; and (ii) is not passed on the day it is purported to be dated, i.e., 29.03.2024 as the same officer who allegedly passed the order on 29.03.2024 issued a notice dated 20.06.2024 asking the Petitioner to Show Cause on or before 1.07.2024 as to why the rectification proceedings under Section 154 of the Act should not be initiated to rectify the order passed by him on 16.03.2020.

The Petitioner relied on the mandate of Circular 19/2019 dated 14.08.2019 which sets out the requirement of all communications from the department to bear a DIN. The CBDT has elaborately set out the manner in which a DIN is required to be generated, allotted and duly quoted in the body of any notice, order, summons, letter or any correspondence issued by any income tax authority on or after 1.10.2019. The only exceptions to this requirement are set out in paragraph 3 of the Circular and the said paragraph also details out as to how care is to be taken to bring the case within the exceptional circumstances. Paragraph 4 makes it amply clear that any “communication” which is not in conformity with the provisions of paragraphs 2 and 3 will be invalid and deemed to have never been issued. Accordingly, it was submitted that the order purported to be dated 29.03.2024 is to be set aside on this narrow ground. It was further submitted that the order, on the face of it, does not refer to any of the exceptional circumstances as mentioned in paragraph 3 of the said Circular being applicable and, in any event, even if such circumstances existed, the same would have to be regularised within a period of 15 working days of its issuance by compulsorily generating the DIN and communicating the DIN to the Petitioner which has not been done by Respondent No. 1. The impugned letter dated 10.07.2024 was not communicated to the Petitioner by either email or physical delivery and from the Affidavit-in-reply it was noted that the impugned letter was sent only on 16.07.2024 by Respondent No. 1, and that too, to a wrong email ID. Further, no approval of the Chief Commissioner / Director General of Income Tax has been obtained before passing the impugned order manually which was also in contravention to paragraph 3 of the said Circular. In this regard, reliance was placed on the judgments of this Court in Ashok Commercial Enterprises vs. ACIT (2023) 459 ITR 100 (Bom) and Hexaware Technologies Ltd. vs. ACIT (2024) 464 ITR 430 (Bom) where this Court has emphasised the mandatory requirement of a document to have a DIN and the effect if it does not. Reliance was also placed on the judgement of the Madras High Court in CIT vs. Sutherland Global Services Inc (2025) 175 taxmann.com 897 (Mad) and CIT vs. Laserwoods US Inc (2025) 175 taxmann.com 920 (Mad) where the directions passed by the Dispute Resolution Panel without a DIN were held to be invalid. Further reliance was also placed on the judgments of the Delhi High Court in CIT vs. Brandix Mauritius Holdings Ltd. (2023) 456 ITR 34 (Del) as well as the Calcutta High Court in PCIT vs. Tata Medical Centre Trust (2023) 459 ITR 155 (Cal) wherein also a similar view of the mandatory nature of an order to have a valid DIN was taken. It was further submitted that the mere fact that aforesaid judgments of the Delhi High Court, Calcutta High Court and the Madras High Court in Sutherland Global Services Inc (supra) were stayed by the Supreme Court, did not mean that the judgments had lost their precedential value.

Without prejudice to the aforesaid the Petitioner next pointed out that Respondent No. 1 proposed to rectify his earlier order dated 16.03.2020, which could only be rectified till 31.03.2024, because Section 154(7) of the Act mandated that no rectification is permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed. It was further pointed out that the impugned order is back dated and could not have been passed on 29.03.2024 especially because the same individual who is purported to have passed the order dated 29.03.2024 issued a Show Cause Notice dated 20.06.2024 as to why a rectification order should not be passed, and fixed a time to respond by 1.07.2024. The Petitioner filed a detailed reply dated 01.07.2024 wherein it was, inter alia, pointed out that the proposed action is time barred having regard to the mandate of Section 154(7). It was urged that it was at this stage only that Respondent No. 1 realised his error and, thereafter, hastily took steps to back date the order before 31.03.2024. The back dating of the impugned order is also established by the impugned letter which provides the DIN of the impugned order as being “ITBA/REC/M/154/2024-25/1066567478(1)”. The use of the Financial Year 2024-25 in the DIN itself demonstrates that the DIN has been generated only in the Financial Year 2024-25 and hence, the impugned order was passed after 1.04.2024. In fact, orders / notices which indisputably are generated in the Financial Year 2023-24 have a DIN which makes a reference to the Financial Year 2023-24 . For all these reasons, it was submitted that the impugned order dated 29.03.2024 and the impugned letter dated 10.07.2024 be quashed.

The Respondent relied on the fact that the Petitioner has an alternate remedy available in the form of pursuing its Appeal before the Tribunal which is pending. Further, the Respondent sought to justify the impugned order and the impugned letter by submitting that the manual order was uploaded in the ITBA system and the same is reflected as generated on 29.03.2024 and the DIN was not generated due to a technical glitch. Further, it was pointed out that the delay in DIN generation does not invalidate the Assessment Order by relying on the Judgment of the Jharkhand High Court in Prakash Lal Khandelwal vs. CIT (2023) 151 taxmann.com 72 (Jha.). Additionally, it was pointed out that as per Circular No. 19/2019, the DIN is required only when the order is communicated to the Assessee and does not govern the passing of an order. The passing of an order, and communicating the said order, are two separate events. Time barring provisions apply to passing of the order, while DIN provisions apply to communication of the order. Reliance was also placed on Section 92CA of the Act.

In the rejoinder, the Petitioner has also objected to the tendering of the two Affidavits-in-Reply, one affirmed on 29.05.2025 (but not served on the Petitioner till 20.11.2025) and the other affirmed on 20.11.2025. It was contended that only the first Affidavit-in-Reply affirmed on 29.05.2025 should be considered as the second Affidavit-in-Reply is an afterthought and seeks to improve upon the lacuna in the Respondents’ case and should be ignored because both the Affidavits-in-Reply are affirmed by the same person, i.e., Assistant Commissioner of Income Tax, Circle 5(3)(1), Mumbai. It was only when the utter worthlessness of the first Affidavit was realised, an effort was made to improve upon the same by preparing the second one.

Further, the Petitioner pointed out that the delay in the DIN generation invalidates the order, and what is stated by the Respondents in the Affidavit-in-Reply was contrary to the Circular as it nowhere provides that the DIN is required only when the order is to be communicated to the Assessee and such an interpretation would frustrate the whole object of the Circular itself which was issued to maintain a proper audit trail. Hence, he pointed out that before passing an order a DIN has to be generated and quoted on the face of the order. Further, while dealing with the judgment of the Jharkhand High Court in Prakash Lal Khandelwal (supra), it was pointed out that the same is distinguishable on facts as it was a case where the order was passed on 31.03.2022, uploaded on 1.04.2022 and communicated to the Assessee on 3.04.2022 which is factually very different from the present case at hand and in any event the Judgment wrongly interpreted the Circular by holding that the ‘making of an order’, ‘issue of order’, ‘uploading of order on web portal’ or ‘Communicating of Order’ are all different acts or things and thereby, upheld the Assessment Order dated 31.03.2022 which was uploaded on 1.04.2022. The High Court, with respect, has also failed to appreciate the use of the word “communication” in the Circular covering within its ambit all notices, orders, letters, summons and correspondence.

Further, the Petitioner invited our attention to the provisions of Section 154(3) of the Act which specifically requires a notice to be issued by the concerned Authority to allow the assessee an opportunity of being heard, where an amendment has the effect of enhancing an assessment or reducing a refund or otherwise, and since Respondent No. 1 proposed to rectify his order dated 16.03.2020 to increase the assessed total income, albeit consequent to an order passed by the TPO, an opportunity of being heard is mandated by Section 154(3) and the impugned order cannot be passed before such a notice is issued and which, in fact, was issued only on 20.06.2024. Further it was pointed out that the impugned order is manually passed and back dated so as to save it from limitation.

The Honourable Court observed that on facts it was apparent that this was a case where Respondent No.1 has, in order to protect himself, back dated and manually passed the impugned order only to get over the period of limitation which expired on 31.03.2024.

The Honourable Court further referred to the CBDT Circular No. 19/2019 [F.No. 225/95/2019-ITA.II] dated 14.08.2019 . The Court observed that the object with which the Circular was issued by the CBDT was to ensure that a proper audit trail is maintained in respect of each and every notice / order / summons / letter / correspondence issued after 1.10.2019. The Supreme Court in Pradeep Goyal vs. UOI (2023) 1 SCC 566 also noted that the laudable object with which this requirement was introduced, albeit in the context of GST. Thus, a court ought to arrive at a conclusion which is in consonance with the object sought to be achieved, and it cannot be said that the failure to generate and quote a DIN on a document is a mere irregularity which can be ignored. The Court noted that the present case was one that exemplifies a situation whose occurrence was sought to be prevented by the CBDT, and cannot be brushed under the carpet by invoking Section 292B of the Act, or treating it as a mere procedural defect which is capable of being cured. There was no doubt that the impugned order being a rectification order under Section 154 of the Act would fall within paragraph 1 of the CBDT Circular which covers a notice, order, summons, letter and any correspondence (which has been defined as ‘communication’ in the CBDT Circular). The fact that paragraph 2 stipulates “that no communication shall be issued by any Income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc., to the assessee” on or after 1.10.2019 would squarely cover the impugned order, and unless a DIN was quoted on the face of the impugned order, the impugned order was to be treated as invalid and deemed to never have been issued.

The Court further noted that in the present case, the impugned order does not bear a DIN on the face of the order and no exceptional circumstance is mentioned in the impugned order while passing it manually without a DIN. Further, in spite of two Affidavits being filed, there is no approval of either the Chief Commissioner or the Director General of Income Tax which has been brought on record. Thus, it can be safely presumed that none exists. Even assuming that the present case was covered by one of the exceptional circumstances, there has been an abject failure to regularise the defect within the prescribed time frame of 15 working days by Respondent No. 1. Respondent No. 1 has issued the impugned letter dated 10.07.2024 providing a DIN for the impugned order, but the impugned letter is not communicated to the Petitioner, and in any event is beyond the time period of 15 working days provided in the Circular to regularize the impugned order. The fact that the impugned order is manually passed without a DIN on the face of the order and without referring to any exceptional circumstances on the face of the order, the impugned letter separately furnishing the DIN for passing the impugned order, cannot validate the impugned order passed without a DIN, when no reasons are mentioned in the impugned order.

The Court further observed that the judgment of the Jharkhand High Court in Prakash Lal Khandelwal (supra) was wholly misplaced. The said facts, on the basis of which that judgment was rendered, are distinguishable from the facts of this case, where there was a delay of a single day in uploading the order and generating the DIN. Even otherwise, the Jharkhand High Court has not appreciated the true scope of the meaning given to the word “communication” in the Circular correctly, as it has misread the word “communication” which is defined in paragraph 1 of the Circular and held that it was mandatory to quote a DIN at the time of communication of a notice/order and not at the time of issuance thereof, overlooking that what the circular mandates is that every notice, order, summon, letter and any correspondence issued by an Income Tax Authority should have a DIN allotted and duly quoted on the body of such communication. The only exception to this, was set out in paragraph 3 of the said circular.

The Honourable Court observed that the judgments in Ashok Commercial Enterprises (supra) and Hexaware Technologies Ltd (supra) and the Madras High Court in Laserwoods US Inc (supra) have not been stayed and the mere fact that the orders of the Delhi High Court in Brandix Mauritius Holdings Ltd (supra), Calcutta High Court in Tata Medical Centre Trust (supra) and the Madras High Court in Sutherland Global Services Inc (supra) are stayed by the Supreme Court, does not mean that these judgments have lost their precedential value.

Thus, having regard to the facts, the court held that the impugned order is back dated. It was apparent that the time limit provided for in Section 154(7), viz., a period of 4 years from the end of the relevant Financial Year expired on 31.03.2024, as the order sought to be amended was dated 16.03.2020. The impugned order was not passed till 20.06.2024 as the same Assessing Officer, who has passed the impugned order allegedly on 29.03.2024, has issued a Show Cause Notice seeking to commence rectification proceedings under Section 154 of the Act.

Further, no separate Notice under Section 154(3) of the Act was issued by Respondent No. 1 granting an opportunity of being heard to the Petitioner even though the rectification order that was proposed to be passed was to give effect to an order passed by the TPO. As the effect of the order would have been to increase the total income, the mandate of Section 154(3) would have to be complied with by Respondent No. 1. The fact that the Notice was issued on 20.06.2024 itself shows that the impugned order could not have been passed before this date and by the time this Notice dated 20.06.2024 was issued, the time limit under Section 154(7) had already expired.

The Court held that due to the noncompliance with the requirements of the CBDT Circular as it is passed without a DIN or; from the fact that the same Officer has issued the Notice under Section 154(3) on 20.06.2024 and he could not have issued the impugned order before 20.06.2024 and he had back dated the order, shows that the impugned order is not valid and should be quashed.

As far as the argument of alternate remedy was concerned, the court observed that present case squarely falls within the realm of exceptions carved out by the Supreme Court in Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1, in other words, an alternate remedy would not operate as a bar where the impugned order was passed without jurisdiction.

In View Of The Above, It Was Held That Respondent No. 1 Had Acted Beyond Jurisdiction, And Accordingly The Impugned Order Dated 29.03.2024 Passed By Respondent No. 1 And The Impugned Letter Dated 10.07.2024 Issued By Respondent Was Quashed And Set Aside.

ICAI and Its Members

I. EXPOSURE DRAFT

EXPOSURE DRAFT OF IND AS 119

NEW ACCOUNTING STANDARD FOR SUBSIDIARIES

The Institute of Chartered Accountants of India (ICAI) has issued an Exposure Draft of Ind AS 119, “Subsidiaries without Public Accountability: Disclosures,” aligned with the recently issued IFRS 19 by the International Accounting Standards Board.

Scope: The standard provides reduced disclosure requirements for eligible subsidiaries that:

  • Do not have public accountability
  • Have an ultimate or intermediate parent producing IFRS-compliant consolidated financial statements available for public use

Purpose: Eligible subsidiaries can apply these simplified disclosure requirements instead of the full disclosure requirements in other Ind AS standards.

Effective Date: Annual reporting periods beginning on or after April 1, 2027 (aligning with the global IFRS 19 effective date of January 1, 2027)

Public Comments Invited:

The Accounting Standards Board invites stakeholders to submit comments on the Exposure Draft by March 5, 2026.

Submit Comments:

  • Online (Preferred): http://www.icai.org/comments/asb/
  • Email: commentsasb@icai.in
  • Postal: ICAI, New Delhi

Download the Exposure Draft: https://resource.cdn.icai.org/89774asb-aps3404.pdf

This development is part of India’s ongoing convergence with international accounting standards, ensuring consistency with global financial reporting practices.

II. ICAI TOOLS

ICAI CAVALRY: PSYCHOMETRIC TEST ASSESSMENT SERIES

Empowering Professional Excellence through Skill Assessment-ICAI CAvalry: Psychometric Test Assessment Series to assess the various Skills possessed by the Members of ICAI

ICAI has launched ICAI CAvalry, a comprehensive Psychometric Test Assessment Series designed to enhance the holistic development of Chartered Accountants by focusing on critical behavioural and cognitive competencies beyond technical expertise. In the modern professional landscape, technical proficiency alone is insufficient. Future-ready CAs must demonstrate leadership, influence, negotiation, and impactful communication skills while navigating complex business environments. This initiative addresses the need for professional agility, leadership, and resilience.

Skills to Be Covered: The series encompasses 18+ high-impact competencies. The assessments will rotate across the high-impact psychometric factors dealing with the skills such as Branding Skills, Communication Skills, Critical Thinking Skills, Design Thinking Skills, Emotional Intelligence, Entrepreneurial Skills, Interpersonal Skills, Leadership Skills, Listening Skills, Negotiation Skills, Networking Skills, Problem-Solving Skills, Public Speaking Skills, Team Building Skills, Time Management Skills, Work Ethics, Decision-Making Skills, New-Age Professional/Technological Skills, any other Skills

1st Psychometric Test Assessment to assess the Branding & Communication Skills

https://docs.google.com formsd/e/1FAIpQLSfwfTQum_kPSwlnwtDHx1djTbqJjLHi7naW0ERm4Vms0OXApQ/viewform

2nd Psychometric Test Assessment to assess the Critical and Designing Thinking Skills

https://docs.google.com/forms/d/e/1FAIpQLSeog5QP681yTVut02MgCehWDmlh-i_-Fu_6RMvyusHQHMKV6g/viewform

III. ICAI PUBLICATION

1. New Research Publication on Accounting for Digital Assets

The ICAI has published a comprehensive research report titled “Accounting for Digital Assets” addressing the emerging challenges in accounting for blockchain-based assets, cryptocurrencies, NFTs, and other digital instruments. The report analyses the global accounting landscape through IFRS, FASB, and Ind AS perspectives, with particular focus on regulatory gaps in India’s framework. It identifies core challenges in classification, recognition, measurement, and disclosure of digital assets under existing standards such as IAS 2, IAS 32, and IAS 38. The research provides empirical insights, expert opinions, and policy recommendations for standard setters, regulators, and businesses navigating this complex space. A key finding highlights that current accounting standards inadequately capture the unique nature and behaviour of digital assets, emphasizing the need for tailored recognition, measurement, and disclosure practices. This timely publication offers essential guidance to accounting professionals dealing with the complexities of the rapidly evolving digital asset ecosystem.

Link: https://resource.cdn.icai.org/89848research-aps3482-final-acc-for-digital-assets.pdf

2. RESOURCE MATERIAL ON PUBLIC PROCUREMENT

The ICAI Research Committee has published a comprehensive Resource Material on Public Procurement, recognising its critical role as the cornerstone of good governance and economic efficiency. Public procurement serves as a vital link between the utilisation of public funds and the delivery of goods, works, and services to citizens. As governments worldwide strive to ensure transparency, accountability, and value for money in public spending, this resource material provides professionals and policymakers with an essential understanding of procurement processes. The publication offers a detailed overview of conceptual, legal, and procedural aspects of public sector procurement, covering the Indian regulatory framework including General Financial Rules and Government Procurement Manuals, alongside international best practices from UNCITRAL, WTO (GPA), and the World Bank. This comprehensive guide equips stakeholders with the knowledge needed to navigate the complexities of public procurement effectively.

Link: https://resource.cdn.icai.org/89849research-aps3482-icai-sm-public-procurement.pdf

IV. EXPERT ADVISORY COMMITTEE OPINION

Accounting treatment of salary paid to staff/employees and cost related to food trials during testing phase prior to opening of a new restaurant, under Ind AS framework.

A. FACTS OF THE CASE

The Company is a private company incorporated in India and is engaged in owning and operating contemporary and fine-dine luxury restaurants under various brands. The Company typically opens 8–10 new restaurant outlets every year across India. In order to maintain uniform standards of food quality, ambience, lighting, cooling and service quality across all outlets from the first day of operations, the Company conducts food and beverage trials prior to opening a new outlet.

The Company installs various machinery and equipment in each outlet, such as kitchen equipment, air-conditioning systems, walk-in freezers, audio-visual equipment, lighting and ambience control systems, exhaust systems, STP plants, furniture and fixtures, IT systems, etc. Food and beverage trials, testing and calibration of equipment take about one month. For this purpose, personnel are recruited in advance to test and handle equipment and to prepare for the opening of the outlet.

The Company proposed to capitalise (i) employee benefit costs incurred during the testing phase and (ii) food and beverage material costs incurred during trial runs as part of the cost of construction of the outlet, relying on paragraphs 7, 16 and 17 of Ind AS 16 – Property, Plant and Equipment.

B. QUERY

Whether the accounting treatment proposed by the Company, i.e., capitalising:

(i) employee benefit costs, and

(ii) food and beverage material costs,

incurred during the testing phase prior to opening a new restaurant outlet, as part of the cost of property, plant and equipment under Ind AS 16, is correct.

C. POINTS CONSIDERED BY THE COMMITTEE

The Committee examined the issue solely from the perspective of Ind AS, particularly Ind AS 16. It noted that Ind AS 16 does not prescribe a single unit of account for PPE and that a restaurant outlet as a whole is generally not considered an item of PPE. Instead, individual assets such as kitchen equipment, air-conditioning systems, lighting systems, furniture, etc., constitute separate items of PPE.

The Committee emphasised that only costs directly attributable to bringing a specific asset to the location and condition necessary for it to operate as intended by management can be capitalised. Costs relating to opening a new facility, conducting business in a new location, or staff training are specifically excluded from capitalisation.

With respect to employee benefit costs, the Committee observed that salaries paid to chefs, kitchen staff and service personnel during trials were incurred to ensure consistency in service quality and customer experience, and not for construction or acquisition of any specific PPE. However, costs of technicians engaged during the testing phase for resolving technical issues necessary to make specific equipment operational could be capitalised, if clearly identifiable.

Regarding food and beverage material costs, the Committee noted that trial runs were conducted to standardise taste, presentation and consistency, and not to test whether equipment was capable of operating. Since the equipment was already capable of operating as intended, such costs did not add value to any specific asset and could not be considered directly attributable to PPE.

D. EAC’S OPINION

The Committee opined that capitalisation of employee benefit costs and food and beverage material costs incurred during the testing phase prior to opening a new restaurant outlet is not appropriate.

However, if it can be clearly demonstrated that a portion of employee benefit costs relates to technicians engaged in resolving technical operational issues necessary to bring specific PPE to the condition required for operation, such costs may be capitalised to that extent. All other employee benefit costs and food and beverage trial costs should be expensed as incurred.

Read Opinion in ICAI’s The Chartered Accountants December 2025 pages 131-135

Link: https://resource.cdn.icai.org/89673cajournal-dec2025-35.pdf

V. ICAI BOARD OF DISCIPLINE’S ORDERS

1. Case : Sh. Gajendra Prasad Panda vs. CA. A.K.P.

File No. : PR/836/2022/DD/34/2023/BOD/750/2024

Date of Order : 08.12.2025

Particulars Details
Nature of Case Alleged unauthorised conduct of tax audit and obstruction of incoming auditor
Background The Respondent had earlier acted as statutory auditor of the Complainant. After deterioration of professional relations, the Complainant decided to change the auditor. It was alleged that despite cessation of engagement, the Respondent forcibly added himself as auditor on the Complainant’s Income-tax portal and conducted the tax audit for FY 2021–22 without authorisation, and thereafter wrote to the incoming auditor advising him not to accept the assignment.
Key Allegations – Unauthorised addition of Respondent’s name on the assessee’s Income-tax portal and conduct of tax audit for FY 2021–22 without consent.

– Writing to the incoming auditor claiming completion of audit and alleging non-payment of tax liabilities by the Complainant, thereby attempting to obstruct change of auditor.
Respondent’s Defence – Allegations were mala fide and triggered by his refusal to issue an unqualified audit report contrary to law.

– He had completed the audit and issued a qualified report based on professional judgment and advised payment of additional tax.

– Communication to incoming auditor was factual, made in professional courtesy, without any intent to threaten or obstruct.
– After his DSC was taken by the Complainant’s representatives without authority, he did not upload the audit report and had no further role.
Findings – The allegation of unauthorised addition on the Income-tax portal was already dropped at the prima facie stage by the Director (Discipline).

– On the surviving charge relating to communication with the incoming auditor, the Board found no evidence of malafide intent, threat, or obstruction.

– The Respondent’s explanation was found credible and corroborated by surrounding circumstances.

– Mere communication of factual position to an incoming auditor does not constitute misconduct.
Charges Established None – No misconduct under Item (2), Part IV, First Schedule to the CA Act, 1949.
Decision Not Guilty

 

2. Case : CA. MNJ vs. CA. SSS

File No. : PR/54/2018/DD/63/2018/BOD/756/2024

Date of Order : 08.12.2025

Complainant Alleged lack of fairness and transparency in conduct of ICAI branch elections
Background The Respondent acted as Returning Officer for elections to the Managing Committee of the Satara Branch of WIRC of ICAI for the term 2016–2019. The Complainant alleged that the Respondent manipulated the election process to enable certain candidates to be elected unopposed by improperly accepting withdrawal of nominations after the prescribed deadline.
Particulars Details
Key Allegations – Respondent pressurised certain candidates to withdraw nominations.

– Withdrawal forms were emailed after the stipulated cut-off time of 6:00 PM on 29.01.2016.

– Despite absence of a valid withdrawal by one candidate, the Respondent displayed a final list of six candidates (equal to available seats) and declared them elected unopposed.

– Conduct allegedly lacked fairness and transparency, amounting to other misconduct.
Respondent’s Defence – No statutory rules or binding guidelines prescribe the manner of withdrawal of nominations in ICAI branch elections.

– Both concerned candidates had communicated their intention to withdraw telephonically before the deadline, on speakerphone, in the presence of branch officials.

– Actions were taken in good faith to ensure smooth conduct of elections and avoid unnecessary delay or expense.

– Complaint suffered from delay and issues of locus standi.
Findings – Witnesses (including the concerned candidates and Branch In-Charge) confirmed on oath that withdrawal intentions were communicated telephonically before the deadline.

– No evidence of mala fide intent or manipulation by the Respondent was established.

– In absence of any clear statutory procedure for withdrawal of nominations, reliance on telephonic confirmation, in good faith, could not be faulted.

– The Complainant himself committed errors in invoking a non-existent clause in the complaint.
Particulars Details
Charges Established None – No other misconduct under Item (2), Part IV, First Schedule to the CA Act, 1949.
Decision Not Guilty

 

3. Case : Shri AG vs. CA. VT

File No. : PR/452/2022/DD/449/2022/BOD/769/2024

Date of Order : 08.12.2025

Complainant     : Shri AG, Director – M/s LFS Pvt. Ltd.
Nature of Case Alleged acceptance of statutory audit without prior written communication with previous auditor
Background The Respondent was appointed statutory auditor of the company for FYs 2020–21 to 2022–23. The Complainant alleged that the Respondent accepted the audit without obtaining a written No Objection Certificate (NOC) from the previous auditor, exerted pressure to procure the NOC, retained company documents, failed to resign formally, and did not file Form ADT-3, thereby obstructing appointment of a new auditor.
Key Allegations – Accepted audit assignment without written communication/NOC from previous auditor.

 
Particulars Details
– Pressurised the company to obtain NOC and threatened discontinuation of audit work.

– Failed to formally resign and to file Form ADT-3, allegedly blocking appointment of another auditor.
Respondent’s Defence – Previous auditor had no objection; verbal NOC was received through a professional intermediary and later confirmed in writing.

– Dispute arose due to non-payment of audit fees (₹9,500 outstanding).

– Allegations were motivated to avoid payment; any lapse was procedural and bona fide.
Findings – The complaint was filed without a valid Board Resolution authorising
initiation of disciplinary proceedings on behalf of the company.
 

 

 – The purported resolution was found to be an afterthought and not a valid authorisation.

– In absence of statutory authorisation, the complaint was void ab initio; merits were not examined.
Charges Established None
Decision Not Guilty; complaint dismissed and case closed under Rule 15(2).

 

Glimpses of Supreme Court Rulings

11. National Cooperative Development Corporation vs. Assistant Commissioner of Income Tax – SC

(2025)181 Taxmann.com 333-SC

Deductions – Section 36(1)(viii) provides a deduction of “profits derived from the business of providing long-term finance” in respect of any financial corporation engaged in providing long-term finance for industrial or agricultural development – The phrase “derived from” must be interpreted much more narrowly than the phrase “attributable to” – It requires a direct or immediate nexus with the specific business activity, for if the income is even a “step removed” from the business in question, that nexus is snapped – The deduction is limited to income from “first degree” sources and explicitly keeps out “ancillary profits” of the undertaking

The current litigation concerns several assessment years in which the Assessee, a statutory corporation mandated to advance initiatives for the production, processing, and marketing of agricultural produce and notified commodities in accordance with cooperative principles, sought deductions under Section 36(1)(viii) of the Income-tax Act, 1961 (‘the Act’).

In the Assessment Order, the AO proceeded to consider each of the receipts independently. As regards the dividend income, the AO held that this was a return on investment in shares, which is legally distinct from interest earned on long-term loans. Similarly, with respect to the interest on short-term bank deposits, the AO reasoned that these accrued from the investment of idle surplus funds in the interim period, rather than from the core activity of providing agricultural credit. As regards service charges received for the Sugar Development Fund (SDF), the AO noted that the Assessee was acting merely as a nodal agency for the Central Government. The funds disbursed belonged to the government, and the Assessee received a service fee for its administrative role in monitoring these loans. Consequently, the AO concluded that none of these three streams of income could be characterised as “profits derived from the business of providing long-term finance” as envisaged by the Act. Accordingly, the AO disallowed the deductions claimed on these counts and added them back to the total income of the Assessee.

Aggrieved by the Assessment Order, the Assessee preferred an appeal before the CIT(A). The CIT(A) upheld the disallowances relying heavily on the legislative intent and the definition of “long-term finance” in the Explanation to Section 36(1)(viii). This view was subsequently affirmed by the Income Tax Appellate Tribunal (ITAT) and finally by the High Court.

The High Court affirmed the findings of the lower authorities. Addressing the Assessee’s argument regarding dividend income, the High Court held that under Section 85 of the Companies Act, 1956 preference shares are part of share capital and cannot be treated as loans. The Court reasoned that a shareholder is not a creditor and cannot sue for debt; therefore, investments in redeemable preference shares do not satisfy the definition of “long-term finance” which requires a “loan or advance” with repayment of “interest.” Thus, dividends derived from such shares were not deductible under Section 36(1)(viii).

Regarding the interest on short-term deposits, the High Court upheld the Tribunal’s finding that this income was derived from the investment of idle funds during the interregnum period. The Court concluded that such interest is a step removed from the business of providing long-term finance. Since the immediate source of this income is the bank deposit and not a long-term loan extended by the Assessee, the strict requirements of the “derived from” test were not met.

On the issue of service charges for Sugar Development Fund (SDF) loans, the High Court noted the admitted factual position that the loans were funded by the Government of India, not by the Assessee. The Assessee merely acted as a nodal agency for monitoring and disbursement. Since the Assessee’s own funds were not involved, and it received service charges rather than interest, the Court held that the Assessee could not be considered to be carrying on the business of providing long-term finance in this specific context. Consequently, this income stream was also excluded from the deduction.

According to the Supreme Court, the question for adjudication before it in this batch of appeals was whether the National Co-operative Development Corporation (NCDC), Appellant-Assessee, was entitled to deductions under Section 36(1)(viii) of the Act in respect of three specific heads of income, being, (i) Dividend income on investments in shares, (ii) Interest earned on short-term deposits with banks, and (iii) Service charges received for monitoring Sugar Development Fund loans.

The Supreme Court noted that the relevant statutory provision, Section 36(1)(viii) allows for a specific deduction in computing the income referred to in Section 28. The Section provides a deduction in respect of any financial corporation engaged in providing long-term finance for industrial or agricultural development. The deduction is capped at an amount not exceeding forty percent of the “profits derived from such business of providing long-term finance.” The Explanation to the Section defines “long-term finance” to mean any loan or advance where the terms provide for repayment along with interest during a period of not less than five years.

The Supreme Court further noted that this strict framework was introduced intentionally by the Finance Act, 1995. Before this amendment, the provision allowed deductions based on the “total income” of the corporation. Parliament noticed that financial corporations were diversifying into activities unrelated to agricultural financing but were still claiming tax benefits on their entire profit. The amendment was introduced to fix this “mischief” by ensuring that the deduction is restricted only to profits that come directly from the core activity of providing long-term credit.
According to the Supreme Court, this intent was explicitly stated in the Memorandum explaining the Finance Bill, 1995, which explained why the amendment was necessary.

The Assessee contended before the Supreme Court that the phrase “derived from” should be interpreted broadly. Relying on CIT vs. Meghalaya Steels Ltd. 2016:INSC:253 : (2016) 6 SCC 747, it was argued that if a receipt flows directly from the business and is chargeable under Section 28, the Assessee qualifies for the said deductions. Also, that the distinction between “attributable to” and “derived from” is artificial when the business is indivisible. Conversely, the Respondent had submitted that judicial authority has consistently held that “derived from” signifies a strict, first-degree nexus. For this proposition reliance was placed on CIT vs. Sterling Foods 1999:INSC:190 : (1999) 4 SCC 98, Pandian Chemicals Ltd. vs. CIT (2003) 5 SCC 590 and Liberty India vs. CIT 2009:INSC:1094 : (2009) 9 SCC 328.

According to the Supreme Court, resolution of the competing perspectives would depend on the interpretation of the expression “derived from.” The Supreme Court agreed with the Respondent’s submission that this phrase connotes a requirement of a direct, first-degree nexus between the income and the specified business activity. The Supreme Court observed that it is judicially settled that “derived from” is narrower than “attributable to”, this distinction was lucidly clarified by it in Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978:INSC:83 : (1978) 2 SCC 644, where it was held that the legislature uses “derived from” when it intends to give a restricted meaning.

According to the Supreme Court, the phrase “derived from” whether used alone or as “derived from the business of” appears across multiple provisions of the Act, such as Section 80HHC and Section 80JJA and it has consistently held that this phrase requires a direct and proximate connection, or a “first-degree nexus,” between the income and the specific activity. The addition of the words “the business of” simply clarifies which activity is the source; it does not dilute the requirement for a direct link. Any interpretation suggesting otherwise would upset settled law.

According to the Supreme Court, the Assessee’s reliance on the decision in Meghalaya Steels (supra) was misplaced because the facts in that case were fundamentally different. In Meghalaya Steels (supra), the Court interpreted Section 80-IB, which allowed deductions for profits derived from “any business” of an industrial undertaking. The income in dispute there consisted of specific government subsidies given to reimburse the company for actual operational costs like transport, power, and insurance. The Court held that since these subsidies were essentially paying back the costs incurred to run the factory, they had a direct link to the profits of the business. Importantly, that judgment did not change the strict Rule regarding the phrase “derived from” established in earlier cases; it merely applied the Rule to a specific situation involving cost reimbursement,

The Supreme Court held that the present case, however, stood on a completely different footing. Unlike Section 80-IB which applies to “any business,” Section 36(1)(viii) is extremely narrow and restricts the deduction strictly to profits derived from “such business of providing long-term finance”. The disputed income here is not a reimbursement of business costs, nor does it come from the core activity of long-term lending. Therefore, the reasoning in Meghalaya Steels cannot be applied here to expand the scope of the deduction, as the specific statutory requirements and the nature of the income are entirely distinct.

Furthermore, the Supreme Court also rejected the Assessee’s attempt to portray its operations as a “single, indivisible integrated activity” to claim the deduction on all receipts. This specific argument was conclusively dealt with by it in Orissa State Warehousing Corpn. vs. CIT 1999:INSC:153 : (1999) 4 SCC 197, where the Assessee sought to claim an exemption under Section 10(29) for interest income on the ground that it was part of its integrated warehousing business.

In Orissa State Warehousing Corpn. (supra), the Court held that fiscal statutes must be construed strictly based on the plain language used. The Court explicitly rejected the “integrated activity” theory.

The Supreme Court held that the legal principles established by the decisions cited above set a strict threshold for eligibility. First, the phrase “derived from” must be interpreted much more narrowly than the phrase “attributable to”. Second, it requires a direct or immediate nexus with the specific business activity, for if the income is even a “step removed” from the business in question, that nexus is snapped. Third, the deduction is limited to income from “first degree” sources and explicitly keeps out “ancillary profits” of the undertaking. Finally, this Court refuses to accept the argument that Appellants business should be treated as a “single, indivisible and integrated activity” in order to expand the scope of a specific deduction.

The Supreme Court thereafter dealt with arguments made with respect of each of the three receipts.

Re: Dividend received on redeemable preference shares

The Assessee had argued that the substance of redeemable preference shares are effective loans, as fixed redemption Schedule and dividend rate assimilate them to the nature of debt. Resisting this, the Respondent draws our attention to the admitted factual position that these receipts are “investments in agricultural based societies by way of contribution to share capital”. The Respondent submitted that under Section 85 of the Companies Act, 1956, preference shares unequivocally remain share capital and cannot be treated as loans. Reliance is placed on the Constitution Bench decision in Bacha F. Guzdar vs. CIT (1954) 2 SCC 563 to demonstrate that dividends arise from the contractual relationship of shareholding, and the immediate source of the income is the investment in shares, not the activity of lending.

The Supreme Court observed that dividends are a return on investment dependent on the profitability of the investee company, and this distinction is fundamental to the genealogy of the income. The Constitution Bench decision in Bacha F. Guzdar (supra), established that dividend income is derived from the contractual relationship of the shareholder, not the underlying activity or the nature of the funds.

The Supreme Court further observed that a fundamental distinction exists between a shareholder and a creditor. The basic characteristic of a loan is that the person advancing the money has a right to sue for the debt. In stark contrast, a redeemable preference shareholder cannot sue for the money due on the shares or claim a return of the share money as a matter of right, except in the specific eventuality of winding up. This is also the reason for the Court, in Bacha F. Guzdar (supra), to hold that the immediate source of dividend income is the investment in share capital and not the business of providing loans. Since the statute specifically mandates ‘interest on loans’, extending this fiscal benefit to ‘dividends on shares’ would defy the legislative intent. Therefore, the Supreme Court concluded that dividend income does not qualify as profits derived from business of providing long-term finance.

Re: Interest on short-term deposits in banks

The Assessee had placed heavy reliance on the decision of the Supreme Court in National Co-operative Development Corporation vs. CIT 2020:INSC:544 : (2021) 11 SCC 357. They argued that the Supreme Court has already recognized that earning interest on idle funds is “interlinked” with their business and constitutes “business income” rather than “Income from Other Sources”. Based on this, the Assessee contended that their operations were a “single, indivisible integrated activity.” The Appellant contended that since the funds were parked temporarily only to be eventually used for lending, the interest earned on them should be treated as effectively “derived from” the business of providing finance.

The Supreme Court rejected this submission because it confuses two different concepts i.e. the classification of income and the eligibility for a specific deduction. There is a vital distinction between the general genus of “Business Income” and the specific species of “profits derived from the business of providing long-term finance”. Just because an income falls into the broad bucket of “Business Income” does not automatically mean it qualifies for the 40% deduction under Section 36(1)(viii) for the later specific species.

The Supreme Court observed that in NCDC (supra), the dispute was whether the corporation could deduct its expenses under Section 37. The revenue argued that the interest income was “Income from Other Sources,” which would have prevented the corporation from deducting business expenses against it. According to the Supreme Court, it was rightly held that since the funds were waiting to be lent out, the interest was “business income,” and therefore, normal business expenses could be deducted. However, the present case was not about deducting expenses; it was about claiming a special incentive deduction under Section 36(1)(viii). This Section is much stricter and requires more than just being “business income”; it requires the profit to be directly “derived from” long-term financing.

Furthermore, the NCDC judgment dealt with tax years 1976-1984. The law being interpreted in this case was amended significantly by the Finance Act, 1995. Parliament specifically changed the law to narrow the scope of this deduction because financial corporations were claiming benefits on all sorts of diversified income. Therefore, a judgment based on the old, broader law to interpret the new, stricter provision cannot be used. According to the Supreme Court, the amendment was designed precisely to stop the kind of broad “integrated business” claim the Assessee was making now. In NCDC (supra) the Court merely held that interest from short-term deposits was “business income” and not income from other sources. In the present case, the Revenue does not dispute that this is business income, but would contend that Section 36(1)(viii), as a special deduction provision operates on a much narrower plane.

The Supreme Court observed that even if a receipt is classified as “Business Income” under Section 28, it does not automatically qualify for the special deduction unless it satisfies the strict rigor of being “derived from” the specific activity of long-term finance defined in the Explanation. The legislative intent was to incentivize the specific act of providing long-term credit, not the passive investment of surplus capital. If it were to accept the Assessee’s argument, it would create a perverse incentive for financial corporations to park funds in safe, short-term investments and claim the 40% deduction, rather than fulfilling their statutory mandate of providing high-risk long-term credit to the agricultural sector. Consequently, interest earned from bank deposits failed this test as it is, at best, attributable to the business, but certainly not derived from the activity of providing long-term finance.

Re: Service Charge on Sugar Development Fund loans

The Assessee asserted that acting as a nodal agency for the Sugar Development Fund was part of its statutory mandate, and the service charges received were consideration for the core activity of facilitating long-term finance, irrespective of the fund’s origin. Per contra, the Respondent argued that these charges are merely “service fees” or agency commissions paid by the Government of India. The Respondent emphasized that since the
corpus belongs to the Government, the Assessee acted as an intermediary, not as the financier providing the loan.

The Supreme Court observed that deduction under Section 36(1)(viii) is predicated on the financial corporation “providing” the finance. In the case of SDF loans, the admitted factual position is that the funds belong to the Government of India. The Assessee bears no risk and utilizes no capital of its own.

The receipts in question were service charges paid by the Government for the administrative tasks of monitoring and disbursement. The proximate source of this income is the agency agreement with the Government, not the lending activity itself. A fee received for agency services cannot be equated with “profits derived from the business of providing long-term finance,” which implies the deployment of the corporation’s own funds and the earning of interest thereon. Consequently, this income stream was rightly excluded from the deduction.

The Supreme Court, upon a cumulative assessment of the statutory scheme and the judicial precedents cited, held that the claim of the Assessee was not correct in law.

For the above reasons, there was no merit in the appeals and consequently, the same were dismissed.

From The President

My Dear BCAS Family,

The new Labour Code 2019, representing one of the biggest labour reforms since independence, which consolidates 29 existing labour laws into 4 codes, Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code, aims at simplifying compliance and enhancing worker and employee welfare and protection, and has been notified for implementation effective 21st November, 2025. This has prompted me to focus on the theme of wellness and work-life balance and their impact on professionals and institutions like us.

The terms wellness and work-life balance are often used interchangeably. Wellness is not just physical fitness but is much more holistic, encompassing mental, emotional, social and even financial well-being.

Beyond Burnout

IMPACT ON PROFESSIONALS:

Our profession demands precision, rigour and stringent ethical standards, along with strong physical and mental health on an ongoing basis. Absence of the same could lead to chronic stress, burnout, diminished cognitive functioning, impaired decision-making, resulting in increased errors of judgement, thereby impacting the quality of our services to clients and other stakeholders. This has led to the adoption of sustainable practices in both our work and personal environments. A well-rested, mentally balanced professional is not only more productive, creative and collaborative, but also better equipped to navigate the complexities that define our professional role.

When professionals neglect their health and personal lives, the ripple effects touch families, teams and the broader organisational culture. When employees experience high burnout rates, the employers face increased attrition, diminished morale and reputational challenges—all of which impact service quality and client relationships.

As professionals, it is our individual as well as collective responsibility as employers to take mitigating steps to ensure that we promote wellness and work-life balance in the course of our professional duties and responsibilities.

Individual Responsibilities:

The journey toward wellness and work-life balance primarily requires personal commitment which entails taking the following steps, amongst others:

  • Set clear boundaries: Technology has blurred the lines between office and home. The “post-pandemic” scenario of work from home has further blurred these lines. We must learn to adopt a digital detox routine by designating tech-free hours and ensuring quality personal time.
  • Prioritise physical health: Regular exercise, adequate sleep and proper nutrition are not optional extras; they are professional tools that enhance performance. Even brief daily walks or stretching can make a measurable difference. The pandemic has also played a role in making us more health-conscious.
  • Invest in relationships: The demands of our profession should not come at the cost of meaningful connections with family and friends. These relationships provide emotional sustenance and perspective that work alone cannot offer.
  • Seek help when needed: Mental health struggles are not signs of weakness. Reaching out professionally to mitigate the same, whether through counselling, peer support, or therapy, should be regarded as an act of strength and self-awareness rather than shame and neglect.
  • Meaningful time management: Not all tasks carry equal weight. We must learn to distinguish between urgent and important. We must learn to delegate effectively whilst maintaining control and resisting the temptation to micromanage. Efficiency is not about doing more; it is about doing what matters most. Another important mantra that I have always practised is to learn to say no. Practising these results in meaningful time management and makes for an effective leader without increasing your blood pressure!
  • Financial Wellness- Planning for Peace of Mind: Ironically, as financial experts, we often spend more time managing clients’ wealth than our own. Financial wellness is not about having abundant wealth but having clarity, control, and confidence in one’s financial decisions. Whether it is retirement planning, risk management, budgeting, or investment discipline—peace of mind is a product of proactive planning. As professionals who are often the first responders in financial crises of others, we too must ensure that our financial foundations are sound and stress-free.

Collective Responsibility:

Wellness at workplaces is not just a personal goal but a shared responsibility. Firms, institutions, and professional bodies must lead by example by fostering respectful work cultures, discouraging toxic competitiveness and encouraging work-life balance. Leaders must set the tone at the top and support their teams. Policies framed must reflect compassion, not just compliance. Stakeholders are increasingly emphasising sustainable practices, which include wellness and work-life balance in their dealings. Finally, though the ICAI has also laid down guidelines regarding working hours for articled students since many small and medium sized firms rely on them, the ground realities reflect a different picture. It is our duty as responsible professionals to respect these guidelines both in letter and spirit to ensure healthy and balanced academic and professional growth for the younger generation who are our future.

BCAS’S ROLE:

As a responsible organisation, BCAS also resonates with what we as children have learnt in nursery rhymes that “All Work and No Play Makes Jack a Dull Boy”, by focusing on health and wellness apart from its focus on knowledge and education through various initiatives by the HR Committee. The recent CA THON and the forthcoming cricket tournament in early January 2026 are but a few of several such initiatives.

SUSTAINABLE SUCCESS VS. BEING BUSY:

To conclude, it would be appropriate to reflect on a profound quote by noted philosopher and author Henry David Thoreau in his book Life Without Principle where he emphasises about meaningful and sustainable work rather than being merely busy, both of which fit in with the philosophy of BCAS and its longevity and relevance over 77 years and many more to come!

“It is not enough to be busy; so are the ants. The question is: What are we busy about?”

I would like to end by wishing you all and your families a very happy and healthy 2026 and hope each one of you makes at least one “new-year resolution” of giving adequate attention to wellness and work-life balance in your daily lives!

A big thank you to one and all!

Warm Regards,

CA. Zubin F. Billimoria

President

From Published Accounts

COMPILER’S NOTE:

To unlock value and for infusing funds into specific businesses, corporates are today resorting to demergers of specific business undertakings with regulatory approvals. In most such cases of demerger especially those not under common control, the resultant company uses the principles of Appendix C of Ind AS 103 “Business Combinations” whereas the demerged company uses Appendix A of Ind AS 10 “Distribution of Non-cash Assets to Owners”. Also, in the absence of any specific Ind AS dealing with the accounting of demerger in the books of the transferor under a common control business combination, paras 10-12 of Ind AS 8 on “Accounting Policies, Changes in Accounting Estimates and Errors” is resorted to.

Given below are disclosures for a demerger of an undertaking of a large company having international operations.

Tata Motors Limited (from standalone results (audited) for the period ended 30th September 2025 (demerged company)

From to Results / Notes

1. Standalone audited financial results for the quarter and six months ended September 30, 2025 (‘the Statement’)

Particulars Quarter ended Six months ended Year ended
September 30, 2025 June 30, 2025* September 30, 2024* September 30, 2025 September 30, 2024* March 31, 2025*
Audited Audited Unaudited Audited Unaudited Audited
Profit/ (loss) for the period after tax from continuing operations (237) 3,854 15 3,617 1,296 1,538
Profit before exceptional gain and tax for the period from discontinued – 1,624 1,092 1,624 2,407 5,628
Exceptional gain on disposal of discontinued operations 82,318 – – 82,318 – –
Tax expense (net) of discontinued operations – 212 446 212 893 1,292
Profit for the period after exceptional gain and tax from discontinued operations 82,318 1,412 646 83,730 1,514 4,336
Profit before tax from continuing and discontinued operations (before exceptional gain) 138 6,347 1,410 6,485 4,513 8,004
Profit for the period 82,081 5,266 661 87,347 2,810 5,874

*Re-presented refer note 4

Note 4: Scheme of Arrangement

The Board of Directors has, at its meeting held on August 1, 2024, approved a Composite Scheme of Arrangement amongst Company, Tata Motors Limited (formerly TML Commercial Vehicle Ltd), Tata Motors Passenger Vehicles Limited and their respective shareholders under Section 230-232 of the Company’s Act, 2013 which inter alia provides for:

  • demerger, transfer and vesting of the commercial vehicles business of Company along with related investments (“Demerged Undertaking”) to Tata Motors Limited on a going concern basis; and
  • amalgamation of Tata Motors Passenger Vehicles Ltd with the Company with an objective of consolidating the passenger vehicles business.

The Company has received the National Company Law Tribunal (NCLT) order approving the Scheme on August 25, 2025, with appointed date of July 1, 2025. Upon filing with the Registrar of Companies “ROC”, the Scheme became effective from October 1, 2025. Pursuant to the approval and effectiveness of the Scheme:

  • Demerged Company has transferred all the assets, liabilities and reserves (including other components of equity and general reserve), valuing ₹11,579 crores at their respective carrying amounts, pertaining to Demerged Undertaking as appearing in the books of accounts of the Demerged Company, being transferred on account of demerger. Accordingly, the Demerged Company has reduced from its books of account, the carrying amounts appearing on the appointed date.
  • Having recorded the transfer of the assets and liabilities, as aforesaid, the Demerged Company has made necessary adjustments for the sake of compliance with Indian Accounting Standards (“Ind AS”) notified under Section 133 of the Companies Act, 2013, specifically Appendix A to Ind AS 10 ‘Distribution of Non cash assets to Owners’, and has created a liability at the fair value of the Demerged Undertaking with gain in the income statement (net of assets and Habllities transferred) with the corresponding debit to the Retained Earnings and extinguishing the liability of ₹82,318 crores. There is no impact on net worth for this gain booked in the results, accordingly the same is not considered for EPS calculations.

Fair value has been derived for each of the companies of Demerged Undertaking separately. Depending on the business and data, we have used discounted cash flows, comparable market multiples and available quoted price to determine the fair value.

Note 5

For the quarter ended September 30, 2025, the profit before tax is ₹138 crores and tax charge is ₹375 crores. Upon effective of the Composite Scheme, the tax losses which were available for set-off in the quarter ending June 30, 2025, are now moved to the Demerged Undertaking leading to a higher tax charge in the demerged entity.

FROM AUDITORS’ REPORT

2. Independent Auditor’s Report on the audit of the Standalone Financial Results

Opinion

We have audited the accompanying standalone quarterly financial results of Tata Motors Passenger Vehicles Limited (formerly Tata Motors Limited) (“the Company”) for the quarter ended 30 September 2025 and the year-to-date results for the period from 1 April 2025 to 30 September 2025, (in which are included interim financial statements / financial information of its joint operation and financial information of a Trust) attached herewith, being submitted by the Company pursuant to the requirement of Regulation 33 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (“Listing Regulations”).

In our opinion and to the best of our information and according to the explanations given to us and report of other auditor on separate audited condensed interim financial statements/financial results of its joint operation, these standalone financial results:

a. are presented in accordance with the requirements of Regulation 33 of the Listing Regulations in this regard; and

b. in the context of the overriding effect of the provision in the Composite Scheme of Arrangement as approved by the National Company Law Tribunal (‘NCLT’), regarding accounting for demerger of commercial vehicles business from the specified retrospective appointed date, give a true and fair view in conformity with the recognition and measurement principles laid down in the applicable accounting standards and other accounting principles generally accepted in India, of the net profit and other comprehensive loss / income and other financial information for the quarter ended 30 September 2025 as well as for the year to date results for the period from 1 April 2025 to 30 September 2025.

Emphasis of Matter

a. We draw attention to Note 4 to the standalone financial results, which describes the accounting for the Composite Scheme of Arrangement (‘the Scheme’) amongst the Company, Tata Motors Limited (formerly Tata Motors Commercial Vehicles Limited) (‘TML’) and Tata Motors Passenger Vehicles Limited for demerger of commercial vehicles business from the Company into TML and merger of the Tata Motors Passenger Vehicles Limited into the Company. The Scheme has been approved by the National Company Law Tribunal (‘NCLT’) vide its order dated 25 August 2025 and a certified copy has been filed by the Company with the Registrar of Companies, Maharashtra, on 1 October 2025. Though the appointed date as per the NCLT approved Scheme is 1 July 2025, as per the requirements of Appendix C to Ind AS 103 “Business Combination”, Business Combination (‘the amalgamation of Tata Motors Passenger Vehicles Limited with the Company’) has been accounted for as if it had occurred from the beginning of the preceding period in the standalone financial results.

Accordingly, amounts relating to the quarter and year-to-date ended 30 September 2025 include the impact of the business combination and the amounts for the quarter ended 30 June 2025 and the corresponding amounts as at and for the previous year ended 31 March 2025 and for the quarter and previous year to date ended 30 September 2024 have been restated by the Company after recognising the effect of the business combination as above. The aforesaid note 4 also describes in detail the impact of the business combination on the standalone financial results. Our opinion is not modified in respect of this matter.

b. We draw attention to Note 4 to the standalone financial results, which describes the accounting for the Composite Scheme of Arrangement (‘the Scheme’) amongst the Company, TML and Tata Motors Passenger Vehicles Limited for demerger of commercial vehicles business from the Company into TML and merger of the Tata Motors Passenger Vehicles Limited into the Company. The Scheme has been approved by the National Company Law Tribunal (‘NCLT’) vide its order dated 25 August 2025 and a certified copy has been filed by the Company with the Registrar of Companies, Maharashtra, on 1 October 2025. In accordance with the scheme approved by NCLT, the Company has given effect to the Scheme from the retrospective appointed date specified therein i.e. 1 July 2025 for the demerger of the commercial vehicles business, which overrides the relevant requirement of Appendix A to Ind AS 10 (according to which the scheme would have been accounted for from 25 August 2025 which is the date on which the Scheme has been approved by the NCLT). The financial impact of the aforesaid treatment has been disclosed in the aforesaid note.

Our opinion is not modified in respect of this matter.

From composite scheme of arrangement amongst Tata Motors Limited (demerged company/ amalgamated company) and TML Commercial Vehicles Limited (resulting company) and Tata Motors Passenger Vehicles Limited (amalgamating company) and their respective shareholders under sections 230 to 232 and other applicable provisions of the companies act, 2013 (extracts)

PART I

18. ACCOUNTING TREATMENT

18.1 Accounting treatment in the books of the Demerged Company:

18.1.1 The Demerged Company shall give effect to the Scheme in its books of accounts in accordance with Appendix A to the Indian Accounting Standards 10 notified under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and the generally accepted accounting principles in India.

18.1.2 Upon the Scheme becoming effective and from the Appointed Date, the Demerged Company shall transfer all the assets and liabilities, at their respective carrying amounts, pertaining to the Demerged Undertaking as appearing in the books of accounts of the Demerged Company, being transferred to and vested in the Resulting Company. Accordingly, the Demerged Company shall reduce from its books of accounts, the carrying amounts appearing on such date in accordance with the provisions of Section 2(19AA) of the Income Tax Act.

18.1.3 Upon the Scheme becoming effective, and from the Appointed Date, the carrying value of Cost of Hedging Reserve and Hedging Reserve (forming part of “Other components of Equity” in the Statement of Changes in Equity) pertaining to Demerged Undertaking as appearing in the books of accounts of the Demerged Company will be reclassified to profit or loss as a reclassification adjustment. The carrying value of fair value reserve in relation to equity instruments carried at fair value through Other Comprehensive Income shall be transferred to retained earnings.

18.1.4 Having recorded the transfer of the assets and liabilities and balances in Other Components of Equity, as aforesaid, the Demerged Company shall make necessary adjustments for the sake of compliance with Indian Accounting Standards (“Ind AS”) notified under Section 133 of the Companies Act, 2013, specifically Ind AS 10 Appendix A ‘Distribution of Non cash assets to Owners’, and shall create a liability at the fair value of the Demerged Undertaking with the corresponding debit to the Retained Earnings.

18.1.5 The book value of net assets derecognised will be adjusted against the liability recognised at above. The difference, if any, shall be recognised in the statement of profit and loss in accordance with Ind AS 10 Appendix A.

18.2 Accounting treatment in the books of the Amalgamated Company

18.2.1 The Amalgamated Company shall give effect to the Scheme in its books of accounts in accordance with the accounting standards specified under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and the generally accepted accounting principles in India.

18.2.2 Upon the Scheme becoming effective, the Amalgamated Company shall, in accordance with Appendix C to Indian Accounting Standard 103 – Business Combinations, record all the assets, liabilities and reserves pertaining to the Amalgamating Company vested in it pursuant to this Scheme at their respective carrying values as appearing in the books of the Amalgamating Company. Merger Deficit Adjustment Account of the Amalgamating Company will be adjusted against the capital reserve (on merger/sale of business) of the Amalgamated Company.

18.2.3 The difference between (a) excess of carrying values of assets over the carrying values of liabilities of the Amalgamating Company and (b) reserves of the Amalgamating Company shall be credited or debited. as the case may be, to equity and classified as ‘capital reserve’ or any other appropriate component of the equity. The value of existing investment held by the Amalgamated Company in the Amalgamating Company shall be cancelled and the corresponding amount shall be debited to ‘capital reserve’ or any other appropriate component of the equity.

18.2.4 The financial statements of the Amalgamated Company for the prior period shall be restated as if the business combination had occurred from the beginning of the preceding period presented in the financial statements. irrespective of the actual date of the combination.

PART IV

GENERAL TERMS AND CONDITIONS

41. Change of Name of Amalgmated Company and the Resulting Company

41.1 Upon this Scheme becoming effective and subject to Clause 41.3 below, the name of the Amalgamated Company or Demerged Company shall stand changed on and from the Effective date to ‘TATA MOTORS PASSENGER VEHICLES LIMITED’ or such other name which is determined by the Board of the Amalgamated Company …

41.3 Upon Scheme becoming effective and simultaneously with the change of name of the Amalgamated Company, the name of the Resulting Company shall stand changed on and from the effective date to ‘TATA MOTORS LIMITED’ or such other name…

CA Firm Of 2030

Let me begin by wishing you all a very Happy New Year. Every January brings its familiar mix of resolutions and reflections. This one arrives with an unmistakable question for the profession: With gradual reduction in opportunities across compliance and regulatory services, what is the future of the profession? What would the CA Firm of 2030 look like? For many professionals, the gradual reduction in professional opportunities over the last decade and rapid technological advancements, including affordable AI, has created a sense of unease.

But perhaps this moment is not a threat; it is a signal. The CA firm of 2030 will not be defined by the number of audits or compliances performed but by the quality of insight, the sophistication of systems, and the breadth of services it delivers. The redesign of our profession begins now, not in 2030.

During my professional career, I have had the opportunity to visit firms of varying sizes and meet many professionals. The ones that felt genuinely future-ready were not necessarily the ones with the biggest teams, but those with the strongest systems, which in many cases, were automated. In one mid-sized practice, a GST reconciliation that earlier consumed a week was completed overnight because they had built an internal automation engine. The senior wasn’t replaced; he was liberated—able to focus on judgment rather than just data work. This is what the future will demand: humans doing the thinking, machines doing the lifting.

Yet digital capability brings a deeper responsibility. AI today can produce a draft submission or an audit memo in minutes. But the illusion of perfection can be dangerous, with high levels of hallucinations and bias. A young manager shared, “AI makes me faster, but forces me to be twice as sceptical.” She is right. As workflows automate, professional scepticism and ethical clarity become our defining edge. In a machine-first world, conscience becomes a competitive advantage.

Building the CA Firm of 2030

Equally significant is the shift from individual-driven excellence to institutionalised resilience. Many firms still depend on a few irreplaceable seniors. When one leaves, years of templates, client nuances, and tacit knowledge vanish. A 2030-ready firm avoids this fragility by building documented SOPs, knowledge repositories, review layers, and digital memory. When such knowledge systems carry the practice, people can grow; when people alone carry it, systems collapse.

This transition to a process and system centric firm aligns closely with a broader national aspiration. The PMO’s recent push to develop large Indian accounting firms—firms with governance, specialisation, and scale comparable to global networks—captures a sentiment that has long been brewing. India’s economy demands Indian-origin institutions that can operate across cities, sectors, and service lines. I met a three-partner Jaipur firm that joined a national network and, within a year, began servicing a listed client by leveraging expertise from member firms in Mumbai and Bangalore. Their story mirrors the future: collaboration, scale, and ecosystems—not isolation—will define relevance.

Scale is just one determinant of relevance. Domain specialists can carve a niche to make scale redundant. In such a set-up, the objective is not to achieve high volume and low unit value but a low volume with high unit value. However, emphasis on processes, systems and collaboration will augur well in this approach too. A niche advise given to a client will also have to run through various processes to make sure it is balanced and implementable. In this complex world of information overload, knowledge systems can assist such expert to decipher relevant information and maintain his cutting knowledge edge. Collaboration may not take the structure of formal networks, but may be more through cordial human relationships to avoid the perception of being inaccessible or inapproachable.

And through all this, a human thread binds everything together: the ability to communicate clearly. Whether interpreting GST litigation trends, drafting an advisory note, or explaining risk in simple language, clarity has become a strategic skill. Good writing is not a cosmetic flourish; it is good thinking expressed. In the firm of 2030, every professional will need to be a designer of processes, systems, and words.

So here, at the start of 2026—amid regulatory shifts, AI acceleration, and a national call to build strong Indian accounting institutions—the real question is not, “What will happen to our profession?” but, “What will we choose to build?”

The firms that act now—by strengthening systems, embracing AI responsibly, collaborating intelligently, and communicating with clarity—will not just survive the decade. They will define it.

Best Regards,

 

CA Sunil Gabhawalla

Editor

Income-Tax Act, 2025: TDS & TCS Provisions

The Income Tax Act, 2025 (‘New Act’), attempts to simplify and consolidate the extensive TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions previously spread across 69 sections in the existing Income tax Act, 1961 (‘Old Act’). TDS provisions are now merged primarily into two sections in the New Act: Section 392 (TDS on salary) and Section 393 (TDS on all other payments), while TCS provisions are consolidated into Section 394.

The New Act achieves simplification primarily through tabulation, replacing the self-contained sections of the Old Act with tables that lists payment types, payer categories (e.g., ‘Specified Person’), rates, and thresholds. Key changes in the New Act include streamlining the definition of professional services to align advertising services with Section 393, resulting in a higher 10% TDS rate. The scope for obtaining a lower TDS deduction certificate has also been expanded to cover all payment types.

Furthermore, Section 392 of the New Act merges TDS on salary and EPF withdrawals, clarifying that EPF withdrawals exceeding ₹50,000 are subject to 10% TDS. Procedurally, the timing for TCS collection on motor vehicle sales exceeding ₹10 Lacs has been preponed to the time of debiting the buyer’s account or receipt, whichever is earlier.

INTRODUCTION

Currently, the TDS and TCS provisions are spread across 69 different sections under the Old Act. The new Income Tax Act, 2025 (‘New Act’) makes a fair attempt to consolidate the TDS provisions laid down across 69 sections into 2 sections i.e. section 392 of the New Act, which pertains to TDS on salary, and section 393 of the New Act, which covers TDS on all other types of payments. Further, TCS provisions are merged into 1 single section i.e. section 394 of the New Act. The new sections are now covered under Chapter XIX of the New Act, as against the erstwhile Chapter XVII of the Old Act.

SCHEME OF THE NEW ACT

Under the Old Act, each section was a self-contained code, which included definitions, exclusions, thresholds, etc. In contrast, the New Act has spread the provisions across various tables, and one needs to read the applicable section along with the relevant table and Serial Number in the said table, to determine the applicability and rate of TDS. It is to be noted that definitions for the purpose of Chapter XIX are contained in section 402, which is titled as “Interpretations” for the purposes of this chapter.
Across the sections relating to the TDS and TCS provisions, the language has been simplified and has been put up in a tabulated manner such that it is aligned with the structure of the New Act. Various sub sections to the main section, as provided under the Old Act, are provided in a simplified language in the New Act.

The scheme of the New Act is as follows.

  • Section 393(1) deals with payments made to a Resident
  • Section 393(2) deals with payments made to a Non-Resident
  • Section 393(3) deals with payments made to any person (i.e. both Resident and Non-Resident)
  • Section 393(4) deals with payments where no deduction of tax is required to be made

Each of the above 4 sub-sections includes a table distinctly listing the type of payment, the category of the payer and the applicable TDS rate with the threshold.

In terms of reading the New Act, sub section (1) or sub section (2) or sub section (3) needs to be read in conjunction with sub section (4) concurrently, so as to check whether the applicable provisions have any carve outs or not, including thresholds for
attracting TDS.

Similarly, section 394 of the New Act, which relates to TCS provisions, also includes a table which includes all sub sections of current section 206C.

There is one more table in section 395 dealing with declaration for nil / lower TDS. This covers the procedure for obtaining Nil / lower TDS in certain cases.

Requirements for filing 15CA/15B etc. as per section 195(6) of the Old Act are now expected to be prescribed under section 397(3)(d) of the New Act.

Succinctly, these sections as outlined in the New Act have largely simplified the language as provided in the Old Act, and have essentially tabulated the provisions by retaining the core concept with certain rewording being carried out at a few places.

Furthermore, Section 400 of the New Act has been introduced to empower the CBDT to issue guidelines for the removal of any difficulty in giving effect to the entire chapter of collection and recovery of tax. It is expected that such guidelines will need to be issued considering the changes made in the entire gamut of the TDS / TCS provisions, as one will now need to refer to Serial No of the Tables under the applicable sections, rather than the current practice of referring to the section (or sub section) itself. This will require changes in the entire manner of reporting in the TDS statements, returns, certificates and challans to be used for making the TDS payments. One also awaits the Rules to be notified, as these will contain substantial procedural changes.

TDS & TCS Overhaul Whats New in the 2025 TAx Act

SIGNIFICANT CHANGES

This article brings out the changes in the TDS provisions in the Old Act and the New Act

I)Section 392 of the New Act – Salary and accumulated balance due to an employee

Section 392 of the New Act merges the existing section 192 (TDS on salary) and 192A of the Old Act (TDS on EPF withdrawals). While the crux of both sections of the Old Act is retained, the New Act also clears the ambiguity by providing that payments made to employees on account of EPF withdrawals shall be subject to TDS @ 10% for payments made in excess of ₹50,000.

II) Section 393 of the New Act – Tax to be deducted at source on other payments

Before embarking to this section, it becomes essential to discuss the concept of a ‘Specified Person’ as the table provided in the section 393 and section 394 refers to the said term. The New Act distinctly categorizes the Payer as a ‘Specified Person’ and ‘Any other person’.

The term ‘Specified Person’ has been defined under section 402(37) of the New Act as follows:

A ‘Specified Person’ means:

(a) any person, not being an individual or Hindu undivided family; or

(b) an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed ₹1 crore in case of business or ₹50 lakh in case of profession during the tax year immediately preceding the tax year in which such income or sum is credited or paid.

In terms, it is bringing into effect the exclusions from the applicability of the chapter on a pari materia basis to the existing provisos to several sections under the Old Act, and is more of a redrafting for ease of reading, rather than any material change of law. This definition is relevant for determining the applicability of the several items listed in the tables, where TDS is to be applicable to payers who are individuals or Hindu Undivided Families.

While the term ‘Any other person’ has not been defined under the New Act, it would mean that Any Person would mean a person who is not a ‘Specified Person’.

III) Lower TDS deduction certificate – Scope expanded

The Old Act provided that certificate to obtain lower TDS rate was available only to payments in the nature of Salary, interest on securities, dividends and interest other than interest on securities.

Section 395 of the New Act has expanded its scope and accordingly, all types of payments are eligible for availing the benefit of obtaining a lower TDS deduction certificate.

While the draft Bill provided for certificate only for lower rate of TDS, the New Act provides for certificate for either nil or lower rate of TDS.

IV) TDS on commission and brokerage – Streamlining of definition to exclude services in the nature of ‘advertisement’

Section 194H of the Old Act provides for deduction of tax at source for payments made in the nature of commission and brokerage (other than payments made in the nature of professional services) @ 2%. The said section also provided for a definition of ‘professional services’ by way of an Explanation in the section, i.e. Explanation (ii). This definition did not include advertising services, and hence commission or brokerage relating to advertising services were covered by section 194H.

Besides, section 194J of the Old Act, which provides for payments in the nature of professional or technical services, this section also provides for a definition of ‘professional services’. The definition under this section, in Explanation (a) includes the profession of advertisement. As a result, professional services relating to advertisement were also sought to be covered by section 194J.

Section 393 read with section 402(28) of the New Act aligns this anomaly by streamlining the definition of professional services across both TDS sections, so as to mention that advertising services are professional services.

V) Sr. no. 9 – TDS on rent – Streamlining of definition

Currently under the Old Act, TDS to be deducted on Rent is spread across 4 sections i.e. Section 194 I (Rent), Section 194-IA (Payment on transfer of certain immovable property other than agricultural land), Section 194-IB (Payment of rent by certain individuals or Hindu undivided family) and Section 194-IC (Payment under specified agreement).

While section 194 I of the Old Act provided for a broader definition for payments made in relation to Rent, Section 194 IB of the Old Act restricted itself to only land or building or both. Section 393(1) read with section 402(29) of the New Act has streamlined the definition, with the change that now even rent for the use of factory buildings and land appurtenant to factory building are now included.

VI) Sr. No. 14 – Update on timing of collection of TCS exceeding ₹10 Lacs in case of motor vehicle

Section 206C(1F) of the Old Act required collection of tax source on the amount exceeding ₹10 Lacs at the time of receipt from the buyer of a motor vehicle. Section 394(1) of the New Act as amended has brought forward the timing for collection of tax at source by changing the timelines as follows:

– at the time of debiting of the amount payable by the buyer or licensee or lessee to the account of the buyer or licensee or lessee; or
– at the time of receipt of such amount from the said buyer or licensee or lessee in cash or by way of a cheque or a draft or any other mode, whichever is earlier.

VII) Sr. No. 5 – Interest income

This entry in section 393(1) of the New Act has essentially clubbed 2 sections – Sections 193 and 194A of the Old Act.

Upon reading of section 393(1) with 393(4) of the New Act, it is worthwhile to note that while all exemptions available are still retained under the New Act when compared to the Old Act, the exemption previously available to ‘any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)’ has been removed and accordingly if it crosses the threshold limits, then TDS ought to be deducted. This is on account of change in definition of banking company in section 402, which now does not include cooperative banks. consequently, the exemption in this aspect is now restricted to a banking company only.

VIII) TDS on certain amounts paid in cash

Section 194N of the Old Act provides for TDS higher rates of 2% / 5% with different thresholds for cash payments by banks, cooperative banks and post offices, depending on whether the recipient has or has not filed his income tax returns for the preceding three years. Under the New Act, Sl. No 5 of the Table below section 393(3) now does away with the need to verify if the tax returns of the recipient have been filed or not, and fixed the thresholds at ₹3 crore for cooperative banks, and ₹1 crore for others., i.e. banks and post offices.

CONCLUSION

The Old Act and New Act are substantially the same, except the few differences noted above. However, the users will need to get used to the new manner of the presentation of the law. Instead of the provisions relating to a particular type of deduction being available in one place earlier, now reference will need to be made to the section, the applicable table, the table for exclusions, and the definition section in the chapter. It is expected that the users will take time to comprehend the change, and will need to be careful while preparing challans, returns and the like while complying with the law. For the sake of an easy reference, an Annexure is appended to depict the corresponding provisions under both the laws.

Ready Referencer for sections applicable for TDS provisions under both Acts

A. CORE TDS SECTIONS (192 TO 196D)

Old Section Description New Act Section(s)
192 Salary 392
192A PF withdrawal 392(7)
193 Interest on securities 393(1) Sl. No. in Table – 5(i);

393(4) Sl. No. in Table – 6
194 Dividends 393(1) Sl. No. in Table – 7;

393(4) Sl. No. in Table – 10
194A Interest (other than securities) 393(1) Sl. No. in Table – 5(ii),(iii);

393(4) Sl. No. in Table – 7
194B Lottery winnings 393(3) Sl. No. in Table – 1
194BA Online gaming winnings 393(3) Sl. No. in Table – 2
194BB Horse race winnings 393(3) Sl. No. in Table – 3
194C Contractors payments 393(1) Sl. No. in Table – 6(i);

393(4) Sl. No. in Table – 8
194D Insurance commission 393(1) Sl. No. in Table – 1(i)
194DA Life insurance policy proceeds 393(1) Sl. No. in Table – 8(i)
194E Payments to NR sportsmen 393(2) Sl. No. in Table – 1
194EE NSS deposits 393(3) Sl. No. in Table – 6
194F Repurchase of units Omitted (already omitted in 2024)
194G Lottery ticket commission 393(3) Sl. No. in Table – 4
194H Commission/Brokerage 393(1) Sl. No. in Table – 1(ii);

393(4) Sl. No. in Table – 1
194-I Rent 393(1) Sl. No. in Table – 2(ii);

393(4) Sl. No. in Table – 2
194-IA Transfer of immovable property 393(1) Sl. No. in Table – 3(i)
194-IB Rent by certain individuals/HUF 393(1) Sl No.in Table -2(i)
194-IC Joint development agreement 393(1) Sl. No. in Table – 3(ii)
194J Professional / Technical fees 393(1) Sl. No. in Table – 6(iii);

393(4) Sl. No. in Table – 9
194K Income from units 393(1) Sl. No. in Table – 4(i);

393(4) Sl. No. in Table – 4
194L Compensation for compulsory acquisition (old) Omitted
194LA Compensation for immovable property 393(1) Sl. No. in Table – 3(iii);

393(4) Sl. No. in Table – 3
194LB Interest from infrastructure debt funds 393(2) Sl. No. in Table – 5
194LBA Income from units of business trust 393(1) Sl. No. in Table – 4(ii);

393(2) Sl. No. in Table -s 6 & 7;

393(4) Sl. No. in Table -s 5,13
194LBB Income of investment funds 393(1) Sl. No. in Table – 4(iii);

393(2) Sl. No. in Table – 8;

393(4) Sl. No. in Table – 14
194LBC Securitisation trust income 393(1) Sl. No. in Table – 4(iv);

393(2) Sl. No. in Table – 9
194LC Interest from Indian company (foreign borrowings) 393(2) Sl. No. in Table -s 2,3,4
194LD Interest on Government securities / bonds Omitted
194M Payments by certain Individuals/HUFs 393(1) Sl. No. in Table – 6(ii)
194N Cash withdrawals 393(3) Sl. No. in Table – 5;

393(4) Sl. No. in Table – 18
194-O E-commerce payments 393(1) Sl. No. in Table – 8(v);

393(4) Sl. No. in Table – 11
194P TDS for specified senior citizens 393(1) Sl. No. in Table – 8(iii)
194Q Purchase of goods 393(1) Sl. No. in Table – 8(ii)
194R Perquisite/business benefit 393(1) Sl. No. in Table – 8(iv)
194S Virtual digital assets 393(1) Sl. No. in Table -8(vi))

393(4) Sl.No. in Table -12
194T Payments to partners 393(3) Sl. No. in Table -7
195 Payments to non-residents Entirely merged into 393(2) Non-resident
195A Net-of-tax income 393(10)
196 Payments to Govt/RBI/Exempt bodies 393(5)
196A Units of non-residents 393(2) Sl. No. in Table – 10;

393(4) Sl. No. in Table – 15
196B Income from units 393(2) Sl. No. in Table -s 11 & 12
196C Foreign currency bonds/shares 393(2) Sl. No. in Table -s 13 & 14
196D FII income from securities 393(2) Sl. No. in Table -s 15 & 16;

393(4) Sl. No. in Table -s 16 & 17

B. TDS Compliance, Certificates, and Reporting

Old Section Subject New Act Section
197 Lower deduction certificate 395(1)
197A No deduction in certain cases 393(6)
197B Lower deduction – temporary Omitted
198 TDS deemed income of payee 396
199 Credit for TDS 390(1),(5),(6)
200 Duty of person deducting TDS 397(3)
200A Processing of TDS statements 399
201 Failure to deduct/pay TDS 398
202 TDS is one mode of recovery 390(4)
203 TDS certificates 395(4)
203A TAN 397(1)
206A Statement for payments without TDS 397(3)
206AA PAN requirement 397(2)
206AB Higher TDS for non-filers Omitted

C. TCS (Old → New)

Old Section Description New Section
206C Procedural & other provisions for TCS Compliance under 395(3), 397(3), 398
206C(1) TCS on specified goods (alcohol) 394(1) –Sl. No. 1 in Table
206C(1) TCS on sale of scrap 394(1) – Sl. No. in 4 Table
206C(1) TCS on sale of tendu leaves 394(1) – Sl. No. in 2 Table
206C(1) TCS on sale of Timber, etc. 394(1) – Sl. No. in 3 Table
206C(1C) TCS on  parking lot, toll etc. 394(1) –Sl. No. 9 in Table
206C(1C) TCS on sale of minerals being coal, or lignite or iron ore 394(1) – Sl. No. in 5 Table
206C(1F) TCS on sale of motor vehicle 394(1) – Sl. No. 6 in Table
206C(1G) TCS on foreign remittance (LRS) 394(1) – Sl. No. 7 Table
206C(1I) TCS on sale of overseas tour package 394(1) – Sl. No. 8 Table
206CA TAN for TCS collectors 397(1)(a)
206CC PAN requirement for TCS 397(2)

DPDP Law, Cyber Security and Chartered Accountants

India’s Digital Personal Data Protection (DPDP) Law, operationalised by the 2025 Rules, establishes a privacy-centric legislative framework for managing personal data, aligning India with global standards like GDPR and affirming privacy as a fundamental right. The regime is anchored by core principles like consent, data minimization, and accountability.

The law empowers the Data Protection Board (DPB) to enforce compliance, imposing heavy fines up to INR 250 crores for violations. Data Fiduciaries must obtain explicit consent, maintain data logs, designate a DPO (for Significant Data Fiduciaries (SDFs)), and perform Data Protection Impact Assessments (DPIAs). Data Principals are granted rights to access, correct, and erase their data.

While distinct from cybersecurity (which protects all digital assets), DPDP focuses specifically on the lawful processing of personal data. Chartered Accountants (CAs) are positioned to play a vital strategic and advisory role by verifying DPDP controls, participating in DPIAs, assessing financial reporting liabilities, and guiding clients to use compliance as a strategic differentiator.

INTRODUCTION

The recent Digital Personal Data Protection (DPDP) Law, enacted by the Indian government and operationalised with the DPDP Rules of 2025, marks a significant milestone in India’s digital economy and privacy landscape. India’s DPDP Act establishes clear legislative frameworks for processing, storing, and transferring personal data, aiming to balance innovation with robust privacy rights. Enacted after years of deliberation, the DPDP Act and its 2025 Rules represent India’s alignment with global data protection standards. CA as an individual in practice or firms collectively handle massive amounts of personal financial data of their client and hence they themselves are Data Fiduciaries. This article explores the law’s context, core principles, compliance obligations, comparison with Cyber Security, and the strategic, audit, and advisory functions CAs are now expected to discharge, as well as the implications for practising CAs.

EVOLUTION AND CONTEXT OF THE DPDP ACT

India’s move toward a unified data protection law was driven by rapid digital adoption, rising cybersecurity incidents, and the Supreme Court’s affirmation of privacy as a fundamental right. Enacted in 2023 and implemented in phases starting in 2025, the DPDP Act positions India closer to global standards, such as the General Data Protection Regulations (GDPR). The Act and Rules reflect extensive stakeholder consultations and aim to promote trust, accountability, and cross-border data interoperability.

CORE PRINCIPLES AND STRUCTURE

The DPDP regime is anchored on principles of consent, transparency, purpose limitation, data minimization, accuracy, storage limitation, security safeguards, and accountability. The Data Protection Board (DPB) is empowered to oversee compliance, impose penalties, and issue operational guidance. Organisations must implement structured governance mechanisms, including impact assessments, audit trails, consent recording, and breach response controls.

RIGHTS AND DUTIES UNDER THE DPDP ACT

Data Principal Rights

  •  entitled to obtain access to their personal data, request correction of inaccuracies, and seek erasure of such data in accordance with the Act.
  •  designate a nominee to exercise their rights and manage their personal data in the event of their incapacity or death.
  •  require organisations to provide clear information on how their personal data is processed and may request erasure where lawful and appropriate.

Duties of Data Fiduciaries

  •  Obtain explicit, free, and informed consent from Data Principals before collecting or processing their personal data.
  •  Provide easy opt-out mechanisms and ensure Data Principals can obtain access to their data upon request.
  • Perform Data Protection Impact Assessments and regular audits as mandated for Significant Data Fiduciaries (SDFs), to evaluate and mitigate privacy risks.
  • Designate a Data Protection Officer and maintain data logs for at least one year.
  • Implement appropriate retention and data-flow controls for personal data, recognising that the Act does not mandate blanket localisation; assess and manage retention requirements for specific categories of data.
  • Ensure that cross-border transfers are executed only in compliance with applicable law, targeted restrictions prescribed by the Government, and the conditions set out in the Rules.

Exemptions

  •  Processing for research, statistical, or archival purposes provided such processing adheres to conditions that safeguard personal data and prevent misuse.
  • Startups and specified government functions may be granted reduced or conditional compliance requirements, subject to notifications issued by the Government, to balance regulatory burden with operational needs.

Enforcement and Penalties

  •  Non-compliance can attract heavy fines, up to INR 250 crores, depending on severity.
  •  Repeated violations can result in blocking access to services.
  •  Mandatory breach notifications to both individuals and the Data Protection Board (DPB).

Data Privacy is your Business A CA's Guide to India's DPDP Act

CYBERSECURITY AND DPDP REGULATIONS

Cybersecurity and DPDP regulations share common objectives but also have distinct focuses and implications, especially for Chartered Accountants (CAs) in India.

Similarities Between Cybersecurity and DPDP Regulations

Aspect Remarks
Protection of Data Both aim to protect sensitive information—cybersecurity focuses on protecting all digital asset security, while DPDP targets personal data privacy and lawful processing.
Risk Management They require organizations to assess risks, implement controls, monitor vulnerabilities, and respond to incidents or breaches effectively.
Compliance and Accountability Both impose legal and regulatory compliance responsibilities, demanding documented policies, audits, and reporting to regulators and stakeholders.
Incident Response Mandate timely detection, notification, and mitigation of data breaches or cyber incidents.
Governance Frameworks Both require established governance structures, including roles such as Data Protection Officers (DPOs) and Chief Information Security Officers (CISOs).

Differences Between Cybersecurity and DPDP Regulations

Aspect Cybersecurity DPDP Regulations
Scope Protects all digital information assets and IT infrastructure from cyber threats and attacks Governs the processing, storing, and sharing of personal data in compliance with privacy rights
Focus Ensures confidentiality, integrity, and availability of data and systems Emphasises lawful, fair, and transparent processing of personal data with user consent
Legal Basis Based on IT Act, sectoral cyber laws, and security frameworks like ISO 27001 Based specifically on DPDP Act, 2023 and DPDP Rules, 2025 with a privacy-centric legal framework
Primary Function Technical controls such as firewalls, encryption, access controls, intrusion detection Policy-based controls, data minimisation, consent management, impact assessment, and rights of Data Principals
Regulatory Oversight CERT-In, sectoral regulators (RBI, IRDA) Data Protection Board established under DPDP Act
Penalties For cybersecurity breaches and IT law violations Heavy fines for personal data breaches, non-compliance with privacy norms (up to INR 250 Cr)

Chartered Accountants’ Obligations in DPDP Compliance

Obligation Description
Data Fiduciaries requiring privacy and protection of their clients data
Compliance Audits Verify implementation of DPDP-compliant data protection controls and processes.
Risk and Impact Assessments Participate in DPIAs to evaluate data processing risks and mitigation strategies.
Financial Reporting Ensure accurate accounting and disclosure of data protection-related liabilities and penalties.
Advisory Services Guide organizations on policy, contractual, and procedural updates for compliance.
Collaboration with DPOs Provide independent assurance on data protection controls and breach management.
Confidentiality & Ethics Maintain confidentiality of client data consistent with professional standards.
AI and Technology Audits Audit and advise on AI systems’ compliance with DPDP requirements.

LIKELY SDFs IN INDIA: SECTORS / COMPANIES

Based on the criteria in the DPDP Act / Rules (volume of data, sensitivity, risk, technology use) and expert commentary, these are the sectors / companies that are most likely to be designated as Significant Data Fiduciaries (SDFs) – 1) BFSI (Banks, Fintech, Non-bank Financial Institutions), 2) Hospitals, diagnostic labs, telemedicine platforms, 3) E-commerce / Retail Platforms, 4) Social media giants (Meta, Instagram, large content platforms), Internet Platforms, 5) Major telecommunications service providers, 6) Large IT / SaaS companies, 7) Government Contractors / Public-Private Entities, 8) Companies using AI / algorithmic profiling, biometric analytics, behavioral profiling etc.

CHARTERED ACCOUNTANT’S IN PRACTICE – A DATA FIDUCIARIES

The DPDP Act makes CAs in Practice a Data Fiduciaries. CA handles significant personal data (financials, income, etc.), making them Data Fiduciaries responsible for its protection. Processing personal data requires specific, informed, free, unambiguous consent from their clients. Clients (Data Principals) have rights to access, correct, erase data, and appoint others to exercise these rights.

To comply with the requirements, the CAs in Practice require clear Privacy Notices & explicit Consent for client data.

CA has to take updated Engagement Letters which must covers all the details – what (data), why (purpose), how (it’s protected), rights (access/erase) and complaint links necessitating proactive updates for transparency, risk mitigation, and trust, especially for employee/children’s data.

The engagement letter should be expanded and formalised as a comprehensive data protection document, incorporating sections that address the following a) Acknowledging DPDP Act, CA’s role as Data Fiduciary, b) What specific personal data (financial, Aadhaar Card details etc.) is collected, c) Clearly state why (tax filing, audit, advisory) and limit it, d) How consent is obtained (affirmative action, e.g., signed letter) and that it’s specific to purpose, e) Steps taken to protect data (access controls, encryption), f) Inform clients of their right to access, correct, withdraw consent, etc., and how to exercise them, g) Specify process for clients to withdraw consent and data erasure timelines, h) If data shared with third parties (e.g., software vendors, bankers etc.), specify and get consent, i) How to lodge complaints (Link to DPB/Internal Mechanism), j) Specific clause for parental consent if applicable.

OPPORTUNITIES FOR CHARTERED ACCOUNTANTS

  •  New Compliance Practice Area: CAs can advise companies on DPDP compliance frameworks, audit data protection systems, and certify controls akin to financial audits. This is akin to how GST opened a new field for CAs.
  •  Risk and Governance Advisory: mitigation strategies, and integrate privacy governance with financial and operational audits, helping organisations identify privacy risks, and recommend.
  •  Training and Capacity Building: Delivering workshops on DPDP laws, data privacy culture, and cybersecurity basics for employees and management.
  •  Assurance and Reporting: Conducting independent data protection audits, evaluating breach preparedness, and supporting statutory disclosures of data privacy risks.
  •  Representation and Liaison: Representing clients in front of regulatory authorities like the Data Protection Board for compliance issues.
  •  Cross-disciplinary Expertise: Gaining certifications in data privacy (e.g., CIPP, CIPM), cybersecurity (e.g., CISSP), or IT auditing (e.g., CISA) to strengthen advisory credibility.
  •  Strategic Compliance: Turning Risk into Opportunity: CAs should guide companies to treat compliance not as a checkbox but a strategic differentiator, enabling trust and competitive advantage.

CHALLENGES AND EMERGING ISSUES

  •  Phase-wise rollout with an 18-month transition period presents complexities for project planning and milestone tracking.
  •  Balancing compliance, business agility, and cost—especially for MSMEs and startups.
  •  Interpreting rules around algorithmic transparency and AI audits.
  •  Navigating sectoral overlaps (financial regulations, IT Act, etc.).

IMPORTANT ASPECTS RELEVANT TO CHARTERED ACCOUNTANTS

Some important aspects of DPDP Act relevant to chartered accountants are explained below

1. Core Compliance Checklist (All Entities)

  •  Maintain updated Privacy Policy, consent mechanism, and Record of Processing Activities.
  •  Implement personal data lifecycle controls: collection → storage → retention → deletion.
  •  Put in place procedures for access, correction, erasure, withdrawal and nomination requests.
  •  Establish incident response and breach notification workflows.
  •  Execute Data Processing Agreements with all vendors and maintain annual due-diligence records.
  •  Retain security and system logs for the minimum period prescribed under the Rules.

2. Additional Requirements for Significant Data Fiduciaries (SDFs)

  •  Appoint Data Protection Officer in India.
  •  Undertake Data Protection Impact Assessments for high-risk processing.
  •  Commission independent data audits annually.
  •  Maintain board-level oversight on privacy, risk and incidents.

3. Key Areas for CA Engagement

  •  Governance & Risk Advisory: data mapping, policy framework, DPIA facilitation, vendor risk.
  •  Assurance: review of controls, log retention, breach readiness, and compliance documentation.
  •  Financial Reporting: evaluate provisions or contingent liabilities for penalties under Ind AS/ AS; assess post-balance sheet events and impairment implications.
  •  Contract Vetting: recommend clauses on purpose limitation, security safeguards, sub-processing and deletion.

4. The “Consent Manager” Framework – This is a new entity type in the fintech/financial ecosystem. CAs advising fintech clients need to understand this structure as it changes how financial data is shared

CONCLUSION

While cybersecurity focuses on protecting IT assets, including broader information systems from cyber attacks, DPDP regulations focus specifically on protecting individuals’ personal data privacy through lawful processing practices. Both require robust governance, risk management, and compliance mechanisms. Chartered Accountants have a significant opportunity to expand their role beyond traditional finance and audit into the emerging field of data privacy compliance and cybersecurity assurance. Achieving cross-disciplinary expertise through certifications and continuous education will position CAs as trusted advisors in India’s evolving digital privacy landscape. Chartered Accountants are pivotal in ensuring companies not only comply with the law but also strengthen governance, risk management, and public trust. Their multidisciplinary expertise will be vital as businesses transition to the new regulatory paradigm and leverage compliance for strategic growth. CAs in Practice should proactively revise the engagement letter to ensure compliance with the law and ensure robust consent management systems are in place before full enforcement.

Place of Supply of Goods In Case Of Ex-Works Transactions

In Toyota Kirloskar Motor Pvt Ltd vs. Union of India, the Karnataka High Court clarified that Section 10(1)(a) of the IGST Act determines the Place of Supply (POS) for Ex-Works (EXW) transactions. Although EXW contracts transfer title at the factory gate, the court held that POS is where physical movement terminates for delivery to the recipient. This statutory factual test overrides private contractual terms or the Sale of Goods Act. This interpretation upholds the destination-based consumption tax principle, preventing double taxation when goods are destined for a different state.

The implementation of the Goods and Services Tax (GST) in India transitioned the indirect tax system from an origin-based model to a destination-based consumption tax. This fundamental shift mandates that the tax accrues to the state where the goods or services are finally consumed or utilized. Central to applying this principle is the accurate determination of the place of supply (POS).

In transactions involving the sale of goods, the determination of POS often centers on physical logistics. However, the commercial reality of “Ex-Works” (EXW) contracts introduces complexities that challenge the straightforward application of the statutory rules, especially when the supplier and the registered recipient are located in different states. Under an EXW contract, the supplier’s contractual liability typically ends when the goods are made available at their premises, with the recipient assuming responsibility for subsequent transit and risk.

This article details the legal framework governing the determination of the Place of Supply for goods, analyses the conflict arising specifically in the context of EXW transactions where movement of goods is involved, and outlines an interpretation established by the law, supported by administrative clarifications and judicial interpretation.

THE LEGAL FRAMEWORK FOR DETERMINING PLACE OF SUPPLY OF GOODS

For supply of goods other than imports or exports, the applicable provisions are listed in Section 10 of the Integrated Goods and Services Tax (IGST) Act, 2017.

The fundamental principle governing the Place of Supply for most transactions involving the movement of goods is defined in Section 10(1)(a) of the IGST Act:

Section 10(1)(a): where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

This provision highlights several critical elements:

  1.  Involvement of Movement: The rule applies when the supply inherently involves the physical movement of the goods.
  2.  Person Causing Movement: It explicitly specifies that the person undertaking the movement is irrelevant for determining the POS. The movement can be caused by the supplier, the recipient, or any other person.
  3.  Termination for Delivery: The determining location is where the movement of the goods ends specifically for delivery to the recipient.

AMBIGUITY OF EX-WORKS (EXW) TRANSACTIONS

The EXW contract stipulates that the seller fulfils its’ obligation to deliver when they place the goods at the disposal of the buyer (or their designated carrier) at the seller’s premises. The buyer assumes all risks and costs from that point forward.

When an EXW sale occurs between a registered supplier in State A and a registered buyer in State B, and the buyer arranges transport out of State A, an apparent conflict arises upon applying Section 10(1)(a):

  1.  Argument for Intra-State Supply (Origin-based interpretation): It can be contended that since the supplier’s legal and contractual responsibility for “delivery” ends at the factory gate in State A, the “movement of goods terminates for delivery to the recipient” at that point. If this interpretation were accepted, the Location of Supplier (StateA) and the POS (State A) would be the same, making the supply Intra-State and liable to CGST + SGST.
  2.  Argument for Inter-State Supply (Destination-based interpretation): It is countered that while the contractual term is EXW, the entire transaction involves movement intended for the final delivery address provided by the recipient (State B). The movement initiated by the recipient from State A to State B logically terminates in State B.

 

Ex Works GST The Landmark Ruling on Place of Supply

APPARENT CONFLICTS

In the case of Penna Cement Industries Limited 2020 (37) G.S.T.L. 463 (A.A.R. – GST – Telangana), the Telangana Advance Ruling Authority examined this question raised by the applicant. It held that in the case of EXW sales, the movement of goods does not conclude at the factory gate but terminates at the location specified as the destination in the invoice or transport documents. Accordingly, it held that the Place of Supply is to be determined with reference to this ultimate destination. Consequently, since the Location of the Supplier (State A) and the Place of Supply (State B, the destination) fell under different States, it held that the supply qualifies as inter-state supply.

In the context of timing of input tax credit claim, the Central Board of Indirect Taxes and Customs (CBIC), in Circular No. 241/35/2024-GST dated 31.12.2024, specifically clarified that in an EXW contract, the registered person (dealer) is deemed to have “received” the goods for ITC purposes at the moment the goods are handed over to the transporter at the supplier’s factory gate for onward transmission. This deemed receipt occurs because the delivery is made to another person (the transporter) on the direction of the registered person (the dealer), satisfying the Explanation to Section 16(2)(b) of the CGST Act, 2017. Accordingly, it clarified that the credit can be availed by the recipient at that point of time and need not be deferred till the time of actual physical receipt by the buyer in his warehouse/factory.

Though answering different aspects of EXW transactions, there appears to be an apparent conflict between the advance ruling and the CBIC Circular. In any case, neither of them constitute binding precedents and therefore, the issue seemed unresolved.

TOYOTA KIRLOSKAR’S CASE

Recently, the Karnataka High Court was seized with this precise issue: whether the ‘place of supply’ for inter-state transactions is governed by private contractual terms or by the explicit provisions of the IGST Act. The Court in the case of Toyota Kirloskar Motor Pvt Ltd vs. Union of India 2025-VIL-1276-KAR confirmed that the statutory test for the termination of movement of goods overrides any clauses in commercial agreements regarding the transfer of title or risk, thereby preventing a potential double taxation liability of over ₹4,456 crores for the taxpayer.

The legal challenge originated from a Show Cause Notice (SCN) issued by the tax authorities challenging the petitioner’s classification of its vehicle supplies to out-of-state dealers on an ex-works basis as inter-state transactions, contending they should have been treated as intra-state sales. Based on this single observation, the SCN demanded a substantial amount of tax amounting to ₹4,456,23,39,464/-for the period of April 2018 to March 2021. This demand was levied in addition to the IGST that the petitioner had already remitted on these same transactions, effectively subjecting the company to double taxation.

The conflict centered on a fundamental interpretative question: which legal framework—general contract law or specific tax legislation—should determine the place of a supply for GST purposes?

THE REVENUE’S POSITION (RESPONDENTS)

The tax department’s entire case was built upon the terms of the Sample Dealership Agreement and the associated Tax Invoices. Their argument proceeded as follows:

  1.  Contractual Supremacy: The respondents contended that specific clauses within the dealership agreement were determinative. These clauses established that the title and risk in goods passed from the petitioner to the dealer at the factory in Bidadi, Karnataka, at the moment the goods were placed onto a common carrier for dispatch.
  2.  Equating Title Transfer with “Delivery”: The department equated this contractual transfer of title with the concept of “delivery” under the Sale of Goods Act, 1930.
  3.  Legal Conclusion: Based on this interpretation, they argued that the movement of goods, for the purpose of the GST law, terminated within Karnataka. This, in their view, rendered the transaction an intra-state supply, making it liable for CGST and KGST instead of IGST.

THE TAXPAYER’S POSITION (PETITIONER)

The petitioner argued that the revenue’s interpretation was fundamentally flawed and contrary to the architecture of the GST laws.

  1.  Nature of Supply: The petitioner’s core defence was that the supplies were unequivocally inter-state in nature, as the goods were dispatched from Karnataka for delivery to dealers located in other states. Consequently, they had correctly paid the applicable Integrated GST (IGST) in full accordance with the law.
  2.  Prohibition of Double Taxation: An alternative argument was that compelling them to pay CGST and KGST on the very same transaction for which IGST had already been remitted would constitute double taxation, a practice that is impermissible under law.
  3.  Supremacy of GST Law: The petitioner asserted that the determination of the place of supply for GST is not governed by general commercial laws like the Sale of Goods Act or private contractual arrangements. Instead, it is dictated by the specific, overriding provisions of the IGST Act, which were enacted to deal with such situations.

HIGH COURT’S INTERPRETATION AND LEGAL RATIONALE

The High Court’s analysis establishes a clear hierarchy between GST statutes and general commercial agreements for tax purposes. The court focussed on the explicit language of the IGST Act and the core principles of taxation.
Primacy of Section 10(1)(a) of the IGST Act: The Court identified Section 10(1)(a) of the IGST Act as the sole provision governing the determination of the place of supply in this case. The text of the provision is unambiguous:

Section 10. – Place of supply of goods other than supply of goods imported into, or exported from India. – (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under:

(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

The Court observed that the place of supply is determined by a single, factual test: the location where the movement of goods terminates for delivery to the recipient. The court explicitly ruled that this termination point is not when goods are handed to a common carrier, but when they physically reach the recipient’s destination, enabling them to take actual delivery.

Rejection of Contractual Terms for GST Place of Supply Determination: The court addressed and rejected the respondents’ reliance on the Dealership Agreement and the Sale of Goods Act. It found the department’s attempt to link the contractual transfer of title to the statutory definition of “place of supply” to be erroneous. The court’s finding was that there is “no nexus or connection whatsoever” between the passing of title under a private agreement and the liability to pay IGST as determined by Section 10(1)(a). Thus, for GST purposes, the specific tax legislation provides a self-contained code that overrides general commercial law and private contractual terms. The intent of the parties regarding title transfer is irrelevant to the geographical test mandated by the IGST Act.

Principle Against Double Taxation: The court also fortified its decision by invoking the fundamental principle against double taxation. The court noted that the petitioner had undisputedly remitted the applicable IGST on the full value of the supply, which included both the goods and the freight charges. Therefore, demanding CGST and KGST on the same supply was deemed legally impermissible. The court further observed that the situation was essentially “revenue neutral,” which further weakened the rationale for the department’s aggressive and legally flawed demand.
Accordingly, the High Court allowed the writ petition and held that the place of supply will be the ultimate destination of goods in the case of EXW transactions.

CONCLUSION

Beyond resolving the specific dispute for Toyota Kirloskar, the High Court’s ruling offers critical guidance and reinforces fundamental principles of GST law. This ruling firmly establishes a critical hierarchy: for determining the place of supply, the specific criteria laid out in Section 10(1)(a) of the IGST Act supersede any conflicting terms regarding title transfer, risk, or delivery found in commercial agreements or derived from general laws like the Sale of Goods Act. This means that ‘Ex-Works’ delivery terms in a contract, which might suggest a sale concludes at the factory gate, are irrelevant for determining the nature of the supply (inter-state vs. intra-state) for GST purposes when the goods are destined for another state.

The court further clarified that the phrase “terminates for delivery to the recipient” refers to a physical event. The place of supply is the geographical location where the goods’ journey ends and the recipient is able to take possession. It is not the notional point where title or risk is contractually transferred to a carrier at the supplier’s premises. This interpretation favours a practical, fact-based assessment over a legalistic one based on contractual fine print.

The court’s condemnation of the demand as a form of double taxation reinforces a core tenet of the GST framework. It serves as a powerful reminder that a single transaction cannot be arbitrarily subjected to both IGST and CGST/SGST. This principle protects taxpayers from erroneous demands arising from misinterpretation of the law by tax authorities.

In essence, this judgement provides clear authority that for supplies involving the movement of goods, the determination of place of supply must be based on the physical termination point of the goods’ journey, as mandated by the IGST Act, regardless of contractual agreements to the contrary.

Company Law

20. *S M & Co (Chartered Accountants) vs. Track Infoline Pvt Ltd & Ors

COMPANY APPEAL (AT) NO.214/2025

Before NCLAT, Principal Bench, New Delhi

Date of Order: 2nd December, 2025

Auditor not to render prohibited services.

Facts

  •  RT Global Infosolutions Pvt. Ltd. (the “Company”) was the subject of a petition under sections 241 and 242 of the Companies Act, 2013 (CA 2013) filed by Track Infoline Pvt. Ltd., one of its shareholders, alleging fraud, mismanagement, and oppression by the management. S M & Co., a partnership firm of chartered accountants, was the statutory auditor of the Company and was implicated as a respondent in the NCLT proceedings.
  •  A significant factual allegation was that the Company’s registered office was located at New Delhi, which was the residential premises of members of the M family, who were also partners in S M & Co. This was relied upon to suggest that the auditors were not independent and were acting in concert with the management (RG Group) in the alleged mismanagement. After this issue was specifically raised in the petition, the Company passed a board resolution, shortly after an earlier NCLT order, shifting its registered office from the M family residence to a commercial premises adjacent to the registered office of another related company.
  •  The NCLT noted that the Company’s management had made inconsistent and false statements, including in board resolution extracts issued on the Company’s letterhead, which mentioned a different registered office address for a board meeting that did not match the earlier factual position. More crucially, the NCLT examined the audited financial statements and filings (AOC 4) for FYs 2016–17 and 2017–18, which were signed by S M & Co. and formed part of the proceedings. These balance sheets disclosed that the auditor had charged “management fees” and other amounts beyond the statutory audit fee, indicating that services other than audit were being rendered to the Company.
  •  Section 144 of the Companies Act, 2013, which was quoted in the NCLT order, prohibits auditors from rendering certain services, including management services, whether directly or indirectly, to the company, its holding or subsidiary. The petitioner contended that not only had the auditor charged management fees in violation of section 144(h) of CA 2013, but that later balance sheets for FY 2018–19, 2019–20 and subsequent years had been tampered with to show a flat audit fee of ₹2,00,000, thereby removing or altering earlier disclosures of management fees. To support this, reliance was placed on a certificate, issued after arguments had progressed, which purported to explain that certain payments were for ROC filing, tax audit, ITR filing, GST and TDS returns, while omitting any reference to management services.
  •  The NCLT concluded that the certificate referred to above demonstrated that the auditor was acting under specific instructions from the Company and was attempting to regularise or cover up prohibited payments that were earlier reflected in management fees. On these facts, the NCLT held that the auditor was guilty of tampering with records, accepting remuneration for prohibited services, and issuing a certificate contrary to the audited financial statements, and accordingly removed S M & Co. as auditor of the Company.
  •  S M & Co. filed an appeal before the NCLAT challenging the NCLT’s order removing them as auditor. Alongside the appeal, several applications were filed including for condonation of delay in filing the appeal due to the illness (cancer) of the appellant’s father; these interlocutory applications were allowed, and the delay was condoned.

Arguments

  •  Before the NCLT, petitioner therein argued that the auditor’s close connection with the Company’s management, evidenced by the common address and family relationship, showed a lack of independence and collusion in mismanagement. It was contended that the auditors not only failed in their duty to report wrongdoing but actively participated in it by receiving management fees and rendering prohibited services, contrary to section 144 of CA 2013. The petitioner highlighted that the audited balance sheets for FY 2016–17 and 2017–18 clearly reflected payments for “management services” to the auditor, attracting the bar under section 144(h), and giving rise to penal consequences under sections 141 and 147.
  •  The petitioner further submitted that there was a deliberate attempt to cover up the violation and fraud by subsequently altering the financial statements for FY 2018–19, 2019–20 and later years. According to them, the later financials were modified to show a uniform audit fee of ₹2,00,000 without separately disclosing management fees, thereby removing evidence of prohibited services. The certificate issued on behalf of the Company and relied upon by the auditor, was argued to be an afterthought, issued during the pendency of proceedings to recast the nature of payments as being for ROC filings, tax audit, ITR, GST and TDS returns, and not for management services. This, the petitioner contended, demonstrated that the auditor was acting at the behest of the management and tampering with records.
  •  On this basis, the petitioner urged that the auditor had breached statutory duties, independence, and ethical obligations, and therefore should be removed and held guilty of serious professional misconduct and contravention of the CA 2013. It was also argued that the auditor’s conduct facilitated or aided the alleged fraud and oppression, making their removal a necessary step in the reliefs under sections 241–242.
  •  In the appeal before NCLAT, S M & Co. challenged the NCLT’s findings and the direction of removing them as auditors of the Company. The essence of the appeal was that the NCLT had erred in concluding that they had rendered prohibited services and tampered with records, and that there was no basis to hold that section 144 had been violated. The appellant sought to rely on the records and certificates to contend that the services and fees were properly accounted for and that they had not breached their statutory obligations. They also implicitly questioned whether the NCLT could, in a 241/242 petition, remove an auditor based on such findings.
  •  The respondent (Track Infoline) opposed the appeal, supporting the NCLT’s factual findings and emphasising that the audited balance sheets themselves, as placed on record, clearly showed the charging of management fees by the auditor in earlier years, and that the later attempt to generalize the audit fee and issue a clarificatory certificate only strengthened the inference of tampering and collusion.

Conclusion of the Tribunal and the basis

  •  The NCLAT first dealt with the interlocutory applications and allowed those, and condoned the delay in filing the appeal.
  •  The NCLAT noted that there were audited balance sheets for FY 2016–17 and 2017–18, at specified pages of the appeal paper book, duly audited and signed by S M & Co., which showed that the appellant had charged management fees in those years. The appellate order further recorded that even in later years, the appellant continued to charge such fees, thereby contravening section 144(h) of the CA 2013, which prohibits auditors from rendering management services. Having examined the records annexed, the NCLAT agreed with the NCLT’s conclusion that the auditor had provided services other than auditing in violation of section 144 and that the findings in the NCLT’s order did not suffer from any error.
  •  On this basis, the NCLAT held that it found no error in the impugned order. The appeal was accordingly dismissed at the admission stage, thereby affirming the removal of S M & Co. as auditors of the Company and implicitly endorsing the NCLT’s observations on tampering of records, receipt of remuneration for prohibited services, and issuance of contradictory certificates.

Principle Emanating from the Judgement

  •  Auditor’s independence and prohibited services under section 144

The judgement reinforces that a statutory auditor must maintain strict independence and cannot render services that fall within the prohibited categories under section 144, particularly “management services” under clause (h), whether directly or indirectly to the company, its holding or subsidiary. Charging management fees or undertaking management type engagements while simultaneously acting as statutory auditor is a clear violation that can attract both regulatory and judicial consequences, including removal in proceedings under sections 241–242.

  •  Scope of relief in oppression–mismanagement proceedings:

The case illustrates that in an oppression–mismanagement petition under sections 241–242, the NCLT’s remedial jurisdiction extends to examining the role of the statutory auditor and directing removal where the auditor’s conduct is intertwined with the alleged fraud or mismanagement. An auditor found to be non independent can thus be removed as part of the broader relief necessary to bring an end to the matters complained about.

* (Name changed)

21. The Kolhapur Steel Ltd. vs. Karad Projects and Motors Ltd.

C.P.(CAA)/76(MB)2025

NCLT – Mumbai Bench (Court IV)

Date of Order: 3rd November, 2025

The National Company Law Tribunal, Mumbai Bench (NCLT), approved the Scheme of Amalgamation between the Holding and Subsidiary companies, highlighting a bona fide business purpose—such as strategic business and financial planning, including reviving a company, preventing production losses, preserving employment, and safeguarding capital—cannot be invalidated merely because it results in a tax benefit under Section 72A of the Income-tax Act, 1961. Accordingly, the Tribunal rejected the objections raised by the Income Tax Department against the amalgamation scheme.

The key findings and upholding by the Tribunal are as follows:

The NCLT held that the Scheme complies with Sections 230–232, does not violate any law, and does not contradict the public policy. No objections from shareholders or creditors remained unresolved, and regulatory directions were complied with.

However, the Income Tax Department objected to the Scheme on the ground that it was structured to obtain a tax benefit under Section 72A of the Income-tax Act, 1961, and therefore constituted a tax avoidance arrangement.

The Tribunal held that strategic business restructuring resulting in lawful tax benefits does not amount to a colourable device.

Section 72A permits carry-forward of losses subject to stringent conditions.

NCLT accepted the applicants’ clarification that revival of the Transferor’s business, protection of employment, and operational efficiency were the objectives of the merger and not tax evasion.

NCLT also recorded that Income Tax authorities are free to examine tax liability and to take necessary action as possible under the Income-Tax Act, 1961.

The NCLT held that GAAR can be invoked only through statutory procedure under Section 144BA and cannot be used to block sanction of a merger scheme. Therefore, allegations of “impermissible avoidance arrangement” were not sustained.

Conclusion

The NCLT rejected the objections, holding that it is a well-settled principle that any benefit legitimately available to an assessee within the framework of law cannot be denied merely because it may result in a loss of revenue to the Department. The Bench further observed that strategic business and financial restructuring through mergers among group entities—undertaken to revive the business of the transferor company and to safeguard production, employment, and capital—cannot be presumed to be a colourable device merely because
such restructuring results in a tax benefit to the transferee company in accordance with statutory provisions.

Accordingly, the NCLT dismissed the objections of the Income Tax Department and approved the Scheme.

Registration under Section 12A in Cases of an Object for Application outside India

Charitable trusts obtaining registration under Section 12ABfrom the Commissioner of Income Tax (CIT) often face rejection when a trust’s objects permit spending on charitable activities outside India.

The majority of judicial decisions have held that the mere existence of an object permitting spending outside India is not a valid ground for rejection of registration. The definition of “charitable purpose” (Section 2(15)) has no geographical limits, and Section 11(1)(c), which restricts exemption for income applied outside India (unless CBDT approved), is a computation provision relevant only after registration is granted.

However, the Mumbai Tribunal has taken a contrary view in Sila for Change Foundation’s case, upholding the denial of registration on the ground that the 2022 amendments in Section 12AB(4) and (5) permitting cancellation of registration in the event of specified violations effectively require compliance at the registration stage with all other laws material for the purpose of attainment of objects. This decision does not appear to be correct, as the none of the specified violations are attracted merely by having an object permitting spending outside India. Moreover, such an object is necessary if the trust ever intends to seek CBDT approval to spend outside India under section 11(1)(c).

ISSUE FOR CONSIDERATION

Every charitable or religious trust, society or section 8 company (for convenience referred to as “trust”) desiring to claim exemption of its income under sections 11 to 13 of the Income-tax Act, 1961 is required to be registered under section 12A with the Commissioner of Income Tax (“CIT”). The procedure for grant of registration is laid down in section 12AB.

While granting registration, the CIT is required to examine the following:
(i) the charitable or religious nature of the objects of the trust;
(ii) the genuineness of activities of the trust; and
(iii) the compliance by the trust of such requirements of any other law as are material for the achievement of its objects.

If satisfied, on examination, the CIT is required to grant registration under section 12AB. Sub-section (4) of section 12AB lists out the ‘specified violations’ for which the registration already granted can be cancelled by the CIT.

At times, a trust may have some objects in its trust deed or Memorandum of Association permitting it to spend on charitable activities outside India. Very often, at the time of application for registration, in such cases, the CIT may reject the application for registration on the ground that registration is not permissible for a trust which has an object permitting it to spend on charitable activities outside India.

While most of the benches of the Tribunal (including the Mumbai Bench) have taken the view that the existence of such an object in the Trust Deed or Memorandum of Association cannot be a ground for rejection of an application for registration under section 12A, recently, a contrary view has been taken by a couple of benches of the Mumbai Tribunal holding that such refusal to register at the initial stage itself is justified.

SARBAT THE BHALA GURMAT MISSION CHARITABLE TRUST’S CASE

The issue had come up before the Chandigarh bench of the Tribunal in the case of Sarbat the Bhala Gurmat Mission Charitable Trust vs. CIT 189 ITD 353.

In this case, the assessee, a charitable society, was in operation since December 2014. It had applied for grant of registration under section 12A. One of its objects included the opening of branches of the trust in India and abroad.

Charity without Borders The Indian Tax Registration Dilemma

After calling for information and making due enquiries, the CIT denied registration for the reason that the objects of the trust provided for operations being carried out/extended outside India also. The CIT observed that the Act ruled out grant of exemption of income applied for charitable purposes outside India. He noted that operations outside India was allowed only for limited purposes, and that too was subject to approval by the Central Board of Direct Taxes (“CBDT”). He therefore held that the activities of a trust can be treated as charitable only when its income is mandated for application within India, and not if the activities can be carried out outside India, and therefore denied the grant of registration under section 12A to the assessee trust.

Before the tribunal, on behalf of the assessee, it was contended that while denying grant of registration, the CIT had wrongly referred to the provisions of section 11 which denied exemption to incomes which were applied outside India for charitable purposes. The said provision of section 11 was applicable only while computing or determining the exempt income of entities which qualified for the exemption under the said section and that while examining the application for registration u/s 12A, the provisions of section 11 had no role to play. It was explained that for the limited purpose of grant of registration, the CIT was only required to consider the genuineness of the objects and activities of the trust and decide whether the objects listed were for “charitable purpose” as defined in section 2(15). It was pointed out that the definition of “charitable purpose” nowhere restricted the carrying out of charitable activities within the geographical boundaries of India alone. Therefore, while granting registration, the possibility of the trust carrying out activities outside India in future, could not lead to the conclusion that it was not formed for charitable purposes, and that therefore registration was not to be denied for this reason. It was argued that it was only in assessment of income, when the quantum of income exempt was to be determined, that the fact of income applied for charitable activities outside India would be relevant for the purpose of excluding such amount from exemption.

On behalf of the assessee, reliance was placed on the following judicial decisions favouring the view taken by the assessee:

MK Nambyar SAARF Law Charitable Trust vs. Union of India 269 ITR 556 (Del)

Foundation for Indo-German Studies vs. DIT 161 ITD 226 (Hyd Trib)

National Informatics Centre Inc vs. DIT 88 taxmann.com 878 (Del ITAT)

It was further submitted that in any case carrying out activities outside India was not its main object, but only incidental, and that the assessee would primarily carry out its activities in India only.

On behalf of the revenue, reliance was placed on the order of the CIT.

The tribunal noted the primary argument of the assessee against the order of the CIT contending that for the limited purpose of granting registration, the conditions mentioned in section 12AA only needed to be fulfilled; that the provisions of section 11(1)(c) were not relevant for the purpose of registration; section 11(1)(c) could be applied only while determining the income entitled to exemption under section 11 in assessment of income. According to the tribunal, what was therefore to be decided while entertaining the application for registration u/s 12A was whether the law provided for any such geographical limitation in carrying out charitable activities and whether an object clause permitting such activity outside India could lead to rejection of application for registration at the preliminary stage.

The tribunal analysed the provisions of section 2(15), 11, 12, 12A, and 12AA of the Act and observed that the definition of the term “charitable purpose” in section 2(15) listed various activities which qualified as charitable purpose and there was no restriction that required that such activities, when actually carried out, were within the geographical boundary of India. In other words, there was nothing in section 2(15) that mandated against the carrying out of activities outside India. It was only section 11 which placed a geographical restriction by limiting the exemption only to incomes applied to charitable purposes in India. But even section 11 did not completely rule out exemption to incomes applied outside India for charitable purposes, when carried out with the approval of the CBDT.

The Tribunal therefore held that the CIT’s order, denying registration to the assessee merely because its objects included application of income outside India, was not in accordance with law. It was even more so because that was not the sole and main object of the assessee, but only its ancillary and incidental object. Besides, it was not the case that there was to be no application of income within India at all as per the objects, the main object of the assessee involved carrying out charitable activities in India. Under those facts, the tribunal was of the view that, denying registration under section 12A because an incidental object entailed application of income outside India, would result in the assessee being altogether denied exemption to income applied in India, which it was otherwise entitled to in law.

Further, the tribunal observed that the provisions of section 11(1)(c), which the CIT had relied upon for holding that only activities carried out in India would qualify as charitable for grant of registration, was only for the purposes of determining the income which qualified for exemption under section 11. As per the tribunal, this section came into operation only once registration was granted under section 12A, and therefore could not be relevant for the purposes of granting registration under section 12A. As per the tribunal, the scheme of the Act was that all entities carrying out charitable activities as defined in section 2(15) qualified to be registered as charitable entities, but the exemption was provided and restricted only to the extent of income applied for charitable purposes in India.

The tribunal also noted that the issue was squarely covered by the decisions cited (supra) on behalf of the assessee. It noted that in the case of M K Nambyar SAARF Law Charitable Trust (supra), the High Court had held that the application of income outside India was not a relevant criteria for rejecting the application for grant of registration under section 12A, and the officer had to only restrict itself to the satisfaction about the objects and genuineness of the activity of the trust while granting registration, with no restriction at that stage on the activities being carried out inside or outside India.

The Tribunal therefore set aside the order of the CIT, and directed the CIT to grant registration as applied for by the assessee.

A similar view has been taken by other benches of the Tribunal in the cases of Dedhia Music Foundation vs. CIT 173 taxmann.com 394 (Mum), Odhavji Chanabhai Peraj Charity Trust vs. DCIT 177 taxmann.com 178 (Mum), International Bhaktivedanta Institute Trust vs. DIT 42 taxmann.com 330 (Hyd), Dr. T.M.A. Pai Foundation vs. CIT 175 taxmann.com 719 (Bang), TIH Foundation for IOT and IOE vs. CIT 176 taxmann.com 561 (Mum) and Shamkris Charity Foundation vs. CIT 180 taxmann.com 58(Mum).

SILA FOR CHANGE FOUNDATION’S CASE

The issue came up again before the Mumbai bench of the Tribunal in the case of Sila for Change Foundation vs. CIT 173 taxmann.com 694.

In this case, the assessee, a section 8 company, had been granted provisional registration under section 12A(1)(ac)(ii) by the CIT. When it applied for final registration, the CIT noted that one of its 18 objects was – “to provide support and other such developmental services to other organisations in India and outside India in the social sector”. He was of the opinion that this objects clause violated section 11, and therefore registration under section 12A could not be granted, since the assessee had not established the genuineness of the activities. The CIT also noted that the assessee had not established whether this object was compliant with any other law as was material for the purpose of achieving its objects. The CIT therefore rejected the application for registration under section 12AB.

On behalf of the assessee, before the Tribunal, it was submitted that subsequent to the provisional approval, the activities of the institution had commenced and were found to be genuine. It was argued that once the CIT was satisfied that activities undertaken by the institution were genuine, and in consonance with its aims and objectives, registration could not be denied. It was further submitted that the activities of the institution were bona fide, and that the assessee had not applied any income for activities outside India. It was therefore argued that the genuineness of the activities could not be doubted.

On behalf of the assessee, it was further submitted that clause 12 of the Memorandum of Association was not meant to enable the assessee to carry out charitable activities outside India. All that the clause stated was that the assessee could render support and coordinate with trusts/Institutions outside India. An example was given that if a student was granted education loan for seeking education outside India, and the assessee paid tuition fees to a university outside India of such student, it would not mean that the amount was utilised or applied for charitable activities outside India.

On behalf of the revenue, it was argued that clause 12 of the objects stated that it would provide support and carry out such development activities to other organisations in India and outside India in the social sector. Section 11 required that the activities must be carried out in India. Clause 12 of the objects was clearly in contravention of the primary requirement under section 11. It was therefore submitted that the claim of exemption was rightly denied.

The tribunal analysed the provisions of section 12A, and the changes in the registration procedure effective from 1st April 2021. It noted that at the time of application for regular registration, the CIT was required to call for such documents or information or make such inquiries as he thought necessary to satisfy himself about the genuineness of the activities of the trust and the compliances of other laws. Once he was satisfied on the above aspects, then registration would be granted.

The tribunal further noted that, as per section 12AB(4) and (5), with effect from 1st April 2022, the registration can be cancelled in the case of specified violations. The list of specified violations includes, inter alia, cases where it is found out that the activities are not genuine, or are not carried out in accordance with the objects of the institution, or the institution has not complied with the requirements of any other law as are material to the attainment of its objects. It noted that the Explanatory Memorandum explaining the provisions of the Finance Bill 2022, stated that provisional registrations were granted in an automatic manner, and that the provisions for cancellation of registration were being introduced to ensure that non-genuine trusts do not get the exemption. Therefore, the tribunal observed that merely because provisional registration had been granted, did not mean that final registration could not be denied.

The tribunal then analysed the provisions of sections 11(1)(a) and 11 (1)(c). It noted the decision of the Delhi High Court in the case of DIT vs. National Association of Software and Services Companies 345 ITR 362, where the Delhi High Court held that there was no need for a trust to apply for CBDT approval for application of income outside India under section 11(1)(c) if section 11(1)(a) granted exemption even if income of the trust was applied outside India so long as the charitable purposes were in India. It noted the Delhi High Court’s observations that it was illogical to allow expenditure paid to a student to study abroad but the same was not permissible if the payment was made directly to the foreign university. It also noted the decision of the Mumbai Tribunal in the case of Jamsetji Tata Trust vs. Jt DIT 148 ITD 388, where the tribunal held that education grant given to Indian students for studying abroad amounted to application of money for charitable purposes in India and though the final execution of the purpose may be outside India, that would not affect the satisfaction of the conditions.

According to the tribunal, the courts had always proceeded on the footing that section 11(1)(a) does not attract forfeiture of exemption of the entire income, unlike the provisions of section 13(1). In other words, if a trust was willing to pay taxes to the extent of its activities outside India, then, to that extent, it can have such activities. This supported the assessee’s contention that the provisions of section 11(1)(a) were attracted only if actual expenditure was incurred outside India, and could not be invoked only on the ground that the trust deed provided for activities outside India.

Having noted in favour of registration, the Tribunal finally rejected the application for registration by mainly relying on insertion of sub-sections (4) and (5) in section 12AB by the Finance Act 2022 which had widened the scope of violations, as specified in the explanation therein. According to the tribunal, the condition that the objects of the trust were not in violation of compliance under any other law for the time being in force towards achieving the material purposes of the objects, had now become necessary to be satisfied and established by the assessee at the time when its application was scrutinised for converting provisional to final registration. In the view of the tribunal, with such compliance required at the stage of registration, the relevant clause 12 in the Memorandum of Association of the assessee was a hurdle to grant final registration.

The Tribunal therefore rejected the appeal of the assessee, upholding the denial of registration under section 12A.

This decision was followed by another bench of the Tribunal (with one member common to both cases) in the case of Hemlata Charities vs. CIT 172 taxmann.com 649.

OBSERVATIONS

The power to refuse or reject the application for registration is strictly governed by s. 12AA of the Act. As noted earlier, the conditions that are to be examined by the CIT and in respect of which he needs to satisfy himself do not require him to reject the application on the ground that one of the objects of the trust contains a clause that permits the trust to apply its income out of India; as long as the objects behind the application are charitable and satisfy the test of section 2(15), there is no hurdle in granting registration to the trust.

At the stage of application, there may not be even any application of income. While section 11(1)(c) limits such application only where it is approved by the CBDT, that by itself is not a hurdle in registration of the trust. As long as the objects are found to be charitable within the meaning of section 2(15), the only thing that is required to be examined is whether the activities of the trust are genuine or not; they do not become non-genuine where some income is applied outside India, as long as the application is for charitable purpose.

The next condition, the non-satisfaction of which permits the refusal, is whether there was any non-compliance of requirements of ‘other law’ that is material for achieving the objects of the trust. It is beyond one’s imagination to conceive as to how a charitable object of the trust that permits application in a foreign country can be in non-compliance of some other law, and how can it be so even before the application of income is made for an overseas object. In any case it is for the CIT to demonstrate, with proof, that having such an object can and will lead to any non-compliance, that too one which can be considered to be material.

Applying or invoking the provisions of s. 11(1)( c) at the time of registration or even at the time of renewal of registration is absolutely avoidable. This provision is a computation provision and has application only while assessing the income. Even when this provision is successfully applied by the AO, that by itself cannot lead to any refusal of registration.

Applying s.12AB (4) and (5) at the time of registration is once again debatable. The provision applies to the cases of cancellation of registration and is applicable to the trust which is already registered. These provisions are not applicable to the case of a trust which is seeking registration. In any case, all of the seven situations of the Explanation to s. 12AB(4) require an act by the trust that has already taken place and has been committed, to enable the CIT to cancel registration. None of them could apply to a trust simply because it has an objects clause that permits it to apply income outside India. In our opinion, even where the income is so applied for charitable purpose outside India, there is no specific violation unless it is established by the CIT that such an application was in violation of the requirements of the other law or non-compliance thereof, which was material to the attainment of the objects.

The tribunal, in Sila for Change Foundation’s (supra) case, was perhaps justified in noting that by the amendment of law in 2022, if there was a specified violation, the CIT could reject the application for registration. However, in that case, the Tribunal really did not demonstrate as to how, by having an object permitting application outside India, there was a violation of compliance with any other law as was material for the attainment of objects of the trust. In fact, there was no such violation of compliance with any other law material for the attainment of objects of the trust. As noted by the Mumbai Bench of the Tribunal in Dedhia Music Foundation’s case (supra), the provisions of section 11(1) would not fall under the category of “any other law”, since it was only a computation provision, and that application of income for objects outside India cannot be construed to be violation of “any other law” under section 12AB(4). If there was indeed such a specified violation, then perhaps the decision of the tribunal would have been justified.

As rightly observed by the tribunal in that case, the correct position in law was that if there was actual application outside India, it was only then that the exemption was lost to the extent of such application. The 2022 amendment did not really affect this position, since none of the specified violations applied to a situation of having an object permitting application outside India. Therefore, the ratio of the decision of the Delhi High Court in the case of M K Nambyar Saarf Law Charitable Trust (supra), that application of income outside India is not a relevant factor for rejecting an application for registration under section 12A, would continue to be valid and hold good.

In fact, in Sila’s case, the tribunal failed to appreciate that unless the trust had an object permitting it to apply its income outside India, it could not even approach the CBDT for permission for application outside India, as the trust can spend only to the extent permitted by its objects. In fact, when a trust makes an application to the CBDT, one of the points on which enquiry is made is the specific object under which the trust intends to apply the money outside India. If there is no such object in the trust deed authorising the trustees to apply income or assets outside India, in law, the trust would not be able to apply any part of its income or assets outside India, and therefore there is no question of even applying to the CBDT for such permission. Therefore, existence of such a clause in the trust deed is essential, if a trust is ever to apply to the CBDT for application outside India. If a view is taken that a trust cannot be granted registration under section 12A if it has such a clause permitting spending outside India, then the provisions of section 11(1)(c), to the extent applicable to trusts set up after 01.04.1952, of taking prior CBDT approval, become redundant. That can never be the case, and therefore such an interpretation would be incorrect.

Therefore, clearly the better view of the matter is that the mere existence in the trust deed or Memorandum of Association of an object of spending outside India, cannot be a ground for rejection of registration under section 12AB (or under section 80G, for that matter).

Assessment and Appeals under the Income Tax Act, 2025

The Income Tax Act 2025 was enacted following demands to modernize and simplify the bulky 1961 Act. Despite high expectations for structural change, the New Act is considered a disappointment because it makes very little change in substance. The stated objective was merely language simplification, which involved converting hundreds of explanations and provisos into sub-sections, and changing established terms like “notwithstanding” to “irrespective”. This linguistic revision creates an apprehension of increased litigation by disrupting settled judicial interpretation.

Procedurally, the New Act replaces the concept of “assessment year” with “tax year”. A critical transitional issue is that the Old Act (1961) will continue to apply to proceedings pending as of April 1, 2026, for previous tax years. This means taxpayers and practitioners must remain proficient in the provisions of both the 1961 and 2025 Acts for at least the next decade. Ultimately, stakeholders question whether the substantial effort was worthwhile given the minimal changes and the risk of new legal controversies.

BACKGROUND

The Income Tax Act 1961 has been around for more than six decades. The said Act had undergone innumerable changes, some on account of changes in the economic environment, some due to judicial interpretation being not in consonance with legislative intent, and some for other reasons. Consequently, the Act had indeed become bulky, and many new users found it to be cumbersome. The need for a new Income Tax legislation had been doing the rounds for more than a decade and a half. A direct tax code was put in the public domain in around 2010. Professionals spent huge amounts of time trying to analyse and dissect the provisions thereof and make representations to the government. For reasons best known to the lawmakers the direct tax code got a quick burial and is now lying only in the archives.

When a New Act was mooted, the profession and probably the taxpayer had great expectations. This was an era of massive technological development, all-round economic growth and the liberalisation of 1991, had resulted in a sea change in business environment. The government always mentioned its object of ushering in “ease of doing business.” It was hoped that the new legislation would make structural changes, conduct a complete overhaul of the cumbersome procedural issues and the New Income Tax Act, would be a forward-looking model legislation. Sadly, these expectations have not been met and to that extent the new legislation is a disappointment. The feeling is that a great opportunity has been lost.

The announcement of the new legislation was made in July 2024; the bill was tabled on 13th February 2025. referred to the Select Committee immediately thereafter. After the report of the Select Committee, which suggested a large number of changes, many of which were accepted by the Finance Ministry, the old bill was withdrawn on 8th August 2025. The redrafted legislation was placed before Parliament on 11th August 2025, passed by both houses on 11/12th August 2025 and received presidential assent on 21st August 2025. The Income Tax Act 2025 (hereafter referred to as the New Act), does not make any change in substance in the Income Tax Act 1961 (hereafter referred to as the Old Act). In its responses to the Select Committee, the Finance Ministry has made it abundantly clear that it does not intend to make any policy change and the objective was merely to ensure that the new law had language which the stakeholders could easily comprehend, was dynamic and forward-looking. Unfortunately, the objects do not seem to have been achieved. There is apprehension that, on account of the changes in language, there may be increase in litigation, unless the lawmakers take appropriate steps.

SCOPE OF THIS ARTICLE

As has been narrated in the earlier paragraphs, there is very little change in substance between the Old Act and the New Act. The tabulations comparing/ matching old sections with the new sections are already in the public domain, and in this era of complete information access, bear no repetition. Therefore the object is to point out the limited changes that have been made in the provisions relating to assessment and appeals, analyse the thought process of the Finance Ministry which has been recorded by way of responses to the suggestions of the Select Committee and put forth some suggestions wherever appropriate.

IMPACT OF CHANGE IN LANGUAGE

As an endeavour towards simplifying language, all the explanations in the Old Act {900 in number) and provisos (1200 in number) have been given a go by, and the text of the said explanations and provisos find place in the New Act by way of sub-sections. The role and ambit of explanations and provisos had been judicially interpreted for more than six decades and the law on that aspect was now well settled. Judicial fora were clear, that an explanation could not exceed the ambit of the main provision and a proviso was only an exception or carve out.

Income Tax Act 2025 A Missed Opportunity

When an explanation or a proviso is enacted as an independent provision by way of a sub-section, it would stand on the same footing as the other sub-sections in the section. As a consequence, if the two sub-sections are in conflict with each other or there is an element of difference in interpretation, it would require judicial intervention to make a rational interpretation. The most significant difference in language is the use of the word “irrespective of” instead of the word “notwithstanding”. In my humble understanding, these two words do not mean the same thing. It is also important to note that the word “notwithstanding” was a non-obstantate clause, and if it appeared at two places, the impact was judicially interpreted. Using the word “irrespective of”, may result in interpretation issues. The Finance Ministry has clarified that the change in language is only to make it simple and not to disagree with established propositions. It may be appropriate for the Finance Ministry to clearly mention that despite the use of a different word, the intent is to accept the interpretation that was placed on the word “notwithstanding”.

REPEAL AND SAVINGS – SECTION 536

While section 536(2) of the New Act has clauses (a) to (s), clauses (c), (d), (e) and (g) are of importance for the scope of this article. Clauses (c), (d) and (e) provide that in respect of any proceeding pending as at the date of the commencement of the New Act, pertaining to tax year beginning before 1st April 2026, the provisions of the Old Act would continue to apply. This will mean that in regard to any proceeding which is pending as on 1st April 2026, in regard to assessment year 2026-27(previous year 2025-26), or any year prior thereto, the Old Act will apply. Further if any proceeding is initiated after 1st April 2026 pertaining to these years, the Old Act will continue to apply. This will mean that at least for the next decade or so, tax practitioners will have to keep abreast of the provisions of the Income Tax Act 1961, as well as the Income Tax Act 2025. Of course, this was the position also at the time that the Income Tax Act 1922, gave way to the Income Tax Act 1961. The difference is that the tax compliance landscape at that point of time was far simpler than it is today. Considering the current complexities, taxpayers, tax practitioners as well as tax administrators have a daunting task ahead.

The procedures, obligations limitations provided for/prescribed under the Old Act would continue for all years commencing on before 1st April 2026. Clause (g), provides that in regard to any refund pertaining to an year prior to the commencement of the New Act or any sum due by the assessee pertaining to that year, the provisions relating to interest either payable by the Central Government or by the assessee, the provisions of the New Act will apply for the period after the commencement of the act.

DEFINITIONS / CONCEPTS PRIOR TO ASSESSMENT

The definitions pertaining to assessment, person, regular assessment, tax in the New Act are virtually identical to that of the Old Act. In the term “assessment”, the term recomputation has been included. This is only a semantic change as computation of tax was always a part of the assessment process.

In keeping with the change of replacing the concept of assessment year by a tax year, the New Act does not have a definition of assessment year, but a tax year is defined in section 3, in place of a previous year. Therefore 2026-27 will be the assessment year for previous year 2025-26 and tax year for financial year 2026-27.

The provisions of section 263 in regard to furnishing of a return of income, and section 267 pertaining to an updated return are similar to the corresponding provisions in the Old Act.

ASSESSMENT

The provisions in regard to inquiry before assessment are similar to that under the Old Act. Section 270(1) which deals with processing of a return of income corresponds to section 143(1) of the Old Act. Before the Select Committee, the stake holders had represented that after processing the return by the Centralized Processing Centre (CPC), which is a mechanical process now facilitated by artificial intelligence, the responsibility of grant of refund, rectification etc should vest with the jurisdictional assessing officer (JAO). This would solve a large number of problems, which arise on account of the absence of a human interface. To illustrate, in the case of a developer following the percentage completion method, the withholding of tax by the flat purchaser, the determination of income results in a mismatch, requiring reconciliation. In situations like this, a human interface becomes inevitable.

The Finance Ministry response to the stakeholders suggestion was that the duties of the CPC and the JAO are properly delineated. According to the Ministry, the CPC processes returns according to Taxpayer’s Charter. It also transfers the rectification rights on request. The speed of such actions and the actual situation in the field is well known to taxpayers and tax practitioners.

Section 273 of the New Act corresponds to section 144B of the Old Act. However, there is a significant difference between the New Act and Old Act. Section 144B provided for the entire process of a faceless assessment. Despite the deletion of section 144B (9), which expressly provided that the non-adherence to the procedure would result in the assessment as non-est, statutory recognition of the process resulted in protection of the assesee’s rights. Section 273 delegates the duty of prescription to the CBDT. Before the Select Committee, the stakeholders urged that the assessment process should have statutory recognition. The Finance Ministry response was that even delegated legislation has parliamentary oversight, as the rules framed have to be placed before the Parliament. One wonders whether such oversight is sufficient protection for the taxpayer. The infringement of a statute would give different rights to an assessee. The same may not be true of a violation of a rule. While delegated legislation gives the administrators flexibility, one wonders whether the powers of prescription would be fairly used.

REASSESSMENT

Section 280 corresponds to section 148 of the Old Act by virtue of which a person is called upon to file a return, if, in the opinion of the department, income has escaped assessment. Sub section (5) of the section dispenses with the requirement of an opportunity in terms of section 281 in certain circumstances. The circumstances have been expanded to include , in terms of Section 280(6)(g) and (h) two situations, namely the issue of any direction by an approving panel in respect of an impermissible avoidance agreement, and any finding or direction contained in an order passed by any authority tribunal or court in any proceeding under this Act by way of appeal, reference revision, or by a court in any proceeding under any other the law. If these circumstances exist, no opportunity mandated by section 281, is necessary before issue of notice under section 280.

Before the Select Committee, the stake holders had requested that an opportunity be provided to an assessee, in terms of section 281 even if such circumstances exist. The Finance Ministry response was that, since the finding or direction was by a higher authority, it was bound to follow it and in any event an opportunity was already afforded by the authority before it recorded a finding or issued a direction. This could have significant repercussions for two reasons. Firstly, the term “authority” has not been defined in the New Act, though an income tax authority has been defined. So, the scope of the exclusion from a prior enquiry would stand substantially expanded, Secondly the finding or direction by a court under any other law, could put an assessee to substantial inconvenience. This is because each law has a different and distinct ambit. To illustrate, in a proceeding under say the PMLA or Prevention of Corruption Act, the court may record a finding. If the reopening is based on such a finding, it could have repercussions. Another example would be the statement of parties in matrimonial dispute before a family court. In such cases, statements are made in a particular context. If the court records a finding in regard to such statements, it could cause problem to assessees.

Section 282 sets out the time limit within which notice under section 280 can be issued. At first blush, one feels that the time limit has been increased from three years to four years and from five years to six years in certain circumstances, This is however not so. Section 149 of the Old Act prescribed limits with reference to an assessment year while the New Act prescribes time limits with reference to a tax year. The actual timelines therefore remain unchanged.
Section 286, corresponding to section 153 of the Old Act, sets out the time limits within which assessments, reassessments and recomputations are to be completed. Unlike section 153, which uses the term “month”, section 286 uses the word “year”. The reason for such change is not understood. Since both these terms are not defined in either the Old Act or the New Act the definition under the General Clauses Act will apply

APPEALS AND REVISION

The appeal and revision provisions remain substantially unchanged, though there are minor differences in language. Interestingly in regard to the revisionary powers of the Commissioner under section 378, the stakeholders had requested that the intimation under section 270(1) be treated as an order for the purpose of revision. This was earlier provided in section 264 in the Old Act, but after the deletion of the explanation, conflicting views had arisen. While declining to make a change in regard to the revisionary powers of the Commissioner, the Finance Ministry has explicitly stated that there is “no bar to a Commissioner exercising his jurisdiction in regard to an intimation under section 270(1). This would be clarified by way of administrative instructions.“ Thus, at least one controversy as to whether an assessee can invoke a Commissioner’s revisionary jurisdiction in regard to an intimation appears to have been settled.

CONCLUSION

If, simplification of language and reduction in volume were the only objects of the New Act, and the government was not desirous of making any structural or policy change, one wonders whether the huge effort and cost was worth it, A major part of the objects could have been achieved by a Taxation Laws Amendment Act. It will be only in mid-2027 that the provisions which are the subject matter of this article will be put to use. Even with the restriction that no policy change is to be made, it would be appropriate to make some changes in the Income Tax Act 2025. Probably the Government is conscious of this. It is borne out by the answer by the Minister of State for Finance in reply to a question in Parliament, which mentions that the forms to be used with effect from 1st April 2026, will be notified only after the Finance Bill 2026 is passed as the said bill may make certain changes to the New Act. One hopes that the lacunae which have already come to the fore are taken care of, so that litigation pertaining to the New Act can be avoided to the extent it can!

Allied Laws

43. K. S. Shivappa vs. K. Neelamma

AIR 2025 SC 4792

October 07, 2025

Minor’s Property – Repudiation of Voidable Transfer – Transfers held to be void ab initio. [S. 8 of the Hindu Minority and Guardianship Act, 1956; Article 60 of the Limitation Act, 1963]

FACTS

Mahadevappa owned plots in Davanagere, which were purchased in the names of the three minor sons of Rudrappa. Without obtaining the mandatory permission of the District Court under Section 8(2) of the Hindu Minority and Guardianship Act, 1956, Rudrappa, the natural guardian, sold plot no. 56 and plot no. 57 to third parties in 1971. The purchasers further transferred the plots, including a transfer of plot no. 57 in 1993 to Smt. Neelamma (Respondent). After attaining majority, the surviving minors, along with their mother, repudiated the guardian’s unauthorised sales by executing fresh sale deeds in favour of K.S. Shivappa (Appellant). Appellant thereafter combined both plots and constructed a house. The Respondent filed a suit for declaration and possession, claiming that her vendor had a good title. The Trial Court dismissed the suit, holding that the minors had validly repudiated the earlier sale through their later conveyance to Appellant. The First Appellate Court reversed the decision, holding that in the absence of a suit for cancellation, the guardian’s sale had attained finality. The High Court affirmed this view, leading to the appeal before the Supreme Court.

HELD

The Supreme Court held that a sale of a minor’s property made by a natural guardian without obtaining prior court permission under Section 8(2) of the Hindu Minority and Guardianship Act, 1956, is voidable, and it is not mandatory for the minor, upon attaining majority, to file a suit to set aside such a sale. The Court clarified that a voidable transaction may be avoided either through a formal suit or by unequivocal conduct, such as the minor subsequently selling the same property within the period of limitation. In this case, the surviving minors, after attaining majority, had validly repudiated their father’s unauthorised sale by executing a fresh sale deed in favour of the appellant, K.S. Shivappa. Consequently, the earlier sale to the respondent’s predecessor became void ab initio, and no valid title ever passed to the Respondent. Additionally, the Court held that Respondent failed to prove her title since she did not enter the witness box, and her power-of-attorney holder could not testify on matters within her personal knowledge.

Accordingly, the decrees of the First Appellate Court and High Court were set aside, and the Trial Court’s dismissal of Respondents suit was restored.

44. Dharmrao Sharanappa Shabadi & Ors vs. Syeda Arifa Parveen

2025 SCC Online SC 2155

October 07, 2025

Mohammedan Law – Oral Gift (Hiba) – Proof of Relationship – Limitation Act. [S. 50 & 73 of the Hindu Minority and Guardianship Act, 1956; Article 60 of the Limitation Act, 1963]

FACTS

The dispute pertained to agricultural land situated at Village Kusnoor, Karnataka. The original owner of the land, Khadijabee, obtained a decree of title in 1971. The Plaintiff, Syeda Arifa Parveen, claimed that she was the only daughter and legal heir of Khadijabee and that her mother had orally gifted 10 acres of the land to her, which was later recorded in a Memorandum of Gift. Upon the death of Khadijabee and her husband Abdul Basit, the Plaintiff alleged that she had become the absolute owner of the entire suit property. The Defendants, however, contended that they had validly purchased the entire land through five registered sale deeds executed by Abdul Bas (claimed to be Abdul Basit), and their names had been consistently recorded in the revenue records since then. When the Defendants allegedly interfered with her possession, the Plaintiff filed a suit seeking declaration of ownership, cancellation of sale deeds, and a permanent injunction.

HELD

The Supreme Court held that the Plaintiff failed to prove her status as the daughter of Khadijabee, as the oral testimony relied upon lacked credibility and was unsupported by any documentary evidence such as birth records, school certificates, or family documents. The Court further held that the alleged oral gift (Hiba) was not proved in accordance with Mohammedan Law, as there was no proof of actual or constructive delivery of possession to the Plaintiff at the time of the gift, and the consistent mutation entries in favour of Abdul Basit and thereafter the Defendants negated the claim of transfer of possession. Additionally, the Court ruled that the High Court had exceeded its appellate jurisdiction by enhancing the relief in favour of the Plaintiff without there being a cross-appeal. It also observed that the suit filed in 2013 challenging the sale deeds of 1995 was clearly barred by limitation. Consequently, the Defendants were held to be the lawful owners under their registered sale deeds.

Accordingly, the judgments of Trial Court and the High Court were set aside and Civil Appeal was allowed.

45. Sangita Sandip Jadhav & Ans vs. State of Maharashtra & Ors.

2025 SCC Online Bom 880

April 2, 2025

Stamp Duty – Refund – Agreement for Sale Cancelled – No Possession Handed Over – Limitation within Section 48. [S.47(c)(5) & S. 48(1) of Maharashtra Stamp Act, 1958 (MSA)]

FACTS

Petitioners entered into a registered Agreement for Sale to purchase a Flat in “Rukmini Heights”, Satara. They paid part consideration and stamp duty along with registration fees. Since loan applications were not sanctioned and they could not proceed with the transaction, the parties executed a registered Deed of Cancellation, wherein it was clearly stated that possession of the flat was never handed over. Petitioners applied for a refund of stamp duty under Section 47(c)(5) of MSA. The Collector of Stamps rejected the application, holding that possession was handed over based on a clause in the Agreement for Sale and invoked the Proviso to Section 48(1) of MSA, which bars refund where possession has passed. Appeal before the Chief Controlling Revenue Authority was also dismissed, leading to the present petition.

HELD

The Bombay High Court held that there was no conclusive evidence of possession having been delivered on execution of the Agreement for Sale, especially when only 15% of the total consideration was paid. The covenant relied upon by authorities was contradictory to the clause requiring execution of a Sale Deed only after payment of full consideration. The Cancellation Deed explicitly recorded non-delivery of possession, which further negated the conclusion of conveyance-like transfer. Even assuming possession was deemed to have been handed over, the Court held that the refund application was filed within six months from execution of the Agreement for Sale, thus satisfying Section 48(1) of MSA. Since the intended transaction had completely failed, the case squarely fell under Section 47(c)(5) of MSA. Retaining stamp duty in such circumstances would amount to unjust enrichment by the State. Therefore, the impugned orders were quashed, and the Respondents were directed to refund to the Petitioner.

Accordingly, rejection orders of the Collector and Chief Controlling were set aside and a refund was directed.

46. Varinder Kaur vs. Daljit Kaur & Ors.

2025 SCC Online Del 6212

September 26, 2025

Cancellation of Gift Deed – Neglect of Senior citizen – Maintenance is an Implied Condition. [S.23, Maintenance and Welfare of Parents and Senior Citizens Act, 2007]

FACTS

Respondent No. 1, Smt. Daljit Kaur executed a gift deed dated 05.05.2015 in favour of her daughter-in-law, the Appellant, transferring her residential property. Later, alleging neglect and maltreatment, she invoked Section 23 of the Senior Citizens Act, seeking cancellation of the gift deed on the ground that the Appellant had refused to provide basic amenities, care, medicines, and had even threatened her with confinement and harm. The Maintenance Tribunal refused cancellation on the basis that the gift was not shown to be conditional. However, on appeal under Section 16, the District Magistrate set aside the Tribunal’s decision and directed cancellation of the gift deed. The Appellant challenged said order before the High Court in a writ petition, which was dismissed by the learned Single Judge. The Appellant then filed the present Letters Patent Appeal under Clause X of the Letters Patent before the Division Bench.

HELD

The Delhi High Court held that for senior citizens gifting property to children or close relatives, “love and affection” inherently implies the condition of receiving care in return. Thus, an express condition in the deed is not mandatory for invoking Section 23. The Court further noted ample material in the form of letters and complaints showing that the Appellant had denied Respondent No. 1 basic necessities, medicines, and personal belongings, and had subjected her to threats and ill-treatment soon after obtaining the transfer. In such circumstances, the deeming fiction under Section 23(1) becomes operative, rendering the transfer voidable, and justifying cancellation of the gift deed. The Court endorsed the beneficial and purposive interpretation adopted by the District Magistrate and Single Judge, consistent with the statutory objective of protecting the dignity, security, and welfare of senior citizens.

Accordingly, the appeal was dismissed and cancellation of gift deed was upheld.

Editor’s Note: Readers may note that the subject matter of this dispute was covered in detail in the feature “Laws and Business” in the September 2025 Edition of BCAJ. Those who are interested may read the said feature for a more comprehensive view covering multiple cases.

47. Rama Bai vs. Amit Minerals through Incharge Officer & Anr.

2025 SCC Online SC 2067

September 24, 2025

Motor Accident Compensation – Driver without Valid License – Insurer Liable on ‘Pay and Recover’ Principle. [S.149(2)(a)(ii), Motor Vehicles Act, 1988]

FACTS

The Appellant is the mother of the deceased Nand Kumar, who was working as a conductor in a truck. The truck collided with a tractor-trolley, causing his death. The Motor Accident Claims Tribunal awarded ₹3,00,000/- as compensation and fastened liability on the driver and owner, as the driver’s driving licence had expired on 20.06.2010 and was only renewed from 03.11.2011 to 02.11.2014 — thus the driver did not hold valid licence on the date of the accident. In appeal, the High Court enhanced the compensation to ₹5,33,600/- with 7% interest, but absolved the Insurance Company from the liability due to breach of policy conditions. The Appellant approached the Supreme Court seeking application of the ‘pay and recover’ principle so that immediate compensation is not delayed.

HELD

The Supreme Court held that although the driver did not possess a valid driving licence on the date of accident giving the Insurance Company a valid defence under Section 149(2)(a)(ii) and justifying avoidance of liability, the beneficial object of the Motor Vehicles Act requires that victims are first compensated promptly. The Court applied the doctrine of “Pay and Recover”. The Insurance Company must first satisfy the award and thereafter recover the amount from the vehicle owner through appropriate legal proceedings.

Accordingly, the appeal was allowed and insurer was directed to ‘Pay and Recover’.

Article 11 of India-China DTAA — Interest received by China Development Bank qualified for exemption under Article 11(3) since, in fact, it was a financial institution owned by the Government of China.

11 [2024] 165 taxmann.com 603 (Delhi – Trib.)

Income Tax Officer vs. Tata Teleservice Ltd

ITA No: 1393 (Delhi) of 2023

A.Y.: 2016-17

Dated: 21st August, 2024

Article 11 of India-China DTAA — Interest received by China Development Bank qualified for exemption under Article 11(3) since, in fact, it was a financial institution owned by the Government of China.

FACTS

For FY 2015-16, the assessee had made interest payments to M/s. China Development Bank (‘CDB’), a tax resident of China without deducting taxes under Section 195. As per the assessee, CDB was wholly controlled by the Government of China. Therefore, in terms of source rule exemption as provided in Article 11(3) of India-China DTAA, the interest received by CDB was not taxable in India.

While the appeal related to AY 2016-17, in 2018, India and China subsequently executed a Protocol to DTAA, and the amended Protocol explicitly mentioned that ‘CDB’ was a qualified entity for Article 11(3).

According to the TDS officer, CDB was not eligible for exemption since the Government of China held only a 36.45 per cent stake in CDB. Therefore, he treated the assessee as an ‘assessee in default’ for not deducting taxes on interest payments. The officer did not grant an exemption since the protocol amendment entered into effect only on 17th July, 2019. The CIT(A) held that CDB qualified for the benefit of exemption.

Aggrieved by the order of CIT(A), the Department appealed to ITAT.

HELD

  •  The Ministry of Finance of China directly held 36.45 per cent stake in CDB. Four other entities, which were controlled by other state-owned entities or limited liability companies or funds established under the law of the People’s Republic of China held the remaining stake in CDB.
  •  Audited financial statements of CDB clearly showed that entities that owned CDB were funded either by the Administration of Foreign Exchange or the State Council of China.
  •  The erstwhile Article 11(3) provided the benefit to financial institutions wholly owned by the Government of China, and such provision was expansive in nature.
  •  The newly inserted Article 11(3) vide Notification No.S.O.2562(E)(No.54/2019/F.No.503/02/2008-FTD-II dated 17th July, 2019) provides similar benefit to financial institutions.
  •  Further, the protocol amended vide notification dated 17th July, 2019 specifically included CDB in the list of financial institutions eligible for benefit under Article 11(3).
  •  Under the existing and amended Article 11(3), CDB was a financial institution wholly owned by the Chinese Government and, therefore, it was entitled to the benefit of exemption. Hence, the Assessee could not be treated as ‘assessee in default’.

Article 12 of India-US DTAA — Sincereceipts for providing access to online courses and conduct of examinations did not satisfy ‘make available’ condition, it was not taxable as fees for included services.

10 [2024] 165 taxmann.com 683 (Delhi – Trib.)

Coursera Inc vs. ACIT (International Taxation)

ITA No: 2416 & 3646 (Delhi) of 2023

A.Y.: 2020-21 & 2021-22

Dated: 21st August, 2024

Article 12 of India-US DTAA — Sincereceipts for providing access to online courses and conduct of examinations did not satisfy ‘make available’ condition, it was not taxable as fees for included services.

FACTS

The Assessee, a tax resident of the USA, provided access to online courses and degrees offered by educational institutions and universities through its global online learning platform. The Assessee earned fees for enabling Indian institutions to access its platform. According to the assessee, in terms of Article 12 of India-USA DTAA, such fees were not taxable in India, either as royalties or fees for included services (‘FIS’).

According to the AO, the receipts were in nature of FIS under Article 12(4) due to the following assertions:

  • The services rendered were not confined to ‘content service’ but included a range of user-specific services that involved significant human intervention.
  • Training element was involved in navigating the features of the platform.
  • Since the assessee was not an education institution, the exception made in Article 12(5) was not applicable.

DRP directed the AO to verify the specific agreement and pass a speaking order. In his order passed pursuant to directions of DRP, the AO treated the receipts as FIS.

Being aggrieved, the assessee appealed to ITAT.

HELD

  •  The educational institutions create the courses and conduct examinations, not the Assessee. The competition certificate issued by the university bears the logo of the Assessee.
  •  The Assessee only provides access to the content created by the universities and does not create any content on their own. Upon payment of fees, the users access the content/study materials through the Assessee’s online platform. The Assessee acts as a facilitator between the universities and users. Hence, the Assessee was an aggregation service provider. The Assessee does not render any technical services while providing users with access.
  •  The AO brought no evidence on record to prove that the Assessee rendered technical services. Even assuming that services are technical in nature, the same could not be regarded as FIS unless the ‘make available’ condition was satisfied. Mere customisation of the webpage does not regard the service as technical. The burden was on the revenue to prove that the assessee had transferred technical knowledge, know-how, or skill as envisaged under Article 12(4).
  •  Relying on the rulings in the case of Elsevier Information Systems GmbH vs. Dy. CIT (IT) [2019] 106 taxmann.com 401 (Mumbai) andRelx Inc. ACIT [2023] 149 taxmann.com 78 (Delhi – Trib.), the ITAT held that receipts towards granting of access to data / information through the platform are towards ‘copyrighted article’. Hence, the same cannot be regarded as royalty.
  •  Further, providing access to data to users of the database does not involve any human intervention and, hence, cannot be regarded as fees for technical services as held by the Supreme Court in Bharati Cellular Ltd 330 ITR 239.

S. 17(3) — Voluntary severance compensation received by an employee for loss of employment could be regarded as capital receipt not subject to tax as profits in lieu of salary under section 17(3).

66 (2024) 168 taxmann.com 369(Ahd. Trib)

Sudhakar Ratan Shanker Gautam vs. ITO

ITA No.: 1033(Ahd) of 2024

A.Y.: 2018-19

Dated: 3rd October, 2024

S. 17(3) — Voluntary severance compensation received by an employee for loss of employment could be regarded as capital receipt not subject to tax as profits in lieu of salary under section 17(3).

FACTS

The assessee, an individual, was employed with “Y” which was subsequently acquired by “E”. Following this acquisition, the assessee’s employment was terminated on 26th October, 2017 on account of redundancy, and he received a severance compensation of ₹15,50,905. This amount was claimed as a capital receipt not chargeable to tax in the return of income filed for AY 2018-19 on 31st August, 2018.

The AO treated this amount as “profits in lieu of salary” under section 17(3) and added it to the total income of the assessee. On appeal, CIT(A) observed that since the compensation received by the assessee was related to the termination of employment, it should be treated as “profits in lieu of salary” under section 17(3)(i), thereby confirming the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that–

(a) Gujarat High Court [in Arunbhai R. Naik vs. ITO, (2015) 64 taxmann.com 216 (Guj)] and various ITAT decisions have consistently held that voluntary severance payments made without contractual obligation are capital receipts and not subject to tax as profits in lieu of salary.

(b) The severance payment received by the assessee was paid for the loss of employment and not for past services. It is consistently held that payments, when not tied to services rendered, are capital in nature and not taxable as salary income. Since the employer had no obligation to pay further amounts upon termination, the compensation should be deemed a capital receipt and thus not taxable under Section 17(3).

(c) Under section 17(3), “profits in lieu of salary” is a key provision that seeks to tax certain payments received by an employee in connection with the termination of employment. On the other hand, capital receipts, especially in the context of employment, typically relate to compensation for the loss of a source of income and are generally not taxable, unless specified. This distinction is critical in determining whether a severance payment or other termination-related compensation is subject to tax as salary income or can be treated as a non-taxable capital receipt.

(d) Section 56(2)(xi), w.e.f. 1st April, 2019, deals with compensation received or receivable in connection with the termination or modification of terms of employment contracts. However, this amendment applies to assessment years starting from AY 2019-20 onwards and not to the case in question.

Accordingly, the Tribunal held that severance compensation received by the assessee was a capital receipt, not chargeable to tax under section 17(3).

Where the assessee was not only for the benefit of its members but also for benefit of insurance consumers from the general public, it was regarded as engaged in charitable activity in the nature of advancement of object of general public utility and therefore, principle of mutuality could not be applied. Where participation in the annual meet of the assessee was free of cost, it was not a case of rendering of any service for a fee and therefore, proviso to section 2(15) did not apply.

65 Insurance Brokers Association of India vs. ITO

ITA No. 3955 & 3958 / Mum / 2024

A.Ys.: 2016-17 & 2018-19

Date of Order: 13th November, 2024

Section 2(15), principle of mutuality

Where the assessee was not only for the benefit of its members but also for benefit of insurance consumers from the general public, it was regarded as engaged in charitable activity in the nature of advancement of object of general public utility and therefore, principle of mutuality could not be applied.

Where participation in the annual meet of the assessee was free of cost, it was not a case of rendering of any service for a fee and therefore, proviso to section 2(15) did not apply.

FACTS

The assessee was a company registered under section 25 of the Companies Act, 1956 in 2001 and was registered as a charitable organization under section 12A of the Act. For AY 2016-17 and 2018-19, the assessee filed its return of income claiming exemption under section 11 of the Act.

For AY 2016-17 and AY 2018-19, the case of the assessee was selected for scrutiny. Relying on Circular No. 11/2008 dated 19th December, 2008, the AO held that the assessee cannot claim exemption under section 11 of the Act since 1st proviso to section 2(15) of the Act was applicable and also held that the principle of mutuality was applicable in assessee’s case and brought to tax the interest income and other income.

CIT(A) confirmed the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the question of applying the principle of mutuality, the Tribunal observed that-

(a) It was not in dispute that the assessee was a charitable organisation since it was registered under section 12A of the Act and that the tax department till now had not held the assessee to be otherwise.

(b) A perusal of the financial statements of the assessee showed that the income consisted of subscription fee from members, sponsorship fees for annual event, and bank interest. Further, a perusal of the brochure of the annual event showed that the event was held for the benefit of insurance consumers and brokers and that the events were conducted without collecting any fees.

(c) The assessee was not only for the benefit of members but was also for the benefit of insurance consumers from general public and therefore, the assessee could be regarded as engaged in charitable activity in the nature of advancement of object of general public utility.

Therefore, the Tribunal held that the principle of mutuality was not applicable in the assessee’s case.

On the question of the applicability of proviso to section 2(15), the Tribunal observed that the income of the assessee did not contain any revenue from any activity in the nature of trade, commerce or business. Further, the participation in the annual meet for which the sponsorship fees was received was free of cost and therefore, it could not be held to be a service for a fee for rendering services. Relying on observations of the Supreme Court in ACIT vs. Ahmadabad Urban Development Authority, (2022) 143 taxmann.com 278 (SC), the Tribunal held that the AO was not correct in denying the benefit of section 11 by invoking proviso to section 2(15).

Accordingly, the appeals of the assessee were allowed.

Ss. 12AB, 2(15) – Where the objects and activities of the trust showed that its charitable activities were for the general public at large and not only for the alumni and faculty of the university, it was entitled to registration under section 12AB.

64 (2024) 168 taxmann.com 526 (AhdTrib)

Indus Alumni Association vs. CIT(E)

ITA No.: 916 (Ahd) of 2024

A.Y.: N.A.

Dated: 4th November, 2024

Ss. 12AB, 2(15) – Where the objects and activities of the trust showed that its charitable activities were for the general public at large and not only for the alumni and faculty of the university, it was entitled to registration under section 12AB.

FACTS

The assessee was a trust registered under Gujarat Public Trusts Act, 1950. The main objects of the trust were educational, medical relief and charitable in nature. It was created for the benefit and advancement of the whole mankind of the society without discrimination of caste, creed, sex and religion of any person.

The assessee obtained provisional approval for registration under section 12AB in 2022 and thereafter, applied for final registration under section 12AB by filing Form 10AB on 23rd September, 2023.

After considering the details filed by the assessee, CIT(E) held that the objects of the trust were for the benefit / welfare / interest of the members of the association only, namely alumni and faculty members of Indus University and not for the benefit of the public at large. Accordingly, the trust does not fall within the ambit of charitable purposes as defined under section 2(15) and is not eligible for registration under section 12AB.

Aggrieved with the order of CIT(E), the trust filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) Looking into the objects of the trust, it cannot be held that the assessee had been formed only for the benefit of a particular set of public, namely alumni and faculty members of the University.

(b) Perusal of the activities carried out by the trust, namely — food donation, blood donation, women empowerment, English learning, awareness of ecological concept, new library for the under privileged school children in a village clearly demonstrate that the trust was not doing charitable activities only for the alumni members of the University but for the general public at large.

(c) In any case, this aspect should be considered at the time of grant of exemption under section 11 and the provisions of section 13 should not be invoked at time of grant of registration under section 12AB.

The Tribunal also observed that this view was supported by decision of co-ordinate bench in Parul University Alumni Association vs. CIT(E),(2024) 162 taxmann.com 98 (AhdTrib).

Accordingly, the appeal of the assessee was allowed and the impugned order was set aside with a direction to CIT(E) to grant final registration under section 12AB to the assessee-trust.

Annual value of vacant flats held as stock-in-trade is not chargeable as `Income from House Property’.

63 Palm Grove Beach Hotels Pvt. Ltd. vs. DCIT

ITA No. 3858/Mum./2024

A.Y. : 2017-18

Date of Order : 11th October, 2024

Sections: 22, 23

Annual value of vacant flats held as stock-in-trade is not chargeable as `Income from House Property’.

FACTS

The assessee, engaged in the business of development of housing complexes, industrial parks and running five star hotels at Kodaikanal, e-filed the return of income for A.Y. 2017-18, declaring total income to be a loss of ₹1,22,20,66,420/-. While assessing the total income of the assessee under section 143(3) of the Act, the Assessing Officer (AO) inter alia taxed deemed annual letting value of finished property held in stock.

Aggrieved, the assessee filed an appeal before learned CIT(A), who partly allowed the assessee’s appeal by reducing the estimated annual value to 2.5 per cent as against 8.5 per cent determined by the AO in the assessment order.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal, at the outset, observed that the main point for consideration is as to whether the flats held by the assessee as stock-in-trade, be treated as income from house property. The Tribunal noted that the issue is no more res integra and that in this connection the observations made by the Bombay High Court in the case of PCIT, Central 1 vs. Classique Associates Ltd (order dated 28th January, 2019) are important. The Tribunal considered the observations of the court in paragraphs 3 to 5 of the order of the Bombay High Court. The Bombay High Court has, in its decision, considered the ratio of the decision of the Gujarat High Court in the case of CIT vs. Neha Builders (296 ITR 661) and of the Apex Court in Chennai Properties and Investments Ltd. vs. CIT (377 ITR 673). The Tribunal having reproduced the observations of the Bombay High Court found it futile to reproduce the observations of the Gujarat High Court and the Supreme Court. It also observed that the co-ordinate bench in the assessee’s own case by common order dated 1st July, 2021 passed in ITA NO. 1973/MUM/2019 and 1974/MUM/2019 for A.Y. 2014-15 and 2015-16 respectively.

The allotment letter issued by developer is to be construed as an ‘agreement’ for the purpose of section 56(2)(vii)(b). Consequently, benefit of proviso to section 56(2)(vii)(b) will be available and valuation of the property as on the date of allotment letter will need to be considered and not the valuation as on the date of conveyance.

62 Tamojit Das vs. ITO

ITA No. 1200/Kol./2024

A.Y.: 2015-16

Date of Order: 3rd October, 2024

Sections :56(2)(vii)(b)

The allotment letter issued by developer is to be construed as an ‘agreement’ for the purpose of section 56(2)(vii)(b). Consequently, benefit of proviso to section 56(2)(vii)(b) will be available and valuation of the property as on the date of allotment letter will need to be considered and not the valuation as on the date of conveyance.

FACTS

In the course of assessment proceedings, for AY 2015-16, the Assessing Officer (AO) noticed that the assessee has purchased a residential flat jointly with his wife Smt. Gargi Das through Deed of Conveyance, which was registered on 28th October, 2014 before District Sub-Registrar-II, South 24-Parganas. The value of the said transaction was declared by the assessee at ₹24,05,715/- as against stamp duty valuation of ₹38,74,500/-.

When assessee was confronted with, then the assessee submitted that he has booked this flat with Greenfield City Project LLP and first payment was made on 08.06.2010. In support of his contention, he filed (i) copy of receipt from Greenfield City Project LLP, (ii) letter of allotment by Greenfield City Project LLP dated 10.06.2010 and (iii) copy of typical floor plan purported to be allotment of flat to the assessee.

The AO did not equate the allotment letter and payment of the installment by the assessee through account payee cheque as an agreement contemplated in proviso appended to sub-Clause (2) of section 56(1) of the Income-tax Act, 1961. He made the addition of the difference between the transaction value and the stamp duty value i.e. ₹14,68,785/- as a deemed gift within the meaning of section 56(2)(vii)(b)(ii) of the Act.

Aggrieved, the assessee filed an application under section 154 wherein he emphasised that the letter given by the developer demonstrating the booking of the flat amounts to an agreement. The AO rejected the application.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the dispute is whether the allotment letter by the developer is to be construed as an agreement or not. The Tribunal perused the copy of the allotment letter. It also noted that the payments of amounts starting from 1st June, 2010 have been made through account payee cheques and that part payment has been made before issuance of the allotment letter.

The Tribunal held the interpretation by both the lower authorities to be incorrect. It held that the allotment letter is be equated to an agreement to sale. The agreement is not required to be a registered document. The only requirement in the law is that agreement should be followed by payments through banking channel, so that its veracity cannot be doubted. It observed that in the present case, the assessee has established the genuineness of the allotment letter by showing that payments were made through account payee cheques. Therefore, the valuation date for the purpose of any deemed gift is the date when first payment was made, in this case it happened around June, 2010. It held that the AO has erred in taking the valuation of the property as on 28th October, 2014.

Tech Mantra

Padlet

Padlet is an online Bulletin Board for group collaboration. It helps you to collect, organise and present anything.

Every Board begins as a blank slate. You add text, image, video and more. Then you can share the board with others who do the same. You can grow the group to collaborate to create something wonderful. It is simple, beautiful and capable.

You can post almost anything and organise your ideas visually. It helps you present and share in many ways and collaborate in real-time. You can post almost anything — images, audio, video, link to YouTube, Tweets or any web page. You can draw, sing and dance!

You can keep your group private — with invite only access, password protected. You can even go public and decide who can view and who can contribute.

You can use Padlet anywhere on any device — it is available in 45 languages with Apps for web, Chromebook, Mac, PC, iOS, Android.

With 40 million users in Business, Education and Home, it is one of the most popular Sharing Boards available. Try it — you might just get hooked!

https://padlet.com/

Gamma.app

Gamma is a new medium for presenting ideas —powered by AI. Create beautiful presentations, documents and even websites by giving just textual prompts. No design or coding skills are required.

You can access best-in-class AI for text, images and search for your presentations and apply eye-catching, expert-level designs and layouts. You can even quickly rewrite or autocomplete your content.

The app allows you to import documents, presentations or just plain text to create eye-catching presentations instantly. Once done, you can share the link to the presentation online or export it to PDF or PPT files instantly.

Gamma is more visual than a document, more collaborative than a slide deck, and more interactive than a video. Try it today!

https://gamma.app/

Lumolight

Lumolight is an open-source flashlight app that can perform both front and back flash.

It uses the screen as a front flash by brightening up and showing some static colours (defined by the user) and it uses the flashlight for the torch mode. It has “Tile support” where you can use the front flash without even opening the app, and also adjust the brightness using the volume keys.

The customisation option is one of the strong parts of this app. For the front flash, you can choose:

Colours: Which color do you want to light up

Duration: For how long it will be active.

Brightness: The level of brightness you want.

For the back flash:

Duration: For how long it will be active.

BPM (Blink per minute): You can blink your flashlight and also adjust its value.

Flash-strength: You can also adjust the flashlight’s strength. (Supported devices only)

A very interesting app for managing the flashlight functions

Android :https://bit.ly/3Zmf6oo

Braindump

Braindump transforms your voice memos into accurate, ready-to-use text notes, with AI summaries that highlight your main ideas. Just record your voice and convert it into text for easy review later. Instead of the full-length audio, you also have the option to summarise the session. You may use it for meetings, lectures, and even the occasional spontaneous ideas!

You have the option to playback your voice notes to review a lecture or a meeting discussion to ensure that Braindump has captured the essence accurately.

There are options to organise your notes systematically so that finding them becomes a breeze.

An interesting productivity tool worth considering!

Android: https://bit.ly/3CC93TK

Learning Events at BCAS

1. Webinar on Transforming Tax Practice with AI: A Practical Approach for Professionals on Automating Compliance, Litigations and Drafting held on Thursday, 19th December, 2024 @ Virtual

The Technology Initiatives Committee of BCAS conducted this webinar and it was aimed at enlightening the participants on how to improve a CA Firm’s tax practice management techniques through the use of technology. It was a highly informative session that attracted participants from more than 65 different cities. Led by the speaker CA Vijay Srinivas Kothapalli, the webinar focused on how artificial intelligence (AI) is revolutionising the tax profession and practice. The session highlighted the growing role of AI in automating various aspects of tax compliance, litigation processes, and document drafting, offering practical strategies for professionals to leverage these advancements. As tax regulations become increasingly complex, the integration of AI into routine tasks is emerging as a game changer for efficiency and accuracy.

A significant portion of the webinar covered the automation of Income Tax (IT) and Goods and Services Tax (GST) notices using AI. This technology allows tax professionals to quickly generate responses, manage compliance deadlines, and process notices with greater precision. Additionally, AI-powered tools for Income Tax Return pre-scrutiny were discussed, which can help identify potential issues before submission, reducing errors and enhancing the quality of tax filings. The session also delved into documentation demonstrating how AI streamlines the preparation and filing process while ensuring adherence to legal requirements. Managing compliance calendars with AI tools was another key area covered, allowing professionals to stay on top of critical dates and avoid penalties.

Overall, the webinar provided tax professionals with practical insights on how to harness AI to streamline their work, reduce manual errors, and stay competitive in an increasingly digital landscape and received active participation from more than 330 participants.

2. Suburban Study Circle Meeting on “Navigating GST Reforms: Updates and Opportunities under the Amnesty Scheme on Thursday, 5th December, 2024 at C/o Bathiya& Associates LLP, Andheri

The meeting brought together tax professionals and GST enthusiasts to deliberate on the recent GST reforms, including key changes introduced as part of the Amnesty Scheme and was led by Group Leader CA Akshay Sharma and chaired by CA Janak Vaghani.

The speaker provided detailed insights into recent GST Council recommendations, including procedural simplifications, rate revisions, and compliance relief measures under the Amnesty Scheme. The session Chairman provided valuable guidance and support to the session leader, offering relevant examples to enhance the discussion on the topic.

KEY AREAS COVERED INCLUDED:

  1.  Analysis of GST Reforms — A comprehensive overview of the latest changes and their practical implications for businesses.
  2.  Opportunities under the Amnesty Scheme — Strategies to leverage this scheme for pending returns, late fee waivers, and compliance restoration.
  3.  Challenges in Implementation — A discussion on resolving ambiguities and preparing for future reforms.

The meeting was well received and participants actively engaged in the Q&A session, seeking clarity on various provisions and discussing sector-specific challenges.

3. Lecture Meeting on Deciphering The Current State of Indian Capital Markets held on Wednesday, 4th December, 2024@ Virtual.

The Bombay Chartered Accountant Society (BCS) organised a lecture meeting on 4th December, 2024, marking the conclusion of its 75th anniversary celebrations. The session, titled “Deciphering the Current State of Indian Capital Markets,” was presented by Mr. Nilesh Shah, Group President and Managing Director of Kotak Mahindra Asset Management Company.

During the insightful discussion, Mr. Shah delved into significant trends shaping global and Indian capital markets. He highlighted challenges such as rising debt levels in major economies, uneven economic growth within India, and the critical role of domestic investors in sustaining market resilience amidst Foreign Portfolio Investor (FPI) movements.

KEY TAKEAWAYS INCLUDED:

  •  Global Dynamics: The economic leverage seen in global powerhouses like the US and China, underscoring their implications for interest rates and global trade.
  •  Indian Economy: Despite its robust growth trajectory, India faces challenges of uneven development and employment generation. Mr. Shah pointed out structural reforms and sectoral opportunities necessary for sustaining long-term growth.
  • Market Analysis: He offered an optimistic view on corporate earnings and advised moderation in return expectations for equity markets due to high valuations. He also shared insights into sectoral opportunities, emphasising private banking and telecom, while cautioning about sectors like capital goods and infrastructure.

The session concluded with a lively Q&A, where participants engaged on topics like asset allocation, sectoral outlooks, and strategies for navigating the current investment landscape. Mr. Shah’s data-driven insights, combined with his ability to weave economic trends with relatable analogies, made the session highly impactful.
The meeting was well appreciated by 200 plus participants.

YouTube Link:

QR Code:

4. The Non-Profit Organization (NPO) Conclave 2.0, 2024 held on Friday, 29th November, 2024 at the Mayor’s Hall, All India Institute of Local Self Government, Andheri West

This event was organised by Finance, Corporate and Allied Laws Committee along with Internal Audit Committee of Bombay Chartered Accountants’ Society.

The details of the program are as follows:

  •  The sessions focused on balancing regulatory compliance with continued growth and uninterrupted charitable work. Key takeaways included actionable steps to stay compliant with evolving regulations, safeguard resources, and ensure financial transparency in the NPO sector.

The program was well received and attended by 70+ participants

5. 7th Long Duration Course on Goods and Services Tax held on 16th August, 2024 to 29th November, 2024 @ Virtual

The 7th Long Duration Course on GST- 2024 was conducted by BCAS Virtually (Online mode) and was spread across 10 live sessions designed on a panel discussion format covering theoretical as well as practical aspects of GST.

The course covered 27 pre-recorded training videos of 90-120 minutes duration each conducted by the proficient faculty having immense expertise in the field of indirect taxation. The pre-recorded videos were made available in advance to the participants. Listening to pre-recorded videos helped the participants to have an interactive session by highlighting various issues in GST before the faculties. The live session covered the queries posted by the participants as well as drafted by the moderators. The presence of multiple faculties at the same time enabled sharing of thoughts and detailed deliberations. The course covered various concepts such as supply, valuation, ITC, place of supply, returns, registration, refunds and litigations etc.

The course received a very good response having 200 + participants enrolled from across the nation. The participants appreciated the program structure, course content and its’ execution.

6. Indirect Tax Law Study Circle — Blocked Credits under GST — clause (c) & (d) of section 17 (5) of CGST Act, 2017 held on Monday, 25th November, 2024 @ Virtual

Group leader, CA Yash Shah prepared case studies covering various contentious issues around clauses (c) & (d) of Section 17(5) of the CGST Act, 2017, especially in light of the recent decision of the Hon’ble Supreme Court in the case of Safari Retreats Private Limited. The discussion was ably supported by insights from mentor-
CA Naresh Sheth

The presentation covered the following aspects for detailed discussion:

  1.  Availability of ITC on goods & services used for construction of hotels, cold storage facilities, theatres (single screen / multi-screen), auditorium, recreation parks, etc.
  2.  Availability of ITC on transfer fee paid to industrial corporations and lease owner in case of assignment of lease when the lease hold land is used for construction of a Mall / manufacturing facility for own use.
  3.  Availability of ITC on goods and services used for construction of a R&D department.
  4.  Interplay between section clause (c) & (d) of section 17 (5) and availability of ITC to the extent used for construction of premises to be leased out.
  5.  Is vivisecting a contract an option to seek exclusion from the scope of clauses (c) & (d)?

Around 75 participants from all over India benefitted and took an active part in the discussion. Participants appreciated the efforts of the group leader & group mentor.

7. Full Day Workshop on Recent Developments in GST held on Saturday, 23rd November, 2024 @ BCAS.

The workshop was organized to cover various judicial & legislative developments in the field of GST.

CA Sunil Gabhawalla covered the legislative amendments and took the participants through the proposed amnesty u/s 128A, amendments relating to section 16 (5) of the CGST Act, 2017 and RCM related amendments from the perspective of time of supply.

CA DivyeshLapsiwalla covered the procedural amendments, such as the introduction of Invoice Management System, TDS on Metal Scrap, etc.

As the due date for filing of annual returns for FY 2023-24 is approaching, CA Chirag Mehta took the participants through the various issues revolving around the filing of annual returns and specific care to be taken in the same.

A panel comprising of CA S S Gupta & CA A R Krishnan moderated by CA Mandar Telang covered recent decisions (Safari Retreats, Mineral Area Development Authority, Creative Infocity, L&T IHI Construction, etc.) under the GST Law.

The participants appreciated the content of the workshop. The workshop was conducted in a hybrid mode with 50 participants attending physically and around 100+ participants attending virtually across India.

8. Finance, Corporate & Allied Laws Study Circle meeting on “All About Fast track merger” held on 18th November, 2024@ Virtual.

Group Leader CA Ankit Davda gave an overall perspective of Fast Track Merger (including demerger).

He covered the applicable provisions under the Companies Act 2013 with the help of case studies. The learned speaker highlighted key elements of a Scheme of Arrangements, key provisions and procedures, broad timelines and critical points for consideration in respect of fast track merger. He touched upon other aspect which have an effect on such mergers in areas of Income tax, GST, Stamp duty, Transfer premium, Other charges and Change of control.

He satisfactorily responded to all the queries of the participants. In limited time, he dealt with all the aspects of Fast Track Merger in a lucid manner. The program was attended by 85+ participants.

YouTube Link:

QR code:

9. International Economics Study Group – Impact Analysis of Trump’s victory on Geo-economics & Geopolitics held on Monday, 18th November, 2024 @ BCAS

The Participants deliberated following points:

A. Geopolitics:

  •  Ukraine-Russia Conflict: Trump’s victory could result in a shift in the U.S. stance towards Ukraine.
  • Middle East Tensions: Trump may take a more aggressive approach against Iran and its proxies (Hamas, Hezbollah & Houthi).
  • Heightened tensions with China are expected.
  • Russia and NATO Expansion: Trump’s policies could challenge NATO’s expansion in Eastern Europe.
  • India and Neighbouring Challenges: India’s relationship with the U.S. could be impacted favorably over troubled neighbours like China, Pakistan and Bangladesh.

B. Geo-economics:

  • Trade War with China: The likelihood of a second trade war under Trump could result in higher tariffs on Chinese goods, worsening trade relations, and impacting global supply chains.
  • Immigration Restrictions: With a focus on reducing illegal immigration, there may be tighter border controls, potentially affecting labour markets and demographic dynamics in the U.S.
  • Tax Cuts and Healthcare: Trump’s tax policies may reduce taxes, but with concerns about rising deficits and the challenge of controlling government spending.
  • Economic Impact on India: Economic fallout from tariffs, restrictions on immigration, and shifts in U.S. economic policies could create uncertainties for India’s export-driven economy.

All the Participants, Co-Convener CA Harshad Shah put up their points for discussions.

BCAS in News – BCAS as one of the stakeholders have been quoted in various news for its views, the below is link of the news articles where the Society was quoted. Also, our various other events and alliances are released in press too. Our readers can view these articles through this QR code. and You can then just provide list of articles.

Link: https://bcasonline.org/bcas-in-news/

QR Code:

SME IPOS: Regulatory Challenges and Proposed Reforms

BACKGROUND

Small and Medium Enterprises (SMEs) have long been considered the backbone of the global economy, driving innovation, creating jobs, and contributing significantly to economic growth. In India, SMEs are a critical segment of the business ecosystem, and over the past few years, many SMEs have turned to public markets to raise capital and expand their operations. The advent of the Small and Medium Enterprises (SME) Platform on stock exchanges, particularly the BSE SME Platform and the NSE SME Emerging Platform, has provided these companies with an opportunity to access a broader pool of investors, enhancing their growth prospects. However, as these companies increasingly tap into public investments, the risk of fraudulent activities and mismanagement has also grown, raising concerns over the integrity of the process. Additionally, that SME’s are promoter driven or family-run business with minimal private equity, which limits checks on promoter influence.

A striking example of this trend is the case of Trafiksol ITS Technologies Ltd., a company that specializes in providing intelligent transportation systems and automation solutions. Trafiksol filed its Draft Red Herring Prospectus (DRHP) for an Initial Public Offering (IPO) in May 2024, offering 64.10 lakh equity shares with the aim of raising funds for various purposes, including the purchase of software for its operations. However, soon after the subscription period, a complaint raised serious doubts about the company’s financial practices and the legitimacy of its business dealings, particularly its procurement of software from a vendor with questionable credentials. This led to a series of regulatory investigations and the subsequent halting of the company’s IPO listing.

The allegations against Trafiksol revealed the other side of the SME IPO market, where issues such as misleading prospectus disclosures, fraudulent vendor relationships, and concealment of material facts can lead to severe investor losses and erode trust in the market. As the investigation into Trafiksol unfolded, it became clear that the company had relied on a third-party vendor (TPV) with dubious financials, raising alarms about potential misuse of IPO proceeds and the company’s failure to conduct adequate due diligence.

This case serves as a stark reminder of the need for robust and urgent regulatory oversight in SME IPOs, as well as for greater transparency from companies seeking to raise public capital.

REGULATORY CONCERNS AND PROPOSED CHANGES TO THE SME IPO FRAMEWORK

The increasing participation of investors in Small and  Medium Enterprises (SMEs) listed on stock exchanges, coupled with growing regulatory concerns, has prompted the Securities and Exchange Board of India (SEBI) to  review and propose changes to the SME IPO framework. Investor participation in SME offerings has surged significantly, with the applicant-to-investor ratio rising from 4X in FY 2022 to 46X in FY 2023 and 245X in FY 2024. However, concerns have arisen about the governance practices of SME listed companies, many of which are promoter-driven and exhibit a high concentration of shareholding. There have been instances of fund diversion, revenue inflation, and circular transactions involving related parties, shell companies, and connected parties. SEBI has taken action against such companies in the past, but the issue of related party transactions (RPTs) remains a point of concern. SEBI has found that one in two SME listed entities have undertaken RPTs of over ₹10 crores, with one in seven involving more than 50 per cent of the company’s consolidated turnover. These risks underline the need for more stringent scrutiny of SMEs, with the ultimate goal of protecting investors’ interests.

To address these issues, SEBI has worked with stock exchanges, merchant bankers, and its Primary Market Advisory Committee (PMAC) to propose reforms aimed at strengthening both the regulatory framework for SME IPOs and the governance norms for these companies. These proposals focuses on the IPO process and migration from the SME platform to the Main Board, along with corporate governance norms and post-listing disclosures for SME-listed companies.

KEY PROPOSALS AND RATIONALES

  1. Increase in Minimum Application Size: SEBI has proposed raising the minimum application size for SME IPOs from ₹1 lakh to ₹2 lakh, or even ₹4 lakh, to reduce the risk of investor losses in high-risk SME stocks. This change would attract more informed, risk-taking investors rather than smaller retail investors who may be less prepared to deal with the risks inherent in SME investments. This proposal also aims to enhance the credibility of the SME segment by limiting participation to those with more risk tolerance.
  2. NII (Non-Institutional Investor) Allocation: To align SME IPOs with main-board IPOs, SEBI recommends that the NII category be split into two sub-categories: one for investments up to ₹10 lakh and another for amounts above ₹10 lakh. Additionally, it suggests moving from proportional allotment to a “draw of lots” method for the NII category, similar to the retail category. This aims to provide a more equitable distribution of shares in the case of oversubscription.
  3. Increase in Minimum Allottees: Currently, SME IPOs require a minimum of 50 allottees to be considered successful. SEBI proposes increasing this threshold to 200 to ensure broader investor participation and enhance the stability of the listing, which would help build investor confidence.
  4. Phased Lock-In for Promoters: The lock-in period for promoters’ holdings in excess of the minimum promoter contribution (MPC) is proposed to be phased, with 50 per cent remaining locked in for two years after the IPO and the remaining 50 per cent for one year. This gradual release is intended to prevent rapid exit by promoters after listing, ensuring they have a long-term interest in the company’s performance. SEBI also suggests extending the lock-in period to 5 years for the minimum promoter contribution for SME IPOs.
  5. Restriction on Offer for Sale: It is suggested to put restriction on OFS part of SME IPO to 20 per cent of issue size as OFS proceeds are not forming capital of issuer and they may limit for OFS in issue size as well as threshold may be prescribed for selling shareholders also which shall not exceed more than 20 per cent of their pre-issue shareholding on fully-diluted basis.
  6. Monitoring of Issue Proceeds: Mandatory Appointment of monitoring agency shall be applicable for issuer company if fresh issue size is higher than 20 Crore or for specified objects. They will certify on utilisation of proceeds and will ensure funds are used for the purposes disclosed in the offer document, thus reducing the risk of misuse or diversion. This will also bring more transparency for investors and accountability for issuer.
  7. Increased Tenure of Promoter Lock-In: Since, SME companies are mostly promoter driven, it is necessary to ensure that promoter continues to have certain skin in the game until the company is on the SME Exchange. It is proposed that lock-in on minimum promoter contribution (MPC) in SME IPO shall be increased to 5 years. Additionally, lock-in on promoters’ holding held in excess of MPC shall be released in phased manner i.e. lock-in for 50 per cent holding in excess of MPC shall be released after 1 year and lock-in for remaining 50 per cent promoters’ holding in excess of MPC shall be released after 2 year.
  8. Eligibility for SME IPO: To improve the quality of companies listed on SME exchanges, SEBI proposes stricter eligibility criteria. For instance, companies should only be allowed to list if they have an operating profit of ₹3 crore in at least two of the last three financial years. Additionally, the promoter group of the issuing company should not have been involved in any fraudulent activities, like being debarred from the capital markets or being labelled as wilful defaulters or fugitive economic offenders.
  9. Disclosure of Firm Arrangement for Financing: In cases where a project is partially funded by a bank or financial institution, SEBI suggests requiring issuers to disclose the details of the sanction letters and appraisals in the offer document. This will provide additional transparency and safeguard investor interests by ensuring the financial feasibility of projects.
  10. Public Availability of Offer Documents for Comment: Unlike main-board IPOs, which require a 21-day public comment period for the Draft Red Herring Prospectus (DRHP), SME IPOs currently lack such a provision. SEBI now proposes to extend this requirement to SME IPOs, ensuring that investors have ample opportunity to review and comment on the offer documents before they are filed with stock exchanges. This increase in transparency would allow for a more informed investor base and help identify potential issues early on.
  11. Convertible Securities: Similar to main-board IPOs, SEBI recommends that SME companies convert all outstanding convertible securities into equity before filing for an IPO. This would offer investors a clearer picture of the company’s capital structure.
  12. Applicability of RPT norms to SME: Applying RPT norms under LODR Regulations to SME listed entities would contain the risks of siphoning of funds through related parties. In view of the above, it is proposed that the applicability of RPT norms under LODR Regulations should be extended to SME listed entities other than those which have paid up capital not exceeding ₹10 crores and net worth not exceeding ₹25 crores. This will harmonize the applicability of RPT norms between SME listed entities and Main Board listed entities. However, materiality threshold under Regulation 23(1) of LODR Regulations for approval by shareholders for RPT shall be only for transactions exceeding 10 per cent of annual consolidated turnover, and not lower of ₹1,000 crore or 10 per cent annual consolidated turnover since SMEs may not enter into high value transactions exceeding ₹1,000 crores.
  13. Merchant Banker Due-Diligence Certification: SEBI proposes that Merchant Bankers must submit a due-diligence certificate to stock exchanges at the time of filing the draft offer document, aligning this requirement with the practices for main-board IPOs. This will help ensure that proper due diligence is conducted before the offering, providing more protection for investors.
  14. Post-Listing Exit Opportunity for Dissenting Shareholders: SEBI suggests introducing provisions for post-listing exit opportunities for dissenting shareholders in case there are changes in the objects or terms outlined in the offer document. This will ensure that investors are not unfairly impacted by such changes after the IPO.
  15. Clarification on Price Adjustments for Corporate Actions: SEBI has noted cases where issuers conduct corporate actions like bonuses or stock splits shortly before an IPO, resulting in a mismatch between the actual value of shares and the issue price. To address this, SEBI proposes that the price per share for determining eligibility for minimum promoters’ contribution should be adjusted for such corporate actions, ensuring consistency and fairness in the IPO process.

Out of the proposed changes, SEBI in its 208th board meeting conducted on 18th December, 2024 reviewed SME framework under SEBI (ICDR) Regulations, 2018, and applicability of corporate governance provisions under SEBI (LODR) Regulations, 2015 on SME companies approved the following amendments to SEBI (ICDR) Regulations, 2018 and SEBI (LODR) Regulations, 2015:-

  • An issuer shall make an IPO, only if the issuer has an operating profit (earnings before interest, depreciation and tax) of ₹1 crore from operations for any 2 out of 3 previous financial years at the time of filing of its draft red herring prospectus (DRHP).
  • Offer for sale (OFS) by selling shareholders in SME IPO shall not exceed 20 per cent of the total issue size and selling shareholders cannot sell more than 50 per cent of their holding.
  • Lock-in on promoters’ holding held in excess of minimum promoter contribution (MPC) to be released in phased manner i.e. lock-in for 50 per cent promoters’ holding in excess of MPC shall be released after 1 year and lock-in for remaining 50 per cent promoters’ holding in excess of MPC shall be released after 2 years.
  • Allocation methodology for non-institutional investors (“NIIs”) in SME IPOs to be aligned with methodology used for NIIs in main board IPOs.
  • Amount for General Corporate Purpose (GCP) in SME IPO shall be capped to 15 per cent of amount being raised by the issuer or ₹10 crores, whichever is lower.
  • SME issues shall not be permitted, where objects of the issue consist of Repayment of Loan from Promoter, Promoter Group or any related party, from the issue proceeds, whether directly or indirectly.
  • DRHP of SME IPO filed with the Stock Exchanges to be made available for 21 days for public to provide comments on DRHP, by making public announcement in newspaper with QR code.
  • Further issue by SME Companies to be permitted without migration to Main Board subject to the issuer undertaking compliance of the provisions of SEBI (LODR) Regulations, 2015 as applicable to the companies listed on the Main Board.
  • Related party transaction (RPT) norms, as applicable to listed entities on Main Board, to be extended to SME listed entities, provided that the threshold for considering RPTs as material shall be 10 per cent of annual consolidated turnover or ₹50 crore, whichever is lower.

While the SME IPO market plays a crucial role in enabling small and medium enterprises to access capital and expand their operations, recent incidents have exposed the vulnerabilities within this space. The concerns regarding transparency, corporate governance, and the potential misuse of IPO proceeds highlight the need for stronger oversight and regulatory reforms. The proposed regulatory changes by SEBI aim to enhance investor protection, bolster corporate governance practices, and improve market transparency. By focusing on tightening eligibility criteria, implementing phased lock-in regulations, and conducting more stringent scrutiny of promoters, SEBI seeks to create a more secure and reliable environment for SMEs to raise funds, while protecting retail investors from unnecessary risks.

For SMEs to truly reach their full potential, it is essential that companies maintain the highest standards of accountability and governance. By fostering a transparent, investor-friendly ecosystem, we can ensure that legitimate, growth-driven businesses thrive without the threat of exploitation or fraud. This will not only safeguard investor interests but also cultivate a sustainable, long-term investment landscape that supports the ongoing growth and success of SMEs in India.

Regulatory Referencer

I. DIRECT TAX : SPOTLIGHT

1. Extension of due date for furnishing return of income in the case of an assessee who is required to furnish a report referred to in section 92E for the A Y 2024-25 from 30th November, 2024 to 15th December, 2024 – Circular No. 18/2024 dated 30th November, 2024

2. Guidance Note 2/2024 on provisions of the Direct Tax Vivad se Vishwas Scheme, 2024 – Circular No. 19/2024 dated 16th December, 2024

3. Safe Harbour Rules prescribed for a foreign company engaged in diamond mining and selling of raw diamonds and insertion of Form 3CEFC- Income-tax (Tenth Amendment) Rules, 2024- Notification No. 124/ 2024 dated 29th November, 2024

II. FEMA READY RECKONER

Central Govt. notifies pension fund schemes as ‘financial products’ under IFSCA Act, 2019:

The International Financial Services Centres Authority has notified the ‘schemes operated by a pension fund’ as a ‘financial product’ for the purposes of the International Financial Services Centres Authority Act, 2019. This has been made effective from the date of publication of the notification.

{NOTIFICATION NO. S.O. 5241(E)[F. NO. 3/15/2022-EM-PART (1)], dated 5th December, 2024}

IFSCA renews recognition of ‘India International Bullion Exchange’ as Bullion Exchange & Clearing Corp till 8th December, 2025:

The IFSCA has renewed the recognition of India International Bullion Exchange IFSC Limited, Gujarat, as Bullion Exchange and Bullion Clearing Corporation for one year, commencing on the 9th day of December 2024 and ending on 8th day of December 2025 in respect of bullion contracts.

[NOTIFICATION NO. IFSCA-PMTS/9/2023-PRECIOUS METALS, dated 5th December, 2024]

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.26/2024-Central Tax dated 18th November, 2024

By above notification, extension of time is granted for furnishing of return in Form GSTR 3B for tax payers registered in State of Maharashtra and Jharkhand. The extension was up to 21st November, 2024 for above returns.

ii) Notification No.27/2024-Central Tax dated 25th November, 2024

Above notification seeks to amend Notification No. 02/2017-Central Tax, dated the 19th June, 2017. This notification is regarding powers of Central Tax Authorities and the Table in original notification is substituted.

iii) Notification No.28/2024-Central Tax dated 27th November, 2024

Above notification seeks to appoint common adjudicating authority for Show-cause notices issued by DGGI.

iv) Notification No.29/2024-Central Tax dated 27th November, 2024

By above notification due date for furnishing Form GSTR-3B for the month of October, 2024 for registered persons whose principal place of business is in the State of Manipur, was extended till 30th November, 2024.

v) Notification No.30/2024-Central Tax dated 10th December, 2024

By above notification the due date for furnishing FORM GSTR-3B for the month of October, 2024 for registered persons whose principal place of business is in the district of Murshidabad in the state of West Bengal is extended up to 11th December, 2024.

vi) Notification No.31/2024-Central Tax dated 13th December, 2024

Above notification seeks to appoint common adjudicating authority for show cause notices issued by officers of DGGI.

B. CIRCULARS

Clarifications of amendment in circular – Circular no. 239/33/2024-GST dated 4th December, 2024.

By above circular amendments are done in Circular No. 31/05/2018-GST dated 9th February, 2018 which is about ‘Proper officer under sections 73 and 74 of CGST Act and under IGST Act.

C. ADVISORY

i) Vide GSTN dated 13th November, 2024, information is given about Supplier View of Invoice Management System (IMS).

ii) Vide GSTN dated 12th November, 2024, information regarding IMS during initial phase of its implementation, is given.

iii) Vide GSTN dated 8th November, 2024, information about Waiver Scheme under Section 128A, is given.

iv) Vide GSTN dated 16th November, 2024, information relating to generation of GSTR-2B and IMS, is given.

v) Vide GSTN dated 26th November, 2024, information regarding Reporting of TDS deducted by scrap dealers in October, 2024, is given.

vi) Vide GSTN dated 27th November, 2024, information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Madhya Pradesh, is given.

vii) Vide GSTN dated 9th December, 2024, information about difference in value of Table 8A and 8C of Annual Returns FY 2023-24, is given.

viii) Vide GSTN dated 4th December, 2024, information regarding sequential filing of GSTR-7 returns as per Notification No.17/2024, is given.

D. ADVANCE RULINGS

Time of Supply vis-à-vis RCM

Deccan Cements Ltd. (AR Order No. RAJ/AAR/2024-25/08 dated 26th June, 2024 (Raj)

The applicant is a Limited Company incorporated under the Companies Act, 1956 and is in the business of manufacturing and selling of cement in south India having corporate office in Hyderabad. The applicant is having its manufacturing plant in the State of Telangana.

To expand its business activities in manufacturing and trading in cement throughout India, the applicant intended to start manufacturing unit in the State of Rajasthan. For this purpose, the applicant participated in Tender process for E-Auction of mining lease floated by Rajasthan Government.

Applicant is selected as Preferred Bidder and as a Preferred bidder, applicant has to pay some upfront amount as first installment.

Thereafter, the applicant has to pay second installment as upfront amount. Thereafter, the applicant has to furnish performance security for total amount of auction amount.

The performance security amount is to be adjusted every five years as per auction rules. The applicant has then to pay balance amount, where after the Mining lease agreement is entered into with Government of Rajasthan.

With above background, the applicant has raised following questions before the ld. AAR.

“(i) Whether the applicant is liable to pay any GST on the Mining Lease payments (applicability of GST on the Royalty payment of Mining Lease to Government of Rajasthan under Reverse Charge Mechanism).

(ii) If the applicant is liable to pay GST on the above, what will be the applicable rate of GST.

(iii) If GST is applicable, whether the applicant is liable to pay GST on the payment of Upfront Payments as per the Tender Documents which are paid in installments much before issuing LOI and after issuing LOI but before entering in to the Lease Agreement.

(iv) If GST is applicable, whether the applicant can pay GST from the State of Telangana or to apply for registration in the State of Rajasthan and pay GST.

(v) Whether the GST paid is eligible to be claimed as Input Tax Credit or not.”

The applicant was of the view that the lease agreement is entered into only after making all payments and hence it is the time of supply and it becomes liable to RCM at such point of time. The ld. AAR referred to relevant provisions of Act.

Regarding question (1) and (2), the ld. AAR referred to entry at Sl.No.17 of Notification No.11/2017-Central Rate dated 28th June, 2017 as amended from time to time and observed that Licensing services for the right to use minerals including its exploration and evaluation is covered under SAC 997337 and it is subject to levy of GST.

The ld. AAR also referred to Serial no. 5 of Notification No.13/2017-Central Rate dated 28th June, 2017 and observed that the Applicant, being recipient of service, is liable to pay GST under RCM.

The ld. AAR also determined that the applicant is liable to pay GST @ 18 per cent (SCST 9 per cent & CSGT 9 per cent).

Regarding question three about the time of supply, the ld. AAR referred to definition of ‘consideration’ given in section 2(31) of CGST Act.

To determine the time of supply of services, the ld. AAR also referred to Section 13 (3) of the CGST Act, 2017 which stipulates that: –

“In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be earlier of the following dates:

(a) The date of payment as entered in the books of account of the recipient or the date on which the payment debited in his bank account, whichever is earlier; or

(b) The date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be date of entry in the books of account of the recipient of supply.“

The ld. AAR observed that there is difference between advance payment and advance deposit amount. The ld. AAR observed that the advance payment is adjusted towards goods or services or both to be supplied, whereas advance deposit money is received only as security. The ld. AAR further observed that, generally security is not used by the supplier in the course of supply of goods or services but can be forfeited in case of violation of terms and conditions, as mentioned in tender document. The ld. AAR noted that in this case, as per point 13.1 of Tender Document, the upfront payment paid by the Successful Bidder will be adjusted in full at the earliest against the amount to be paid under sub-rule (3) of rule 8 of Auction Rules on commencement of production of mineral, which shows that advance payment made by the Applicant shall be adjusted towards future payments to be made by them.

The ld. AAR also noted that no where there is clause of refund of upfront payment in tender documents after allotment of mines on lease and therefore upfront payment made to the State Govt. is no more deposit but advance which shall be adjusted towards future payments of revenue share amount.

Accordingly, the ld. AAR held that the Applicant is liable to pay GST on the upfront payments made to the State Govt., under Reverse Charge Mechanism (RCM) in terms of Serial No.5 of Notification No. 13/2017-Central Rate Dated 28th June, 2017.

Regarding fourth question, the ld. AAR, referred to section 24 of CGST Act and held that the RCM should be paid in Rajasthan by obtaining registration in said State.

For last question, the ld. AAR held that the recipient will be eligible to ITC subject to fulfillment of conditions of section 16 of CGST Act. The ld. AAR thus disposed of the application.

Government Entity and RCM on Legal Services

THDC India Ltd. (THDCIL) (AR No. 02/2024-25 in Application No.01/2024-25 dated 19th June, 2024 (Uttarkhand)

The facts are that the Applicant i.e. THDCIL is a Public Sector enterprise and registered as a Public Limited Company under the Companies Act, 1956 and has been conferred ‘Mini Ratana-Category-I Status’ and upgraded to Schedule ‘A’ PSU by the Government of India.

The Equity of Company was earlier shared between Govt. of India and Govt. of Uttar Pradesh in the ratio of 75:25. However, pursuant to the strategic sale, the Share Purchase Agreement was executed between NTPC Limited and President of India on 25th March, 2020, for acquisition of legal and beneficial ownership of equity held by the President of India in THDC India Limited and after strategic sale, Equity in THDC India Limited is shared between NTPC Limited and Government of UP in a ratio of 74.496 per cent and 25.504 per cent.

The applicant has to pay legal fees to Advocates including Senior Advocate or Firm of Advocate. Applicant expected exemption from payment of RCM on such legal fees under Entry 45 of the Notification No.12/2017- C.T. (Rate) dated 28th June, 2017.

However, for purpose of legal guidance following questions were raised before the ld. AAR.

“1. Whether the Applicant i.e. the THDCIL is a Government Entity or not?

2. If yes, can Legal Services provided by the advocates including Senior Advocate or firm of Advocate is exempt from GST for THDCIL i.e. THDCIL does not need to pay tax under RCM?”

The ld. AAR held that since at present the equity or control of the Government is less than the stipulated 90 per cent, the applicant cannot be categorized and considered as “Governmental Entity” and cannot be eligible to exemption from payment of RCM.

The prime contention of the applicant was that since before transfer of shares to ONGC, shareholding was between Government of India and Government of UP; it remains Government Company even after change in ratio of shareholding. To support its plea the applicant relied on Uttarkhand AR in case of Application No.11/2018-19 – 2018-VIL-284-AAR.

The ld. AAR referred to Notification No. 31/2017-Central Tax (Rate), dated 13th October, 2017, which amended the Notification No 11/2017 – Central Tax (Rate), dated 28th June, 2017 and defined the “Governmental Entity” as under:

““x. “Government Entity” means an authority or a board or any other body including a society, trust, corporation,

i) set up by an Act of Parliament or State Legislature; or

ii) established by any Government, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.””

The ld. AAR analysed the above definition and observed that, to be “Government Entity”, following conditions are to be met and fulfilled independently:

“- must be an authority or a board or any other body including a society, trust, corporation,

– established by any Government,

– with 90 per cent. or more participation by way of equity or control,

– to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.”

The ld. AAR further observed that the applicant fulfills the first two conditions i.e. an authority or a board or any other body including a society, trust, corporation, and established by any Government. However, the ld. AAR held that the applicant falls short of fulfilling the third condition, which prescribes, “with 90 per cent. or more participation by way of equity or control,”. The ld. AAR observed that as on the date of filing of the application dated 1st May, 2024 for the present proceedings, the Equity in the applicant company i.e. THDC India Limited is shared between NTPC Limited and Government of UP in a ratio of 74.496 per cent and 25.504 per cent, which is less than the stipulated 90 per cent of equity and therefore, the applicant is not a Government Entity. The ld. AAR observed that earlier status has changed due to change in shareholding ratio. The ld. AAR opinioned that the usage of the word “Government” in relation to any organisation / firm / entity / company, signify and indicate that the Government has a controlling stake (legal power) in the day to day affairs of such organisation / firm / entity / company. It further observed that where the equity holding of the Government is zero, there would not and cannot be any controlling stake (legal power) in the day to day affairs of such organisation / firm / entity / company and in such a case it cannot be said to be a Government Entity.

Classification – “Vanilla Mix”

VRB Consumer Products Pvt. Ltd. (AR No.RAJ/AAR/2024-25/16 dated 31st July, 2024 (Raj)

The facts are that VRB Consumer Products Private Limited, applicant, intends to manufacture and supply dried softy ice cream mix (low fat) in vanilla flavour (“Vanilla Mix”) at its manufacturing unit (factory) located at Plot SP3-7, RIICO Industrial Area, Tehshil Kotputli, Keshwana, Jaipur, in Rajasthan.

The said product contains following ingredients:

The manufacturing process is explained as under:

“a. Procurement of raw materials — Firstly, raw materials such as milk solids, sugar, stabilizers, anti-caking agents etc. will be procured. Upon receipt thereof, applicant will undertake rigorous scrutiny and inspection of such raw materials. Thereafter, the raw materials which will meet the quality standards of applicant than these materials will be stored under appropriate conditions.

b. Mixing of ingredients— The raw materials sourced and stored above will be weighed, sieved and subsequently, mixed with each other in required proportion for the required time and speed in a mechanical mixer.

c. Quality check — The mixture obtained above will thereafter be subjected to sensory evaluation,
metal detection and moisture determination. Mixtures, which will pass the evaluation, shall be proceed ahead for packing.

d. Packing and dispatch– Mixtures, which will be received after a quality check, will undergo the primary packing and thereafter will be packed in cartons. The cartons will, subsequently, be stored in godown from where they will be dispatched after micro-testing.”

The applicant submitted question about correct classification of above product.

The applicant has submitted that Vanilla Mix is liable to be classified under Heading 0404 as mentioned at Sr. No. 10 of Schedule I to Rate Notification, attracting tax @ 2.5 per cent (CGTS, 2.5 per cent SGST).

Applicant interpreted that Heading 0404 seeks to cover within in its ambit, products which consist of natural milk constituents and therefore, so long as any product contains natural milk constituents, it shall be classified under Heading 0404.

The Department submitted to classify the product under heading 2106.

After discussion of submissions of both sides, the ld. AAR observed as under:

“7) In view of above discussion, we find that the product in question i.e. “Vanilla Mix”

– dried softy ice cream mix (low fat) in vanilla flavour comprise of several ingredients

and each ingredient play a vital role in the product. Since this product is intended to use for making of soft serve, each ingredient has a specific role to make the soft serve smooth and creamy in texture. Further, it is also conclusive that not only the contents of the product in question but the processing done in the soft serve machine also play a vital role in giving the smooth and creamy texture characteristic of soft serves.

8) In view of above, we find that the submissions made by the applicant are not enable and the product in question does not fall under the Heading 0404.

9) Further, we find that Chapter 21 of the First Schedule to the Tariff Act covers ‘Miscellaneous edible preparations’ which is clearly distinguishable from “products of animal origin”, the basic difference being the nature of products in question. While Chapter 4 covers products of animal origin which means that the products are normally natural or near to natural in their nature and not much processing has been done thereupon, on the other hand Chapter 21 covers prepared foodstuffs which means that those items of animal origin have been subjected to some processing which and the resultant product has acquired the nature of being prepared foodstuff etc.”

Accordingly, the ld. AAR held that the product i.e. “Vanilla Mix” — dried softy ice cream mix (low fat) in vanilla flavour is classifiable under Heading 2106 90 99 of the First Schedule to Tariff Act attracting tax at the rate of 9 per cent of CGST and 9 per cent of SGST.

E-commerce operator – Scope

Medpiper Technologies Pvt. Ltd. (AR Order No. KAR-ADRG-41/2024 dated 13th November, 2024 (Kar)

The facts are as under:

“5.1 The applicant gets in contract with companies to provide diagnostic labs and wellness services to the employees of the company or any group of people that the company decides, through third-party labs and wellness providers. The contract can be between an insurance company and the applicant to provide the said services to a specific group of people. These employees or groups of people can select a specific date, time and a specific diagnostic and lab tests to be done from diagnostic lab and wellness providers from the list the applicant provides. The medium of interaction between these employees and group of people with the applicant and with diagnostic labs can be through a mobile app developed by the applicant or Whatsapp or e-mail or telephonic conversation. The diagnostic labs will be providing medical reports to these employees or group of people through the medium of their choice.”

Thus, the applicant acts as an aggregator for diagnostics and labs for companies, insurance companies and insurance brokers.

In above background following questions were put for determination before the ld. AAR.

“a. Whether the assesse need to collect GST on the diagnostic and lab services provided through third party diagnostic labs? If yes, Whether GST has to be collected for the whole invoice amount or on the margin on the supply alone and what will be the applicable tax rate and which SAC to be used?

b. Whether TCS needs to be collected?

c. Whether the assesse fall under the definition/meaning of an “Insurance Agent” if invoiced to an insurance company, If yes how is GST applicable? “

The applicant interpreted that, it is E-commerce Operator and not required to collect tax under GST.

It also interpreted that it provides health care services and hence exempted under Notification 12/2017-Centre Tax.

The ld. AAR referred to definitions of ‘E-Commerce’ and ‘E-Commerce Operator’ given in section 2(44) and 2(45) of CGST Act.

The ld. AAR held that as per definitions, the Electronic Commerce Operator (ECO) means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce i.e. for the supply of goods or services or both, including digital products over digital or electronic network.

Noting the process of applicant, the ld. AAR observed that the service is not being provided by the labs to the recipients, through the App / Mobile platform, but through the applicant. The ld. AAR observed that the applicant merely provides the platform for the recipients so as to enable them to select the lab from whom the services are to be procured and once the selection is over, the labs, after the tests, provide the reports directly to the recipients. The invoices are raised by the labs on the applicant. The ld. AAR, therefore held that the applicant doesn’t qualify to be an e-commerce operator.

The ld. AAR also observed that the applicant is neither acting as an agent of the client company to whom the services are provided nor of the diagnostic labs / wellness providers from whom the services are procured, as the applicant is not carrying the business of supply of services on behalf of another party but on his own account.

The ld. AAR also held that the applicant, add mark up on the cost of the services procured from the diagnostic labs / wellness providers and raises invoices on their clients with the marked-up value and in such scenario, the applicant has to charge GST on the whole invoice amount, being the transaction value and not merely on the mark-up value, in terms of Section 15(1) of the CGST Act 2017.

The ld. AAR also examined the contention of applicant that its services are falling in health care services covered by SAC 9993. In this regard the ld. AAR referred to entry number 74 and also paras 2(zg) & 2(s) of the Notification 12/2017-Central Tax (Rate) dated 28th June, 2017 and SAC 9993.

The ld. AAR held that, to avail the said exemption, the following two conditions have to be fulfilled.

“(i) The services being provided must be covered under health care services.

(ii) The service provider must qualify to be a clinical establishment.”

The ld. AAR held that the services being provided by the applicant are covered under healthcare services and held that the first condition is fulfilled.

However, the ld. AAR held that the applicant does not fulfill the second condition as the applicant does not qualify to be “a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India”. Holding so the ld. AAR held that since second condition is not fulfilled, the applicant is not entitled to avail the aforesaid exemption and the applicant is liable to collect GST on the diagnostic and lab services provided through third party diagnostic labs to their clients.

The ld. AAR also held that since the applicant is not an E-Commerce Operator, it is not liable to TCS. The ld. AAR also negated the contention of the applicant as being an insurance agent, since the services provided by the applicant are not connected, not even remotely, with the sale of insurance policies and hence, the applicant does not fall under the definition / meaning of the “Insurance Agent”. The ld. AAR held that the applicant has to raise invoice at par with the other companies.

Accordingly, the ld. AAR held that applicant is liable to discharge GST @ 18 per cent under SAC 9993 without any liability for TCS

Goods And Services Tax

I SUPREME COURT

77 2024-TIOL-121-SC-CX — M/s. Bharti Airtel Ltd. Vs. The Commissionerof Central Excise, Pune
Dated: 20thNovember, 2024

Hon. Supreme Court resolves conflicting interpretation on applicability of CENVAT credit on telecom towers.

FACTS

Appellant operates as a Mobile Service Provider (MSP) by supplying Sim cards to provide wireless telecom services. They usually own and operate infrastructure such as cell towers, Base Transceiver System (BTS) along with accompanying network equipment and structures like PFBs electricity generating sets, battery backup and stabilizers. A separate set of assessees offer passive infrastructure services including towers and incidental equipment to telecom companies at completely various sites. Telecom towers and shelters were fabricated offsite and supplied in a completely Knocked Down Condition (CKD) form and thereafter fastened to civil foundation for operational stability.

CENVAT credit availed on mobile towers as well as Pre-Fabricated Buildings (PFBs) was the centre point of dispute since the Bombay High Court in Bharti Airtel (earlier Bharti Televentures Limited vs. Commissioner of Central Excise, Pune) 2014-TIOL-1453-HC-MUM-ST had ruled against allowing CENVAT credit on the following grounds:

  •  Mobile Towers, their parts and PFBs are not capital goods as they are neither mentioned in Rule 2(a)(A) nor are components, spares and accessories of goods falling under any of the Chapters or Headings of the first Schedule of the Central Excise Tariff Act, 1985 (Tariff Act) and as specified in Rule 2(a)(A).
  •  Further, these items become part of immovable property once they are fastened and fixed to the earth.
  •  Also, these items cannot be construed as ‘inputs’ as these items are immovable, non-marketable and non-excisable goods.

As against the above Delhi High Court in the Vodafone Mobile Services vs. CST Delhi 2019 (27) G.S.T.L. 481 (Del) decided that towers and other associated structures like PFBs are covered by the definition of capital goods and are also ‘inputs’ as defined under CENVAT Credit Rules and hence, MSPs are entitled to CENVAT credit on excise duty paid on installation of mobile towers and PFB.

The decision of both the High Courts were challenged by the aggrieved parties before the Supreme Court.

HELD

Upholding the judgment in the case of Vodafone (supra), Apex Court held as follows:

Mobile Towers and PFBs do not become immovable property by their mere attachment to the earth as it is not intended to be permanent. The attachment is done to only provide support and effective functioning to the antenna. They can be easily dismantled and moved to another place without any substantial damage. Hence they are ‘goods’ and would come within the definition of ‘input’ as defined in Rule 2(k)(ii) of CENVAT Credit Rules. Hence, the Hon. Supreme Court while referring to Gujarat High Court’s decision in Industrial Machinery Manufacturers Pvt. Ltd. vs. State of Gujarat, (1965) 16 STC 380 (Guj), held that towers and PFBs though are themselves not electrical equipment, they are essential for proper functioning of antenna and thus, they are essential for rendering output service of mobile telephony and are inputs.

  • Alternatively, mobile towers and PFBs can be considered as accessory to antenna as they are necessary to provide height and stability to the antenna for ensuring uninterrupted and seamless service to subscribers. Hence they can be construed as accessory to antenna and PFBs which are “capital goods” falling under Chapter 85 of the Schedule to Central Excise Tariff. Thus, they are also “capital goods”.

Accordingly, by ruling that the CENVAT credit of excise duties paid on mobile towers and PFBs is allowed, Hon. Apex Court ended a decade long dispute.

Note: Under GST law, section 17(c) and (d) of CGST Act restrict input tax credit on the construction of immovable property, except for plant and machinery. The definition of “plant and machinery” expressly excludes telecommunication towers. However, it requires to be noted that the said definition of “plant and machinery” is relevant only for section 17(5)(c) and (d). If any goods under question do not become immovable property, this definition of plant and machinery is not required to be referred to. The expression “plant and machinery” is also used in section 16(3), 18(6) and 29(5) of the CGST Act, 2017 without making any reference to immovable property. Hence, though telecom towers are excluded from plant and machinery, they are not implied as “immovable property”. In the scenario, it will be interesting to note that mere exclusion of telecom towers would not affect input tax credit in respect of goods and services not becoming immovable property.

II HIGH COURT

78 [2024] 169 taxmann.com 152 (Kerala) Rejimon Padickapparambil Alex vs. UOI
Dated: 26th November, 2024

Where the assessee inadvertently claimed IGST credit as CGST and SGST credit in GSTR-3B, the mistake being only a procedural error, the order confirming the demand for recovery of such CGST and SGST credit is liable to be set aside. The Hon’ble Court praised the Central Tax Officer who passed favourable order in some other matter involving similar issue for rendering timely and effective justice and emphasised that an expeditious disposal of cases, especially those involving procedural aspects of taxation, is the need of the hour so as to ensure fairness and certainty in tax administration.

FACTS

During the assessment year for the inter-state inward supplies, on which IGST (Integrated Goods and Services Tax) was paid by the supplier, the appellant, instead of showing the IGST component in the eligible credit details in Form GSTR-3B, inadvertently showed the IGST component as nil. Further, the appellant added the bifurcated CGST and SGST components of IGST to the existing figures showing eligible CGST and SGST credit. This resulted in a mismatch between Form GSTR 2A and Form GSTR 3B maintained in relation to the assessee. It is undisputed that the aggregate amount shown as CGST and SGST in GSTR-3B was matching with IGST amount shown in GSTR-2A. The department raised demand towards CGST & SGST ITC treating the same as unavailable credit which was used for payment of output tax of CGST and SGST. The petitioner, relied upon an Order passed by Assistant Commissioner of Central Tax, East Division-6, Bengaluru in identical matter, allowing the credit to the assessee in that case.

HELD

The Hon’ble Court reproduced the favourable order relied upon by the petitioner and acclaimed the said officer for passing such a judicious order and rendering timely and effective justice in our country which is known for its huge backlog of cases. The Hon’ble Court stated that at a time when the justice dispensation system is looking for ways and means to reduce litigation generally (especially in the field of taxation where delays can affect the nation’s economy), orders such as the one extracted above come as a welcome breath of fresh air, and are to be duly appreciated and encouraged. The Hon’ble Court also emphasised that an expeditious disposal of cases, especially those involving procedural aspects of taxation, is the need of the hour so as to ensure fairness and certainty in tax administration. On merits, the Hon’ble Court held that the only mistake committed by the appellant was an inadvertent and technical one, where he had omitted to mention the IGST figures separately in Form GSTR 3A. Accordingly, the demand is liable to be set side. The Court further held that respondent State who may have lost its legitimate share of IGST, may represent before the GST Council and the GST Council shall issue necessary directions to resolve the issue by taking note of the declaration in this judgment.

79 [2024] 169 taxmann.com 24 (Delhi) Xiaomi Technology India (P.) Ltd vs. Additional Commissioner, CGST Delhi West Commissionerate
Dated: 29th October, 2024

Mere allegation of mismatch between GSTR-1 and GSTR 3B cannot be the grounds of invoking Section 74.

FACTS

Petitioner was served with a notice intimating a huge difference between the GSTR 1 and GSTR 3B filed. The department had given many opportunities to the noticee to rebut the allegations, but the noticee had not submitted any documents. The department owing to a doubt of fraud/misstatement, invoked section 74.

HELD

Provisions of section 74 would not be attracted on a mere allegation of mismatch between GSTR-3B and GSTR-1 as said provision would itself be liable to be invoked only if it be alleged that a case of fraud, wilful misstatement or suppression of facts is made out.

80[2024] 169 taxmann.com 22 (Madras) Sri Kaleeswari Stores vs. Assistant Commissioner
Dated: 14th October, 2024

Confirming demand higher than the demand proposed in the SCN for a particular issue would tantamount to travelling beyond the show cause notice which is in violation of Principle of Natural Justice.

FACTS

The petitioner filed its returns for the period 2019-20 and discharged appropriate taxes as self-assessment. An audit was conducted on the petitioner and a show-cause notice was issued proposing demand under the head / defect “GSTR 2A and GSTR 3B (ITC Discrepancies)”, alleging that there is an excess ITC to the extent of ₹97,010/- under the CGST and SGST Act respectively. However, while passing the impugned order of adjudication, the entire ITC claimed during the period was disallowed. There were three more issues in respect of which also the demand was confirmed by the same order.

HELD

As regards to the primary dispute viz. discrepancy between GSTR 2A and GSTR 3B which constitutes 90 per cent of the demand liability, the Hon’ble Court held that the impugned order traversed beyond SCN in violation of natural justice as party was denied opportunity to put forth its case. As regards the other three issues the Hon’ble Court observed that the order records a finding that reply filed by the petitioner was not supported by documentary evidence. In these circumstances, the Hon’ble Court remanded the matter back for adjudication with a direction to the petitioner to deposit tax in respect of the other three issues and file its objections within a period of 4 weeks.

81[2024] 169 taxmann.com 9 (Punjab & Haryana) J.S.B. Trading Co vs. State of Punjab
Dated: 4th November, 2024

Once the proceedings are dropped after a valid conclusion that no tax was payable, reinitiating the same proceedings are bad in law and the impugned order is to be set aside.

FACTS

A notice under section 61 of Punjab CGST/SGST Act, 2017 was issued to the petitioner for scrutiny of the return by the Proper Officer to explain the ITC claimed on certain purchases from four different firms, whose registration had already been cancelled. Therefore, the petitioner was directed to prove the genuineness of the claim regarding ITCs. The petitioner submitted its reply to the notice and was intimated, vide GST ASMT-12 that their reply was found satisfactory and no further action was required in the matter. However, an intimation under Rule 142(1)(A) in Form GST DRC-01A was issued to the petitioner stating that the reply to the notice in Form ASMT-10 was not satisfactory and raised the demand. Hence, this petition.

HELD

The Hon’ble Court observed that the same officer has expressed two different views; one dropping the proceedings under section 61(2) and the other intimating liability. The Court held that once the authority reaches the conclusion that no additional demand was payable, dropping the proceedings, the fresh proceeding after passing of such order, stands vitiated in law and therefore, same is liable to be set aside.

82 (2024) 23 Centax 161 (Del.) A.R. Enterprises vs. Additional Commissioner, Central Goods and Service Tax (Appeals)
Dated: 19th September, 2024

Appellate Authority has the power to condone the delay beyond the permissible time limit of 30 days where delay was due to circumstances beyond the petitioner’s control.

FACTS

Petitioner, belatedly filed an appeal on 16th August, 2023 against order in original received on 27th March, 2023 beyond the stipulated time and also permissible condonation limit. Petitioner attributed the delay to financial hardships as well critical medical condition of their Managing Director requiring bed rest as evidenced by a medical certificate. Appellate authority rejected to admit the appeal on the grounds that it lacked the authority to condone a delay beyond the 30-day period allowed under section 107(4) of the CGST Act, 2017 vide its order dated 8th December, 2023. Being aggrieved by order refusing to allow the appeal by appellate authority, petitioner preferred this writ before this Hon’ble High Court.

HELD

The Hon’ble High Court after considering petitioner’s financial difficulties and Managing Director’s illness as valid and reasonable grounds for the delay. The High Court relied on the case of Central Industrial Security Forces, FGUTPP Unit vs. Commissioner of Central GST and Central Excise,[2018 (14) G.S.T.L. 198 (All.) dated 23rd May, 2018] where it was held that delays caused by circumstances beyond the petitioner’s control should be considered for condonation in the interest of justice by ignoring the limitation aspect. Consequently, impugned order passed by respondent was set aside and remanded back for consideration on merits, by disregarding the limitation period, and after providing an opportunity for a hearing.

83(2024) 22 Centax 575 (A.P.) Apco Arasavalli Expressway Pvt. Ltd. vs. Assistant Commissioner, State Tax
Dated 19th September, 2024

Time of supply for Annuity received for construction and maintenance of a national highway shall be taxable earlier of issuance of invoice or receipt of payments of annuity as per CBIC Circular No. 221/15/2024-GST Dated: 26th June, 2024.

FACTS

Petitioner was engaged in the construction of roads and highways, and entered into a concession agreement with National Highway Authority of India on 18th January, 2018 for construction and maintenance of National Highway No.16 on a Hybrid Annuity Mode (HAM) under design, build, operate, and transfer model. As per agreement, petitioner was to be paid consideration during the construction period and subsequently on an annuity basis for the concession period. While GST on the initial construction payments was settled, a dispute arose regarding the time of supply for GST on the annuity payments. Respondent passed an order stating that petitioner is liable to pay GST on all the annuity installments at the very inception of the concession period which was confirmed by appellate authority on further appeal. Hence, this writ petition. .

HELD

The Hon’ble High Court held that in case of HAM contract, the time of supply shall be as per clarification provided in CBIC Circular No. 221/15/2024-GST dated 26th June, 2024. Accordingly, GST is payable on annuity at the time of invoice issuance or payment receipt, whichever is earlier where invoices are issued prior to completion of milestone as per the agreement and not when concession agreement was entered into. Consequently, the order was set aside, and respondent was directed to collect tax in accordance with the CBIC circular.

84(2024) 22 Centax 132 (Kar.) Bosch Automotive Electronics India Pvt. Ltd. vs. State of Karnataka
Dated 29th July, 2024

ITC claim on GST paid under RCM cannot be denied without considering the clarification issued by CBIC Circular No. 211/5/2024-GST, supporting the timely availment of ITC.

FACTS

Petitioner paid GST under RCM after doing self-invoice on 31st May, 2023 and availed ITC of IGST amounting to ₹3,92,52,317 in respect of manpower supply services received for the period July 2017 to March 2023. Impugned SCN was issued under section 73(1) alleging that the petitioner was ineligible to claim the ITC as there was a delay in taking the credit beyond the stipulated period as specified under section 16(4) of CGST Act, 2017 and the same should be reversed along with interest and penalty. However, petitioner pointed out that CBIC Circular No. 211/5/2024-GST dated 26th June, 2024 was not considered while raising the demand of tax, interest and penalty. Being aggrieved by such impugned SCN, Petitioner filed a writ petition before Hon’ble High Court.

HELD

The Hon’ble High Court observed that Circular No. 211/5/2024-GST dated 26th June, 2024 which supports the claim of petitioner is squarely applicable in the case at hand and hence, no demand can be made on account of belated claim of ITC. Moreover, it relied on the decision of Supreme Court in the case of K.P. Varghese vs. ITO [1981] 7 Taxman 13, AIR 1981 SC 1922 where it was held that CBIC circular is binding upon respondent. Since SCN was issued prior to the release of the aforementioned circular, the Court directed the respondent to consider the objections raised by the petitioner and pass a reasoned order in light of the aforesaid circular. Accordingly, the petition was disposed-off.

85(2024) 23 Centax 76 (Uttarakhand) New Jai Hind Transport Service vs. Union of India
Dated: 27th September, 2024

Value of free fuel provided by service recipient shall not be treated as consideration for providing GTA service and would be included in value of service for charging GST.

FACTS

Petitioner was engaged in business of providing GTA Services. It had entered into a contract where it was agreed between the parties that service recipient will provide free diesel in order to enable petitioner to provide GTA service. However, in order to seek clarification as to whether value of free diesel provided by service recipient would be included in the value of GTA service for the levy of GST, petitioner filed an application for Advance Ruling. However, both AAR and AAAR ruled against the petitioner. Hence, the writ petition.

HELD

The Hon’ble High Court by placing reliance on the decisions of Supreme Court in Commissioner of Service Tax vs. Bhayana Builders Private Limited [2018 (10) G.S.T.L. 118 (S.C.)] and Jayhind Projects Ltd. vs. Commissioner of Service Tax, Ahmedabad [(2023) 13 Centax 32 (S.C.)] where it was held that cost of free diesel provided by service recipient cannot be added to the value of GTA service for the purpose of levying GST as well as providing free diesel cannot be constituted as consideration for rendering GTA service. Accordingly, the petition was disposed of in petitioner’s favour.

86(2024) 22 Centax 576 (All.) — Allahabad High Court Arpit Agarwal vs. State of U.P.
Dated 18th September, 2024.

Proceedings cannot be initiated in the name of partnership firm once it ceases to exist.

FACTS

Petitioner was a partner in a partnership firm consisting of two partners (Arpit Agarwal & Arvind Jain). During the COVID-19 period, Arvind Jain passed away, resulting in dissolution of the partnership firm. The said fact was informed to GST authorities during search operations. However, respondent issued a Show Cause Cum Demand Notice thrice on 16th December, 2023, 19th December, 2023, and 23rd April, 2024. Vide an Order dated 28th April, 2024, tax was confirmed from the partnership which was already dissolved. Being aggrieved by issuance of SCN and subsequently the order confirming tax demand, petitioner filed this writ petition.

HELD

The Hon’ble High Court after perusing section 94 of CGST Act, 2017 observed that once the firm is dissolved, the proceedings with respect to taxes and assessment should be carried out against the partners as well as legal heirs of the partners to the extent of his share. Accordingly, the Court set aside the order in the name of non-existent firm as
the same is nullity in the eyes of law. However, the Court has granted liberty to the respondent to proceed against the petitioner and other legal heirs of deceased partner.

87(2024) 22 Centax 220 (Guj.) Ketan Stores vs. State of Gujarat
Dated: 9th August, 2024

Recovery proceedings and provisional attachment cannot be initiated solely on the basis of Summary Order in Form DRC-07 where order itself was non-existent.

FACTS

Petitioner received a summary of order in Form GST DRC-07 dated 13th August, 2019 confirming demand of ₹94,71,738/- based on mismatch between GSTR 3B and GSTR 2A for the period from April 2018 to September 2018 with reference to an order dated 14th June, 2019. Petitioner stated that there was no such order dated 14th June, 2019, which formed the basis for the summary of order issued in Form GST DRC-07. However, respondent initiated recovery proceedings based on such summary order in Form DRC-07 and provisionally attached the bank accounts of petitioner. Being aggrieved, petitioner filed this writ petition.

HELD

The Hon’ble High Court observed that summary of order dated 13th August, 2019 in Form GST DRC-07 is only for the purpose of quantification of demand and has no value in the eye of law where there was no order itself in existence. Accordingly, High Court quashed summary order dated 13th August, 2019 and the consequent actions for recovery, as well as directed the respondents to lift the attachment of the bank accounts of the petitioner immediately.

Miscellanea

1. TECHNOLOGY AND AI

#World-first’ AI camera targets drink-drivers

Motorists under the influence of alcohol or drugs could be caught by a pioneering AI camera which is being tested for the first time in Devon and Cornwall. The state-of-the-art Heads-Up machine can detect road use and behaviour consistent with drivers who may be impaired by drink or drugs.

Police further up the road can stop the vehicle, talk to the driver and do a roadside test for alcohol and illegal drugs. Geoff Collins, UK general manager of camera developer Acusensus, said: “We are delighted to be conducting the world’s first trials of this technology right here in Devon and Cornwall.”

The camera can be moved quickly to any road in either county, without warning, with drivers unaware they have been spotted until police pull them over. “We are all safer if we can detect impairment before it causes an incident that could ruin lives,” said Mr. Collins.

Acusensus cameras have previously been used to help police catch drivers using mobile phones at the wheel or not wearing seat belts. With drink-drivers six times more likely to be involved in a fatal crash, Devon & Cornwall Police are hoping the Heads-Up system will help to save lives.

“Our officers cannot be everywhere,” said Supt Simon Jenkinson, whose team polices the 14,000 miles of roads in the two counties. As members of the Vision Zero South West road safety partnership, we’re committed to doing everything we can to reduce the number of
people killed and seriously injured on our roads. Embracing emerging technology such as these cameras is vital in that quest. The trial is taking place throughout December to coincide with other drink-driving campaigns.

(Source: bbc.com dated 14th December, 2024)

#THE 12 GREATEST DANGERS OF AI

In his new book Taming Silicon Valley, the AI expert Gary Marcus shared what he sees as the greatest dangers of AI and gave a list of 12 immediate dangers of AI in Silicon Valley.

1. Deliberate, automated, mass-produced political disinformation.

“Generative AI systems are the machine guns (or nukes) of disinformation, making disinformation faster, cheaper, and more pitch perfect,” says Marcus. “During the 2016 election campaign, Russia was spending $1.25 million per month on human-powered troll farms that created fake content, much of it aimed at creating dissension and causing conflict in the United States.”

2. Market manipulation.

He argues, “Bad actors won’t just try to influence elections; they will also try to influence markets. I warned Congress of this possibility on 18th May, 2023; four days later, it would become a reality: a fake image of the Pentagon, allegedly having exploded, spread virally across the internet,” which made the stock market briefly buckle.

3. Accidental misinformation.

“Even when there is no intention to deceive, LLMs can spontaneously generate (accidental) misinformation. One huge area of concern is medical advice. A study from Stanford’s Human-Centered AI Institute showed that LLM responses to medical questions were highly variable, often inaccurate,” notes Marcus.

4. Defamation.

“A special case of misinformation is misinformation that hurts people’s reputations, whether accidentally or on purpose,” notes Marcus. “In one particularly egregious case, ChatGPT alleged that a law professor had been involved in a sexual harassment case while on a field trip in Alaska with a student, pointing to an article allegedly documenting this in The Washington Post. But none of it checked out.”

5. Nonconsensual deepfakes.

Marcus explains that “Deepfakes are getting more and more realistic, and their use is increasing. In October 2023 (if not earlier) some high school students started using AI to make nonconsensual fake nudes of their classmates.”

6. Accelerating crime.

Marcus argues that Generative AI is already being used for impersonation scams and spear-phishing. “The biggest impersonation scam so far seems to revolve around voice-cloning. Scammers will, for example, clone a child’s voice and make a phone call with the cloned voice, alleging that the child has been kidnapped; the parents are asked to wire money, for example, in the form of bitcoin.”

7. Cybersecurity and bioweapons.

“Generative AI can be used to hack websites to discover ‘zero-day’ vulnerabilities (which are unknown to the developers) in software and phones, by automatically scanning millions of lines of code—something heretofore done only by expert humans,” explains Marcus.

8. Bias and discrimination.

“Bias has been a problem with AI for years. In one early case, documented in 2013 by Latanya Sweeney, African American names induced very different ad results from Google than other names did, such as advertisements for researching criminal records.”

9. Privacy and data leaks.

Marcus points to Shoshana Zuboff’s book The Age of Surveillance Capitalism, where she argued that companies are spying on all of us and that surveillance capitalism “claims human experience as free raw material for translation into behavioral data [that] are declared as proprietary behavioral surplus, fed into [AI], and fabricated into prediction products that anticipate what you will do now, soon, and later.” Marcus adds: “and then sold to whoever wants to manipulate you.”

10. Intellectual property taken without consent.

A lot of what AI will “regurgitate is copyrighted material, used without the consent of creators like artists and writers and actors,” notes Marcus. “The whole thing has been called the Great Data Heist — a land grab for intellectual property that will (unless stopped by government intervention or citizen action) lead to a huge transfer of wealth — from almost all of us — to a tiny number of companies.”

11. Overreliance on unreliable systems.

Marcus explains: “In safety-critical applications, giving LLMs full sway over the world is a huge mistake waiting to happen, particularly given all the issues of hallucination, inconsistent reasoning, and unreliability we have seen. Imagine, for example, a driverless car system using an LLM and hallucinating the location of another car. Or an automated weapon system hallucinating enemy positions. Or worse, LLMs launching nukes.”

12. Environmental costs.

The training of LLMs requires enormous amounts of energy, which has implications for the environment. “Generating a single image takes roughly as much energy as charging a phone. Because Generative AI is likely to be used billions of times a day, it adds up,” explains Marcus. Additionally, he notes that the trend among AI companies is to train bigger and bigger models, which requires astronomical amounts of energy.

(Source: Forbes.com dated 9th November, 2024)

2 HEALTH

#Elon Musk’s Neuralink announces study to connect brain implant to robotic arm

Elon Musk’s brain-computer interface implant startup Neuralink announced on X that it received approval to launch a new feasibility study, CONVOY, which will test the use of its wireless brain-computer interface (BCI), or N1 implant, to control an investigational assistive robotic arm.

“This is an important first step towards restoring not only digital freedom, but also physical freedom. More info to come, but the CONVOY study will enable cross-enrolling participants from the ongoing PRIME study,” Neuralink said in a post.

Neuralink’s PRIME study (short for Precise Robotically Implanted Brain-Computer Interface) involves the placement of a small, cosmetically invisible implant in the area of a person’s brain that plans movements. The N1 implant is designed to interpret one’s neural activity to assist them in operating a computer or smartphone by simply intending to move.

The ongoing medical device clinical trial is designed to provide individuals with quadriplegia the ability to use digital devices with their thoughts, and the company is continuing to seek individuals to participate in the study.

Neurolink’s BCI device was first implanted into 29-year-old quadriplegic Noland Arbaugh in February, resulting in Arbaugh having the ability to play chess and video games hands-free.

In July, Elon Musk joined Neuralink to give a live update on patients implanted with the Telepathy device. “Let’s say somebody has lost their arms or legs, we could actually attach an Optimus arm or Optimus legs to a Neuralink implant so that the motor commands from your brain that would go to our biological arms now go to your robot arms or robot legs, and you’d basically have cybernetic superpowers,” Musk said.

Optimus, also known as the Tesla Bot, is a general-purpose robotic humanoid that was initially announced by Musk in 2021, with a prototype shown in 2022. Musk showcased the robot’s progress at Tesla’s “We, Robot” event at Warner Bros. Studio last month in Los Angeles.

Neuralink recently announced it received approval from Health Canada to perform a clinical trial on its N1 brain implant and R1 robot, which is used to place the implant into the brain. The “Canadian Precise Robotically Implanted Brain-Computer Interface” (CAN-PRIME) study will be performed by the University Health Network (UHN) hospital at its Toronto Western Hospital.

Last month, the company received FDA breakthrough device designation for Blindsight, an implant that aims to restore vision in individuals who are blind. Blindsight implants a microelectrode array into the visual cortex of a person’s brain. The array then activates neurons, which then provide the individual with a visual image.

(Source: www.mobihealthnews.com dated 27th November, 2024)

Input- Output Ratio

A Chartered Accountant’s client wanted to sell his large immovable property. It was ancestral, and there were 3 to 4 co-owners. A client approached the CA and entrusted the assignment to him. The client said that he would also prefer to have a good lawyer in the picture.

The CA, as usual, was overly sincere and desired to save income tax for the client. He gave him several lawful advice. He broad-based the ownership structure so as to divide the capital gains. Internal gifts did not attract income tax. He also tried to save stamp duty. Different individual members of the family could claim different exemptions legitimately. The client was very happy.

The CA asked for some initial payment of fees. The client said — Sir, you are aware I have no money. That is why I am selling my property.

The CA met the purchaser many times. Meetings were held in the CA’s office, and the CA spent liberally on hospitality. Then, they approached the lawyer selected by the client. On three or four occasions meetings with the lawyer got postponed after waiting for more than one or two hours, as he was held up in a Court. After meeting the lawyer, the lawyer tried to understand the facts and delegated the work to his junior. The lawyer took advance fees, which the client instantly paid. He assured the CA that he would pay him later.

The lawyer’s office drafted the deed — standard format for all co-owners. It was mailed to the CA’s office. The CA took printouts of all agreements and corrected errors. He realised that despite his specific instructions, an appropriate clause of HUF was not added. So, he made corrections in the context of tax provisions, section 50-C, section 56, and so on. Virtually, he had to re-write the agreements from the tax perspective.

Purchasers insisted on the updation of ownership records in the society of plot owners. The CA followed up by doing all the paperwork.

The client received a good amount of advance from the buyer, but the CA advised him to make immediate investments to save tax. The client had ‘no money’ to pay fees to the CA.

Finally, the deal was over. The CA had saved a sizeable amount of tax for the client through proper tax planning and ensured that the deal would happen smoothly. He also guided him on advance tax, exemptions under sections 54, 54F, and 54EC by researching case laws.

However, when CA demanded his fees, he had to face a hard bargain and reduce his fees substantially, whereas, the lawyer was paid handsomely, not to mention a hefty two percent brokerage of the deal amount charged by the broker.

That is the input-output ratio!

Letter To The Editor

The Editor,
BCAJ,
Mumbai

Dear Shri Mayurbhai,

Re: BCAJ Editorials

I always look forward to reading your Editorials first thing upon receiving my copy of the Journal.

I find the Editorials very well researched, meaningful, contemporary, relevant, and mature, and the language employed is very well-balanced.

I only hope the message reaches the policy / decision makers in New Delhi and the State Capitals and favourably impact their Policy Decisions.

Please keep up the good work you are doing.

Sincerely,

CA. Tarunkumar Singhal

Property Owned By Hindu Females

INTRODUCTION

Is the property of a Hindu Female always her absolute property or does she have a limited rights in certain situations? Does not the Hindu Succession Act,  1956 (“the Act”) empower every Hindu female to own property?

It is interesting to note that these questions are not as completely settled as they appear and the issues have travelled all the way to the Supreme Court on numerous occasions and met with different responses! Thus, while it is quite easy to understand in theory that right to property is a vested right of a Hindu female under the Hindu Succession Act, it becomes quite difficult to understand its implications given the facts and circumstances of a particular case. The issue is thrown into sharper focus by the seeming dichotomy under sub-sections (1) and (2) of section 14 of the Hindu Succession Act, 1956, which deal with property of a Hindu female.

A recent two-Judge Supreme Court decision in the case of Tej Bhan (D) Through LR vs. Ram Kishan (D) through LRs, Civil Appeal No. 6557 of 2022, Order dated 9th December, 2024 has realised this difference of opinions amongst various decisions of the Apex Court and has directed the Court Registry to place the order before the Hon’ble Chief Justice of India for constituting an appropriate larger bench for reconciling the principles laid down in various judgments of the Supreme Court and for restating the law on the interplay between sub-section (1) and (2) of Section 14 of the Hindu Succession Act.

SECTION 14 OF THE ACT

The Act governs the position of a Hindu intestate, i.e., one dying without making a valid Will. The Act applies to Hindus, Jains, Sikhs, Buddhists and to any person who is not a Muslim, Christian, Parsi or a Jew. The Act overrides all Hindu customs, traditions and usages and specifies the heirs entitled to such property and the order of preference among them.
S.14 which is the crux of the issue needs to be studied closely.

S.14(1) states that any property possessed by a female Hindu, whenever it may be acquired by her, shall be held by her as full owner thereof and not as a limited owner. Thus, the Act lays down in very clear terms that in respect of all property possessed by a Hindu female, she is the full and absolute owner and she does not have a limited / restricted right in the same. The explanation to this sub-section defined the term, “property” to include both movable and immovable property acquired by a female Hindu by inheritance or devise, or at a partition, or in lieu of maintenance or arrears of maintenance, or by gift (from any person, whether a relative or not, before, at or after her marriage), or by her own skill or exertion, or by purchase or by prescription, or in any other manner whatsoever. Thus, an extremely wide definition of property has been given under the Act. Property includes all types of property owned by a female Hindu although she may not be in actual, physical or constructive possession of that property — Mangal Singh & Ors vs. Shrimati Rattno, 1967 SCR (3) 454. The critical words used here are “possessed” and “acquired”. The word “possessed” has been used in its widest connotation and it may either be actual or constructive or in any form recognised by law. In the context in which it has been used in s.14(1) it means the state of owning or having in one’s hand or power – Gummalapura Taggina Matada Kotturuswami vs. Setra Veerayya and Ors. (1959) Supp. 1 S.C.R. 968.The use of the words ‘female Hindu’ is also very wide in scope and is not restricted only to a ‘wife’ — Vidya (Smt) vs. Nand Ram Alias Asoop Ram, (2001) 1 MLJ 120 SC.

In Dindyal & Anr. vs. Rajaram, (1971) 1 SCR 298, it was held that, before any property can be said to be “possessed” by a Hindu woman as provided in s.14(1), two things are necessary (a) she must have a right to the possession of that property and (b) she must have been in possession of that property either actually or constructively. However, this section cannot make legal what is illegal. Hence, if a female Hindu is in illegal possession of any property, then she cannot validate the same by taking shelter under this section.

S.14(2) of the Act carves out an exception to s.14(1) of the Act. It states that nothing contained in sub-section (1) of s.14 shall apply to any property acquired by way of gift or under a will or any other instrument or under a decree or order of a civil court or under an award where the terms of the gift, will or other instrument or the decree, order or award prescribe a restricted estate in such property. Thus, if a female Hindu acquires any property under any instrument and the terms of acquisition, as laid down by such instrument, itself provided for a restricted or a limited estate in the property then she would be treated as a limited owner only. In such an event, she cannot have recourse to s.14(1) and contend that she is an absolute owner.

Whether sub-section (1) or (2) of s. 14 apply to a particular case depends upon the facts of the case — Seth Badri Pershad vs. Smt. Kanso Devi, (1969) 2 SCC 586. In this decision, it was further held that sub-section (2) of Section 14 is more in the nature of a proviso or an exception to Sub-section (1). It can come into operation only if acquisition in any of the methods indicated therein is made for the first time without there being any pre-existing right in the female Hindu who is in possession of the property. It further approved of the observations of the Madras High Court Rangaswami Naicker vs. Chinnammal, AIR 1964 Mad 387 that s.14(2) made it clear that the object of s. 14 was only to remove the disability on women imposed by law and not to interfere with contracts, grants or decrees etc. by virtue of which a women’s right was restricted.

DECISIONS ON S.14

Several decisions of the Supreme Court have analysed s.14(1) and s.14(2) in depth. Some of the important (and conflicting) ones are discussed below.

R.B.S.S. MUNNALAL AND OTHERS VS. S.S. RAJKUMAR,AIR 1962 SC 1493

The Supreme Court held that by s.14(1) the legislature converted the interest of a Hindu female, which under the customary Hindu law would have been regarded as a limited interest, into an absolute interest and by the Explanation thereto gave to the expression “property” the widest connotation. The Court held that the Act conferred upon Hindu females full rights of inheritance, and swept away the traditional limitations on her powers of dispositions which were regarded under the Hindu law as inherent in her estate. She was under the Act regarded as a fresh stock of descent in respect of property possessed by her at the time of her death.

NIRMAL CHAND VS. VIDYAWANTI, (1969) 3 SCC 628

If a lady is entitled to a share in her husband’s properties then the suit properties must be held to have been allotted to her in accordance with s.14(1), i.e., as an absolute owner in spite of the fact that the deed in question mentioned that she would have only a life interest in the properties allotted to her share.

ERAMMA VS. VERRUPANNA, 1966 (2) SCR 626

The Supreme Court held that mere possession of property by a female does not automatically attract s. 14(1) of the Act.

MST. KARMI VS. AMRU, AIR 1971 SC 745

A person died leaving behind his wife. His son pre-deceased him. He gave a life interest through his Will to his Wife. It was held that the life estate given to a widow under the Will of her husband cannot become an absolute estate under the provisions of the Act. S.14(2) would apply to such a situation and it would not become an absolute estate. The female having succeeded to the properties on the basis of her husband’s Will she cannot claim any rights over and above what the Will conferred upon her. This is one of the important decisions which have gone against the tide of conferring absolute ownership on the Hindu female.

V. TULSAMMA VS. SESHA REDDI, (1977) 3 SCC 99

In this landmark case, the Supreme Court clarified the difference between sub-sections (1) and (2) of Section 14, thereby restricting the right of a testator to grant a limited life interest in a property to his wife. case involved a compromised decree arising out of a decree for maintenance obtained by the widow against her husband’s brother in a case of intestate succession. The compromise allotted properties to her as a limited owner. The Supreme Court held that this was a case where properties were allotted in lieu of maintenance and hence, s.14(1) was clearly applicable. Thus, the widow became the absolute owner of these properties.

The Court held that legislative intendment in enacting sub-section (2)was that this subsection should be applicable only to cases where the acquisition of property is made by a Hindu female for the first time without any pre-existing right. Where, however, property is acquired by a Hindu female at a partition or in lieu of her pre-existing right to maintenance, such acquisition would be pursuant to her pre-existing right not be within the scope and ambit of s.14(2) even if the instrument allotting the property prescribes a restricted state in the property. Sub-section (2) must, therefore, be read in the context of sub-section (1) so as to leave as large a scope for operation as possible to sub-section (1) and so read, it must be confined to cases where property is acquired by a female Hindu for the first time as a grant without any pre-existing right, under a gift, will, instrument, decree, order or award, the terms of which prescribe a restricted state in the property. It further held that a Hindu woman’s right to maintenance is a personal obligation so far as the husband is concerned, and it is his duty to maintain her even if he has no property. If the husband has property then the right of the widow to maintenance becomes an equitable charge on his property and any person who succeeds to the property carries with it the legal obligation to maintain the widow. Though the widow’s right to maintenance is not a right to property, it is undoubtedly a pre-existing right in the property, i.e. it is a jus ad rem not jus in rem and it can be enforced by the widow who can get a charge created for her maintenance on the property either by an agreement or by obtaining a decree from the civil court.

SMT. GULWANT KAUR VS. MOHINDER SINGH, AIR 1987 SC 2251 / GURDIP SINGH VS. AMAR SINGH, 1991 SCC (2) 8

The provisions of Section 14(1) of the Act were applied because it was a case where the Hindu female was put in possession of the property expressly in pursuance to and in recognition of the maintenance in her / where the wife acquired property by way of gift from her husband explicitly in lieu of maintenance. This decision was affirmed by a three-Judge bench in Jaswant Kaur vs. Major Harpal Singh, (1989) 3 SCC 572

THOTA SESHARATHAMMA VS. THOTAMANIKYAMMA, (1991) 4 SCC 312

The Apex Court dealt with a life estate granted to a Hindu woman by a Will as a limited owner and the grant was in recognition of pre-existing right. Thulasmma’s decision was followed and s.14(1) was held to apply. The Supreme Court also held that the contrary decision in the case of Mst. Karmi cannot be considered an authority since it was a rather short judgment without adverting to any provisions of Section 14(1) or 14(2) of the Act. The judgment neither made any mention of any argument raised in this regard nor there was any mention of the earlier decisions on this issue.

NAZAR SINGH VS. JAGJIT KAUR, (1996) 1 SCC 35/ SANTOSH VS. SARASWATHIBAI, (2008) 1 SCC 465 / SUBHAN RAO VS. PARVATHI BAI, (2010) 10 SCC 235

Applying Thulasamma’s decision it was held that lands, which were given to a lady by her husband in lieu of her maintenance, were held by her as a full owner thereof and not as a limited owner notwithstanding the several restrictive covenants accompanying the grant. According to the Court, this proposition followed from the words in sub-section (1) of s.14, which insofar as is relevant read: “Any property possessed by a female Hindu … shall be held by her as full owner and not as a limited owner”

SHAKUNTALA DEVI VS. KAMLA AND OTHERS, (2005) 5 SCC 390

A Hindu wife was bequeathed a life interest for maintenance by her husband’s Will with a condition that she would not have power to alienate the same in any manner. As per the Will, after death of the wife, the property was to revert back to his daughter as an absolute owner. It was held that u/s.14(1) a limited right given to the wife under the Will got enlarged to an absolute right in the suit property.

SADHU SINGH VS GURDWARA SAHIB NARIKE, (2006) 8 SCC 75 / SHARAD SUBRAMANAYAN VS. SOUMIMAZUMDAR (2006) 8 SCC 91

The Supreme Court in these well-considered decisions held that the antecedents of the property, the possession of the property as on the date of the Act and the existence of a right in the female over it, however limited it may be, are the essential ingredients in determining whether sub-Section (1) of Section 14 of the Act would come into play. Any acquisition of possession of property by a female Hindu could not automatically attract s.14(1). That depended upon the nature of the right acquired by her. If she took it as an heir under the Act, she took it absolutely. If while getting possession of the property after the Act, under a devise, gift or other transaction, any restriction was placed on her right, the restriction will have play in view of s.14(2) of the Act. Therefore, there was nothing in the Act which affected the right of a male Hindu to dispose of his property by providing only a life estate or limited estate for his widow. The Act did not stand in the way of his separate properties being dealt with by him as he deemed fit. His Will could not be challenged as being hit by s.14(1) of the Act. When he validly disposed of his property by providing for a limited estate to his wife, the widow had to take it as the estate devolved on her. This restriction on her right so provided, was really respected by s.14(2) of the Act. Thus, in this case where the widow had no pre-existing right, the limited estate granted to her under her husband’s Will was upheld u/s. 14(2).

Any acquisition of possession of property (not right) by a female Hindu after the coming into force of the Act, cannot normally attract Section 14(1) of the Act. The Court distinguished Tulsamma’s decision as follows:

“….., it is clear that the ratio in V. Tulasamma vs. Shesha Reddy ………has application only when a female Hindu is possessed of the property on the date of the Act under semblance of a right, whether it be a limited or a pre-existing right to maintenance in lieu of which she was put in possession of the property. Tulasamma ………ratio cannot be applied ignoring the requirement of the female Hindu having to be in possession of the property either directly or constructively as on the date of the Act, though she may acquire a right to it even after the Act.

……….when a male Hindu executes a will bequeathing the properties, the legatees take it subject to the terms of the will unless of course, any stipulation therein is found invalid. Therefore, there is nothing in the Act which affects the right of a male Hindu to dispose of his property by providing only a life estate or limited estate for his widow. The Act does not stand in the way of his separate properties being dealt with by him as he deems fit. His will hence could not be challenged as being hit by the Act.”

The Court concluded that when a male validly disposed of his property by providing for a limited estate to his heir, the wife, she took it as the estate devolved on to her. This restriction on her right, was respected by the Act. It provided in Section 14(2) of the Act, that in such a case, the widow is bound by the limitation on her right and she could not claim any higher right by invoking Section 14(1) of the Act. In other words, conferment of a limited estate which was otherwise valid in law was reinforced by this Act by the introduction of Section 14(2) of the Act and excluding the operation of Section 14(1) of the Act.

JUPUDYPARDHASARATHY VS. PENTAPATI RAMA KRISHNA, (2016) 2 SCC 56

After analysing a host of decisions and the legal principles, the Supreme Court in Jupudy’s case held that the bequest under the Will to the 3rd wife was in the nature of maintenance even though the express words maintenance were not mentioned in the Will. She was issueless and the husband was duty bound to maintain her. Hence, he gave her the house and access to incidental facilities. Accordingly, s.14(1) applied and the limited right stood enlarged into an absolute estate by virtue of a pre-existing right of maintenance. The Court observed that no one disputed the genuineness of the Will and the fact that the 3rd wife continued to enjoy the said property in lieu of her maintenance.

TEJ BHAN’S CASE

A person purchased property under a sale deed executed by the wife of one Kanwar Bhan, the testator, who was the original owner of the property. Kanwar Bhan executed a will that created a life estate in favour of his wife. It stated that she was entitled to maintain herself out of the proceeds from the same but she was not be entitled to mortgage or sell the said land. Once she got the property after her husband’s demise, she executed a sale deed. This was objected to by other claimants under the Will. The lower Courts relied on decision in Tulsamma’s case and held that the property given to the wife of Kanwar Bhan was in the nature of maintenance and such a pre-existing right enlarged into a full estate. Accordingly, it upheld the right of the widow to sell the property. The High Court rejected this stand and held that the widow only had a limited right and hence, the correct principle was as laid down in the case of Sadhu Singh (supra).

CONCLUSION

The Supreme Court in Tej Bhan concluded that there were a large number of decisions which were not only inconsistent with one another on principle but have tried to negotiate a contrary view by distinguishing them on facts or by simply ignoring the binding decision. Accordingly, it was of the view that there must be clarity and certainty in the interpretation of Section 14 of the Act.

S.14(1) is a very important piece of legislation when it comes to ensuring protection of a Hindu female’s rights over property. It ensures that a lady is an absolute owner in respect of her property. However, it is also essential that this provision is used as a shield and not a sword. S.14(2) ensures that what was originally acquired as a limited owner does not automatically enlarge into absolute ownership. One important principle which emerges from the numerous Court cases is that applicability of these two sub-sections has to be tested on the facts of each case and there cannot be one straight-jacketed approach to all cases. One hopes that a Larger Bench of the Apex Court will conclusively settle this issue once and for all.

Proposed Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IASB has published an Exposure Draft (ED), to make certain changes to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Similar changes should be anticipated for Ind AS standards as well. In this article we discuss some of the important changes and an example of how the ED relates to climate commitments, with a simple example.

The IASB’s proposed amendments aim to clarify the requirements for the present obligation criterion, and to change the timing of the recognition of some provisions, in particular, levies. The IASB has proposed to update the definition of a liability to match the 2018 Conceptual Framework for Financial Reporting (Conceptual Framework). The updated wording would replace the current requirement for an obligating event with three distinct conditions: obligation, transfer and past-event.

The proposed amendments include separate sections of requirements to support each of the conditions. The proposed amendments would also replace the requirements in IFRIC 21 Levies, which would be withdrawn. The accounting for levies would be aligned with the general requirements for provisions. However, new requirements are proposed for levies when they are triggered only after two or more specific actions (or events) or once a specific threshold is exceeded.

Entities would need to recognise a provision after the first action or event if they have no practical ability to avoid the second event. The proposed amendments would supersede the requirements in IFRIC 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, which would be withdrawn. The proposed amendments would clarify the requirements for restructuring provisions in order to eliminate potentially misleading terminology. Nevertheless, they are not intended to change the outcome of applying the requirements for restructuring provisions.

Change in definition of provision

Existing provision Proposed Amendment

A provision is a liability of uncertain timing or amount.

 

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

 

An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.

A liability is a present obligation of the entity resource to transfer an economic resource as a result of past events.

The following paragraphs have been added.

Paragraph 14A

The first criterion for recognising a provision is that an entity has a present obligation (legal or constructive) to transfer an economic resource as a result of a past event.

 

This criterion (the present obligation recognition criterion) comprises three conditions: (a) an obligation condition — the entity has an obligation (paragraphs 14B —14H); (b) a transfer condition — the nature of the entity’s obligation is to transfer an economic resource (paragraphs 14I–14L); and (c) a past-event condition — the entity’s obligation is a present obligation that exists as a result of a past event (paragraphs 14M–14U).
Obligating condition

 

Paragraph 14B

The first condition for meeting the present obligation recognition criterion is that the entity has an obligation. An entity has an obligation if:

 

(a) a mechanism is in place that imposes a responsibility on the entity if it obtains specific economic benefits or takes a specific action; (b) the entity owes that responsibility to another party; and (c) the entity has no practical ability to avoid discharging the responsibility if it obtains the specific economic benefits or takes the specific action.
Paragraph 14C reiterates the obligation can be legal or constructive.
Paragraph 14D

The economic benefits the entity obtains could be, for example, cash, goods or services. The action the entity takes could be, for example, operating in a specific market, causing environmental damage or other harm to another party, owning specific assets on a specific date, or constructing an asset that will need to be decommissioned at the end of its useful life.
Paragraph 14E (this is derived from the current standard)

An obligation is always owed to another party. It is not necessary for an entity to know the identity of the party to whom the obligation is owed. The other party could be a person or another entity, a group of people or other entities, or society at large
Paragraph 14F

An entity has no practical ability to avoid discharging a responsibility:

(a) in the case of a legal obligation, if: (i) the other party has a legal right to act against the entity if the entity fails to discharge the responsibility — for example, to ask a court to enforce settlement, charge the entity a financial penalty or restrict the entity’s access to economic benefits; and (ii) as a result of that right, the economic consequences for the entity of not discharging the responsibility are expected to be significantly worse than the costs of discharging it; or

 

(b) in the case of a constructive obligation, if the entity’s pattern of past practice, published policy or sufficiently specific current statement creates valid expectations in other parties that the entity will discharge the responsibility
14G (this is derived from current standard)

If details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted as drafted. In this Standard, such an obligation is treated as a legal obligation. Variations in circumstances surrounding enactment make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted

 
14H (this is derived from current standard)

An obligation requires an entity to have no practical ability to avoid discharging a responsibility. Therefore, a management or board decision does not give rise to a constructive obligation at the end of the reporting period unless the decision has been communicated before the end of the reporting period to those affected by it in a sufficiently specific manner to create a valid expectation in those affected that the entity will discharge its responsibility.

 
Transfer condition

 

14I

The second condition for meeting the present obligation recognition criterion is that the nature of the entity’s obligation is to transfer an economic resource. To meet this condition, the obligation must have the potential to require the entity to transfer an economic resource to another party.

 

14J

For that potential to exist, it does not need to be certain, or even likely, that the entity will be required to transfer an economic resource — the transfer may, for example, be required only if a specified uncertain future event occurs.

 

14K

Consequently, the probability of a transfer does not affect whether an obligation meets the present obligation recognition criterion — an obligation can meet that criterion even if the probability is low. However, the probability of a transfer could affect: (a) whether the obligation meets one of the other criteria for recognising a provision — a provision is recognised only if it is probable (more likely than not) that the entity will be required to transfer an economic resource to settle the obligation (see paragraphs 14(b) and 23); and (b) whether the entity discloses a contingent liability if the obligation does not meet all the criteria for recognising a provision (see paragraph 23).

 

14L

An obligation to exchange economic resources with another party is not an obligation to transfer an economic resource to that party unless the terms of the exchange are unfavourable to the entity. Accordingly, the obligations arising under an executory contract — for example, a contract to receive goods in exchange for paying cash — are not obligations to transfer an economic resource unless the contract is onerous.
Past-event condition

14M

The third condition for meeting the present obligation recognition criterion is that the entity’s obligation is a present obligation that exists as a result of a past event.

 

14N

An entity’s obligation becomes a present obligation that exists as a result of a past event when the entity: (a) has obtained specific economic benefits or taken a specific action, as described in paragraphs 14B and 14D; and(b) as a consequence of having obtained those benefits or taken that action, will or may have to transfer an economic resource it would not otherwise have had to transfer.
14O

If the economic benefits are obtained, or the action is taken, over time, the past-event condition is met, and the resulting present obligation accumulates, over that time.

 
14P

In some situations, an entity has an obligation to transfer an economic resource only if a measure of its activity in a period (the assessment period) exceeds a specific threshold. In such situations, the action that meets the past event condition is the activity that contributes to the total activity on which the amount of the transfer is assessed. At any date within the assessment period, the present obligation is a portion of the total expected obligation for the assessment period. It is the portion attributable to the activity carried out to date. The entity recognises a provision if the recognition criteria in paragraphs 14(b) and 14(c) are met — that is, if: (a) it is probable that the entity’s activity will exceed the threshold and the entity will be required to transfer an economic resource (see paragraph 14(b)); and (b) a reliable estimate can be made of the amount of the obligation (see paragraph 14(c)).
14Q

In some situations, an entity has an obligation to transfer an economic resource only if it takes two (or more) separate actions, and the requirement to transfer an economic resource is a consequence of taking both (or all) these actions. In such situations, the past-event condition is met when the entity has taken the first action (or any of the actions) and has no practical ability to avoid taking the second action (or all the remaining actions).
14R

A decision to prepare an entity’s financial statements on a going concern basis implies that the entity has no practical ability to avoid taking an action it could avoid only by liquidating the entity or by ceasing to trade.

 
Interactions between the obligation and past-event conditions

 

14S

The enactment of a new law is not in itself sufficient to create a present legal obligation for an entity. A present legal obligation arises only if, as a consequence of obtaining the economic benefits or of taking the action to which the law applies, the entity will or may have to transfer an economic resource it would not otherwise have had to transfer (see paragraph 14N).

 

14T

Similarly, having an established pattern of past practice, publishing a policy or making a statement is not in itself sufficient to create a present constructive obligation for an entity. A present constructive obligation arises only if, as a consequence of obtaining the economic benefits or of taking the action to which the practice, policy or statement applies, the entity will or may have to transfer an economic resource it would not otherwise have had to transfer (see paragraph 14N).

 

14U

[Derives from former paragraph 21] An action of the entity that does not give rise to a present obligation immediately might do so at a later date,

because a mechanism is introduced that imposes new responsibilities on the entity — a new law might be enacted, an existing law might be changed or the entity might establish a pattern of practice, publish a policy or make a statement that gives rise to a constructive obligation. For example, if an entity causes environmental damage, it might have no obligation to remedy the damage at the time of causing it. However, the  causing of the damage will be the past event that has created a present obligation if, at a later date, a new law requires the existing damage to be rectified, or if the entity accepts responsibility for rectification in a way that creates a constructive obligation.

 

Example 15 — Climate-related commitments

In 20X0 an entity that manufactures household products publicly states its commitments: (a) to gradually reduce its annual greenhouse gas emissions, reducing them by at least 60 per cent of their current level by 20X9; and (b) to offset its remaining annual emissions in 20X9 and in later years by buying carbon credits and retiring them from the carbon market.

To support its statement, the entity publishes a transition plan setting out how it will gradually modify its manufacturing methods between 20X1 and 20X9 to achieve the 60 per cent reduction in its annual emissions by 20X9. The modifications will involve investing in more energy-efficient processes, buying energy from renewable sources and replacing petroleum-based product ingredients and packaging materials with lower-carbon alternatives.

Management is confident that the entity can make all these modifications and continue to sell its products at a profit. In addition to publishing the transition plan, the entity takes several other actions that publicly affirm its commitments. Having considered all the facts and circumstances of the entity’s commitments — including the actions it has taken to affirm them — management judges that the entity’s statement has created a valid expectation in society at large that the entity will fulfil the commitments, and hence that it has no practical ability to avoid doing so (paragraph 14F(b)).

The entity is preparing financial statements for the year ended 31st December, 20X0. Present obligation to transfer an economic resource as a result of a past event three conditions specified in paragraph 14A of IAS 37 are not all met:

Obligation condition Met

The entity’s public statement of its commitments imposes on the entity responsibilities: (a) to operate in the future in a way that reduces its annual greenhouse gas emissions; and (b) to offset its remaining emissions if it emits greenhouse gases in 20X9 and later years (paragraph 14B(a)). The entity owes those responsibilities to society at large (paragraph 14B(b)). The entity has no practical ability to avoid discharging its responsibilities (paragraph 14B(c)). The obligations meet the definition of a constructive obligation (paragraph 10).
Transfer condition Not met Obligation to reduce emissions

The entity’s obligation to operate in the future in a way that reduces its greenhouse gas emissions is not an obligation to transfer an economic resource. Although the entity will incur expenditure in changing the way it operates, it will receive other economic resources — for example, property, plant and equipment, energy, product ingredients or packaging materials — in exchange, and will be able to use these resources to manufacture products it can sell at a profit (paragraph 14L).
Transfer condition Met Obligation to offset remaining emissions

The entity’s obligation to offset its remaining annual greenhouse gas emissions in 20X9 and later years is an obligation to transfer an economic resource. The entity will be required to buy and retire carbon credits without receiving any economic resources in exchange (paragraph 14I).
Past event condition Not met Obligation to offset remaining emissions

The entity has not yet taken the action (emitting gases in 20X9 or in a later year) as a consequence of  which it will have to buy and retire carbon credits it would not otherwise have had to buy or retire (paragraph 14N).

Conclusion — No provision is recognised at 31st December, 20X0.

If the entity emits greenhouse gases in 20X9 and in later years, it will incur a present obligation to offset these past emissions when it emits the gases. If, at that time, the entity has not settled the present obligation and it is probable that it will have to transfer an economic resource to do so, the entity will recognise a provision for the best estimate of the expenditure required.

Although the entity does not recognise a provision for its constructive obligations at 31st December, 20X0, the actions it plans to take to fulfil the obligations could affect the amounts at which it measures its other assets and liabilities (for example, its property, plant and equipment), and the information it discloses about them, as required by various IFRS Accounting Standards.

As can be seen from the above example, the ED provides much more clarity on whether a provision is required and in a very methodical and step-by-step manner. Similar changes can be expected under Ind AS.

Section 148 — Reassessment — On deceased person — Not permissible

23 Mary Gene Gracious vs. ITO Ward 20(1)(1), Mumbai
[WP(L) 3460 OF 2024
Dated: 10th December, 2024, (Bom-HC)

Section 148 — Reassessment — On deceased person — Not permissible

The Petitioner challenged the action as resorted by the respondents against Mr. Gene Gracious, the husband of the petitioner by issuance of notice under Section 148 of the Act dated 29th July, 2022, which was preceded by a notice issued under Section 148A(b) dated 26th May, 2022, and an order passed thereon under Section 148A(d) dated 29thJuly, 2022.

The case of the petitioner is that the impugned notice under Section 148 and the action prior thereto as initiated by respondent no.1 are non-est and illegal in as much as Mr. Gene Gracious against whom these notices were issued, passed away on 09 November 2016. A Death Certificate issued by Department of Health, Municipal Corporation of Greater Mumbai.

The Petitioner relying on various decisions contended that the petition is required to be granted as respondent no. 1 could not have resorted to impugned action by issuance of notices underSection 148A(b) and 148, and passing an order under Section 148A(d), against a deceased person.

The Court observed that the Supreme Court has held it to be the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given reasonable opportunity to defend himself (UMC Technologies Private Limited vs. Food Corporation of India &Anr., Civil Appeal No. 3687 of 2020, decided on 16th November, 2020). This basic jurisprudential principle becomes applicable when any action of such nature was being initiated against Mr. Gene Gracious. Once Mr. Gene Gracious passed away, there was no question of his defending such action or being heard so as to accord any sanctity to such order, and the consequential notice under Section 148 of the Act. The entire action under clause (b) and clause (d) of Section 148A of the Act were of no consequence being non-est. In this situation, even the legal heirs cannot be bound by such order which is non-est, void ab initio.

Also, the scheme of provisions of Section 148A read with Section 148 as applicable in the facts of the present case (AY 2015-16) rests on a foundation that no notice under Section 148 could have been issued without a prior show-cause notice being issued to an assessee. Further, a hearing would need to be granted to the assessee on such show cause notice and thereafter an order could be passed. All this is certainly not possible to be undertaken against a deceased person and / or even against a non-existing entity [refer Principal Commissioner of Income-Tax, New Delhi vs. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375 (SC).]

Once such mandatory legal compliance itself could not be achieved, on such sole ground, the notice issued under Section 148 preceded by earlier actions is required to be held to be non-est and void ab initio. The department cannot maintain issuance of the notice as impugned to a deceased person.

In the present case, admittedly, the concerned assessee Mr. Gene Gracious passed away on 9th November, 2016, the show cause notice under Section 148A(b) of the IT Act was issued on 26th May, 2022 and an order thereon was passed on 29th July, 2022 under Section 148A(d), as also the impugned notice under Section 148 was also issued on 29th July, 2022. All this has happened after the said assessee, Mr. Gene Gracious had passed away.

In view of the above, the petition deserves to be allowed.

Deduction in respect of the broken period interest — securities held as stock in trade: Expenditure incurred by the assessee on the issue of Fully Convertible Debentures.

22 HDFC Bank Ltd. (formerly, Housing Development Finance Corporation Ltd.) vs. The DCIT Spl. Range – 15
[ITXA No. 58 OF 2006]
Dated: 13th November, 2024. (Bom) (HC) [Arising from ITAT order dated 12th September, 2005]
Assessment Year: 1993-94

Deduction in respect of the broken period interest — securities held as stock in trade: Expenditure incurred by the assessee on the issue of Fully Convertible Debentures.

The appellant is inter alia engaged in the business of providing long term finance in the course of which, various securities are held as stock in trade. These securities are purchased from time to time, which carry interest. The purchase price includes the component of interest for the broken period. The securities which remain unsold at the end of the year are shown in the closing stock at cost. However, while computing the income, the assessee claims deduction on account of interest for the broken period in respect of unsold securities since according to assessee, the entire interest income accrues to the assessee on the fixed date falling after the end of previous year. However, the assessee offered the interest income in respect of such securities in the next year either when the securities were sold or when interest is received.

The Assessing Officer rejected the claim of the assessee and disallowed the sum. The reason for disallowance was that broken period interest formed part of the price of the asset purchased, which has already been debited to Profit & Loss Account and, therefore, question of allowing deduction did not arise in view of the Supreme Court judgment in the case of Vijaya Bank Ltd. vs. Additional Commissioner of Income-tax [1991] 187 ITR 541 (SC).

The Commissioner of Income-tax (Appeals) also agreed with the Assessing Officer and confirmed the order passed by the Assessing Officer. Against such order passed by the CIT(A), the appellant carried the matter to the Tribunal. The Tribunal also did not accept the contentions as urged on behalf of the assessee that the interest on securities is taxable as business income, since securities are held as stock in trade. As the interest paid on purchase of securities would be on revenue account, the same would entitle the assessee to claim a revenue loss, being the consistent accounting method followed by the assessee. The Tribunal, while rejecting the assessee’s contention, was of the view that when the securities are purchased by the appellant along with interest thereon, the price paid becomes the cost of the asset which is to be debited to Profit & Loss Account. The Tribunal observed that the assessee debited the entire cost of the purchase including broken period interest to Profit & Loss Account as per the commercial practice. Hence, if the security is sold, then profit would form part of the Profit & Loss Account as sales would be credited. It was observed that when such security was not sold, then as per the settled principle of accountancy, it has to be shown in the closing stock either at cost or market price whichever is lower. There is no other method of accounting for computing business profit. The Tribunal rested its view referring to the decision of Supreme Court in Chainrup Sampatram vs. Commissioner of Income-tax [1953] 24 ITR 481 (SC). It is for such reason the Tribunal was of the considered opinion that the question of allowing any deduction separately did not arise.

On further appeal, the Assessee relied on the orders passed by the Division Bench of this Court in American Express International Banking Corporation vs. Commissioner of Income-tax [2002] 258 ITR 601 (Bombay) wherein similar questions as the present questions were raised for the consideration of the Division Bench. The key issue which fell for consideration there was with regard to the correct treatment of the broken period interest and whether the broken period interest (net) paid by the assessee at the time of purchase of securities was a part of the capital costs of the investment. The Court considered the Revenue’s contention that the payment for the broken period interest (net) cannot be claimed as a revenue expenditure. It was the assessee’s contention that the banks were valuing the securities/interest held by it at the end of each year and offered to tax, the appreciation in their value by way of profits/interest earned. In answering such question, the Court considered the decision of the Supreme Court in Vijaya Bank Ltd. (supra), and the question was answered in favour of the assessee.

The decision of the Division Bench in American Express International Banking Corporation (supra) was assailed before the Supreme Court in the proceedings of Special Leave to Appeal (Civil) CC.301-303/2004, which came to be rejected by an order dated 27th January, 2004.

The Assessee further relied on the order passed by the Hon Court in ITA No. 278 of 1997 in the case of Citi Bank N.A. vs. Commissioner of Income Tax wherein similar issues had arisen for consideration of the Court, when the Court answered the questions in favour of the assessee. The order dated 16 April, 2003 passed by the Division Bench was carried to the Supreme Court in the proceedings of Civil Appeal No. 1549 of 2006 in Commissioner of Income Tax vs. Citi Bank N.A. The Supreme Court rejected the Revenue’s appeal by its judgment dated 12 August, 2008 where the Supreme Court, while referring to the decision in Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax, Bangalore (supra), as also the decision in case of American Express (supra), rejected the Revenue’s appeal. Similar view was taken by the Supreme Court in dismissing another appeal filed by the Revenue in the case of Commissioner of Income Tax vs. Citi Bank N.A., for AY 1982-83.

The Court’s attention was also drawn to a recent decision of the Supreme Court in case of Bank of Rajasthan Ltd. vs. Commissioner of Income-tax (2024) 167 taxmann.com 430 (SC) wherein the Supreme Court affirmed the view taken by this Court in Citi Bank N.A. (supra), American Express International Banking Corporation(supra) as also in HDFC Bank Ltd. vs. CIT (2014) 49 taxmann.com 335.

In view of the above, the questions of law were answered in affirmative in favour of the assessee and against the Revenue.

Insofar as the other question of law, the same pertains to a deduction in respect of the expenditure incurred by the assessee on the issue of Fully Convertible Debentures. The assessee had made a ‘rights issue’ of Fully Convertible Debentures (FCDs) and in such connection, had incurred expenditure on account of printing expenses, advertisement, professional fees, stamp duty and filing fees, bank charges, packages, etc. This expenditure was claimed as a deduction in view of the decision of the Supreme Court in India Cement Ltd. vs. CIT (1966) 60 ITR 52 (SC). The assessee’s claim for deduction was rejected by the Assessing Officer on the ground that the real intention of the assessee was to increase its capital and not to raise borrowed capital. On appeal, CIT(A) confirmed the disallowance made by the Assessing Officer inter alia following the decision of the Supreme Court in Brooke Bond India Ltd. vs. CIT (1997) 225 ITR 798. It is against such decision of the CIT(A), the assessee approached the Tribunal. The Tribunal in confirming the order passed by the CIT(A) observed that there was no dispute on the entire issue on share capital in parts. It was observed that the true intention was not to raise a loan, but to raise share capital to increase its capital base. The Tribunal opined that it was therefore necessary to apply the ratio of the decision of Supreme Court in Brooke Bond India Ltd. (supra). Accordingly, the expenditure incurred on such public issue was not allowed as a deduction confirming the order passed by the CIT(A), against which the present appeal has been filed.

In assailing such orders of the Tribunal, assessee firstly relied on the decision of the Delhi High Court in Commissioner of Income Tax vs. Ranbaxy Laboratories Ltd. ITA No. 93 of 2000 dated 13th September, 2013 wherein one of the issues which fell for consideration was whether the Tribunal was legally correct in allowing debenture issue expenses on the issue of convertible debentures. In answering such issue in favour of the assessee and against the Revenue, the Delhi High Court observed that the said question would stand covered by the decision of Delhi High Court in CIT vs. Havells India Ltd. (2013) 352 ITR 376 (Del.), which followed the decision of the Supreme Court in India Cements Ltd.(supra) and the decision in Commissioner of Income Tax vs. Secure Meters Ltd. (2010) 321 ITR 621 (Raj.). In Ranbaxy Laboratories Ltd. vs. Deputy Commissioner of Income Tax, the Delhi High Court has taken a similar view. A similar view was also taken in case of The Commissioner of Income Tax- 6 vs. M/s. Faze Three Ltd. Income Tax Appeal No. 1761 of 2014 decided on 16th March, 2017.

In answering such question in favour of the assessee and against the Revenue, the Court held that the expenditure incurred thereon was revenue in nature, referring to the decision in Secure Meters Ltd. (supra), as also in Havells India Ltd. (supra) wherein it was held that as the debentures were to be converted in the near future into equity shares, the expenditure incurred needs to be allowed as revenue expenditure on the basis of the factual position as reflected by the accounts and which was the consistent view being accepted by the Courts. The Court also observed that the Revenue has not been able to show any reason which would require the Court to take a different view from the one taken by the various High Courts in the country on an identical issue.

In the light of the above discussion, the question of law also needs to be answered in affirmative in favour of the assessee and against the revenue.

Resultantly, the Appeal stands allowed .

Refund of tax — interests payable thereon — delayed payment of refunds burdens the public exchequer with such interest amounts – Rules would be required to be framed — Accountability to be fixed

21 Bloomberg Data Services (India) Pvt. Ltd. vs. Pr. DCIT Circle – 6(1)(2) &Ors.
[WP (L) No. 31412 OF 2024]
Dated: 2nd December, 2024 (Bom) (HC)]

Refund of tax — interests payable thereon — delayed payment of refunds burdens the public exchequer with such interest amounts – Rules would be required to be framed — Accountability to be fixed

The Petitioner being aggrieved by the Revenue’s inaction of the refund being not granted to the petitioner for the Assessment Year 2016-17 and 2013-14, and which was being adjusted for the refund for 2023-24, approached the Court. The Petitioner claimed that a large sum of refund of ₹77,64,71,629/- was not being granted to the Petitioner. The Revenue department filed their reply affidavit.

The Court noted that after the earlier orders were passed by the Court, on 29th November, 2024 a refund of ₹77,64,71,629/- was granted in the proportion of ₹45,84,30,382/- for A. Y. 2016-17 and ₹31,80,41,247/- for the A.Y. 2013-14. However, an interest of ₹1,83,37,215/- for A.Y. 2016-17 and ₹1,27,21,649/- for A.Y. 2013-14, totalling to an amount of ₹3,10,58,865/- (₹3.10 crores) was due and payable to the Petitioner which was not granted.

The Court observed that in these situations, payment of interest is an unwarranted burden required to be borne by the Government of India. The Hon. Court was concerned with several similar proceedings reaching the Court. The Court observed that it was not aware as to whether the income tax department has any procedure of any internal control / checks in such matters, in which the interest burden keeps increasing purely for departmental reasons, which may be either negligence or a casual approach on the part of the officials, not taking prompt and timely steps on such issues. Secondly, whether there is any routine audit, as to who would become accountable for such huge interest amounts being required to be paid by the Government of India, when there are refund amounts which are admittedly payable to the assessee’s. Any delay being caused in making payments of such refund and the interests payable thereon, is attributable wholly to the officials of the department, as it is they who are not taking prompt actions.

The Hon Court observed that the petition brings to the fore a serious concern in the laxity of the Respondent-department in the matter of refund of tax to the petitioner and which is an admitted amount. The Court also observed that routinely cases are reaching the Court where refunds for no rhyme or reason are stuck, they are either not being processed or if even processed, they are not being released and in such cases the interest burden on the Government of India / Public exchequer keep mounting every passing day. Once the tax payer is entitled to the refund and when there are no proceedings against the assessee in that regard are intended to be taken by the Revenue, the refund of the tax amount ought to be immediately granted to the assessee. If this is being followed in breach, merely on account of negligence / laxity on the part of the department, it results into an unwarranted interest burden being imposed on the public exchequer. It may be quite easy for the tax officials not to be serious on such issue, however, it cannot be forgotten that such interest payment goes from the taxpayers’ pockets.

The Court observed that why this laxity or lack of prompt and appropriate communication between two authorities / departments, should result in Government of India being unwarrantedly saddled with huge interest amounts is the issue. This can certainly be avoided by an effective mechanism, by having a meaningful and prompt flow of instructions between the concerned officers, handling the assessee’s case. Such unwarranted interest amounts being required to be paid, if saved can be utilised for other essential public expenditures. It is the citizens of the country who are being deprived of the benefits of such amounts instead of the same being paid to the assessee’s, on account of the negligence and / or the fault of the officers of the department. The Court observed that it is routinely seen that when the matters reach the Court, the Revenue instantly takes a position that the refund would be credited to the assessee, without disputing the claim of the assessee for refund, as in such cases there is no defence to such petitions, as it is a statutory obligation on the part of the Revenue to refund that amounts and on such refunds huge interest amounts are paid to the assessee.

The Court directed the Respondent to place an affidavit on record, after taking appropriate instructions from the CBDT and after confirming such affidavit from the CBDT, as to approach the concerned officials are required to follow, in such situations so as to avoid burdening the public exchequer with interest payments.

The Court further observed that if already the rules are not in place, such rules would be required to be framed. If any rules are already framed, as to why such rules are not being strictly adhered. The mechanism by which accountability needs to be fixed on the particular officers, whose actions are increasing the burden on the Government of India, is required to be immediately looked into.

The Court also noted that it was equally conscious that the delayed payment of refunds not only burdens the public exchequer with such interest amounts being required to be paid, but it also brings about a situation that the assessees’ are deprived of these amounts causing them a serious prejudice. Also, the Government of India would not be in a clear position to utilise such funds for any public purpose, as these funds are required, to be in any case paid to the assessee. Thus, any situation of an unjust enrichment is not acceptable. The situation in hand is of a delay, by which a serious prejudice to both the revenue and to the assessee is caused.

Trust — Educational institution — Registration — Validity — Application for registration erroneously made while charitable institution continued to be registered — Assessee permitted to withdraw application filed inadvertently:

75 Purandhar Technical Education Society vs. CIT(Exemption)
[2024] 468 ITR 711 (Bom)
A.Ys. 2022-23 to 2026-27
Date of order: 8th July, 2024
Ss. 12A, 12AA and 12AB of ITA 1961

Trust — Educational institution — Registration — Validity — Application for registration erroneously made while charitable institution continued to be registered — Assessee permitted to withdraw application filed inadvertently:

The assessee was a trust engaged in educational activities and was granted registration u/s. 12A of the Income-tax Act, 1961. The assessee stated that it could not trace the certificate and although it availed of the benefits for certain number of years without any objection from the Department, the authorities called upon the assessee to produce the registration certificate. Hence, the assessee made an application on 14th October, 2019 to obtain a duplicate certificate of registration u/s. 12A but was not responded. The assessee made a fresh application on 19th April, 2022. The assessee contended that both the applications were not decided and the duplicate certificate was also not issued. On 25th March, 2022, the assessee applied for a fresh provisional certificate u/s. 12A(1)(ac)(i) in the prescribed form 10A as per rule 17A of the Income-tax Rules, 1962, that although the application for provisional registration was made on 4th April, 2022, an order on form 10AC u/s. 12A(1)(ac)(i) for the A. Y. 2022-23 to 2026-27 was passed by the competent authority thereby granting registration to the assessee. Thereafter, the assessee inadvertently applied for registration under the same provision in form 10AB on 30th September, 2022. The Commissioner (Exemption) issued notices requiring the assessee to submit copy of the provisional registration granted u/s. 12AB and the assessee furnished the necessary details. Another notice was received by the assessee on 9th March, 2023 to which the assessee failed to submit a reply. On 31st March, 2023, the Commissioner (Exemption) passed an order rejecting the assessee’s mistaken application on the ground that the assessee did not possess a copy of the provisional registration granted u/s. 12AB.

The assessee filed a writ petition contended that the Commissioner (Exemption) might take further actions to cancel the registration dated 4th April, 2022, of the assessee and seeking to be fully protected under the decision of the Supreme Court in CIT vs. Society for the Promotion of Education [2016] 382 ITR 6 (SC) and to permit withdrawal of the application inadvertently filed u/s. 12A(1)(ac)(i) :

The Bombay High Court allowed the writ petition and held as under:

“i) The assessee having already been granted registration u/s. 12A(1)(ac)(ii) read with section 12AB(1)(a) of the 1961 Act on April 1, 2022, for a period of five years, i.e., from the A. Y. 2022-23 to 2026-27, there was no need to make a fresh application on September 30, 2022 under which the order rejecting the application for registration had been passed.

ii)Hence the assessee could withdraw its application filed u/s. 12A(1)(ac)(i) , dated September 30, 2022 rendering the order dated March 31, 2023 of no consequence.”

Return — Delay in filing return — Application for condonation of delay — Limitation — Period to be computed with reference to date on which return had been filed

74 Vivek Krishnamoorthy vs. Pr. CIT
[2024] 469 ITR 605 (Kar)
A. Y. 2013-14
Date of order: 2nd November, 2023
S. 119 of ITA 1961

Return — Delay in filing return — Application for condonation of delay — Limitation — Period to be computed with reference to date on which return had been filed

The assessee had to file his Income-tax return before 31st March, 2015 but the Income-tax return was filed on 22nd August, 2015, and because Income-tax return was belated by about five months, an application was filed on 15th November, 2021 under section 119(2)(b) of the Income-tax Act, 1961, for condonation of delay in filing the Income-tax return. The application was rejected on the ground of limitation.

The assessee filed a writ petition against the order. The Karnataka High Court allowed the writ petition and held as under:

“i) In the case of a delay in filing an application to condone delay in filing returns according to the terms of Circular No. 9 of 2015 dated June 9, 2015 ([2015] 374 ITR (St.) 25) the period of six years will have to be computed with reference to the date when the belated Income-tax return is filed.

ii) The assessee’s application for condonation of delay in filing the Income-tax return on August 22, 2015 was to be restored for consideration in the light of the reasons offered to explain the delay between March 31, 2015 and August 22, 2015 and with the directions to consider the application within a reasonable period from the date of receipt of a certified copy of this order.”

Recovery of tax — Stay of recovery during first appeal — Requirement of deposit — Discretion to forgo requirement and grant stay — Debatable issue — Direction for stay of recovery proceedings without deposit

73 Chaitanya Memorial Educational Society vs. CIT(Exemption)
[2024] 469 ITR 571 (Telangana)
A. Y. 2018-19
Date of order:9th October, 2023
S. 220(6) of ITA 1961

Recovery of tax — Stay of recovery during first appeal — Requirement of deposit — Discretion to forgo requirement and grant stay — Debatable issue — Direction for stay of recovery proceedings without deposit

The Commissioner (Exemption) while deciding a stay application u/s. 220(6) of the Income-tax Act, 1961, pending an appeal challenging the assessment order for the A. Y. 2018-19, allowed the application subject to the assessee depositing an amount of ₹35 lakhs out of the total outstanding demand of ₹2,50,33,530.

The Telangana High Court allowed the writ petition filed by the assessee and held as under:

“i) In considering whether a stay of demand should be granted, the court is duty bound to consider not merely the issue of financial hardship, if any, but also whether a strong prima facie case raising a serious triable issue has been raised which would warrant dispensation of deposit.

ii) The contention of the assessee was that the assessee had been availing of the exemption from payment of Income-tax on account of the fact that the assessee was a charitable institution and the works executed by it again were with a charitable purpose. Since the assessee availed of the benefits all along prior to the issuance of the demand notice and even in the subsequent years as well, no prejudice was going to be caused if the stay application u/s. 220(6) of the Act, was decided in favour of the assessee. Moreover, though the appeal was filed as early as on April 17, 2021 and the rectification application also was filed on March 20, 2021, both the rectification application and the appeal were still pending consideration or were undecided for more than 2½ years. The Assessing Officer should have allowed the application u/s. 220(6).

iii) In view of the same, we are inclined to allow the writ petition. The impugned order dated September 4, 2023 for the reasons stated above stands set aside/quashed. It is ordered that there shall be stay of the recovery of the entire demand raised by respondent No. 4 dated March 19, 2021 till the disposal of the appeal filed by the petitioner on April 17, 2021.”

Offences and prosecution — Wilful evasion of tax — Deletion of penalty with regard to same issues on ground that there was no concealment of income — Prosecution not valid.

72 RohitkumarNemchandPiparia vs. Dy. DIT(Investigation)
[2024] 469 ITR 593 (Mad)
A. Y. 2008-09
Date of order: 16th November, 2023
S. 276C(1) of ITA 1961

Offences and prosecution — Wilful evasion of tax — Deletion of penalty with regard to same issues on ground that there was no concealment of income — Prosecution not valid.

The assessee was a non-resident for more than 40 years. The respondent lodged a complaint for the offence u/s. 276C(1) of the Income-tax Act, 1961 alleging that during the course of the enquiry by the Investigation Wing, it was noticed that in the bank account maintained by the petitioner, there was unusual credit of large amount through real time gross settlement and funds were debited for investment in the stock market. The petitioner had entered into 165 share transactions during the financial year 2007-08 and filed his return of income for the A. Y. 2008-09 on February 5, 2009 declaring a taxable income of ₹3,10,226. However, the petitioner has not disclosed any capital gains in the return of income filed for the financial year 2007-08 relevant to the A. Y. 2008-09. Further, the petitioner entered into 165 share transactions to the tune of ₹155.20 crores and short-term capital gains arose from the said transactions is ₹52.13 crores. Though tax has been deducted, it was not fully deducted and the petitioner did not disclose in his return of income under the head “Capital gain” and paid the tax. Thus, the petitioner failed to show the same in his return of income and attempted to evade payment of tax. Only after deduction by the Income- tax Department, the petitioner had share transactions during the relevant financial year and accepted the same. Therefore, the petitioner committed the offence punishable u/s. 276C(1) of the Income-tax Act, 1961.

The assessee filed a Criminal writ petition for quashing the proceedings. The Madras High Court allowed the petition and held as under:

“i) The Commissioner (Appeals) held in the appeal that the assessee was under the bona fide belief that there was no tax liability to be discharged by him on account of his residential status as non-resident external accounts and the deduction of tax at source made by the bank. Thus, the intention to conceal income by furnishing inaccurate particulars was not established. Therefore, the Assessing Officer was directed to delete the penalty imposed on the assessee.

ii) Therefore, once the penalty on the assessee was deleted, the prosecution initiated by the respondent could not be sustained.”

Income from House Property and Business Income — Difference — Finding by Tribunal that the Assessee Company had been formed with the object of developing Commercial Properties — Rental income from such properties is assessable as business income

71 Pr. CIT vs. M. P. Entertainment and Developers Pvt. Ltd.
[2024] 469 ITR 421 (MP)
A. Ys. 2011-12 to 2014-15
Date of order: 16th April, 2024
Ss. 22 and 28 of ITA 1961

Income from House Property and Business Income — Difference — Finding by Tribunal that the Assessee Company had been formed with the object of developing Commercial Properties — Rental income from such properties is assessable as business income

The Assessee had constructed a shopping cum entertainment mall in the name of Malhar Megha Mall and declared the nature of business as carrying on the business of purchase for development of the land, estates, structure and rented income from immovable properties. In the scrutiny assessment for the A. Ys. 2011-12 to 2014-15, the Assessing Officer observed that only part of the construction of the mall was complete and the assessee had started deriving rent from shops and other space in the mall and showed such income under the head Business & Profession. However, as per the Assessing Officer, the Assessee should have bifurcated under the head Income from House Property and Income from Business. Accordingly, the Assessing Officer restricted the claim of depreciation at the rate of 51.6 per cent of the occupied area of the Mall.

The CIT(A) deleted both the additions made by the Assessing Officer. The CIT(A) held that income from letting out properties were essentially required to be computed as Income from Business u/s. 28 and cannot be treated as Income from House Property. The Tribunal dismissed the appeal of the Department and held that where the letting of the property is the main object of the Assessee, its income has to be computed under the head Income from Business and it cannot be treated as Income from House Property.
The Madhya Pradesh High Court dismissed the appeal of the Department held as follows:

“i) In determining whether a particular income is income from house property or business income, in the case of Sultan Brothers Pvt. Ltd. vs. CIT [1964] 51 ITR 353 (SC) the Supreme Court held that each case has to be looked at from the businessman’s point of view to find out whether the letting was the doing of business or exploitation of the property by the owner.

ii) The Tribunal had found that the main object of the assessee was the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplexes, cineplexes, cinema halls, theatres, shops, shopping malls, etc., according to its memorandum and articles of association. The income was liable to be categorised as income derived from the shopping mall under the head of “Income from business” u/s. 28 of the Income-tax Act, 1961. The Assessing Officer did not find any material against the assessee to come to the conclusion that sub-leasing of the premises was only a part of its predominant object. The assessee right from the construction of the mall till the matter was taken into scrutiny had been offering income from the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplexes, cineplexes, cinema halls, theatres, shops, shopping malls, etc., sub-licensed by it under the head “Profits and gains of business or profession”.

iii) Therefore, the Commissioner (Appeals) as well as the Tribunal had rightly set aside the order of the Assessing Officer treating the income as one from house property.”

Company — Computation of Book Profits — Scope of section 115JB — Disallowance u/s. 14A — Amount disallowed cannot be taken into consideration when computing book profits

70 Pr. CIT vs. Moon Star Securities Trading and Finance Co. Pvt. Ltd.
[2024] 469 ITR 15 (Del.)
A. Y. 2011-12
Date of order: 11th March, 2024
Ss. 14A and 115JB of ITA 1961

Company — Computation of Book Profits — Scope of section 115JB — Disallowance u/s. 14A — Amount disallowed cannot be taken into consideration when computing book profits

The assessee earned dividend income of ₹58,09,619. In respect of the dividend income, the Assessee made disallowance u/s. 14A of the Income-tax Act, 1961. However, in the scrutiny assessment, the AO enhanced the disallowance u/s. 14A to ₹12,65,71,862 computed as per section 14A r.w.r. 8D and made addition under the normal provisions as well as to the book profits computed under the provisions of section 115JB of the Act.

The CIT(A) partly allowed the appeal of the Assessee and restricted the disallowance to ₹2,08,72,836 as against the disallowance of ₹12,65,71,862 determined by the Assessing Officer. The Tribunal deleted the disallowance on the ground that there was no satisfaction recorded by the Assessing Officer. Further, the Tribunal held that the disallowance u/s. 14A of the Act could not be made while computing book profits u/s. 115JB of the Act.

The Delhi High Court dismissed the appeal of the Department and held as follows:

“i) Section 115JB of the Income-tax Act, 1961, by virtue of a deeming fiction, considers book profits as the total income of the assessee which is calculated post authorised adjustments to the profits shown in audited Profit and loss account of the assessee. A bare perusal of the provisions would signify that sub-section (1) prescribes the mode and manner of computing the total income of the assessee u/s. 115JB of the Act.

ii) Clause (f) of Explanation 1 only alludes to the amounts of expenditure relatable to any income to which section 10 (excluding provisions contained in clause (38) thereof) or section 11 or section 12 apply. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JB. The scheme of section 115JB, particularly in relation to clause (f) of Explanation 1 therein, does not envisage any addition of disallowance computed u/s. 14A of the Act to calculate the minimum alternate tax as per section 115JB of the Act. Rather, the two provisions stand separately as no correlation exists between them for the purpose of determining the taxable income.”

Charitable institution — Exemption — Scope of sub-sections (1), (2) and (3) of section 11 — Explanation to section 11 cannot be applied — Accumulated income — Donations to extent of 15 per cent. of surplus income accumulated to other charitable institutions for short period — Not permanent endowments made or donations imbued with some degree of permanency — Donations reversed — Exemption could not be denied

69 CIT(Exemption) vs. Jamnalal Bajaj Foundation
[2024] 468 ITR 723 (Del)
A. Y. 2009-10
Date of order: 31st May, 2024
S. 11 of ITA 1961

Charitable institution — Exemption — Scope of sub-sections (1), (2) and (3) of section 11 — Explanation to section 11 cannot be applied — Accumulated income — Donations to extent of 15 per cent. of surplus income accumulated to other charitable institutions for short period — Not permanent endowments made or donations imbued with some degree of permanency — Donations reversed — Exemption could not be denied

The assessee was a charitable institution registered u/s. 12AA of the Income-tax Act, 1961. The assesseeutilised the accumulated fund to extend corpus donations to other charitable institutions in the A. Y. 2009-10. The Assessing Officer was of the view that extending donations to other charitable trusts would amount to utilisation of the funds for a purpose other than those for which the surplus was accumulated u/s. 11(2) which was violative of section 11(3)(c) and section 11(3)(d).

Before the Commissioner (Appeals) the assessee contended that the surplus accumulated income to the extent of 15 per cent. was handed out as donations to other charitable institutions for a temporary period of less than two months and that since the contravention was for a very short period, the exemption u/s. 11(2) should not be withdrawn. The Commissioner (Appeals) held in favour of the assessee on the issue of accumulation of 15 per cent. u/s. 11(2) and his order was affirmed by the Tribunal.

The Delhi High Court dismissed the appeal filed by the Revenue and held as under:

“i) Donations extended to other charitable institutions would meet the test of application of income for charitable purposes. Section 11(3)(c) and (d) of the Income-tax Act, 1961 deals with situations where the income so accumulated is either not utilised or applied for a charitable purpose. It is only in such a situation that the deemed income would lose the sheen of protection of exemption which would otherwise be applicable by virtue of section 11.

ii) In terms of the Finance Act, 2002 ([2002] 255 ITR (St.) 9), an Explanation was appended to section 11(2) which gets attracted in a situation where income referable to clauses (a) or (b) of section 11(1) and so accumulated or set apart is credited or paid to institutions specified therein, not being liable to be treated as application of income for charitable or religious purposes. Explanation 1 to section 11(1) applies to situations where the income applied to charitable causes falls short of 85 per cent. of the income derived. Section 11(2) on the other hand constitutes a gateway which enables the charity to stave off the spectre of the income which is not applied for a charitable purpose coming to be included in the total income of the assessee.

iii) The donations, to the extent of 15 per cent. of the accumulated surplus income, made by the assessee in the A. Y. 2009-10 would not be hit by Explanation 2, inserted by the Finance Act, 2017 ([2017] 393 ITR (St.) 1) with effect from 1st April, 2018 since Explanation 2 applied only to amounts credited or paid to certain categories of institutions and those being in the nature of a contribution accompanied by a direction that the amounts extended would form part of the corpus of those entities. Although the donations were made out of the accumulated income, the money was retrieved within two months.

iv) Section 11(3) and the adverse consequences would have been attracted provided the accumulated income was diverted for a purpose other than charitable or religious, or where it was not utilised for the purpose for which it was so accumulated or set apart during the period of five years contemplated u/s. 11(2)(a). The assessee did not make a permanent endowment or one where the donation stood imbued with some degree of permanency. It also was not that the money was lost or became unavailable to be applied. Since the donations were reversed and had been advanced only for an extremely short duration, the Tribunal had not erred in allowing deduction u/s. 11(1) to the extent of 15 per cent on the deemed income u/s. 11(3)(c) or section 11(3)(d) and for justifiable reasons, had answered the issue in favour of the assessee.”

Capital gains — Transfer — Possession taken in part performance of contract — Agreement must be registered — Joint Development Agreement — Not registered — Ownership of capital asset retained by Assessee throughout — Possession clauses suggesting possession to be parted with for limited purpose of development — Unregistered agreement not effecting transfer of property u/s. 2(47)

68 Prithvi Consultants Pvt. Ltd. vs. Dy. CIT
[2024] 470 ITR 37 (Bom.)
A.Ys. 2005-06 to 2011-12
Date of order: 5th September, 2023
S. 2(47)(v) of ITA 1961, Ss. 17(1A) of Registration Act, 53A of Transfer of Property Act 1882

Capital gains — Transfer — Possession taken in part performance of contract — Agreement must be registered — Joint Development Agreement — Not registered — Ownership of capital asset retained by Assessee throughout — Possession clauses suggesting possession to be parted with for limited purpose of development — Unregistered agreement not effecting transfer of property u/s. 2(47)

In December 2008, the Assessee entered into two Joint Development Agreements (JDA) in respect of two plots of land. These agreements were not registered as required u/s. 17(1A) of the Registration Act. A search and seizure action was carried on in the case of one Mr. PK and others, where the said two JDAs were found. The Department issued notice u/s. 153C of the Act requiring the Assessee to file return of income for the AY 2009-10. Subsequently, notices were issued u/s. 153A and 142(1) for the AYs 2005-06 to 2010-11 as well as notice u/s. 143(2) for AY 2011-12 to conduct inquiry and the assessment of the Assessee’s income. In response to the notices, the Assessee filed response submitting that the Assessee had not received any consideration under the two JDAs. Further the transaction did not constitute transfer u/s. 2(47) of the Act. In March 2013, the Assessee cancelled the two JDAs because of non-performance by the Developer. However, in the assessment, the Assessing Officer concluded that the two JDAs constituted transfer u/s. 2(47) of the Act. He referred to the minimum guaranteed amounts reflected in the JDAs and concluded that additional income had accrued to the Assessee even though the Assessee may not have received any amount.

The CIT(A) allowed the appeal of the Assessee. On Department’s appeal before the Tribunal, the order of the CIT(A) was set aside and the assessment order was restored.

On appeal by the Assessee the High Court framed the following questions for consideration:

“i) Whether in the light of section 17(1A) read with section 49 of the Registration Act, 1908, the unregistered agreement dated December 31, 2008, can be construed as a document effecting transfer of the subject properties in terms of section 2(47) of the Income-tax Act, 1961?

ii) Whether in the absence of income having accrued to the appellant in terms of the agreement dated December 31, 2008, the appellant can be made liable to pay tax on capital gains in terms of section 45 read with section 48 of the Income-tax Act, 1961?”

The Bombay High Court decided the above questions of law in favour of the Assessee and held as follows:

“i) The Registration and Other Related Laws (Amendment) Act, 2001 made simultaneous amendments in section 53A of the Transfer of Property Act, 1882, and sections 17 and 49 of the Registration Act, 1908. By these amendments, the words “the contract, though required to be registered, has not been registered, or” in section 53A of the Transfer of Property Act, 1882, have been omitted. Simultaneously, sections 17 and 49 of the Registration Act, 1908 , were also amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of section 53A of the Transfer of Property Act, 1882, is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument.

ii) The joint development agreements dated December 31, 2008, were not registered, though they were required to be compulsorily registered under section 17(1A) of the Registration Act, 1908, post the introduction of this provision by the Registration and Other Related Laws (Amendment) Act, 2001. In the JDAs the ownership of the capital asset was retained by the assessee throughout. The clauses relating to parting of possession, besides being unclear, suggested that at the highest, possession was to be parted with for the limited purpose of development. The unregistered agreement dated December 31, 2008, could not be construed as a document effecting transfer of the subject properties in terms of section 2(47) of the Act.”

Glimpses of Supreme Court Rulings

15 Addl CIT vs. Ericsson India Pvt. Ltd
(2024) 468 ITR 2 (SC)

Jurisdiction to impose penalty- No Penalty can be imposed by the TPO u/s. 271G in respect of default that has occurred prior to the date of amendment conferring jurisdiction on TPO (i.e. 1st October, 2014).

For the assessment year 2011-12, the assessee filed its returns together with transfer pricing report. A notice was issued by the Transfer Pricing (TPO) on 18th February, 2014 to produce some documents by 25th March, 2014. The assesee did not comply with the said notice. On 5th December, 2014, TPO issued notice alleging default and proposing penalty u/s. 271G. TPO passed order on 16th January, 2015 proposing certain transfer pricing adjustment and imposing penalty of ₹64,43,03,352 u/s. 271G. A draft assessment order was passed on 22nd June, 2015.

On writ petition being filed before the High Court, the High Court noted that till 1st October, 2014, the jurisdiction and authority to impose penalty u/s. 271G was with the Assessing Officer (AO) as defined in section 2(7A). This changed with enactment of the Finance (No. 2) Act, 2014. The amendment expanded the jurisdiction of the TPO, who was for the first time authorized to inflict penalty for non-compliance of the notice.

The High Court following the judgment in Brij Mohan vs. CIT (1979) 120 ITR 1 (SC) and Varkey Chacko vs. CIT (1993) 203 ITR 885 (SC) quashed the order imposing penalty by holding that ‘event of default’ occurred in March, 2014, that is, well prior to the date of coming into force the amendment (from 1st October, 2014) and hence the order passed by TPO in respect of such default was without jurisdiction.

The Supreme Court dismissed the SLP as the issue was covered by its decision in Varkey Chacko vs. CIT (supra).

16 ITO vs. Tia Enterprises Pvt. Ltd
(2024) 468 ITR 10 (SC)

Statutory approvals — Approval granted by the statutory authorities, as required under the provision of the Act, has to be furnished to an assessee along with the reasons to believe — the statutory scheme encapsulated in the Income-tax Act provides that the reassessment proceedings cannot be triggered till the Assessing Officer has reasons to believe that income, which is otherwise chargeable to tax, has escaped assessment and the reasons recorded by him are placed before the specified authority for grant of approval to commence the process of assessment.

The Petitioner challenged the notice dated 30th March, 2018 issued under section 148 of the Act and the order dated 6th December, 2018 disposing of the objections of the Petitioner to the issuance of the aforesaid notice on one singular ground, namely, that the reassessment proceedings were commenced without the approval of the specific authority.

The High Court observed that the approval has a two-stage process. The satisfaction with regards to commencement of reassessment proceedings is required to be recorded by the Additional Commissioner of Income-tax (ACIT); and by Principal Commissioner of Income Tax (PCIT).

The High Court noted that the ACIT had made an endorsement that he was satisfied that it was a fit case for issue of notice u/s. 148, but the PCIT had not made any noting and merely signed the Form of Recording Reasons without a date. The High Court also noted that the reasons recorded by the Assessing Officer on 30th March, 2018, were approved by ACIT and PCIT on the same date and the notice was also issued on 30th March, 2018.

The Petitioner had alleged that this was a case of mechanical approval without application of mind and was contrary to law.

In counter affidavit, the respondent made an assertion that the PCIT had conveyed the approval to AO via letter F No. Pr. CIT-Delhi/148/2017-18 dated 30th March, 2018, but the said letter was not annexed.

The High Court held that the approval granted by the statutory authorities, as required under the provisions of the Act, has to be furnished to an assessee along with the reasons to believe. The statutory scheme encapsulated in the Act provides that the reassessment proceedings cannot be triggered till the Assessing Officer has reasons to believe that income, which is otherwise chargeable to tax, has escaped assessment and the reasons recorded by him are placed before the specified authority for grant of approval to commence the process of assessment.

According to the High Court, the second condition requiring Assessing Officer to obtain prior approval of the specified authority was not fulfilled, as otherwise, there were no good reasons to not to furnish the same to the Petitioner along with the document which contained the Assessing Officer’s reasons for holding the belief that income otherwise chargeable to tax had escaped assessment.

The High Court therefore set aside the impugned notice and the impugned order.

The Supreme Court dismissed the SLP in view of the categorical finding recorded in paragraph 13 by the High Court and opining that in the facts of the case, no case for interference was made out by the Revenue.

17 PCIT vs. Nitin Nema
(2024) 468 ITR 105 (SC)

Reassessment — Gross Receipts of Sale consideration and income chargeable to tax are not same — Notice issued treating the sale consideration as asset which has escaped assessment is not sustainable.

A notice u/s. 148A(b) was issued observing that the amount of ₹72,05,085 was received by the assessee as a result of export transaction. The assessee had not filed return of income. Hence, a sum of ₹72,05,084 had escaped assessment. Since the amount of ₹72,05,084 was more that ₹50 lakhs, the said income was amenable to proceedings u/s. 148 and 148A.

Assesee filed his objections to the notice issued u/s. 148A(b). After considering the said reply, an order u/s. 148A(d) was passed rejecting the objections of the assessee and consequentially a notice u/s. 148 was issued.

The assesssee challenged the order dated 25th March, 2023 passed u/s. 148A(d) of the Act deciding that it was a fit case for issuance of a notice u/s. 148 for assessment/ reassessment of income which had escaped assessment for the assessment year 2016-17. The assesee further challenged the consequential notice u/s. 148 of the Act.

The High Court observed that neither the notice u/s. 148A(b) nor the order u/s. 148A(d), nor the consequential notice u/s. 148 gave any indication that the amount of ₹72,05,084 alleged to be income escaping assessment, included land/building/shares/equities/loans/ advances, etc.

The High Court noted that the assessee had filed a rely to the notice u/s. 148A(b) explaining that the said amount of ₹72,05,084 was gross receipt of sale consideration of 16 scooters. Along with the reply, the details of items sold and payment receipt, computation of total income and computation of tax on total income was worked out.

The High Court observed that the said amount of ₹72,05,084 was the total sale consideration receipt of the transactions in question and not income chargeable to tax, which would obviously be less than the said amount.

The High Court noted the decision of the Karnataka High Court in Sanath Kumar Murali vs. ITO (2023) 455 ITR 370 (Kar) which held that the entirety of sale consideration does not constitute income.

According to the High Court, in passing the order u/s. 148A(d) the Respondent had adopted highly casual and perfunctory approach and elementary aspect of clear distinction between consideration of sale and income chargeable to tax was overlooked.

The High Court opined that had the Revenue arrived at the correct figure of income chargeable to tax instead of gross receipts / consideration, possibility of the amount of ₹72,05,084 coming
down to a figure below ₹50 lakhs could not be ruled out.

The High Court quashed the order u/s. 148A(d) and the notice u/s. 148 with costs.

The Supreme Court dismissed the SLP observing that it was not inclined to interfere with the impugned judgment and order of the High Court.

From Published Accounts

COMPILER’S NOTE

I. Interesting Key Audit Matters in Independent Auditors’ Report:

Assessing Carrying value of Inventory Oberoi Realty Limited (31st March 2024)

Key audit matters

 

 How our audit addressed the key audit matter

 
Assessing the carrying value of Inventory 

(as described in note 1.2.15 of the standalone financial statements)

As at March 31, 2024, the carrying value of the inventory of ongoing and completed real-estate projects is Rs. 9,18,507.87 lakhs. The inventories are held at the lower of the cost and net realisable value (“NRV”).

The determination of NRV involves estimates based on prevailing market conditions and taking into account the stage of completion of the inventory, the estimated future selling price, cost to complete projects and selling costs.

We identified the assessment of the carrying value of inventory as a key audit matter due to the significance of the balance to the standalone financial statements as a whole and the involvement of estimates and judgement in the assessment.

Our audit procedures included, among others:

• We evaluated the design and operation of internal controls related to testing recoverable amounts with carrying amount of inventory, including evaluating management processes for estimating future costs to complete projects.

• As regards NRV, for a sample of selected projects, compared costs incurred and estimates of future cost to complete the project with costs of similar projects and compared NRV to recent sales or to the estimated selling price.

MATERIAL ACCOUNTING POLICIES

1.2.15 INVENTORIES

i. Construction materials and consumables

The construction materials and consumables are valued at lower of cost or net realisable value. The construction materials and consumables purchased for construction work issued to construction are treated as consumed.

ii. Construction work in progress

The construction work in progress is valued at lower of cost or net realisable value. Cost includes the cost of land, development rights, rates and taxes, construction costs, borrowing costs, other direct expenditure, allocated overheads and other incidental expenses.

iii. Finished stock of completed projects

Finished stock of completed projects and stock in trade of units is valued at lower of cost or net realisable value.

iv. Food and beverages

Stock of food and beverages are valued at lower of cost (computed on a moving weighted average basis, net of taxes) or net realisable value. Cost includes all expenses incurred in bringing the goods to their present location and condition.

II. Business Combination – Acquisition of business from Raymond Consumer Care Limited

Godrej Consumer Product Limited (GCPL) (31st March 2024)

Key audit matters

Business Combination – Acquisition of business from Raymond Consumer Care Limited

(refer Note 55 to standalone financial statements)

How our audit addressed the key audit matter

 
The Company has completed the acquisition of FMCG business of Raymond Consumer Care Limited effective 8th May 2023 pursuant to a business transfer agreement at a total consideration of ` 2,825 crores.

The Company has accounted for such acquisition as a business combination as per Ind AS 103 ‘Business Combinations’ by recognizing identifiable assets and liabilities at fair value.

The measurement of the identifiable assets and liabilities acquired at fair value is inherently judgmental.

Fair value of brands was determined by the Company with the assistance of an external valuation expert using income approach (royalty relief method), considering the assets being measured.

Given the complexity and judgement involved in fair value measurements and magnitude of the acquisition made by the Company, this is a key audit matter.

 Our audit procedures included:

• We have read the business transfer agreement to understand the key terms and conditions of the acquisition;

• We have evaluated the accounting treatment followed by the Company with reference to Ind AS 103;

• We have evaluated the design and implementation and tested the operating effectiveness of key internal controls related to the Company’s valuation process;

• We have involved our valuation specialists;

• to gain an understanding of the work of the experts by examining the valuation reports.

• to critically evaluate the key assumptions (including revenue projections, royalty rate, terminal growth rate and discount rate) and purchase price allocation adjustments.

• to evaluate the valuation of acquired tangible and intangible assets based on our knowledge of the Company and the industry.

• We have assessed the adequacy of the Company’s disclosures in respect of the acquisition in accordance with the requirements of Ind AS 103.

NOTE 55: BUSINESS COMBINATION

ACQUISITION OF RAYMOND CONSUMER CARE BUSINESS

On 8th May, 2023, the Company acquired the FMCG business of Raymond Consumer Care Limited (“RCCL”) through a slump sale for consideration of ₹2,825 crores which included the intellectual property rights of brands like ‘Park Avenue’ and ‘Kamasutra’.

The acquisition date is determined to be 8th May, 2023, i.e. The date on which the Company obtained control of the business since the consideration was transferred and the business transfer agreement was executed on 8th May, 2023.

The acquisition was in line with company’s strategy to build a sustainable and profitable personal care business in India by leveraging the categories of personal grooming and sexual wellness. RCCL was one of the key players in these categories with brands such as ‘Park Avenue’ and ‘Kamasutra’ which comprised of a wide product portfolio.

The acquisition had been accounted for using the acquisition accounting method under IND AS 103- “Business Combinations”. All identified assets acquired, and liabilities assumed on the date of acquisition were recorded at their fair value.

The transactions cost of ₹87.83 crores that were not directly attributable to the identified assets are included under exceptional items in the standalone statement of profit and loss comprising mainly stamp duty expenses, legal fees and due diligence costs.

For eleven months ended 31st March, 2024, the RCCL acquired business contributed revenue from sales of products of ₹466 crores. If the acquisition had occurred on 1st April, 2023, the management estimates that combined standalone revenue from sales of products would have been ₹8,336.04 crores. In determining these amounts management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1st April 2023. The profit or loss since acquisition date and combined standalone profit or loss from the beginning of annual reporting period cannot be ascertained as the acquired business is already integrated with the existing business of the company, thereby making it impracticable to do so.

a. Purchase consideration transferred:

The total consideration was ₹2,825 crores which was cash settled. (Net of cash acquired)

b. Details of major assets acquired, and liabilities assumed:

Particulars

 

 Amounts  

(In Crores)
Specified Tangible Asset

 
Property, Plant and Equipment

 
Owned Assets 4.10
Specified Intangibles Assets

 
Brands 2,199.69
Other Assets
Trade and other receivables 62.70
Inventories 44.30
Cash and cash equivalents 95.86
Bank Balances other than cash and cash equivalents 12.85
Others 18.40
Total identifiable assets (A) 2,437.90
Specified liabilities
Trade payables 70.60
Other liabilities 47.38
Other Provisions 61.22
Total identifiable liabilities (B) 179.20
Total identifiable net assets acquired (A)-(B)=(C) 2,258.70
Total Consideration (D) 2,825.00
Goodwill (D-C) 566.30

c. Measurement of fair values:

i. Specified Intangible Assets – Brands:

Brands were valued based on an independent valuation using the relief from royalty approach, which values the intangible asset by reference to the discounted estimated amount of royalty the acquirer would have had to pay in an arm’s length licensing arrangement to secure access to the same rights.

ii. Inventories:

The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated cost of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventory.

iii. Acquired Receivables:

The gross contractual value and fair value of trade and other receivables as at the dates of acquisition amounted to R62.70 crores which is expected to be fully recoverable.

d. Goodwill:

Goodwill amounting to ₹566.30 crores arising from acquisition has been recognised as the difference between total consideration paid and net identifiable assets acquired as shown above.

The goodwill is mainly attributable to the expected synergies to be achieved from integrating the business into the Company’s existing personal care business. None of the goodwill recognised is expected to be deductible for tax purposes.

III. The direct access of certain overseas foreign agents to fund collected on account of freight and other charges

Shipping Corporation of India Limited (31st March, 2024)

Key audit matters How our audit addressed the key audit matter
The direct access of certain overseas foreign agents to fund collected on account of freight and other charges:
Liner division of the Company has been carrying out its vessel’s operations and container marketing activities at various ports in India and abroad through its agency network. Agents perform various activities such as marketing, booking, clearing of cargo, port calls of vessels & also collection of freight on behalf of the Company.

 

The Company depends on its agents for the operation of Liner segment business.

Since all the activities are performed by the agents, there is a requirement of funds. The collection of income is done directly by agents and subsequently remitted to the Company. Therefore, it involves a risk on the part of the Company and hence is identified as a Key Audit Matter

 We assessed the Company’s process to evaluate Agents on timely basis to identify the impact on the revenue and collection of funds.

 

• The Company has obtained bank guarantee from major agents & also reviewed the same periodically to confirm its validity and completeness with respect to risk exposure on revenue due to direct access to agents.

 

• The Company has provided Statement of Account (SOA) obtained from these foreign agents for confirmation of transactions and closing balance.

IV. Assessing the recoverability of carrying value of Inventory and advances paid towards land procurement (including refundable deposits paid under JDA)

Brigade Enterprises Limited (31st March, 2024)

Key audit matters How our audit addressed the key audit matter

 
Assessing the recoverability of carrying value of Inventory and advances paid towards land procurement (including refundable deposits paid under JDA)

 
As at 31st March, 2024, the carrying value of the inventory of real estate projects is ₹395,591 lakhs and land advances/deposits is ₹39,944 lakhs respectively.

The inventories are carried at lower of cost and net realisable value (‘NRV’). The determination of the NRV involves estimates based on prevailing market conditions and taking into account the estimated future selling price, cost to complete projects and selling costs.

Deposits paid under joint development arrangements, in the nature of non-refundable amounts, are recognised as land advance under other assets and on the launch of the project, the same is transferred as land cost to work-in-progress. Further, advances paid by the Company to the seller/ intermediary towards outright purchase of land is recognized as land advance under other assets during the course of transferring the legal title to the Company, whereupon it is transferred to land stock under inventories.

The aforesaid deposits and advances are carried at the lower of the amount paid/payable and net recoverable value, which is based on the management’s assessment including the expected date of commencement and completion of the project and the estimate of sale prices and construction costs of the project.

We identified the assessment of the carrying value of inventory and land advances/deposits as a key audit matter due to the significance of the balance that involves estimates and judgement.

 Our procedures in assessing the carrying value of the inventories and land advances/deposits included, among others, the following:

• We read and evaluated the accounting policies with respect to inventories and land advances/deposits.

• We assessed the Company’s methodology applied in assessing the carrying value under the relevant accounting standards including current market conditions in assessing the net realisable value
having regard to project development plan and expected future sales.

• We made inquiries with management with respect to inventory of properties on test check basis to understand key assumptions used in determination of the net realisable value/ net recoverable value.

• We enquired from the management regarding the project status and verified the underlying documents for related developments in respect of the land acquisition, project progress and expected recoverability of advances paid towards land procurement (including refundable deposits paid under JDA) on test check basis.

• We obtained and tested the computation involved in assessment of carrying value and the net realisable value/ net recoverable value on test check basis.

V. Accounting and valuation of Hedging Instrument

Dishman Carbogen Amcis Limited (31st March, 2024)

Key audit matters How our audit addressed the key audit matter

 
Accounting and valuation of Hedging Instrument 

 
The Company hedges its foreign currency risk and interest rate risk through derivative instruments and applies hedge accounting principles for derivative instruments as prescribed by Ind AS 109. Receivable pertaining to derivative instruments as at March 31, 2024 is amounting to R9.69 Crores and debit balance of Cash Flow Hedge Reserve of R28.09 Crores as on that date.

These contracts are recorded at fair value and cash flow hedge accounting is applied, such that gains and losses arising from fair value changes are deferred in equity and recognised in the standalone statement of profit and loss when hedges mature and / or when the hedge item occurs.

The valuation of hedging instruments and consideration of hedge effectiveness has been identified as a key audit matter as it involves a significant degree of complexity and management judgment and are subject to an inherent risk of error.

 Our procedures included the following:

• Obtained understanding of the Company’s overall hedge accounting strategy, forward contract valuation and hedge accounting process from initiation to settlement of derivative financial instruments including assessment of the design and implementation of controls and tested the operating effectiveness of those controls.

• Assessed Company’s accounting policy for hedge accounting in accordance with Ind AS.

• Tested the existence of hedging contracts by tracking to the confirmations obtained from respective counter parties.

• Tested management’s hedge documentation and contracts, on sample basis.

• Involved our valuation specialists to assist in reperforming the year end fair valuations of derivative financial instruments on a sample basis and compared these valuations with those records by the Company including assessing the valuation methodology and key assumptions used therein.

• Assessed the relevant disclosures of hedge transactions in the financial statements.

 

VI. Jai Balaji Industries Limited

Key audit matters How our audit addressed the key audit matter

 
Accounting Software and Audit Trail

 
Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1, 2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014. We have examined that the company is using customised software and audit trail is enabled but the software and its trail need to be strengthen more.

The Company is in process of implementing more advance and latest ERP Software which will prove to be more efficient and effective for the company. with those records by the Company including assessing the valuation methodology and key assumptions used therein.

• Assessed the relevant disclosures of hedge transactions in the financial statements.

 

GMR Airports Infrastructure Limited

Key audit matters How our audit addressed the key audit matter

 
Accounting for Business combination – composite scheme of amalgamation and arrangement among GMR Airports Limited (GAL), GMR Infra Development Limited (‘GIDL’) and the Company 

 

(refer note 2.2(u) for the accounting policy and note 48 for disclosures of the accompanying standalone financial statements)
Subsequent to year end, the composite scheme of amalgamation and arrangement (the ‘Scheme’) amongst GAL, GIDL and GIL as under Sections 230 to 232 of the Companies Act, 2013 (“Scheme”) was approved by the Hon’ble National Company Law Tribunal (‘NCLT’), Chandigarh bench (‘‘the Tribunal’’) vide its order dated 11th June 2024 (formal order received on 2nd July 2024). Such NCLT order was filed with the Registrar of Companies by GAL, GIDL and GIL on 25th July, 2024 thereby making the Scheme effective from such date.

Pursuant to the NCLT order, GAL and GIDL have been merged with the Company and all the assets, liabilities, reserves and surplus of the transferor companies have been transferred to and vested in the Company. Considering, the transaction is a common control business combination, these Standalone Financial Statements have been prepared by giving effect to the Scheme in accordance with Appendix C of Ind AS 103 by restating the financial statements from the earliest period presented consequent to receipt of approval to the Scheme from NCLT, as further disclosed in Note 48.

The determination of appropriateness of the accounting treatment and the complexities with respect to the control assessment and implementation of the terms of the approved Scheme required significant auditor attention. Accordingly, this matter is identified as a key audit matter for the current year audit.

Further, owing to the significant and pervasive impact of the merger on the accompanying standalone financial statements as disclosed in Note 48, the matter is also considered fundamental to the understanding of the users of the accompanying standalone financial statements.

 Our audit procedures to assess the appropriateness of the accounting treatment of the business combination, included, but were not limited to the following:

•       Obtained and read the Scheme and final order passed by the NCLT and submitted with the ROC to understand its key terms and conditions.

• Evaluated the design and tested the operating effectiveness of the internal financial controls relevant for recording the impact of the Scheme and related disclosures.

• Assessed the appropriateness of accounting policy of business combination of entities under common control by comparing with applicable accounting standard and that approved in the Scheme which involved assessment of control pre and post-merger.

• Tested the management’s computation for arriving at the value of fully paid-up equity shares to be issued and treatment of reserves as per the Scheme;

• Tested the management’s computation of the amount determined to be recorded in the amalgamation adjustment reserve; and

• Assessed the adequacy and appropriateness of the disclosures made with respect to the accounting of the transaction under the Scheme in note 48 to the accompanying standalone financial statements, as required by the applicable Indian Accounting Standards.

Material Accounting Policies

Note 2.2(u): Revised financial statements after approval of scheme of merger

The standalone financials of the Company for the year ended 31st March, 2024 were earlier approved by the Board of directors at its meeting held on 29th May, 2024 and reported upon by the statutory auditors vide their report dated 29th May, 2024. The said standalone financial statement did not include the effect of scheme of merger of GAL with GIDL followed by merger of GIDL with the Company which was approved by the Hon’ble National Company Law Tribunal, Chandigarh bench (“the Tribunal”) vide its order dated 11th June, 2024 (Certified copy of the order received on 2nd July, 2024). The said Tribunal order was filed with the Registrar of Companies by GAL, GIDL and the Company on 25th July, 2024 thereby the Scheme becoming effective on that date from the appointed date of 1st April, 2023 for merger. As a result, the aforesaid standalone financial statements have been revised by the Company so as to give effect to the Composite scheme of amalgamation and arrangement (‘Scheme’) in accordance with Appendix C of Ind AS 103 “Business Combination” from the earliest period presented consequent upon receipt of approval to the Scheme from National Company Law Tribunal (NCLT). Further, the subsequent events so in far it relates to the revision to the standalone financial statements are restricted solely to the aforesaid matter relating to the scheme and no effects have been given for any other events, if any, occurring after 29th May, 2024 (being the date on which standalone financial statements were first approved by the board of directors of the company). Also refer note 48 to the standalone financial statements.

Note 48: Business Combination – Common control transaction

a. The Board of directors in its meeting held on 19th March, 2023 had approved, a detailed Scheme of Merger of GAL with GIDL followed by merger of GIDL with the Company referred herein after as Meger Scheme. Subsequent to year ended 31st March, 2024, the Merger Scheme has been approved by the Hon’ble National Company Law Tribunal, Chandigarh bench (“the Tribunal”) vide its order dated 11th June, 2024 (Certified copy of the order received on 2nd July, 2024). The said Tribunal order was filed with the Registrar of Companies by GAL, GIDL and the Company on 25th July, 2024 thereby the Scheme becoming effective on that date.

Accordingly, GAL merged with GIDL and merged GIDL stands merged into the Company with an appointed date of 1st April, 2023 and the standalone Financial Statements of the Company have been prepared by giving effect to the Composite scheme of amalgamation and arrangement in accordance with Appendix C of Ind AS 103 “Business Combination” from the earliest period presented consequent upon receipt of approval to the Scheme from National Company Law Tribunal (NCLT). The difference between the net identifiable assets acquired and consideration paid on merger has been accounted for as capital reserve on merger.

Pursuant to the Scheme of amalgamation, 3,41,06,14,011 equity shares and 65,111,022 Optionally Convertible Redeemable Preference Shares (OCRPS) will to be issued to Groupe ADP by the Company. These equity shares was presented under equity share capital pending issuance and OCRPS pending issuance respectively for the current period and comparative period. As part of the Scheme, the equity shares held by the Company in merged GIDL stands cancelled.

Accounting of amalgamation of the Merged GIDL with the Company

i. On the Scheme becoming effective on 25th July, 2024 (“Effective Date”), the Company has accounted for the amalgamation in accordance with “Pooling of interest method” laid down by Appendix C of Ind AS 103 (Business combinations of entities under common control) notified under the provisions of the Companies Act, 2013.

ii. The cumulative carrying amount of investments held by the company in Merged GIDL in form of equity shares and OCRPS shall stand cancelled together with the cumulative corresponding unrealised gain recognised in FVTOCI reserve, and related deferred tax liability.

iii. The Company has recorded all the assets, liabilities and reserves of the Merged GIDL, vested in the Company pursuant to the Scheme, at their existing carrying amounts.

iv. The loans and advances or payables or receivables or any other investment or arrangement of any kind, held inter se, between the Merged GIDL and the Company have been cancelled.

v. The difference between the book value of assets, liabilities and reserves as reduced by the face value of the equity shares and OCRPS issued by the Company and after considering the cancellation of inter-company investments was recorded in other equity of the Company.

The book value of assets, liabilities and reserves acquired from Merged GIDL as at 1st April, 2023 were:

Particulars

 

 Amount

(In Crores)
ASSETS

 
Non-current assets
Property, plant and equipment 2.43
Capital work-in-progress 46.49
Right of use assets 3.62
Financial assets
Investments 47,082.91
Loans 808.10
Other financial assets 37.16
Income tax assets (net) 22.73
Deferred tax assets (net) 107.28
Other non-current assets 20.01
Total 48,130.73 
Current assets
Financial assets
Investments 445.45
Trade receivables 74.80
Cash and cash equivalents 41.20
Bank balances other than cash and cash equivalents 4.86
Loans 147.82
Other financial assets 222.89
Other current assets 33.17
Total 970.19
49,100.92
LIABILITIES
Non-current liabilities
Financial liabilities
Borrowings 1,949.99
Lease liabilities 3.71
Other financial liabilities 143.39
Provisions 9.54
Deferred tax liabilities (net) 9,198.74
Other non current liabilities 20.67
Total 11,326.04 
Current liabilities
Financial liabilities
Borrowings 3,122.18
Lease liabilities 0.07
Trade payables 102.75
Other financial liabilities 494.04
Other current liabilities 50.27
Provisions 4.46
Total 3,773.77 
Total liabilities 15,099.81
Net assets acquired 34,001.11 
Less: Investment in merged entity (net off fair valuation and deferred tax effect thereon) -4,456.57 
  29,544.54 
Particulars

 

 (` in crore)
Represented by:

 
Fair valuation through other comprehensive income (’FVTOCI’) 33,207.01
Special  Reserve  u/s  45IC of  Reserve Bank  of  India  (’RBI’)  Act 81.05
Securities Premium 1,251.36
Retained earnings -2,228.82
Capital reserve 0.23
Equity share pending issuance 341.06
OCRPS pending issuance 260.44
Amalgamation adjustment deficit account -3,367.81

b. The Board of Directors of the Company vide their meeting dated 17th March, 2023 had approved the settlement regarding Bonus CCPS B, C and D between the Company, erstwhile GMR Airports Limited (GAL) and Shareholders of erstwhile GAL wherein cash earnouts to be received by Company were agreed to be settled at ₹550.00 crore, to be paid in milestone linked tranches and conversion of these Bonus CCPS B, C and D will take as per the terms of settlement agreement. Further, the Company, erstwhile GAL and Shareholders of erstwhile GAL had also agreed on the settlement regarding Bonus CCPS A whereby erstwhile GAL will issue such number of additional equity share to the Company and GMR Infra Developers Limited (‘GIDL’) (wholly owned subsidiary of the Company) which will result in increase of shareholding of Company (along with its subsidiary) from current 51 per cent to 55 per cent in erstwhile GAL. The settlement was subject to certain conditions specified in the settlement agreements. As part of the settlement agreement, the Company has received 4 tranches of ₹400.00 crore towards the sale of these CCPS till 31st March, 2024. Subsequent to balance sheet date, on completion of conditions precedent the Company has received last tranche of ₹150.00 crore towards the sale of these CCPS. On 17th July, 2024 the board of directors of erstwhile GAL has approved the conversion of CCPS A, B, C and D into equity shares of erstwhile GAL.

c. On 10th December, 2015, the Company had originally issued and allotted the 7.5 per cent Subordinated Foreign Currency Convertible Bonds (FCCBs) aggregating to US$ 300 Mn due 2075 to Kuwait Investment Authority (KIA) and interest is payable on annual basis.

Pursuant to the Demerger of the Company’s non-Airport business into GMR Power and Urban Infra Limited (GPUIL) during January 2022, the FCCB liability was split between the Company and GPUIL. Accordingly, FCCBs aggregating to US$ 25 Mn. were retained and redenominated in the Company and FCCBs aggregating US$ 275 Mn. were issued to KIA by GPUIL. As per applicable RBI Regulations and the terms of the Agreements entered into between KIA and the Company, the Company had the right to convert the said FCCBs into equity shares at a pre-agreed SEBI mandated conversion price. Upon exercise of such conversion right, KIA would be entitled to 1,112,416,666 equity shares of the Company.

Subsequent to 31st March, 2024, the US$ 25 Mn. 7.5 per cent Subordinated Foreign Currency Convertible Bonds (FCCBs), issued by the Company to KIA have been transferred by KIA to two eligible lenders i.e., Synergy Industrials, Metals and Power Holdings Limited (“Synergy”) (US$ 14 Mn) and to GRAM Limited (“GRAM”) (US$ 11 Mn).

The 7.5 percent US$ 25 Mn. FCCBs have been converted dated 10th July, 2024 into 111,24,16,666 number of equity shares of ₹1/- each, proportionately to the above-mentioned two FCCB holders, as per the agreed terms and basis receipt of a conversion notice from the said FCCB holders. As the FCCB holders are equity investors, and as a part of the overall commercials between the parties, the outstanding interest on the FCCB’s of ₹100.43 crore was waived.

Waiver Scheme

Equity and Taxation are considered as aliens to each other. Successive Governments have introduced amnesty, dispute resolution, waiver and / or trade facilitation schemes for benefit of taxpayers. Legal ambiguity, legacy laws, tax augmentation, administrative backlog, etc. have been the primary drivers for such schemes. While every scheme is open to criticism for being detrimental to the interest of tax diligent persons, being a policy decision and beneficial to a litigant class, they have not been challenged on the grounds of equality. However, these optional schemes are subject to strict application of the law, with Courts inclined to examine the intent only in case of any ambiguity in the law. This implies that applicants or cases which are not expressly included in the scheme cannot take shelter under such schemes. One such scheme has been proposed by way of insertion of Section 128A to CGST Act, 2017.

Though the scheme has been understood by many as an ‘amnesty’, it should be appreciated that the scheme neither provides for any haircut in ‘tax payments’, nor does it provide for immunity from prosecution, late fees, redemption fines, etc. The waiver is conditional and limited only towards interest and penalty payable under specific disputes. It would be inappropriate to term this as a ‘dispute resolution’ since the scheme does not preclude the revenue from agitating the matter even on conclusion of the order. Moreover, in case the taxpayer is denied the benefit of the scheme, the taxpayer is entitled to continue with the dispute before appropriate appellate forums and seek remedial action. It would hence be appropriate to classify the scheme as a ‘conditional waiver scheme’, where the waiver is extended to only interest and penalty, subject to the taxpayer discharging the disputed tax and abandoning its right to litigate the said matter.

BROAD CONTOURS

This scheme has been implemented, pursuant to the decision of the 53rd GST Council, by insertion of Section 128A providing for conditional waiver of interest or penalty relating to tax demands raised u/s 73 for the FY 2017-18 to FY 2019-20. Considering the difficulties in initial stages of GST implementation, tax demands pursuant to genuine legal disputes (such as GSTR-2A v/s. 3B difference, rate classification, taxability, etc) are attempted to be settled on full payment of tax reported in the notice or order on or before the notified date1. One cannot seek redressal over the merits of the matter and opting for the scheme does not imply acceptance of the legal proposition canvassed in the dispute. The waiver also does not cover demands of erroneous refund and those pertaining to the tax period from FY 2020-21. Rule 164 has also been inserted prescribing procedures and forms related to the waiver. The CBIC has issued Circular No. 238/32/2024 dt. 15th October, 2024 clarifying many aspects of the scheme.

1 31.03.2025 for S.73 cases and 6 months in cases subsequently converted into S.73

SCOPE OF SCHEME

Section 128A under ‘Chapter 19 — Offences and Penalties’ grants a conditional waiver of interest and penalty on payment of the tax payable arising from the said proceedings in the following situations:

i.Show Cause notice (DRC-01) has been issued u/s 73 and such notice is pending adjudication;

ii. An adjudication order u/s 73(9) (DRC-07) has been issued and no appellate order has been passed against such order;

iii. An appellate order has been passed by the first appellate authority and no further appellate order (second appellate authority onwards) has been passed against the said appellate order.

CONDITIONS OF SCHEME

The above interest and penalty waiver is subject to certain conditions:
i. Full amount of tax payable as per the notice / order is discharged on or before the notified date;

ii. Demands raised u/s 74 (unless converted into Sec. 73 pursuant to a specific appeal) or any other sections2 are not covered under the scheme;

iii. Issue of recovery of erroneous refund is not covered under the scheme;

iv. Appeal / writ petition should be withdrawn on or before the notified date;

v. On favourable conclusion of the scheme, the underlying order cannot be continued in appeal or writ.

2 Section 52, 76, 122, 123, 124, 125, 127, 129 or 130

PROCEDURE FOR AVAILMENT OF SCHEME

The scheme would be implemented through the GSTN Portal and eligible persons would have to follow a defined process:

a) Preparatory Stage

STEP 01: Check the eligibility of the scheme based on the applicable notice/ order (i.e. DRC-01 or DRC-07 or APL-04), period involved and the issues which are covered under the scheme. File a letter with the appropriate authority to upload the said notice / order in case the same is not visible on the electronic portal;

STEP 02: Withdraw the appeal or petition filed by making an application in APL-01W and obtain a withdrawal order from the appropriate authority — one need not await the withdrawal order for proceeding further;

STEP 03: Quantify the tax payment (year wise). Discharge the tax payment in full for the demand quantified in the said demand notice / order vide DRC-03 with appropriate narration of the notice/ demand reference number (including demand for erroneous refund) — exclusion may be made for input tax now available pursuant to introduction of section 16(5);

STEP 04: Once the demand is available on the common portal, apply for mapping the DRC-03 with the relevant demand order uploaded on the common portal with the proper officer in form DRC-03A — verify the mapping of the said payment with demand order in the electronic credit ledger.

b) Application Stage

STEP 05: Where the tax demand is proposed in DRC-01, file an application in SPL01 reporting the details of the DRC-01 and the corresponding tax payments details (if any) in DRC-03;

STEP 05A: Alternatively, in case of confirmed demand u/s 73 or 107 appeal proceedings, an application in SPL02 reporting the corresponding demand order and the tax payment details in Electronic Liability Ledger or DRC-03 & 3A would be reportable;

STEP 06: Upload the self-certified copy of relevant notice / order along with the withdrawal application / order and any order documents (such as order of High Court, communication with officers etc) and establish mapping the tax payment with the demand notice along with application in SPL-01/02.

c) Processing Stage

STEP 07: The officer would issue a notice in SPL-03 in cases where the application is ineligible for the scheme, granting an opportunity for appearance. A response to the said notice in SPL-04 would be submitted;

STEP 08: In case the application is accepted, the officer would issue an order in SPL-05 concluding the proceedings under the scheme. The liability proposed in DRC-01 would be considered as recovered in full and the liability demanded in DRC-07 or APL-04 would be accordingly modified in PMT-01.

d) Redressal Stage

STEP 09: In case the application is rejected3, officer would issue an order in SPL-07 mentioning the reasons for rejection. The said order is subject to appeal u/s 107 before first appellate authority.

STEP 10: In case the tax payer does not file an appeal u/s 107 against the order of rejection (in SPL-07), the original appeal (on merits) would stand automatically restored. In case the matter was pending before the High Court, the petitioner would have to make an application for restoration before the appropriate court.

3 On account of incomplete payment; payment made after the date notified in Section 128A; Notice/ Order pertaining to sections other than section 73; appeal/ writ petition filed before Appellate Authority/ Appellate Tribunal/High Court/ Supreme

e) Post Processing Stage

STEP 11: In case the tax payer files an appeal u/s 107 against the order of rejection (in SPL-07), the ‘128A waiver appeal’ would be examined by the appropriate appellate authority and an appropriate decision would be made. Where such appeal is admitted and allowed, the appellate authority would issue an order in SPL-06 concluding the proceedings and also directing payment of any shortfall in interest or penalty not covered under the scheme. Where the ‘128A waiver appeal’ is dismissed and the appellant decides give-up any further remedy, the ‘original appeal’ on merits would be restored and matter would follow the regular course of appellate remedy on merits.

STEP 12: The conclusion of the proceeding is subject to payment of the demand specified in SPL-05/06 within the specified time frame.

STEP 13: In the eventuality of a rejection order in SPL-07, an appropriate appeal would have to be filed in terms of the appeal provisions u/s 107/112 and in case the appeal is not sought to be preferred at any stage, a declaration may be filed stating its intention so that the appeal on merits stands restored.

f) Restoration Stage

STEP 14: Once the appeal against the wavier order has attained finality, the original appeal on merits would be restorable and the applicant would be permitted to argue the case on merits despite having made the entire tax payment under the scheme. The liability under the Electronic Payment ledger would be maintained as it is.

Particulars Timelines Remarks
Payment of Tax demanded pursuant to notice/ order u/s 73 Notified date 31st March, 2025
Withdrawal of appeal (if any) Before SPL-02 30th June, 2025
Application in SPL-01/02 3 months 30th June, 2025
Rejection notice in SPL-03 3 months from SPL-01/02 Mapped to application
date
Response in SPL-04 1 months from SPL-03 Mapped to SPL-03
Acceptance Order in SPL-05 3 months from SPL-01/02 No SPL-03 cases
3 months from SPL-044 Reply filed in SPL-04
4 months from SPL-033 No reply filed in SPL-04
Rejection order in SPL-07 Same as above3 Same as above
In case of Appeal against SPL-07 3 + 1 months as specified in appellate section 107/112 Regular appeal provisions apply to rejection order
Appellate acceptance in SPL-06 No time limit NA
Appellate rejection in APL-04 No time limit NA
Shortall in payments of tax, interest or penalty 3 months of demand In cases of departmental appeal, revision, etc
128A application for S. 74 notices/ orders which are subsequently converted into S.73 6 months from 73 order and the subsequent sequence of events above would follow suit Pursuant to application of 75(2) appellate/ court proceedings 
4 In cases where the withdrawal order is not uploaded, the time limit from date of application in SPL-02 till the date of filing the withdrawal order would be excluded for purpose closure of the proceedings

Note – If no acceptance order is issued within the timelines for SPL-05, the application would be deemed to be approved and the proceedings are concluded with necessary modifications carried out in the Electronic Liability Register.

PROCEEDINGS EXCLUDED FROM THE SCHEME

The stages of notices or proceedings are excluded if the same are not converted into a proceeding under section 73.

Stages / Forms Covered
ASMT-10 (Scrutiny) No
ADT-01 / ADT-02 (Audit) No
INS-01 (Inspection / Search) No
MOV-09 (E-Way Bill Interception without DRC-01 or DRC-07 u/s 73) No
MOV-09 (E-Way Bill Interception with DRC-01 or DRC-07 u/s 73) Yes
Only Penalty – DRC-01 / DRC-07 u/s 122 only Yes
Only Interest – DRC-01 / DRC-07 u/s 50 only Yes

 

In such scenarios, the taxpayer would have to filter out the frivolous / clarificatory matters through its legal submission and urge the officers to proceed with the matter into adjudication — which typically would be performed u/s 74 in view of the expired time limit of section 73.

FAQS / COMMON QUESTIONS IN RESPECT OF THE SCHEME

Q1 – Can the applicant cherry pick a particular issue or year from within a notice / order for closure u/s 128A?

Pick a particular issue — Section 128A(1) states that the scheme would be available only on full payment of the tax liability under the notice/ order. Since the scheme is designed qua the notice or order, the applicant cannot cherry pick any issue for waiver and seek appellate remedy for the rest. In view of specific wordings, the scheme has been designed for closure of the entire notice / order and there is no window for authorities to conclude the notice / order partially. Even in cases where a particular issue pertains to erroneous refunds, it has been specified in the rules that the applicant would have to settle the tax demands from such erroneous refunds to be eligible for the scheme (Rule 164(3) and Q5 of Circular).

Pick a particular year – Where notices have been issued for a larger assessment period, with the scheme being limited to the first 3 years, one would have to settle the tax, interest and penal liability for the years 2020-21 onwards. Once again, the taxpayer is not permitted (in view of Rule 164(4) r.w. Q6 of Circular) to cherry pick any particular year from among the notice / order period. Taxes for all the years would have to be discharged including those which are not covered under the scheme prior to application of the scheme. To tabulate the above issue:

Consolidated Notice/ Order 2017-18 Apply for scheme
2018-19
2019-20
2020-21 No appellate remedy for next 2 years — consequential tax, interest and penalty to be paid
2021-22
Notice for each year is separately issued 2017-18 Apply for Scheme or choose to appeal
2018-19 – same as above –
2019-20 – same as above –
2020-21 Appeal remedy
2021-22 Appeal remedy

A careful SWOT assessment and numerical analysis of the proceeding would have to be performed to address such dilemma. Alternatively, taxpayer can seek the intervention of the court which have directed the revenue authorities to split the SCNs year wise and permitted the taxpayer to avail the scheme.

Q1A – As a follow-up issue, can applicant seek a direction from the High Court for splitting the issue year-wise or issue-wise and then pick / choose a particular matter for closure under the scheme?

Section 73/74 does not bar the proper officer to consolidate all the tax issues for multiple assessment period in one show cause notice. But courts have recognised that each financial year is a separate assessment unit and hence there does not seem to be much difficulty in obtaining separate notices / orders for each assessment year by a direction from the High Court.

The open-ended wordings of section 73/74 also do not bar multiple issues in one single notice / order. Conversely it does not also bar the proper officer separate the issues in separate notices and consequently separate orders. This leaves the proper officer with significant discretion for adjudication proceedings. Is the discretion at the officer’s end determinative of the eligibility of taxpayer under the scheme? The answer unfortunately appears to be in the affirmative for reasons discussed below.

By now we are aware that Section 128A has been legislated for the notice / order in totality. But if one where to examine the fundamentals of taxability and its recovery through adjudication proceedings, each outward and inward supply stands on its own merits. GST law being a ‘transaction-based tax’, each supply would have to be independently examined for all the taxable aspects (such as taxability, rate of tax, time of supply, place of supply, etc) and hence any short payment or non-payment would be a separate proceeding even if they are contained in a single notice / order. Similarly, availability of input tax credit is also linked to each inward supply and its eligibility (including its usage) is to be analysed on an input invoice basis. Having said this, equity demands that 128A ought to have been designed keeping in perspective this fundamental principle of taxation.

5 Titan Company Ltd. v. Joint Commissioner of GST & Central Excise [2024] 159 taxmann.com 162 (Madras) & Veremax Technologie Services Ltd. & ACT Bengaluru [2024] 167 taxmann.com 332 (Karnataka)

Historically, adjudication proceedings were ‘issue specific’ and notice on a particular issue did not preclude another notice on a distinct issue. Assessments, on the other hand, were ‘period specific’ in so far as the assessment involved conclusion for the assessment year as a whole. The practical experience of adjudication seems to have overtaken the academic essence of assessments and the GST Council / Legislature, have thought it fit in their wisdom (keeping the administrative hurdles) to design the waiver scheme for the adjudication proceeding as a ‘whole’ and refrain from entering into granular aspects. The defence for such an approach would be that optional schemes are the prerogative of the legislature and any grievance on this aspect may not be sustainable even before Constitutional Courts. If one were to invoke the fundamental principles of equity, Courts may treat both the taxpayers (one with a consolidated proceeding vis-à-vis individual proceeding) as unequals from the perspective of adjudicative and administrative procedure, which is the primary bedrock for introduction of this scheme. While an issue wise fragmentation may be tested before Courts, it would defeat the very purpose of even approaching this scheme as it would add another layer of a litigation to a dispute resolution-oriented approach of the taxpayer.

Q2 – Are Section 74 notices / demands totally barred from relief under this scheme?

Section 128A has been designed to grant relief vis-à-vis a specific proceeding and implicitly excludes all other proceedings under the Act. Taxes payable u/s 74 is one such implicit exclusion u/s 128A or rule 164. Considering the grievance of taxpayers who have received SCNs alleging fraud / suppression, etc u/s 74 even on issues of genuine misclassification, numerical discrepancies, legal ambiguity, etc, the scheme has provided for a separate window for clearance of such proceeding.

Section 75(2) provides that in cases where the appellate authority overturns the grounds of fraud/ suppression, etc, the proper officer would have to conclude the proceedings u/s 73(9) within 2 years from appellate order u/s 75(3). The scheme recognises this and extends the waiver even to such scenarios, permitting the taxpayer to apply in SPL-02 subsequent to the revised adjudication order u/s 73 of the Act. In effect, the scheme would come into operation only after the adjudication order u/s 73 is passed in favour of the taxpayer.
Curiously, this mis-action by the department would lead to multiple advantages to the taxpayer:

– Firstly, the taxpayer now possesses the flexibility of applying for the scheme and making the requisite tax payment only after the revised adjudication order u/s 73(9); effectively giving the taxpayer an indefinitely long time period to make the tax payment without any additional interest or penal implications;

– Secondly, the taxpayer also has the opportunity to argue the issues on merits and seek redressal of any patently unsustainable tax demands which would otherwise not be available to an applicant subjected to 73 proceedings on similar issues;

– Thirdly, the taxpayer is also benefited by exclusion of tax demands which are barred by the period of limitation on account of conversion of proceedings from section 74 to 73;

– Fourthly, the taxpayer can advance arguments for splitting a single order into multiple orders and treatment of each of the same independently under the legal provisions;

While the scheme would apply in entirety for recipients of SCNs u/s 73, other applicants who are initially subject to proceedings u/s 74 can avail the scheme at their option after the appellate authority delivers its decision on the grounds of fraud, suppression, etc. Barring cases of circular trading, fake bill cases and tax fraudulently collected, it appears that multiple taxpayers would explore the opportunity to avail the benefit of these scheme at a later point in time, enjoying the interest arbitrage.

Q3 – While the applicant cannot file an appeal, can the department file an appeal or revise an order subsequent to conclusion of under the scheme?

Yes, the scheme functions as a waiver scheme and is limited only to wavier of interest or penalty but does not provide any immunity from assessment/ appeal of the subject period. The conclusion of the proceedings by virtue of SPL05/06 is to the extent of the adjudication process and not further. The revenue can separately initiate proceedings including filing an appeal or revision under the respective sections against the underlying adjudication or appellate order (including SPL-05/06) which has been subjected to the scheme. A particular issue, which was previously dropped or not examined appropriately, can theoretically be agitated in departmental appeal or revisionary proceedings. Unfortunately, the applicant would have to discharge the additional tax quantified under the scheme within 3 months from the date of the enhanced order. Where the applicant believes that the enhancement is not in order, the next appellate remedy would have to be pursued and depending on the outcome, the enhanced tax would be liable to be discharged (Q8. of Circular). The
silver lining would be that the taxpayer would be eligible for the waiver of interest and penalty for the additional tax liability which was demanded by virtue of this process.

Q4 –Can parallel proceedings initiated (either before or after the scheme) abate by virtue of this scheme?

As stated above, the scheme does not place any bar on the department to initiate proceedings on the similar subject matter or any other subject matter. Moreover, the conclusion of the proceeding is not with reference to the merits of the matter, rather only with respect to the adjudicative / appellate process governing the notice / order. For example, an applicant obtains conclusion for an adjudication order (in DRC-07) in respect of numerical differences in input tax credit in GSTR-2A v/s 3B. Pursuant to an inspection or scrutiny proceedings, the tax department discovers that some vendors have failed to discharge their output taxes and have escaped the issue in the original adjudication. Invoking the adjudication powers, fresh notices can be issued against the applicant, and the said proceedings would be independently viewed and cannot be clubbed to be covered / admitted in the original adjudication proceedings. In essence, the department is not precluded from initiating proceedings on the very same issue or rake up fresh issues by virtue of the closure order issued under the scheme. Even if parallel proceedings are underway on similar subject matter by the corresponding administration, the scheme would achieve closure only in so far as the notice / order which has subjected to the scheme and the parallel proceedings would be governed by regular provisions of the Act.

Q5 – Whether appeal should be filed for orders which are anyway being withdrawn as part of waiver scheme?

There are cases (especially for 2019-20) where orders are passed or due to be passed before February 2025. Filing an appeal and withdrawing the same for purpose of application of the scheme may seem a futile exercise. Yet, it is advisable to file the appeal and withdraw on three counts:

(a) the scheme covers cases where an adjudication order has been passed and no appellate order has been passed. The provision does not explicitly state whether an appeal proceeding should be pending as on the date of the application. Though, the condition has been worded in the negative, revenue can very well interpret that pendency of appeal is implicit, since only in such scenarios one can state that an appellate order is due to be passed. To address this technical interpretation, filing an appeal may be an advisable option.

(b) In the eventuality the waiver application is rejected, the scheme mandates that the original appeal in merits (which was withdrawn) would be re-instituted. This presupposes that an appeal was originally filed. The scheme does not in anyway permit fresh filing of appeal (on merits) after rejection of the waiver application. Neither does it grant an exclusion in the time period for the time spent in processing of the wavier application. Thus, in order to protect one’s interest in pursuing the appellate remedy, it would be suitable to file an appeal and subsequently withdraw the same prior to an application before the waiver scheme.

(c) More importantly, the waiver application may take time to process and conclude. Till the time of the favourable conclusion of the waiver application, there is a risk of recovery proceedings being initiated and if such proceedings are initiated, the taxpayer will have no recourse but to knock the doors of the High Court.

Q6 – Who is the proper officer for application of the scheme?

Rule 164 prescribes that the proper officer would be the authority who is under law entitled to recover the tax, interest and penalty arising from the order u/s 79. Where the waiver is in respect of the notice itself, the proper officer would be the officer who has issued the notice u/s 73.

Q7 – Whether the recipient of output invoice is eligible for input tax credit for tax payments under thescheme?

Supplier applicants who have been alleged with short payment of tax are entitled to the scheme on differential output tax paid since the tax paid would be considered as part of proceedings u/s 73. For example, automobile OEM suppliers who have been subject to intense litigation on the applicable rate for parts are considering opting for the scheme and passing on the said
burden to the manufacturers/ dealers for availment of the input tax credit by issuance of a ‘supplementary invoice’. This is possible in B2B transactions as the customer would be eligible for input tax credit and the same would not be barred under the provisions of section 17(5)(i).

Q8 – Whether orders / notices limited to interest or penalty are eligible under the scheme?

Section 128A specifies that notices/ order which report a ‘tax payable’ are eligible for waiver under the scheme. Though this phrase ‘tax payable’ is adopted, the rules and circular indicate that taxes already paid (in part or full) would also be adjusted under the scheme (Q1, 2 & 4 of Circular). Though tax liability is a sine-qua-non for invocation of the rights under the scheme, the tax need not be unpaid as on the date of the scheme. However, the circular makes a mention that ‘self-assessed taxes’ which are paid would not be eligible for the scheme and the interest or penalty would be payable in such scenarios.

CONCLUSION

The scheme clearly has all the ingredients of the experience of the Government administration from earlier amnesty and dispute resolution scheme. Old disputes of mapping tax demands, lack of appellate remedy and restoration, time frame under a quasi-judicial process, etc which were missing in the legacy schemes are eminently visible in this current format. The circular issued by the Government is also progressive and granted the relief to advance the object of the scheme. In the midst of the everlasting debate of equity in such schemes, on may state that the approach of the Government for launching this scheme is fairly commendable.

Part A | Company Law

12 In the Matter of:

M/s. Venkatramana Food Specialities Limited

Registrar of Companies, Puducherry

Adjudication Order No. ROC/PDY/Adj / Sec.203 / 02550/ 2024

Date of Order: 9th October, 2024

Adjudication order for violation of section 203 of the Companies Act 2013 (CA 2013) by the Company: Failure to fill the vacancy arising from the resignation of the whole time Company Secretary within a period of 6 months.

FACTS

The company had appointed a Whole-time Company Secretary on 15th April 2019 as required under the provisions of Section 203(4) read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Subsequently, the said Secretary resigned and moved out of the company from 26th December, 2019.

The company was required to appoint a whole-time company secretary on or before 20th June, 2020 i.e. within 6 months from the date of resignation (26th December, 2019). However, the company appointed a whole-time secretary who joined w.e.f. 9th December, 2023. Thus, there was a delay of 1442 days in the appointment of the Company
Secretary. (From 27th December, 2019 to 8th December, 2023).

The show-cause notice was issued and hearing was fixed. The authorised representative explained that due to Covid it was not possible to appoint any CS even after many advertisements and it was difficult to appoint a whole time Company Secretary. However, the default was accepted for the adjudication.

PROVISIONS OF THE ACT IN BRIEF:

Section 203(4) of CA 2013:

If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

Note: Section 203(1) requires certain classes of companies to have a whole-time key managerial personnel which includes a Company Secretary.

Section 203(5) of CA 2013:

If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

FINDINGS AND ORDER

Considering the default and acceptance of the same by the company, the Adjudication Officer, imposed a Penalty of ₹20 Lakhs as under:

Penalty imposed on  Calculation Amount ( R)
Company As per the provisions of Section 203(5) 5,00,000
Each of the 3 directors [50,000+(R1000 per day for 1442 days) Subject to Maximum of R5 Lakhs per Director] X 3 15,00,000
Total 20,00,000

13 In the Matter of M/s. Shunmugam Traders Private Limited

Registrar of Companies, Tamil Nadu, Chennai

Adjudication Order No. ROC/CHN/SHUNMUGAM/ADJ/S.137/2024

Date of Order: 16th September, 2024

Adjudication order for violation of section 137 of the Companies Act 2013(CA 2013) by the Company: Non-Filing of Financial Statements.

FACTS

It was observed from the MCA records that the company has filed its financial statements only up to the financial year 2014-2015. Since the company and its directors have not filed its financial statements up to date, Section 137 of the Companies Act, 2013 has been contravened and the defaulters are liable for action under section 137 (3) of the Companies Act, 2013. Accordingly, on submission of the inquiry report by the officer, Regional Director, Ministry of Corporate Affairs, Chennai had directed to take necessary action against the defaulters under the provisions of the Companies Act, 2013 for the financial year 2015-2016 to till date.

(i.e. FY 2022-23)

PROVISIONS OF THE ACT IN BRIEF:

Section 137 of the Companies Act, 2013-

Copy of financial statement to be filed with the Registrar:

(1) A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly, adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed.

(2) Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached under subsection(l), duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held and in such manner, with such fees or additional fees as may be prescribed
(3) If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), as the case may be, before the expiry of the periods specified therein, the company shall be liable to a penalty often thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the Directors of the company, shall be liable to a penalty often thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.

FINDINGS AND ORDER

Considering the default and further considering the fact that no response was received from the company, the Adjudication Officer concluded that the company and its directors have violated Section 137(3) of the companies Act, 2013. For the purposes of levy of penalty, date of AGM was considered as 30th September of the respective financial year.

Financial Year for which
Penalty was levied		 Final Penalty imposed on the Company and the Officers in default (Amount in R)
2015-16 4,50,000
2016-17 4,50,000
2017-18 4,50,000
2018-19 4,35,800
2019-20 3,99,200
2020-21 3,62,700
2021-22 3,26,200
2022-23 2,38,200
Total 33,12,100

Further, in exercise of Section 454 (3) (b) of the Companies Act,2013 the company was directed to rectify the default by filing Financial Statements for the remaining periods i.e. from 2015-16 onwards and intimate the details of filings along with SRNs within 30 days from the date of the order.

14 In the Matter of M/s. Subh Laabh Polymers Private Limited,

Registrar of Companies, Cum Official Liquidator, Chhattisgarh

Adjudication Order No/ Reference no. to Show Cause Notice:ROC-cum-OL-C.G./008625/ATR/Adj/140/1/2024/611

Date of Order: 13th September, 2024

Adjudication order issued against Statutory Auditor of the Company for delay in filing of Resignation Notice in the prescribed e-form ADT-3 under provisions of Section 140 (2) of the Companies Act 2013.

FACTS

An inquiry under Section 206(4) of the Companies Act,2013 was carried into the affairs of M/s SLPPL and it was observed that M/s SLPPL had appointed M/s R.K.S.A as the Statutory Auditor of M/s SLPPLunder Section 139(1) of the Companies Act, 2013 for the period starting from 1st April, 2016 to 31st March, 2021 and M/s SLPPL had informed the same to ROC by filing form ADT-1 on 21st October, 2016, after receiving the consent letter from the Auditor on 20th August, 2016 and in between this period, M/s SLPPL further had appointed M/s NC&A as the Statutory Auditor for the period of 1st April, 2017 to 31st March, 2022.

Therefore, in accordance with Section 140(2) of the Companies Act, 2013, the auditor who had resigned from the Company must within a period of thirty days file in e-form ADT-3 his / her resignation with Registrar of Companies (ROC).The same was not complied by M/s R.K.S.A.

Thereafter on the direction of the Regional Director (RD), a Show Cause Notice (SCN) was issued to M/s R.K.S.A on 14th August 2024 and M/s R.K.S.A replied to the SCN via letter dated 4th September, 2024 which stated that the auditing firm was going through a constitution change in the Institute of Chartered Accountants of India by way of conversion into a Limited Liability Partnership (LLP) and name change. Due to engagement on the above matter, the auditing firm missed out on the filing of a notice of resignation in form ADT-3 to the Registrar of Companies. The firm realised its default in the year 2023 and soon after, the firm filed the ADT-3 form along with the applicable fees in addition to the applicable late filing fees.

PROVISIONS

“As per Section 140(2) The auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in the prescribed form with the company and the Registrar, and in case of companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with regard to his resignation.

As per Section 140 (3); If the auditor does not comply with the provisions of sub- section (2), he or it shall be liable to a penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.”

ORDER

AO after consideration of facts and admission made by Auditor that the filing of ADT-3 form was delayed by period of 2077 days. Hence concluded that the auditor had violated the provisions of Section 140(2) read with Section 140(3) of the Companies Act, 2013 for which penalty of ₹2,00,000 (Rupees Two Lakhs only) was imposed.

Closements

Reassessment provisions, applicability of TOLA and way forward in light of the decision in the case of Rajeev Bansal – Part II

INTRODUCTION

7.1 As stated in Part I of this write-up (BCAJ December, 2024), considerable amendments were made in the reassessment provisions by the Finance Act, 2021. Prior to these amendments, a notice could be issued under section 148 of (the ‘old regime’) within the time limits of 4 years (in all cases) / 6 years (escaped income of ₹ 1 lakh or more) / 16 years (asset outside India) as provided in section 149 of the Act if the Assessing Officer (‘AO’) had reason to believe that income chargeable to tax had escaped assessment. Considerable amendments in the provisions dealing with reassessment proceedings (the ‘new regime’) as stated in para 1.4 of Part I of the write-up were brought about by the Finance Act, 2021. The entire procedure for issuance of a reopening notice was revamped by introducing section 148A(d). The erstwhile time limits were also modified and the ‘new regime’ provided for time limit of 3 years in all cases and 10 years in cases where escaped income represented in the form of asset was more than ₹50 lakhs.

7.2 As stated in para 1.3 of Part I of the write up, the time limit to issue notice under section 148 of the Act, granting sanction or approval, etc. was extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA’) and the subsequent Notifications issued under TOLA. In short, the time limits for doing the above acts which were expiring during the period from 20th March, 2020 to 31st March, 2021 were extended upto 30th June, 2021. These Notifications contained an Explanation effectively clarifying that the ‘old regime’ will continue to apply for issuing reassessment notices despite the amendments made by the Finance Act, 2021.

7.3 As stated in paras 1.5 and 1.6 of Part 1 of the write-up, reassessment notices issued after 1st April, 2021 for the assessment years 2013 — 14 to 2017 — 18 relying upon the time extension granted by TOLA and following the procedure as per the ‘old regime’ were struck down by several High Courts and the Explanation issued under the Notifications were also struck down.

7.4 As stated in para 1.7 of Part I, the decisions of the High Courts were upheld by the Supreme Court in UOI vs. Ashish Agarwal (444 ITR 1). However, invoking powers under Article 142 of the Constitution of India, the Supreme Court deemed the notices issued under section 148 of the Act to be show cause notice issued under section 148A(b) of the Act under the ‘new regime’ and issued directions to the AOs to provide material and information for reopening to assessee and then pass an order under section 148A(d) after considering assessee’s submissions. Supreme Court kept all the defences available to the assessee under section 149 and / or under the Finance Act, 2021 and in law and rights available to the AOs under the Finance Act, 2021 open. Thereafter, as stated in para 1.8 of Part I of the write-up, the Central Board of Direct Taxes (‘CBDT’) issued Instruction no. 1 of 2022 dated 11th May, 2022 stating the manner of implementation of the judgment of the Supreme Court in Ashish Agarwal.

7.5 Thereafter, as stated in para 1.9 of Part I of the write up, fresh notices were issued under section 148 of the Act after following the directions contained in the decision of the Supreme Court in Ashish Agarwal pertaining to assessment years 2013 – 14 to 2017 – 18. These notices issued between July to September, 2022 were challenged by the assessees before several High Courts and the same were quashed by the High Courts. A brief gist of these decisions is provided in Part I of the write-up. As stated in para 1.10 of Part I of the write-up, the Supreme Court in Rajeev Bansal’s case (and connected matters) adjudicated on the issues raised by the Revenue in appeals filed against such high court judgments.

UOI vs. Rajeev Bansal (469 ITR 46 – Supreme Court)

8.1 In a challenge by the Revenue to the correctness of the views taken by the High Courts in favour of the assessee, the Supreme Court was called upon to decide two primary issues – (1) whether TOLA and notifications issued thereunder would apply to reassessment notices issued after 1st April, 2021 and (2) whether the reassessment notices issued under section 148 of the ‘new regime’ post Ashish Agarwal’s decision between July and September 2022 were valid.

8.2 Before the Supreme Court, the Revenue contended that TOLA was a free-standing legislation and that section 3(1) of TOLA which applied “notwithstanding anything contained in the specified Act” overrides the time limits for issuing a notice under section 148 read with section 149 of the Act. It was further submitted that TOLA did not extend the life of the ‘old regime’ but merely provided a relaxation for the completion or compliance of actions following the procedure laid down under the ‘new regime’. It was urged that section 2 of TOLA defined “specified Act” to mean and include the Income-tax Act and that TOLA would continue to apply to the ‘new regime’ which became a part of the Income-tax Act from 1st April, 2021. The Revenue contended that invalidation of notices issued under the ‘new regime’ post the Supreme Court decision in Ashish Agarwal on the ground that the same were beyond the time limit specified under the Act read with TOLA will completely frustrate the exercise undertaken by the Supreme Court in Ashish Agarwal.

8.2.1 The Revenue submitted that the first proviso to section 149 [refer para 1.4(iv) of Part I of the write-up] did not expressly bar the application of TOLA and once the first proviso to section 149(1)(b) was read with TOLA, the following would be the position for the different years:

   Assessment  year (1) Within 3 years (2) Expiry of limitation read with TOLA \ for (2) (3) Within 6 years (4)

 

 Expiry of limitation read with TOLA for (4) (5)
2013 – 14 31-3-2017 TOLA not applicable 31-3-2020 30-6-2021
2014 – 15 31-3-2018 TOLA not applicable 31-3-2021 30-6-2021
2015 – 16 31-3-2019 TOLA not applicable 31-3-2022 TOLA not applicable
2016 – 17 31-3-2020 30-6-2021 31-3-2023 TOLA not applicable
2017 – 18 31-3-2021 30-6-2021 31-3-2024 TOLA not applicable

The Revenue conceded that for the assessment year 2015-16, all notices issued on or after 1st April, 2021 will have to be dropped as they will not fall for completion during the period provided under TOLA. It seems that this is, possibly, on the ground that last date for issuing notice under section 148 was 31st March, 2022 (6 years time limit) under the ‘old regime’ and that was outside the limitation period covered by TOLA (refer para 7.2 above) for extension.

8.3 On the other hand, the assessee submitted that TOLA applied in cases where the period of limitation expired between 20th March, 2020 and 31st March, 2021 and, therefore, recourse could not be taken to the extended timelines provided under TOLA with respect to the notices issued under section 148 of the ‘new regime’ which came into effect from 1st April, 2021. Assessee further submitted that TOLA did not amend section 149 of the ‘old regime’ but merely extended the specified time limits and that the first proviso to section 149(1)(b) of the ‘new regime’ only referred to the period of limitation as specified under the erstwhile section 149(1)(b) of the ‘old regime’. Assessee contended that Notification no. 38 of 2021 issued on 27th April 2021 to extend the time limits expiring under section 149(1)(b) of the ‘old regime’ till 30th June, 2021 could not be read into the ‘new regime’ once the ‘old regime’ was repealed and substituted by the ‘new regime’.

8.3.1 Assessee categorized the notices post Ashish Agarwal’s decision under the following four categories and submitted as under:

a. First category — notices for AY 2013–14 and 2014–15 issued after 1st April, 2021 would be barred by limitation as the six-year time limit in terms of section 149 expired on 31st March, 2020 and 31st March, 2021 respectively.

b. Second category – notices for AY 2015–16 issued under the ‘old regime’ after 31st March, 2020 but before 1st April, 2021. It was submitted that these notices issued for AY 2015–16 after a period of 4 years which expired on 31st March, 2020 under the ‘old regime’ were bad in law as sanction under section 151 of the ‘old regime’ was not properly obtained.

c. Third category — notices for AY 2016–17 and 2017–18 for which the three-year period as per the ‘new regime’ expired on 31st March, 2020 and 31st March, 2021 respectively. Assessee submitted that the notices were issued after 1st April 2021 after taking sanction of authorities prescribed in section 151(i) instead of those specified in section 151(ii) [refer to in para 1.4 (v) of Part I of the write-up].

d. Directions in the Supreme Court decision in Ashish Agarwal were not intended to apply to assessees who did not challenge the reassessment notices before the High Court or the Supreme Court in the first round.

8.3.2 Assessee further submitted that the applicability of the first proviso to section 149(1)(b) of the ‘new regime’ had to be tested on the date of issuance of notice under section 148 of the ‘new regime’. Assessee also urged that even if TOLA is read into the Income-tax Act, the time limits for completion of actions could be extended till 30th June, 2021 and that the notices issued under the ‘new regime’ from July 2022 to September 2022 were beyond the extended time limits. Assessee further contended that the decision of Ashish Agarwal could not be interpreted in a manner to exclude the entire period from April 2021 to September 2022 and that the directions issued under Article 142 of the Constitution could not contravene the substantive provisions contained in the Act. With respect to the grant of sanction under section 151, assessee submitted that TOLA applied only to provisions that specified time limits and, therefore, section 151 which did not prescribe any time limits was out of ambit of TOLA.

8.4 After considering the rival contentions and referring to relevant provisions of the Act, the Supreme Court proceeded to decide the relevant issues.

8.4.1 Initially, the Court broadly discussed the relevant legislative and judicial background dealing with various principles relating to : (i) Assessment as a quasi-judicial function, (ii) Assessment as an issue of jurisdiction, (iii) Principles of strict interpretation and workability and (iv) Principle of harmonious construction.

8.4.2 The Court then proceeded to discuss and consider the impact of first proviso to Section 149 under the `new regime ‘ and summarised the position of law in that regard in para 53 as under:

“The position of law which can be derived based on the above discussion may be summarized thus: (i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under Section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year; (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the time limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year; and (iv) all notices issued invoking the time limit under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.”

8.4.3 The Court also observed that notices will have to be judged based on the law existing on the date the notice is issued. The Court then referred to the proviso to section 149(1)(b) of the ‘new regime’ and observed that the Revenue can issue reassessment notices for past assessment years only if the time limit of 6 years as per section 149(1)(b) of the ‘old regime’ survives. Court then recorded in para 52 a concession made by the Revenue as under:

“……..MrVenkataraman has also conceded on behalf of the Revenue that all notices issued under the new regime by invoking the six year time limit prescribed under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.”

8.4.4 After noting that Finance Act, 2021 substituted the ‘old regime’, Court then referred to the legislative practice of amendment by substitution which involves repeal of an earlier provision and its replacement by a new provision and observed that after an amendment by substitution any reference to a legislation must be construed as the legislation as amended by substitution. In the context of application of extended time limit under TOLA to the ‘new regime’, the Court in para 63 observed as under:

“TOLA extended the time limits for completion or compliance of certain actions under the specified Act, which fell for completion during the COVID-19 outbreak. The use of the expression “any” in Section 3(1) indicates that the relaxation applies to “all” or “every” action whose time limit falls for completion from 20 March 2020 to 31 March 2021. Section 3(1) is only concerned with the performance of actions contemplated under the provisions of the specified Acts. Consequently, the amendment or substitution of a provision under the specified Acts will not affect the application of TOLA, so long as the action contemplated under the provision falls for completion during the period specified by TOLA, that is, 20 March 2020 to 31 March 2021.”

8.4.5 With respect to the applicability of TOLA to the ‘new regime’ after 1st April, 2021, the Court in para 68 held as under:

“On 1 April 2021, TOLA was still in existence, and the Revenue could not have ignored the application of TOLA and its notifications. Therefore, for issuing a reassessment notice under Section 148 after 1 April 2021, the Revenue would still have to look at: (i) the time limit specified under Section 149 of the new regime; and (ii) the time limit for issuance of notice as extended by TOLA and its notifications. The Revenue cannot extend the operation of the old law under TOLA, but it can certainly benefit from the extended time limit for completion of actions falling for completion between 20 March 2020 and 31 March 2021.”

8.4.6 Furthermore, the Court referred to the non-obstante clause in section 3(1) of TOLA and observed that the same will override section 149 to the extent of relaxing the time limit for issuance of reassessment notices under section 148 of the Act which fell between 20th March, 2020 and 31st March, 2021.

8.4.7 With respect to application of TOLA to grant of sanction under section 151 of the Act, the Court held that the specified authority under section 151 of the Act is directly co-related to the time when a notice is issued. Court further held that TOLA will extend the time limit for grant of sanction by the authority specified under section 151 of the Act.

8.4.8 While dealing with one of the issues raised by the assessee that whether the directions in Ashish Agarwal applied to all the reassessment notices issued under the ‘old regime’ post 1st April 2021 or only those which were challenged by way of writ petitions before the High Courts, after considering the relevant paras of that decision, the Court observed as under at end of para 90:

“The purpose of this Court in deeming the reassessment notices issued under the old regime as show cause notices under the new regime was two-fold: (i) to strike a balance between the rights of the assesses and the Revenue which issued approximately ninety thousand reassessment notices after 1 April 2021 under the old regime; and (ii) to avoid any further appeals before this Court by the Revenue on the same issue by challenging similar judgments and orders of the High Courts (arising from approximately nine thousand writ petitions).”

On this issue, the Court finally held that the decision in Ashish Agarwal would apply PAN India to all the reassessment notices issued between 1st April, 2021 and 30th June, 2021 under the ‘old regime’.

8.4.9 The Court then considering the validity of reassessment notices issued between July to September 2022 post the decision in Ashish Agarwal broke down the period into three parts — (i) period upto 30th June, 2021 – covered by the provisions of the Act read with TOLA, (ii) period from 1st July, 2021 to 3rd May 2022 — period before the decision in Ashish Agarwal and (iii) period after 4th May, 2022 – period covered by the directions issued in Ashish Agarwal. Court then referred to the third proviso to section 149 of the Act which excludes (i) the time allowed under section 148A(b) and (ii) the period during which the proceedings under section 148A are “stayed by an order or injunction of any Court”. Thereafter, the Court at paras 105 to 106 explained the legal fiction created by Ashish Agarwal and held as under:

“105. … During the period from the date of issuance of the deemed notice under Section 148A(b) and the date of the decision of this Court in Ashish Agarwal (supra), the assessing officers were deemed to have been prohibited from passing a reassessment order. Resultantly, the show cause notices were deemed to have been stayed by order of this Court from the date of their issuance (somewhere from 1 April 2021 till 30 June 2021) till the date of decision in Ashish Agarwal (supra), that is, 4 May 2022.

106. … A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). ”

8.4.10 Referring to exclusion of time granted to the assessee to respond to the notice and total time to be excluded under the third proviso to section 149 of the Act, the Court in para 107 stated as under:

“… Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices.”

8.4.11 In the context of time limit for issuing notice under section 148 and deciding validity of such notices issued post the decision in Ashish Agarwal, the Court further stated in para 111 as under:

“The clock started ticking for the Revenue only after it received the response of the assesses to the show causes notices. After the receipt of the reply, the assessing officer had to perform the following responsibilities: (i) consider the reply of the assessee under Section *149A(c); (ii) take a decision under Section *149A(d) based on the available material and the reply of the assessee; and (iii) issue a notice under Section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed under the Income Tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under Section 148 of the new regime.”

* This should be 148A

8.4.12 Supreme Court then held that the reassessment notices issued under Section 148 of the ‘new regime’ ought to be issued within the time limit surviving under the Income Tax Act read with TOLA and that a reassessment notice issued beyond the ‘surviving period’ will be time barred. Supreme Court explained the ‘surviving period’ as was available to the Assessing Officers for issuing the reassessment notices under the ‘new regime’ by way of an example in para 112:

“Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022.”

8.4.13 Finally, Supreme Court set aside the judgments of various High Courts to the extent of the observations made in its present decision.

8.4.14 With respect to the way forward post its decision in Rajeev Bansal, the Supreme Court in its Record of Proceedings dated 3rd October, 2024 (unreported) stated in para 3 as under:

“The assessing officers will dispose of the objections in terms of the law laid down by this Court. Thereafter, the assessees who are aggrieved will be at liberty to pursue all the rights and remedies in accordance with law, save and except for the issues which have been concluded by this judgment.”

Conclusion

9.1 In view of the decision of the Supreme Court, the applicability of TOLA to the provisions of the ‘new regime’ has now been settled. However, the validity of reassessment proceedings initiated for assessment years 2013–14 to 2017–8 will now have to be decided afresh on a case to case basis as per the principles laid down by the Supreme Court in its decision. While doing so, one may also bear in mind that the High Court decisions have been set aside only to the extent of the observations made by the Supreme Court in its decision.

9.2 With respect to reassessment proceedings initiated for AYs 2013–14 and 2014–15, the primary point that will have to be considered is as to whether the reopening notices were issued within the ‘surviving period’ as explained by way of an example by the Supreme Court in para 112 of the judgment (refer para 8.4.12 above). Depending on the date on which the 148 notices were issued under the ‘old regime’, it is possible that some of the notices issued for the assessment years 2013–14 and 2014–15 could be barred by limitation. For instance, if the 148 notice under the ‘old regime’ was issued on say 21st June 2021, the AO would have 10 days (days between 21st June, 2021 and 30th June, 2021) to issue notice under the ‘new regime’ which would start after receiving the response of the assessee. Assuming that the assessee submitted his response on 9th June 2022 post the decision in Ashish Agarwal, the AO ought to have issued the 148 notice under the ‘new regime’ by 19th June 2022. If the notice is issued after 19th June, 2022, the same would be barred by limitation. For further clarity on this, discussions appearing at paras 8.4.9 to 8.4.11 above is also useful.

9.2.1 In the above example, had the 148 notice under the ‘old regime’ been issued on 29th June, 2021, the time available to the AO for issuing notice under the ‘new regime’ being less than 7 days should be extended to 7 days as per the fourth proviso (as at the time of introduction) to section 149(1) of the Act [refer para 1.4(iv) of Part I of the write-up].

9.2.2 In an event where no response was filed by the assessee pursuant to the information supplied by the AO as per the directions in Ashish Agarwal, the time for issuing 148 notice under the new regime in the above example would start from the end of the date by which the response ought to have been filed by the assessee.

9.2.3 Further, what is envisaged by the third proviso to section 149(1) is exclusion of the time or extended time allowed to the assessee to file a response. In a case where the AO suomotu extends the time to file the response without any request by the assessee such time should not be excluded while computing the period of limitation. In this regard, useful reference may be made to the decision of the Bombay High Court in Godrej Industries Ltd. vs. ACIT Cir. 14(1)(2) [2024] 160 taxmann.com 13 (Bombay).

9.2.4 With respect to reassessment proceedings for AYs 2016–17 and 2017–18 where income alleged to have escaped assessment is less than R50 lakhs, one can contest the validity of such notices after considering the example of the ‘surviving period’ and considering the dates in each case. In such cases also, the position mentioned in paras 9.2 to 9.2.3 above will be relevant. Further in the context of applying ₹50 lakhs limit, it is worth noting that gross sales consideration is not the income. There is distinction between the two. For this useful reference may be made to the M.P. High Court judgment in the case of Nitin Nema[ (2023) 458 ITR 690] against which Revenue’s SLP is recently dismissed [(2024) 468 ITTR 105-SC]
9.3 With respect to the reassessment proceedings for assessment year 2015–16 initiated on or after 1st April. 2024 the same ought to be dropped by the Assessing Officers in light of the concession made by the Revenue recorded in para 19(f) of the Supreme Court judgment (refer para 8.2.2 above) to this effect (also refer para 8.4.3 above). For this useful reference may also be made to tribunal decisions referred to next para 9.4.

9.4 Reference may be made to a decision of the Mumbai Tribunal in ITO 10(3)(1) vs. Pushpak Realities Pvt. Ltd. (ITA no. 4812, 4814 and 4816/ Mum/2024) where the Tribunal was dealing with the appeal filed by the Revenue challenging the order of the CIT(A) quashing the reassessment proceedings for AY 2013–14 to 2015–16. Tribunal followed the ratio laid down in Rajeev Bansal’s case while deciding the matter. Tribunal held that the notices issued for AY 2013–14 on 29th July 2022 and for AY 2014–15 on 31st July, 2022 were barred by limitation even under TOLA. Tribunal also quashed the 148 notice for AY 2015–16 issued on 28th July, 2022 after noting Revenue’s concession before the Supreme Court that TOLA did not apply to AY 2015–16 and held that the same was barred by limitation under the new provisions of section 149(1). It is worth noting that in this case relevant facts for determining the ‘surviving period’ to find out time limit available for issuing notice under section 148 post Ashish Agarwal’s decision is not available from the ITAT decision. It may be noted that this is ex-parte decision and nobody appeared for the assessee. In the context of AY 2015-16, similar view is also taken by the Mumbai Tribunal in ACIT vs. Manish Financial (ITA nos. 5050 and 5055/ Mum/ 2024) where the reopening notice dated 29th July 2022 for AY 2015-16 is quashed.

9.5 In appropriate cases, based on the facts, the validity of the reassessment notices will have to be seen based on whether the approval of the specified authority under section 151 was validly obtained. In this regard, the example given by the Supreme Court in para 78 is of paramount importance. Supreme Court observes — “For example, the three year time limit for assessment year 2017-2018 falls for completion on 31st March, 2021. It falls during the time period of 20th March, 2020 and 31st March, 2021, contemplated under Section 3(1) of TOLA. Resultantly, the authority specified under Section 151(i) of the ‘new regime’ can grant sanction till 30th June, 2021.” From this, it would appear that while TOLA applied for the purposes of section 151 of the ‘new regime’ as well, however, the authority specified in section 151(i) of the ‘new regime’ could grant sanction only upto 30th June 2021 and not beyond that. The 148 notices issued post Ashish Agarwal’s decision were all issued in 2022. In such an event, with respect to 148 notices issued under the ‘new regime’ for AYs 2016–17 and 2017–18, the sanction ought to have been obtained from the authority specified under section 151(ii) after 30th June, 2021. If the sanction is not so obtained, the reopening notices for these AYs should be bad in law. In the case of ACIT vs. Manish Financial (ITA nos. 5050 and 5055/ Mum/ 2024) before the Mumbai Tribunal, for AY 2016-17, reassessment notice was issued on 30th July 2022 under the ‘new regime’ post the directions in Ashish Agarwal. The said notice was issued after obtaining sanction of PCIT-19, Mumbai i.e. authority specified u/s. 151(i) of the Act. Tribunal held that the 148 notice was invalid and liable to be quashed as the notice was issued beyond a period of three years and that the approval ought to have been taken from an authority specified u/s. 151(ii) of the Act.

9.6 As stated in para 9.1 above, the decisions of the High Courts are set aside only to the extent of the observations made by the Supreme Court in Rajeev Bansal’s case. As stated in para 5.5 of Part 1 of the write-up, Bombay High Court in the decision of Siemens while adjudicating on the validity of the reassessment proceedings, had also held that the concept of ‘change of opinion’ will apply even under the ‘new regime’. Supreme Court may be considered to have impliedly approved the above decision of the High Court on the point of change of opinion.

9.7 In the above Rajeev Bansal’s case, the Court has disposed of large number of appeals involving different assessment years and facts by adjudicating on common legal issues. Therefore, each case will have to be finally decided on it’s facts applying the legal position decided by the Supreme Court on given issues. As such, one more round of litigation in many cases can’t be ruled out for the re-assessment notices originally issued during 1st April, 2021 to 30th June, 2021. This set of provision, which was undoubtedly well intended and beneficial to the assessees in the area of reassessments, met with such kind of litigation up to the highest court twice and still cases involved are not concluded with a possibility of further litigation. This reflects the state of affairs in the Country with regard to repetitive and long drawn unending litigation in tax matters leading to uncertainty. Unfortunately, such trend may also continue in future if the past experience of tax litigation is any guide. This also affects the investments and growth prospects of overall economy which is against the interest of every one. As such, some drastic steps are needed to remedy this situation and more importantly, mind set and approach of All Stake Holders need to change in this regard and that is perhaps the need of the hour in overall national interest. Let us be positive and hope for the sunrise.

9.8 Further amendments have been made in the provisions dealing with reassessment proceedings such as sections 148, 148A, 149, 151 etc. by the Finance (No.2) Act, 2024 w.e.f. 1st September, 2024. Therefore, reassessment notice issued from 1st September, 2024 will be governed by these amended provisions.

Climate Change and Its Impact on Financial Statement

This article explores the critical intersection of climate change and corporate finance. As the world grapples with the urgent need to address climate change, driven by the UN Sustainable Development Goals (SDGs) and the growing emphasis on Environmental, Social, and Governance (ESG) factors, companies are increasingly recognising the financial implications of their environmental impact. From rising operational costs and disrupted supply chains to changing consumer preferences and increased regulatory scrutiny, climate change poses significant risks and opportunities for businesses. This article will delve into how these climate-related factors can impact a company’s financial statements, highlighting the crucial role of ESG reporting frameworks like the Business Responsibility and Sustainability Reporting (BRSR) in navigating this evolving landscape.

WHAT IS CLIMATE CHANGE?

Our planet is experiencing a dramatic shift in its climate, largely due to human activities over the past couple of centuries. By burning fossil fuels like coal, oil, and gas, we’ve released a massive amount of greenhouse gases into the atmosphere. These gases act like a blanket, trapping heat and causing our planet to warm up. This warming trend isn’t just about rising temperatures. It’s disrupting our weather patterns, leading to more intense heatwaves, stronger storms, and a significant rise in sea levels as glaciers and ice caps melt. These changes threaten our ecosystems and have devastating consequences for people and economies around the world.

India, unfortunately, is particularly vulnerable to these impacts. We’re already seeing a surge in extreme weather events like floods, droughts, and scorching heatwaves. These events disrupt lives, damage infrastructure, and threaten our agricultural productivity. To tackle this crisis, we need a two-pronged approach:

  •  Mitigation: We must drastically reduce our greenhouse gas emissions to prevent further warming.
  • Adaptation: We must also adapt to the changing climate by implementing measures to protect our communities and infrastructure from the inevitable impacts.

The effects of climate change are not confined to the environment. They are deeply intertwined with our financial systems. Extreme weather events can devastate businesses, damaging assets, disrupting supply chains, and increasing operational costs. The transition to a low-carbon economy also presents challenges, such as the need for significant investments in renewable energy and the risk of stranded assets. Recognising these risks, financial regulators and standards-setting bodies are now demanding greater transparency around climate-related issues. The International Accounting Standards Board (IASB), for example, recently issued an exposure draft addressing the disclosure of climate risks in financial statements underscoring their relevance to financial stability.

By understanding and disclosing these risks, companies can better manage them and make more informed decisions. It’s time for businesses to acknowledge their role in addressing climate change and to embrace sustainable practices that safeguard their long-term viability.

CLIMATE-RELATED RISKS AND OPPORTUNITIES

Climate related financial information has an increased demand for decision making by the investors, lenders, insurance underwriters and other stakeholders. However, the improved disclosures of the climate-related information would assist the investors, lenders, insurance underwriters and other stakeholders to analyse the potential financial impacts due to climate change. These improved disclosures would include climate-related risks and opportunities which will be the handbook to evaluate such disclosures.

The TCFD (Task Force on Climate-Related Financial Disclosures) has identified that there are several frameworks for climate-related disclosures in different jurisdictions to favour the growing demand of such information disclosure, however, it is significant to have a standardised framework that will align all the jurisdictions including G20 and other existing regimes and look for an opportunity to provide the common framework for climate-related disclosures.

The important elements of such climate-related disclosure framework is the categorisation of the disclosures into climate-related risks and opportunities. Hence, the TCFD has defined their categories. These recommendations has resulted in encouraging the businesses to make such disclosures as a part of their annual reports highlighting issues that are more pertinent to their business activities.

The main climate-related risks and opportunities are given below followed by their brief descriptions:

1. Climate-related Risks

The TCFD has divided the Climate-related Risks in two sub-categories each having further divisions in its type of risk. The two major sub-categories of risks are: (a) risks related to the transition to a lower- carbon economy, and (b) risks related to the physical impacts of climate change. Further, the detailed sub-categories are as under:

(a) Transition Risks

Transition to a lower-carbon economy can have extensive policy & legal, technology, market and reputational changes to adopt the mitigation and adaptation requirements related to the climate changes. These transitional risks can result in varying levels of financial and reputations risk to the organisation depending on the nature, speed, and focus of these changes.

(i) Policy and Legal Risks:

The policy and legal risks refers to the challenges that are faced by the companies due to the changes in the policies, regulations, frameworks and other legal changes that are aimed at addressing the climatic challenges. These kind of risks arise from governmental and regulatory bodies as they are the ones who implement these new laws, standards and policies to transit towards a low-carbon economy and mitigate the impact of climate changes. In case of failure to comply and adopt these changes, it will lead to financial losses, legal liabilities, and reputational damages.

Policy Risks are the ones that are linked to changes in governmental policies and regulatory frameworks related to climate change mitigation and adaptation. Some of these examples include: Stricter Limitations on Emissions, Subsidy Reforms, Energy Efficiency Regulations, Carbon Pricing and Taxes, Ban on Certain Activities, etc.

Legal Risks are the fines / penalties imposed on the businesses due to non-compliance with evolving climate-related regulations or failure to meet disclosure and sustainability standards. Such legal risks includes litigation for non-compliance, increased disclosure requirements, contractual obligations, securities fraud or misrepresentation, liability for environmental harm, etc.

(ii) Technology Risk

Such risks refer to the potential disruptions and challenges due to shifts in technology aiming towards reduction in carbon emissions and enhancing sustainability. These risk arises when the companies transit towards low-carbon energy-efficient technologies to adhere to the regulatory changes, market demands, or several environmental objectives.

Technology Risks includes certain key aspects, such as: Use of outdated technology, investment cost for adopting greener technologies, and competitive market in terms of adapting climate-friendly technologies, temporary operational disruptions while introducing new technologies, changing regulatory requirements, etc.

Managing such risks requires strategic planning, investment in innovation, and staying aware of technological and regulatory developments.

(iii) Market Risk

Financial impact that arises from the shift in supply and demand due to the transition to low-carbon economy are identified as the Market Risks. Under this factor, the transitions to low-carbon economy are driven by the factors such as new climate policies,  technological advancements, or changes in consumer behaviour.

The key components of market risks includes: Demand shifts, changes in prices of commodities, devaluation of assets, fluctuation in investor behaviour, supply chain impacts, etc.

(iv) Reputation Risk

This risk has a potential harm to a Company in terms of damage to public image, brand value, or stakeholder trust due to its perceived or lack of response to climate change and sustainability expectations. This occurs when companies fail to address climate-related demands from customers, regulators, investors, or the general public, which can negatively affect Company’s reputation and market positioning.

The manifested reputation risks includes: Failure to adapt to regulatory changes, environmental negligence, changes in customer preferences, greenwashing accusations, investors’ pressure, etc.

(b) Physical Risks

Physical Risks are the potential harm or disruptions to the businesses, economies, and ecosystems caused by the physical impacts of climate change. There risks resulting from climate changes can either be event drive (acute) or longer-term shifts (chronic) in climate patterns. They can significantly affect the operations, assets, supply chains, and financial performance of the Company.

(i) Acute Physical Risk

These risks are the immediate or short-term consequences of the extreme weather events that are caused due to climate change. Such risks includes sudden and severe climate- related incidents, such as: Floods, Storms, Hurricanes, Heatwaves, Wildfire, etc.

Acute Risks can disrupt company operations, harm supply chains, damage assets, and affect the communities. To face and mitigate such risks, companies shall plan for resilience, disaster recovery, and other mitigation strategies to manage the potential impacts.

(ii) Chronic Physical Risk

Chronic Risk refers to the long-term changes in environmental and climatic conditions that could affect the businesses, its infrastructure, and societies. Unlike acute physical risks, that are associated with short-term, severe weather events, chronic physical risks are gradual and has persistency in climate patterns that can disrupt normal operations and productivity.

These risks include examples such as: Rising global temperatures, long-term droughts or shift in rainfall, sea-level rise, soil degradation, etc.

2. Climate-related Opportunities

Climate-related Opportunities refer to the potential benefits and positive impacts that the companies get which arise from the transition to a low-carbon economy and from proactive approaches to managing climate risks. Companies that recognise and leverage these opportunities can enhance their competitiveness, drive innovation, and contribute to sustainability.

Climate-related Opportunities are further classified as under:

(a) Resource Efficiency

Resource Efficiency under climate-related opportunities refers to effective utilisation of resources such as energy, water, material and land, in a way that it minimises waste generation and reduces negative environmental impact while maximising the productivity and profitability.

Embracing the resource efficiency could provide various benefits such as: Lower operation cost, gain competitive advantage, risk mitigation, adoption of innovative technologies, improved brand image, complying with environmental regulations, etc.

(b) Energy Source

Energy Source can be referred to the potential benefits that occurs from a transition to cleaner, renewable, and more efficient energy solutions to reduce the negative environmental impact and other greenhouse gas emissions.

The Companies that invest in the sustainable solutions can benefit from financial, operational, and reputational advantages. The transitional journey may include key aspects such as: Adoption of Renewable Energy Sources, Implementing Energy-efficient Technologies, Investing in Clean Energy Solutions, Offering Green Products in the Market, etc.

(c) Products & Services

Products & services refers to the creation, innovation, and adaptation of sustainable practices in the business offerings that helps the businesses and customers to transit to low-carbon sustainable economy. Such sustainable offerings benefits the businesses in generating new revenue streams by addressing the environmental risks and challenges.

The key examples here includes, development of low-carbon products, sustainable packaging, green financial products, adapting renewable energy services, energy efficiency solutions, carbon credits and reforestation programs, etc.

(d) Markets

The new or growing sectors, regions, and types of assets where businesses can gain a competitive advantage by adapting the practices to transit to low-carbon economy can be referred to as Markets. These markets offer potential growth and diversification by aligning with sustainability and decarbonisation goals.

The key aspects of these markets include: Sustainable Financing like investing in Green Bonds, Impact Investing; Low-Carbon Infrastructure, Renewable Energy Production, Collaborations with Governments & Development Banks, Carbon Trading & Offsetting Markets, etc.

(e) Resilience

It is a business’s ability to adapt and withstand to climate change challenges. This is merely focused on transitioning the climate-related risks to climate-related opportunities by minimising disruptions and enhancing adaptive capacity. Opportunities that are related to resilience includes, efficiency improvements, innovative products / processes, supply chain adaptation and investment in long-term sustainability projects, etc.

FINANCIAL IMPACTS OF POTENTIAL CLIMATE-RELATED RISKS

The financial impacts are basically the economic consequences faced by the companies due to both transition and physical risks posed by climate change. These impacts includes effects on the company’s operations, liabilities, assets and costs in several ways.

Below are the key areas where financial impacts may arise:

Type

 

 Climate-Related Risks

 

 Potential Financial Impacts

 
Transition Risks

 

Policy and Legal

Increased costs related to greenhouse gas (GHG) emissions pricing

• Increased obligations for emissions reporting

• Regulatory mandates on existing products and services

• Heightened risk of litigation

  

 

Higher operating expenses, including compliance costs and increased insurance premiums

• Asset write-offs, impairments, or early retirements due to policy shifts

• Elevated costs or reduced demand for products and services as a result of fines and legal judgments

 
Technology

 

Replacement of current products and services with lower-emission alternatives

• Unsuccessful investments in developing or adopting new technologies

• Expenses incurred in transitioning to low- emission technologies

  

 

 

• Asset write-offs and premature retirement of existing infrastructure

• Decline in demand for current products and services

• Increased research and development (R&D) expenses for new and alternative technologies

• Capital investments and cost required for developing new technologies and adopting & implementing new practices and processes
Market
• Shifts in customer preferences and behavior

• Uncertainty in market trends and signals

• Rising costs of raw materials

 • Declining demand for products and services as consumer preferences shift

• Higher production costs due to fluctuating input prices (e.g., energy, water) and stricter output regulations (e.g., waste management)

• Sudden and unforeseen increases in energy costs

• Altered revenue streams and mix, potentially leading to lower overall revenues

• Revaluation of assets such as fossil fuel reserves, land, and securities
Reputation

 

• Changes in consumer preferences

• Negative perception or stigmatisation of the industry

• Heightened stakeholder concerns or adverse feedback from stakeholders

  

• Decline in revenue due to reduced demand for goods and services

• Loss of revenue from disruptions in production capacity (e.g., delays in planning approvals or supply chain interruptions)

• Decreased revenue from challenges in workforce management, such as difficulties in attracting and retaining employees

• Limited access to capital due to increased exposure to physical risks
Physical Risks

 

 Acute

Heightened intensity of extreme weather events, including cyclones and floods.

 

Chronic

 

• Alterations in precipitation patterns and increased variability in weather conditions

• Increasing average temperatures

• Rising sea levels

 

  

Reduced revenue from diminished production capacity (e.g., challenges in transportation and supply chain disruptions)

• Decreased revenue and elevated costs due to adverse workforce impacts (e.g., health risks, safety issues, and absenteeism)

• Asset write-offs and early retirement of existing assets resulting from damage in “high-risk” locations

• Increased operating costs due to insufficient water supply for hydroelectric plants or cooling systems for nuclear and fossil fuel plants

• Heightened capital expenditures driven by facility damage

• Lower revenues resulting from decreased sales and output

• Rising insurance premiums and potential restrictions on coverage for assets situated in “high-risk” areas

FINANCIAL IMPACTS OF POTENTIAL CLIMATE-RELATED OPPORTUNITIES

Though the companies navigate the challenges / risks posed by climate-change, it also identifies significant opportunities to drive growth and enhance resilience. These opportunities can lead to various positive financial impacts, such as:

Type Climate-related Opportunities Potential Financial Impacts
Resource Efficiency

 

Adoption of more energy-efficient transportation methods

• Implementation of streamlined production and distribution processes

• Increased focus on recycling and resource recovery

• Transition to energy-efficient and sustainable buildings

• Reduction in water consumption and improved water management practices

 • Lower operating costs achieved through efficiency improvements and cost reductions

• Enhanced production capacity, leading to higher revenues

• Increased asset value, such as energy-efficient buildings with higher ratings

• Positive impact on workforce management, including improved health, safety, and employee satisfaction, resulting in reduced costs
Energy Source

 

 • Adoption of low-emission energy sources

• Utilisation of supportive policy incentives

• Integration of innovative technologies

• Participation in carbon trading markets

• Transition to decentralised energy generation systems

 • Lower operating cost through cost-effective emissions reduction measures

• Reduced vulnerability to future increases in fossil fuel prices

• Decreased exposure to GHG emissions, minimising sensitivity to carbon pricing changes

• Enhanced returns on investments in low- emission technologies

• Improved access to capital as investors increasingly prioritise low-emission businesses

• Reputational gains leading to higher demand for products and services
Products

& Services

 • Expansion and innovation in low-emission products and services

• Creation of climate adaptation and insurance risk management solutions

• Development of new offerings through research, development, and innovation

• Opportunities to diversify business operations

• Capitalising on shifting consumer preferences toward sustainable products and services

 • Increased revenue driven by growing demand for low-emission products and services

• Revenue growth from offering innovative solutions to climate adaptation needs (e.g., insurance and risk management products)

• Enhanced competitive advantage by aligning with evolving consumer preferences, leading to higher revenues
Markets

 

 • Entry into               new markets and expansion opportunities

• Utilisation of regulatory incentives and support

• Access to new assets and locations requiring insurance coverage

 • Increased revenue opportunities through entry into new and emerging markets (e.g., collaborations with governments and development banks)

• Enhanced diversification of financial assets (e.g., investments in green bonds and sustainable infrastructure)
Resilience

 

 • Engagement in renewable energy initiatives and implementation of energy-efficiency strategies

• Diversification and substitution of resources

• Enhanced market valuation through strategic resilience planning (e.g., infrastructure, land, and buildings)

• Greater supply chain reliability and operational continuity under diverse conditions

• Increased revenue from new products and services designed to support resilience and adaptability

EFFECTS OF CLIMATE-RELATED MATTERS ON FINANCIAL STATEMENTS

Ind AS Standards Impact
Ind AS – 1

Presentation of Financial Statements

• Companies must disclose significant climate-related matters that could materially impact their financial performance. This includes uncertainties related to future cash flows, asset impairment, and decommissioning obligations. These disclosures should help investors understand the potential impact of climate change on the company’s financial health.

• Disclose key assumptions and judgments used in financial reporting, particularly those related to climate-related uncertainties. This includes how climate-related factors are considered in areas like impairment testing, the determination of cash-generating units, and the estimation of future cash flows.

• Disclose the sensitivity of financial results to different climate-related scenarios. This helps investors understand how changes in climate conditions or policy responses could impact the company’s financial performance.

• Assess and disclose the company’s ability to continue as a going concern, considering the potential impact of climate-related risks. This includes evaluating the potential impact of climate change on the company’s operations, market demand, and access to resources.
Ind AS – 2

Inventories

 • Climate-related events can significantly impact the value of a company’s inventory. For example, extreme weather events can damage inventory, rendering it obsolete. Changes in consumer preferences due to climate change can also reduce the selling price of inventory or increase the costs associated with completing and selling it.

• When the cost of inventory is no longer recoverable, IAS 2 requires companies to write down the inventory to its net realisable value. Net realisable value represents the estimated selling price of the inventory in the current market, minus the estimated costs of completion and sale.

• Companies must use the most reliable evidence available to estimate the net realisable value of their inventory. This may include market prices, recent sales data, and expert opinions.
Ind AS – 12

Income Taxes

 • Ind AS 12 allows companies to recognise deferred tax assets for tax losses and temporary differences that can be used to reduce future tax bills. However, these assets can only be recognised if it’s likely that the company will generate enough future taxable profits to utilise these tax benefits.

• Climate-related issues can significantly impact a company’s future taxable profits. For example, extreme weather events can disrupt operations, leading to lower profits and potentially preventing the company from utilising its deferred tax assets. Conversely, climate change mitigation efforts, such as investments in renewable energy, can impact future tax liabilities and therefore the value of deferred tax assets.
Ind AS – 16

Property, Plant and Equipment &

Ind AS – 38

Intangible Assets

 • Climate change can significantly impact a company’s research and development (R&D) activities. This may lead to increased expenditures on developing new technologies, such as renewable energy solutions, or adapting existing products to mitigate climate risks. These R&D costs may be capitalised as assets under certain accounting standards, depending on their nature and expected future benefits.

• Companies must disclose the amount of R&D costs recognised as an expense during each reporting period. These expenses may be impacted by climate-related changes, such as increased spending on climate-related R&D projects or adjustments to existing R&D programs due to changing market conditions or regulatory requirements.

• Companies are required to regularly review and adjust the estimated useful lives and residual values of their assets. This includes considering the potential impact of climate change. For example, climate-related events like extreme weather can shorten the useful life of certain assets, while changing regulations related to greenhouse gas emissions can render some assets obsolete.

• Companies must disclose the expected useful lives of each class of asset and any changes to these estimates. These disclosures should include the impact of climate-related factors, such as asset obsolescence or changes in regulatory requirements, on the estimated useful lives and residual values of assets.
Ind AS – 36

Impairment of Assets

 • Companies are required to regularly assess whether their assets, such as goodwill, property, plant and equipment, and intangible assets, have lost value. Climate-related factors, such as reduced demand for products that emit greenhouse gases or significant environmental changes, can signal potential impairment. For example, changes in environmental regulations or shifts in consumer preferences towards more sustainable products can lead to a decline in the value of certain assets.

• When assessing asset impairment, companies must estimate the future cash flows that the asset is expected to generate. These estimates should consider the potential impact of climate-related factors on the company’s future operations and market conditions. It’s crucial to base these projections on reasonable and supportable assumptions that reflect management’s best estimate of future economic conditions, taking into account potential climate-related risks.

• IAS 36 prohibits the inclusion of cash flows arising from future restructuring or performance enhancement activities in the impairment assessment. This ensures that the impairment test reflects the intrinsic value of the asset under normal operating conditions.

• Companies must disclose the events and circumstances that led to any impairment losses.
This includes disclosing the impact of new legislation on emission reductions, changes in consumer preferences, or other climate-related factors. Additionally, companies must disclose the key assumptions used in their impairment assessments and the potential impact of reasonably possible changes to these assumptions.
Ind AS – 37

Provisions, Contingent Liabilities and Contingent Assets and Appendix “C” Levies

 

 • Climate change can significantly impact a company’s liabilities. This includes potential liabilities arising from government fines for failing to meet climate-related targets, costs associated with environmental remediation, and expenses related to restructuring efforts to adapt to a low-carbon economy. Additionally, existing contracts may become onerous due to changes in climate-related legislation or regulations.

• IAS 37 requires companies to disclose the nature of provisions and contingent liabilities. This includes any uncertainties related to the timing and amount of expected future cash outflows. Companies must also disclose the major assumptions made about future events when determining the amount of provisions, particularly when these assumptions are significantly influenced by climate-related factors.
Ind AS – 107

Financial Instruments

 • Ind AS – 107 requires companies to disclose information about their financial instruments and the associated risks. Climate change can significantly impact these risks, such as by affecting the likelihood of borrowers defaulting on loans (credit risk) or by impacting the value of investments in sectors vulnerable to climate change. Companies must disclose how these climate-related factors may affect their financial instruments.

• For companies holding investments in other companies, Ind AS – 107 requires disclosure of investments by industry or sector. This helps investors understand the company’s exposure to industries that may be more vulnerable to the effects of climate change, such as those heavily reliant on fossil fuels or those operating in regions prone to extreme weather events.
Ind AS – 109

Financial Instruments

 • Climate change can significantly impact the accounting for financial instruments. For example, loan agreements may include clauses that link interest rates or repayment schedules to a company’s progress in meeting climate-related targets. This can complicate the accounting for these loans, as lenders need to carefully assess whether the cash flows received are solely interest payments or include performance-based components.

• Climate-related factors can increase the risk of borrowers defaulting on loans. Extreme weather events like wildfires or floods can disrupt a borrower’s operations, impacting their ability to repay debt. Changes in climate regulations can also significantly impact a borrower’s financial performance, increasing the risk of default. Additionally, the value of collateral used to secure loans may be diminished due to climate change impacts, such as the inaccessibility or non-insurability of certain assets.

• When assessing the likelihood of borrowers defaulting on loans (credit risk), lenders must consider all relevant factors, including climate-related risks. Ind AS – 109 requires the use of all reasonable and supportable information in estimating expected credit losses. This means that lenders must incorporate potential climate-related impacts into their economic forecasts and credit risk assessments.
Ind AS – 113

Fair Value Measurement

 • Climate change can significantly impact the fair value of a company’s assets and liabilities. For example, the introduction of new climate-related regulations can change how market participants perceive the value of certain assets or liabilities, potentially impacting their market price.

• Fair value measurements, particularly those based on less observable inputs (Level 3 of the fair value hierarchy), are highly sensitive to underlying assumptions. These assumptions must consider the potential impact of climate-related risks, such as the likelihood of extreme weather events, changes in consumer preferences, and shifts in regulatory landscapes.

• Ind AS – 113 mandates companies to disclose the key inputs used in their fair value measurements, especially for assets and liabilities classified within Level 3 of the fair value hierarchy. They must also explain how changes in these unobservable inputs, including those related to climate change, could significantly affect the fair value measurement.
IFRS 17

Insurance Contracts

(Ind AS 117 is yet to be issued)

• Climate change can significantly impact insurance companies. As climate change intensifies, we can expect to see more frequent and severe weather events, such as hurricanes, floods, and wildfires. This increases the likelihood and severity of insured events like property damage, business interruptions, and health claims, which in turn can impact the insurance company’s financial obligations.

• IFRS 17 requires insurance companies to accurately measure and disclose their insurance liabilities. Climate change introduces significant uncertainties into these calculations. Companies must carefully consider how climate change may impact the frequency and severity of insured events when determining their liabilities.

• Companies must disclose significant judgments made in applying IFRS 17. This includes how they account for the potential impact of climate change on the likelihood and severity of insured events. They must also disclose how they manage the risks associated with these climate-related events and how sensitive their insurance liabilities are to changes in these risks.

PROPOSED ILLUSTRATIVE EXAMPLES

The International Accounting Standards Board (IASB) has recently issued an Exposure Draft titled “Climate-related and Other Uncertainties in the Financial Statements.” This draft introduces eight illustrative examples to enhance the application and disclosure of climate-related and other uncertainties in financial statements. These examples aim to improve the quality and consistency of climate-related disclosures by providing practical guidance on how to apply existing International Financial Reporting Standards (IFRS) to various scenarios. Two of the examples are given below, for reference:

Example 1 – Materiality Judgements Leading to Additional Disclosures (IAS 1/IFRS 18)

Scenario: A manufacturer with a climate-related transition plan, including investments in energy-efficient technology and changes in manufacturing methods.

Disclosures: The entity discloses that its transition plan has no material effect on its current financial position and financial performance.

Basis for Disclosure

  •  The entity determined that the transition plan does not currently impact the recognition or measurement of assets, liabilities, income, and expenses.
  •  However, the entity recognises that the absence of this information could mislead users, as they might expect some financial impact from the planned changes.
  •  Considering the detailed disclosure of the transition plan outside the financial statements and the industry’s known exposure to climate-related transition risks, the entity concludes that this disclosure is necessary to provide a complete picture to financial statement users.

Example 2 – Disclosure of Assumptions: Specific Requirements (IAS 36)

Scenario: A company operates in an industry with significant greenhouse gas emissions and is subject to existing and anticipated future emissions regulations.

Disclosures: The entity discloses that future emission allowance costs are a key assumption in its impairment testing of a cash-generating unit.

Basis for Disclosure:

  •  IAS 36 requires disclosure of key assumptions used in impairment testing, particularly those with a significant impact on the recoverable amount.
  •  Future emission allowance costs are identified as a key assumption due to their potential impact on the cash flows of the cash-generating unit.

CONCLUSION

Climate change is no longer just an environmental issue; it’s a significant financial risk that companies cannot afford to ignore. The increasing frequency and severity of extreme weather events, growing pressure from regulators, and shifting consumer preferences are all impacting businesses. These factors directly affect a company’s bottom line, influencing revenues, costs, and the value of its assets.

As companies are increasingly required to disclose climate-related risks and opportunities in line with regulations like SEBI LODR and other frameworks, it’s crucial to connect this information to their financial performance. Simply put, companies need to understand how climate change impacts their finances. ESG reporting provides a structured way to do this, helping companies bridge the gap between their environmental and social impacts and their financial performance.

This approach aligns with the principles outlined in IFRS S2, which emphasises the importance of connecting financial and non-financial information. By understanding how climate risks and opportunities influence both their financial performance and broader sustainability objectives, companies can gain deeper insights into their overall business health. Embracing ESG principles allows companies to navigate this evolving landscape more effectively, building long-term resilience and positioning themselves for sustainable success.

REFERENCES

Business Succession Planning: The Strategic Role of Chartered Accountants and Creating Value beyond Compliance

Many Indian businesses are family-owned and operated. Statistics suggest that only a few such businesses (and the wealth created through them) survive and thrive for generations to come. Succession Planning thus becomes an important issue in the survival, maintenance and growth of businesses and wealth. The Author of this article highlights some of the critical aspects of Succession Planning and the role of Chartered Accountants in it. Succession Planning can become an attractive area for practice as CAs are trusted business advisors, are close to family members and have the skills to balance legal nuances with commercial acumen and feasibility.

INTRODUCTION

The Indian MSME sector, comprising over 63 million enterprises and contributing approximately 30 per cent to India’s GDP, stands at a critical juncture. As the first-generation entrepreneurs of post-independence India start ageing, the question of business continuity and succession looms large. According to a 2021 survey on Indian Family Businesses, only about 30 per cent of family businesses survive to the second generation, approximately 13 per cent make it to the third generation, and merely 4 per cent survive beyond that.

These statistics become more alarming, considering their economic impact. The Credit Suisse Family 1000 Report 2018 highlights that family-owned businesses account for approximately 79 per cent of India’s organised private sector. Family businesses contribute significantly to India’s GDP and employment generation, as reported by the FICCI and ISB’s ‘Indian Family Business Report 2022’. They employ approximately 49% of the country’s workforce. Family-owned enterprises contribute to 63 per cent of India’s industrial output. These businesses are responsible for 90 per cent of India’s industrial units. Furthermore, the report indicates that 96 per cent of all companies in India are family-owned, underlining their crucial role in the nation’s economic fabric. Despite this outsized impact, the low survival rate across generations poses a significant risk to economic stability and growth. Yet, most entrepreneurs postpone succession planning until it’s too late, often leading to value erosion or complete business dissolution during generational transitions.

The contrast with Japan presents a compelling case for structured succession planning. Japan has over 33,000 businesses that are more than 100 years old. According to research by Shinise (long-established Japanese companies) studies, over 3,100 companies have survived for more than 200 years, with some continuing successfully for over 1,000 years. Remarkably, about 90 per cent of these long-lasting businesses are small and medium-sized enterprises with fewer than 300 employees. The oldest existing independent company in the world is Kongō Gumi, a Japanese construction company founded in 578 AD, which operated continuously for 1,428 years.

This stark contrast in business longevity between Indian and Japanese enterprises can be attributed to several factors, but at the core lies Japan’s systematic approach to succession planning, which is deeply embedded in their business culture. Their concept of ‘shinise’ emphasises preserving business value across generations through well-defined succession practices, strong governance mechanisms, and clear leadership transition protocols.
While large corporations like the Tatas, Birlas, Ambanis, and, more recently, the Adani Group have formalised their succession planning, the vast majority of small and medium enterprises remain unprepared for a leadership transition, potentially risking the very existence of enterprises built through decades of entrepreneurial effort.

For professional practitioners serving these enterprises — chartered accountants and lawyers — this presents both a challenge and an unprecedented opportunity. Having served as trusted advisors, often across generations, these professionals are uniquely positioned to evolve from their traditional role of compliance specialists to strategic consultants in succession planning.

UNDERSTANDING BUSINESS SUCCESSION PLANNING: A STRATEGIC IMPERATIVE

Succession planning transcends the conventional understanding of mere ownership transfer through wills or trusts. For professionals advising SMEs, it is crucial to first internalise and then effectively communicate that succession planning encompasses a comprehensive framework addressing four crucial dimensions: ownership transition, management succession, control mechanisms, and operational continuity.

Professional’s Perspective

From a technical standpoint, succession planning integrates multiple disciplines, including personal laws, corporate restructuring, tax planning, family governance, and business continuity planning. It requires professionals to analyse various legal structures, evaluate the tax implications of different transition mechanisms, and design governance frameworks that separate ownership from management. The complexity increases when dealing with multi-locational businesses, diverse asset classes, and cross-border implications.

The implementation demands a thorough understanding of various tools and techniques, from family constitutions and business governance frameworks to management transition mechanisms and wealth distribution structures. Central to this understanding is the recognition that succession planning isn’t merely a legal or financial exercise, but a complex interplay of business, family, and individual aspirations.

Communicating with Clients

When explaining succession planning to clients, professionals need to translate these technical concepts into relatable business scenarios. The approach begins with fundamental questions about business continuity beyond the promoter’s active involvement, naturally progressing to discussions about the client’s vision for their business and family’s future.

Real-Life Scenarios and Professional Intervention

Scenario 1: The Unequal Siblings

Imagine an established family business where the elder son joined straight out of college, learning the ropes from the ground up over ten years. The younger son, having just completed his MBA, is eager to join but feels he deserves an equal say in decision-making.

Without Succession Planning: Tensions rise as the elder son resents his brother’s equal authority despite less experience. The younger son feels his education is undervalued. Family dinners become battlegrounds for business disputes. The business suffers as operational decisions get delayed and employees receive conflicting instructions.

With Professional Intervention: The professional advisor facilitates structured family discussions to achieve consensus on a clear organisational framework. Their role encompasses conducting individual sessions with both siblings, designing role definitions that acknowledge the elder son’s experience while utilising the younger son’s fresh perspectives, creating objective performance metrics for leadership roles, and establishing a family council for major decisions.

Scenario 2: The Diverging Paths

Consider a family where the daughter has been actively involved in the business while the son pursues a different career path. The business forms the bulk of family assets.

Without Succession Planning: The daughter feels overburdened with business responsibilities, while the son feels disconnected from the family legacy. No clear mechanism exists to “cash out” the son’s share without straining business finances.

With Professional Intervention: The professional advisor architects a balanced solution by structuring ownership and management rights separately, creating a fair valuation methodology, and designing a phased buy-out mechanism that maintains business stability.

Scenario 3: The Reluctant Heirs

A successful entrepreneur’s children have chosen different career paths – one a doctor, another an artist, and the third in tech overseas. None show interest in the family business.

Without Succession Planning: The promoter continues running the business well into their seventies, becoming increasingly stressed. The business stagnates due to delayed investments and decisions. When finally forced to sell, the business receives significantly discounted valuations due to its key-person dependency.

With Professional Intervention: The professional advisor helps implement a comprehensive transition
strategy focusing on developing strong second-line management, documenting systems and processes, and exploring various exit options while maintaining business value.

VALUE CREATION THROUGH STRATEGIC SUCCESSION PLANNING

Transforming Professional Practice

The traditional role of professionals serving SMEs has predominantly centredaround compliance, taxation, and dispute resolution — services that clients often view as necessary obligations rather than
value-adding propositions. Succession planning presents an opportunity to transcend this perception,  positioning professionals as strategic advisors who help preserve and enhance business value across generations.

The Hub and Spoke Model of Service Delivery

In the complex landscape of succession planning, the professional advisor acts as the central hub, coordinating with various specialists who form the spokes of the service delivery wheel. This model recognises that no single professional can possess expertise in all required domains. The primary advisor orchestrates the contributions of legal experts, valuation specialists, family business consultants, wealth managers, and other professionals while maintaining oversight of the entire process and preserving their position as the client’s trusted advisor.

Technical Framework: Integration of Tax and Regulatory Considerations

The Indian regulatory landscape presents both challenges and opportunities in succession planning. Tax considerations span across direct taxes, including income tax, capital gains, and tax impact from gifts, while indirect tax implications, particularly post-GST, add another layer of complexity. The professional must navigate these along with personal laws as applicable to different sections of the society, corporate law requirements, FEMA regulations for international assets, and industry-specific compliance needs.

Creating efficient succession structures requires careful consideration of the following:

– Transfer pricing implications in family business restructuring

– Capital gains optimisation in asset transfers

– GST impact on business reorganisation

– Regulatory approvals in regulated sectors

– Cross-border compliance requirements

– Corporate governance norms

BUILDING A COMPREHENSIVE SUCCESSION PLANNING PRACTICE

In the dynamic landscape of professional services, chartered accountants are uniquely positioned to develop robust succession planning practices, particularly focusing on promoter-driven and family businesses. This specialised field offers significant opportunities for professionals to add value and build long-term relationships with clients while contributing to broader economic stability.

Succession Planning for Promoter-driven and Family Businesses

The cornerstone of a succession planning practice lies in addressing the complex challenges faced by promoter-driven and family businesses. These entities require tailored strategies that balance business continuity with family dynamics and personal aspirations. Professionals in this field must develop expertise in various ownership transfer mechanisms, including share transfers, management buy-outs, and trust structures. They should be adept at creating models for the gradual transition of control while maintaining business stability, a crucial factor in ensuring the longevity of family enterprises.

Establishing effective governance structures is paramount in family businesses. This involves assisting in the creation of family councils and boards of directors, developing comprehensive family constitutions and shareholder agreements, and implementing systems for transparent decision-making and conflict resolution. These structures serve as the foundation for smooth transitions and ongoing business operations.

Financial planning and business valuation form critical components of the succession planning process. Chartered accountants must conduct thorough business valuations to ensure fair distribution among heirs or stakeholders. This process often involves developing complex financial models for various succession scenarios and creating strategies for liquidity management during ownership transitions. The ability to navigate the intricate tax implications of business transfers is equally crucial, ensuring compliance with relevant laws and regulations while optimising tax efficiency for all parties involved.

Navigating the Complexities of Generational Wealth Transfer

The transfer of wealth from one generation to the next presents a unique set of challenges that succession planning professionals must address. This process often involves facilitating intergenerational communication, aligning expectations and values across different age groups, and mediating conflicts arising from
differing perspectives on wealth management. Professionals must develop frameworks for open discussions about wealth transfer and design equitable distribution plans that don’t compromise business operations.

Preserving family legacy while managing the practical aspects of wealth transfer requires a delicate balance. Succession planners should assist in articulating and documenting family values and vision, developing strategies to maintain family unity through the transition, and creating mechanisms for involving the next generation in philanthropy and social responsibility. This approach helps in maintaining the family’s core values and social impact while adapting to changing business environments.

Exploring Diverse Exit Strategy Options

A comprehensive succession planning practice must be well-versed in various exit strategies to cater to the diverse needs of business owners. Family succession, often the preferred route in family businesses, requires assessing family members’ capabilities and interest in taking over the business. Professionals should be capable of developing training programs for potential family successors and creating phased transition plans for the gradual transfer of responsibilities.

Management buy-outs (MBOs) present another viable option, requiring evaluation of the management team’s capacity to take over ownership. This strategy often involves structuring financing options for management to acquire ownership and developing incentive plans to retain key managers during the transition period. For businesses considering external sales, succession planners must prepare the business for sale, conduct market analysis to determine optimal timing and valuation and manage the complex sale process, including due diligence coordination.

Initial Public Offerings (IPOs) and Employee Stock Ownership Plans (ESOPs) represent more complex exit strategies that require specialised knowledge. Assessing a company’s readiness for going public, guiding through the IPO process, and developing strategies for managing family control post-IPO are crucial skills. Similarly, evaluating the suitability of ESOPs, designing structures that balance owner, employee, and business interests, and managing the tax implications and compliance requirements of these plans are essential components of a comprehensive succession planning practice.

The Role of the Trusted Adviser in Family Dynamics and Succession

Navigating complex family dynamics is perhaps one of the most challenging aspects of succession planning. As trusted advisers, chartered accountants must develop a high level of emotional intelligence and soft skills, including expertise in family systems theory, conflict resolution, and mediation. The ability to provide an objective, third-party perspective is invaluable in these situations, offering unbiased assessments of family members’ capabilities and providing a neutral ground for family discussions and negotiations.

Succession readiness assessment forms a critical part of this process. Professionals must be adept at evaluating both the business’s readiness for leadership transition and potential successors’ preparedness for their roles. This involves identifying gaps in skills or experience and developing plans to address them. Facilitating family councils, developing protocols for family decision-making processes, and guiding the creation of family employment policies and codes of conduct are also essential services that a succession planning practice should offer.

Crisis management is an often overlooked but crucial aspect of succession planning. Developing contingency plans for unexpected events, mediating family conflicts that threaten business continuity, and providing stability and guidance during turbulent transition periods are vital services that can significantly impact the success of a succession plan.

Expanding into Shared Family Office Services

As an extension of succession planning, chartered accountants can expand their practice by offering shared family office services. This involves providing comprehensive wealth management services, coordinating investment strategies across multiple family members, managing complex portfolios, including business assets, real estate, and financial investments, and providing regular performance reporting and analysis.

Centralised administration services, including consolidated bookkeeping and financial reporting for family entities, managing bill payments, cash flow, and day-to-day financial operations, and coordinating with legal and tax professionals for compliance and planning, can add significant value to high-net-worth families. Risk management and insurance services, encompassing the assessment and management of risks across family businesses and personal assets, coordination of insurance coverage, and development of crisis management plans, further enhance the service offering.

By developing expertise in these multifaceted areas of succession planning and family business advisory, chartered accountants can position themselves as indispensable partners in ensuring the longevity and success of family enterprises. This comprehensive approach not only adds significant value to clients but also contributes to broader economic stability by facilitating the smooth transition and continued prosperity of family-owned businesses, which often form the backbone of many economies.

CONCLUSION

Succession planning represents a significant opportunity for professionals to elevate their practice from routine compliance to strategic advisory. The professional’s role extends beyond technical expertise to become a trusted advisor who helps preserve both business value and family relationships. Success in this domain requires a commitment to continuous learning, the development of specialised skills, and the ability to coordinate multiple specialists while maintaining primary client relationships.

For professionals serving small and medium businesses, succession planning offers a natural extension of their trusted advisor role. By helping clients address succession planning proactively, professionals not only create substantial value for their clients but also enhance their practice sustainability. The complexity and long-term nature of succession planning engagements provide opportunities for deeper client relationships and premium service offerings.

As India witnesses one of the largest inter-generational transfers of wealth and business assets in its history, professionals who develop expertise in succession planning will be well-positioned to serve this growing need. The journey from being a compliance advisor to a succession planning consultant may be challenging, but it offers rich rewards both professionally and personally.
“The best time to plant a tree was 20 years ago. The second best time is now.” Chinese Proverb

This ancient wisdom perfectly encapsulates the essence of succession planning – both for business families and for professionals aspiring to build expertise in this domain. The opportunity exists today; the choice to seize it rests with us.

Chatting Up About India: Taxpayer Asks From Income Tax Code

The purpose of this article is to present income taxpayer view and some asks. Its cause is some movement in the government about relooking at tax code project more actively. After all, hope of taxpayer cannot be taken or taxed.

Ideally and reasonably, the tax code should mean an enabling force to lead Bharat towards the vision of 2047. For this to happen, taxpayer inputs are critical. Normally taxpayer inputs are taken as a checkbox ticking process. Tax administration does not record reasons for acceptance or rejection of inputs nor communicates anything about them, leave alone reasoning them out. Taxpayer suggestions pass as ‘consultation’, but falls way short of taking the shape of ‘consideration’. Everyone knows that the powerful finally do what they want and what will balance the budget as the obvious and fundamental matters remain off the agenda for decades. At the same time, it will be unfair to ignore work done by this NDA government in last 11 years towards making positive changes.

Nothing in this article that sounds sweeping, is not meant to be so, as there will always be exceptions. The matters in the following paragraphs are based on trends, concept of pre-dominance for the purpose of relevance, emphasis and common sense.

Nation: From Claws to Clauses

The claws of British Raj ended in 1947 and 1950 as we celebrate 75 years of Samvidhaan. The Claws of British ended and a new Rule of Law was envisaged where the nation will run with Clauses that will work for its citizens. The transition is ongoing from the CLAWS of the RAJ to CLAUSES of the STATE and not complete. The legacy system of income taxes is modelled on the Raj. Social Contract (rights, obligations and functions of citizens and government) is still not in place as a diverse country like ours would like. Now we are faced with the magical opportunity to make Bharat glorious for everyone where everyone works towards that common dream. The state obviously is funded by taxes and in that context; the taxpayer is that sub set of the citizenry, which is akin to National Treasure or the precious lot1, that makes a tangible contribution towards making Bharat glorious.

1 Budget Documents of 2024: 19% of Union Budget met by Income taxes

Taxpayer — KarDaataais the real Rashtra Samvardhak

Often the Sarkar takes credit for all development and good news. That is not true largely. Like the AnnaDaata, that is glorified in every political speech (despite them remaining poor and dependent), a taxpayer is the AnnaDaata. She gives nourishment to all schemes, spending, and development through taxes and therefore is a राष्ट्रपोषक, राष्ट्रसंवर्धक, and राष्ट्रकर्तारः. So, taking credit by executive would be like RBI taking credit for every rupee spent or earned since it prints the currency.

The point here is critical: understanding of the KarDaataaas VikasPoshak and should therefore be central to tax laws (by the way, it is not). While many people in the country take to streets, block roads for months, climb on Red Fort and remove tricolour to thrust their demands or protest; the taxpayers who contribute 19 per cent of Union Budget 2024 via income taxes don’t do any of this despite having fair case for a much better treatment. The words of then revenue secretary and now the Reserve Bank of India Governor, Shri Sanjay Malhotra talking to DRI officers pointed out: “We are here not only for revenue, we are here for the whole economy of the country, so if in the process of garnering some small revenue, we are hurting the whole industry or the economy of the country, it is certainly not the intent. Revenue comes in only when there is some income, so we have to be very cautious so that we do not in the process, as they say, kill the golden goose”2

2 https://www.cnbctv18.com/economy/revenue-secretary-sanjay-malhotra-stresses-balanced-approach-to-customs-duty-enforcement-19519098.htm - cnbctv18.com, December 4, 2024

Let’s look at who is this taxpayer?

a) Out of about 140,00,00,000 people of India, 7,54,61,286 individuals file tax returns3.

3 Income Tax Returns Statistics AY 2023-24, Published in June 2024

b) Of the 7.54 Crores individual tax returns, 2,81,61,3614 individual tax returns contributed to ₹6,77,350 Crore as Income Tax Liability5 as declared by them as tax on ₹61,77,988 Crores of GTI or Gross Total Income6. Thus, only 2 per cent of the population in India pays income taxes.

4 Ibid Page 31
5 Ibid Page 6
6 Ibid Page 6

c) Of the above 7.54 Crore people, about 6.92 Crore7 people are in the slab of up to ₹15,00,000 GTI, and declare some 40 Lac Crore as GTI8.

7 Ibid Page 21
8 Ibid page 21

d) During her working life, a taxpayer contributes 5-10-20-30-40 per cent of working life towards this goal excluding indirect taxes and other taxes and levies. How? Because the time spent by her at work, results in earnings, out of that earning, a portion goes as tax. Therefore, she gives on an average 5 per cent to 43 per cent of working life time for the country. That is how Karadaatais Annadataor Vikas Poshak that nourishes the nation.

e) What is a common taxpayer trying to do: He is wanting to come out of poverty / lack and improve his ability to buy for himself and family a life of dignity, comfort, safety and wishes to die without lack and pain.

f) This taxpayer is also “valuable convertible currency” — she can move to other countries and contribute to that country’s development and growth and pay taxes there if the opportunity is better elsewhere. It is well known that Indians are TOP expats anywhere in the world who contribute more and take less from those governments. Richest group in America is of Indian origin — they seek little benefits, they are most educated, they have open outlook, contribute to economy and society in every sphere from taxes to politics.

g) What is beating down the taxpayer in achieving his goal: Inflation and tax obligation defeat the citizen’s aspirations given in (e) above. Therefore, one cannot talk of taxes without inflation. Normally one can compare rise in basic exemption limit by comparing it with inflation indices. But for a moment I wish to present the ‘gold standard’ on how even the Basic Exemption Limit (BEL) furthers this beating of taxpayer:

9 Finance Bill, 1971 for FY 2071-72 
10 https://www.bankbazaar.com/gold-rate/gold-rate-trend-in-india.html

Analysis:

i) Why Gold: Gold has been historically and presently the store of value for all central banks. Value of currency is not the real value nor is declared inflation true reflection of what currency can do. This comparison tells us that BEL is actually going down instead of up, it hasn’t protected taxpayers, and erodes their ability to save and invest. Even if one were to take, ₹700,000 as that BEL, it is more than 30 per cent lower. The author does understand gold as investment class, however it has been so for millennia.

ii) The Basic Exemption Limit if one wants 143 gms. gold should be ₹10.56 lacs at ₹73,909 / 10 gms gold price on 1st April, 2024.

iii) The table shows that BEL has been beating the hell out of taxpayer, especially those on the edge who are trying to stay afloat to remain in the middle income group.

iv) Similar exercise can be done for upper limit of 30 per cent from which maximum rate applies. It could have the same outcome.

h) A taxpayer tries to race and beat the scourge of inflation eating into his savings by investing in modes like the stock market. However, today LTCGs is taxed at flat rate above ₹1.25 Lacs despite continuation of STT (which was brought in place of exemption of LTCG).

i) Inflation basket: The inflation basket doesn’t take two major expenses of middle income group adequately —housing costs and education cost. For emerging middle-income group, which pays this tax at a level that it bleeds, inflation is not factored by tax system fairly. BEL is not ‘inflation adjusted’.

j) What do you get for being a taxpayer: It must be noted that taxpayer doesn’t get ONE BENEFIT from Sarkar that a non-taxpayer doesn’t get (well we received certificates for 1-2 years). Further the taxpayer is susceptible to come into a ‘harassment net’ in the form of not given tax credit despite tax credit in Form 26AS or sending claims for unpaid taxed that are of 10-15 years old without showing any basis and even adjusting refunds against those so called unpaid demands. In fact, if you are general category, your taxes will be used to deny your children admissions on merit by huge margins to the extent that you pay two to three-times apart from being discriminated on marks. One reason for brain drain.

k) Paying taxes will debar you from every incentive a non-taxpayer enjoys at the expense of the taxpayer.

Therefore, the only response a government with a reasonable mind-set, which can grasp the above, is to protect this taxpayer number, and let it grow organically so that it can contribute more by earning more. Disrupting its earning, taking taxes excessively, being unfair will have adverse results.

Tax Administration — A Business Case

The tax administration consists of unelected people but it carries substantial power. The taxpaying citizens’ ask from tax administration is small and reasonable: have clear to understand and easy to comply tax laws and procedures.

At a structural level, the problem with the tax administration is that an individual administrator has nothing to lose personally for a decision he takes or not take whereas the taxpayer has a large monetary stake. This problem gets bigger by slow, expensive, cumbersome and little recourse to justice.

Typically, administrative system is modelled to self-perpetuate — making more of itself and increase the work and importance for itself. This is despite the bureaucracy often identified with sub-par outcomes, corruption, revenue bias, inability to listen to people it is meant to serve, slow implementation, and low standards of services.

Considering the above facts and facets about the taxpayer, the supreme role of tax administration should be to make lives of taxpayers easy, remove difficulties with pace and not have adversarial attitude. The idea of Sarkar vs. Kardaataa where the previous is chasing the latter is a remnant of the Raj. Yet, Sarkar remains the biggest litigant and from tax litigation its track record at winning at all three levels is far from admirable. Therefore, adversity, except with proven evaders and criminals, should be avoided. It just makes business sense.

The idea of serving the taxpayer where he can earn more and therefore he can in absolute terms pay more tax is genetically and historically missing. Tax laws should be made and presented as enablers.

Taxpayer Asks

The following paragraphs carry some simple ideas. Ideas that can:

a) be implemented without much effort,

b) be disproportionately in favour of benefits while evaluating effort vs. benefits ratio,

c) yield long term and short term benefits to taxpayer and tax collector.

d) makeViksit Bharat Sankalp a reality.

e) be measuring rods to evaluate existing laws and as tools to fix undesirable tax laws and their administration.

I. SIMPLICITY OF DRAFTING

Law is how it reads, just as money is what money can buy. Law need not be simple, but its drafting certainly can be.

Anyone who opens the ITA or Rules can tell that it’s not in English that common taxpayer can read and understand both. It is written in terse, dated, Queen’s English that is already BANNED in many countries11 where Queen / King are still on their currency. Such legal writing is culturally misplaced and at best a remnant of the Raj. US and UK had a Plain English movement12 in 1970s. New Zealand has a Legislation Manual13 on drafting laws in a language that is clear for mortals to decipher. It says: “Drafters must never lose an opportunity to make legislation easier to understand. This is primarily a matter of using plain language and drafting clearly14”. The Legislation Manual prohibits use of certain words that are everywhere in Indian tax laws.

Indian legislative drafting is far from plain English. India is not Bharat so far as legislative drafting of income tax laws is concerned. We are more British than even the present Britain despite the Queen having left 75 years ago and now even the planet. We haven’t won the battle between Authority and Accessibility yet, which such drafting poses. Lawyers and even CAs too, often tend to believe that complexity in writing is a sign of expertise and even genius. While actually it is only a form of barrier to communication and access at best. A recent MIT report15, posted by Elon Musk16 says the same thing and gives causes and means of obfuscating laws through such writing. How are Indian laws written? Well, most Dharma Shashtras, ArthaShashtra — ideas on conduct and economics are written in poetry, with high level of aesthetics.

Clarity can only come when the language is not a barrier, and drafting is for understanding and not casting a spell. Lack of clarity shows lack of understanding and /and certainly lack of adequate care for the reader. About 0.02 per cent people said English was their first language, 6.8 per cent people said it was their second language, and 3.8 per cent said it was their third language as per last census of 2011. If I were the head of drafting team of Law Ministry, I would have them put this framed:

11 Search Plain English movement and Pg45 , Para 158 of NZ Legislation Manual
12 The movement began in the 1970s in the United States and England. It was a response to criticism of the complexity of legal English and the lack of clarity in consumer information
13 https://www.lawcom.govt.nz/assets/Publications/Reports/NZLC-R35.pdf
14 Ibid Para 118, Page 35
15 https://news.mit.edu/2024/mit-study-explains-laws-incomprehensible-writing-style-0819
16 17th December, 2024 on X

Simplicity is the price for Clarity.
Clarity is the pre-requisite of greatness.17

Here is what research, experience and common sense tells us: Sentences longer than 27 to 30 words don’t land on the other side as they should. I tried redrafting such sections and normally found that in most cases there is 30 per cent flab. The short point is that Income Tax Act should be redrafted largely to:

1. Remove long sentences and break them down in shorter sentences about 30 words in length;
2. Remove / Reduce endless web of clauses, sub clause, sub-sub clauses, explanations, provisos, cross references. Remove all obfuscating words and replace them with common sense words;

3. Shorten the entire law of 1000s of pages by 20 to 30 per cent as legalise is akin to cholesterol and visceral fat in the words of a recent report18.

4. Keep the intent, meaning, key words, numbering and flow as it is. The Act should be contemporaneous and can be rearranged where necessary and yet reduced in size.

Is this doable? Very easily. How long should this take? Perhaps 6-12 Months, if one starts with important clauses.

17 Inspired by Da Vinci quote “Simplicity is the ultimate sophistication”
18 https://www.teamleaseregtech.com/reports/jailed-for-doing-business/ - Jailed for Doing Business, 2022

II. CLARITY

Clarity amongst other meanings would be:

– Words are simple and commonly used

– Where needed, words are defined; no undefined key word should be there;

– Words should not be absurd / redundant – Example: Assessment Year. I wonder whether this has any meaning at all except confusing people. You have year of Birth, year of graduation. Take the word “actually incurred” in Sections 10(5), 10(13A), 17(2) Proviso, 35 (2B)/ (5B) and Section 220 explanation;

– Low on repetition within the section of words and phrases and structuring;

– It’s not over the top long with numerous explanations, provisos, further tarnished by multiple amendments – Example: Read Rule 11UA, Rule 2(a) has 101 words in one sentence.

– Keep control of phrases such as “being”. The word Being seeks to change reality. It creates notion and fiction rather than deal with reality. Such subjectivity causes litigation and tax evasion. Ideas of notional rent (a property which can be reasonably let out). Rent is real, it’s not a word or fiction. Law creates a fiction and then creates a charge.

– Keep control over the phrase “as may be prescribed”. This is the passport to endlessly add directions on taxpayers.

Here is an example of Clarity

Original:

“Notwithstanding anything contained herein, a person who knowingly fails to comply with the provisions of this section shall, upon conviction, be liable to a fine not exceeding fifty thousand rupees or imprisonment for a term not exceeding one year, or both.” (41 words)

Clear:

“If someone knowingly violates this section, he may be fined up to ₹50,000, imprisoned for up to one year, or both.” (21 words)

As you will see Clarity and Simplicity are twins. When they play together, the game is unambiguous.

III. CONGRUENCE OF LAWS WITH EASE OF COMPLIANCE

It is a stated State Policy of PM Modi’s government where ease of living and ease of doing business are pillars of everything. However, the laws are not congruent with the state policy.

Example: Size of ITR. A blank PDF ITR 6 is 80 Pages, ITR 3 is 58 pages, ITR 7 is 33 Pages.ITR 2 is 34 Pages. I could not find ease anywhere in those pages.

Why? Because snoop for data which is otherwise available. For example, for small businesses / companies it is asking Financial Statements
details at trial balance line item level. Today the same government has, and I believe government is one in this country:

i) access to GST data — which is invoice level sale and purchase and expenses.

ii) Annual Filing with MCA of every line item of Balance Sheet and Profit and Loss Account.

iii) AIS and TIS give transactions;

iv) There is NSDL CAS Data for Financial Assets which an assessee can offer to share.

It’s hard to understand why ITD cannot use some of this data instead of seeking it again under every regulation and then causing internal mismatch within the ITR or ITR and TAR or even ITR and other data sets / points like customs / GST etc. It seems like a trap set up or a synonym for ‘got you’.

Duplication and Excess is an impediment. It is probably a means of the state to see if the same data comes at 3–4 places. But doesn’t help Ease of Doing Business and Ease of Living.

Action Point

1. Take Company Identification Number (CIN) and MCA filing challan number of small companies in ITR, if filing is done and audited accounts are uploaded there;

2. This can be done post ITR also — like UDIN for TAR — within say 30 days instead of giving huge financial data. This will mean authorising ITD to fetch data from MCA;

3. Same for LLP;

4. Further, there is an option to attach FS for all others where there is no tax audit or only take total assets, total liabilities, Sale, Expenses and Profit figures where there is GST.

5. Today there are many options to reduce excess, duplicity and cumbersome data filling which often are made a cause of mismatch and dispute.

IV. RESTRAINT ON AMENDMENTS AND NOTIFICATIONS

RBI brings out Master Circulars / Master Directions once a year on a fixed day. It consolidates all Circulars and Notifications.

125 Notifications and 18 Circulars are issued till 15th December, 2024 under the Direct Tax Laws. Most Notifications are very specific and irrelevant to most people. Circulars are often Q&A or clarifications. Many seem like announcements. Here is the statistics:

Calendar Year Notifications Circulars
2024 (15 Dec) 125/2024 18/2024
2023 106/2023 20/2023
2022 128/2022 25/2022

 

Wouldn’t it be great to have a Quarterly Notification and Circular giving all that is needed unless its life and death situations — like flood relief institutions etc.? Income Tax Department (ITD) must end piecemeal and haphazard approach, which makes income tax law fragmented, messy, and lying all over the place.

Action Point

a. Bring One Notification per quarter or month

b. Bring One Circular per quarter or month

c. Bring and Annual Master Direction collating all changes of the year — Notifications and Circulars.

d. Eventually review all Circulars and Notifications and withdraw what is already a law or Rule and make collation of Circulars that are applicable from a date onwards.

V. FAIRNESS & TIMELINES

a) Laws tilted in favour of tax department

i. Penalties only on taxpayer, nothing on tax officer for their shortcomings.

ii. Interest charged: 12 per cent, Interest given: 6 per cent. This promotes delay in refunds apart from being unfair. Why should a tax payer pay double interest whereas government will pay 6 per cent for delay? This is unfair and promotes late refunds and also causes working capital problems for taxpayer.

iii. Tax Department should be treated akin to trade credit for MSME. Same laws of repayment should apply as often government causes business downfall due to cash flow crunch.

b) Taxpayers’ Charter and Taxpayer Services should be made a law, at least most of it. This will mean that government is committed to taxpayer and treat them as clients. Taxpayer rights and protections are not in the law, but in taxpayer charter on the wall. Much of the taxpayer service should become part of law and tax officer should be bound to deliver basic services – timely response, not closing queries, closing grievances without confirmation of assessee, escalation available for assessee, and so on. RTI like mechanism where 14 days’ rule will apply to provide data to taxpayer. Power without corresponding responsibility and accountability is lacking in the present law.

c) Approval & Discretion without Time lines: This mechanism is most prone to abuse. We all live within time. Taxpayer has to comply within a timeline. Then why not for tax collector at every stage? Example: Taxpayer services like Section 197 certificate. There cannot be anything that requires permission or application or justice without timeline — Say I have to file an appeal in 60 days, shouldn’t ITD dispose appeal in xxx days?

VI. ARBITRARY UNMOVING MONETARY LIMITS

Arbitrary limits that remain unchanged for years and decades:

a. Section 54E: ₹50 lac permitted investment has remained same since 1st April, 2007.

b. TP Study: International transactions of ₹ One Crore and above need a TP Study. This limit is there since TP law was introduced in 2001.

c. ₹100,000 remained as a limit for exempting LTCG from 2018 till 2024.

d. ₹10 Crore on Capital Gains investment in House Property is arbitrary — no explanation, just a law that if you sell shares and buy a property which was allowed without limit, now will be allowed till ₹10 crores. What if a young citizen was planning and saving to buy a dream house for 20 years, and now he will have to pay tax on the tax paid money I invested.

e. Mediclaim limit, 80C limit of ₹150,000, ₹50,000 Standard Deduction Limit have remained unchanged for years.

f. R100 for school allowance19 — this is not a limit; it is an insult. In fact, higher education allowance is a must for taxpayers. Today general category will pay ₹20 lacs minimum in Deemed Medical colleges per year per child despite getting adequate marks. Is this honouring middle income group?

19 Section 10(14), read with Rule 2BB

VII. CONSISTENCY, SURPRISES AND TURNAROUNDS

Taxpayers want consistency and stability. This is the bedrock of any relationship. One of the main ask is to keep the policy and law consistent.

LTCG

Late FM Arun Jaitley, mentioned that India won’t impose tax on LTCG20. In February 2018 tax imposed on LTCG by Shri Jaitley. But it did not end there, STT wasn’t rolled back. Till November ₹36,000 Crores of STT21 collected in FY 24-25 and also LTCG for FY 2023-24 was ₹36, 867 Crores from Individual ITRs between the range of 150,000 to 15,00,00022.

20 25 December 2016, https://www.business-standard.com/article/reuters/india-won-t-impose-long-term-capital-gains-tax-finance-minister-jaitley-116122500535_1.html

21 https://www.thehindubusinessline.com/markets/stt-collection-hits-36000-crore-reaching-97-of-budget-target-amid-market-rally/article68858203.ece

22  Income Tax Returns Statistics AY 2023-24, Published in June 2024, page 25

This is one recent example of lack of consistency and turnaround.

Budget as a Surprise Genie

Is Budget a magic show, where new changes are released? Much of this can stop. There is zero reason to bring out changes via Budgets without informing people in advance.

Example: Sudden change to limit of ₹10 Crore for property Purchase from sale of Shares.

If someone is in the middle of a transaction or is planning for years to buy a property, his costing changes in a big way. If there was knowledge that such changes are effective, then people can plan better. Such changes are used in the Budget as if they are a trap, as in a war where surprise is an element of ambush. Yes some rate changes etc. which are expected, or minor amendments to make law more efficient. However, taxpayer benefit should be above all and taxpayer needs to know what is coming when it’s a major change.

Imagine if this was known in advance that you have 12 months to sell equity, make gains and buy a house if you need to before 12.5 per cent and ₹10 Crore kicks in. Will it result in homes price inflation? Will there be a sell out in equity? I don’t think so. India is way too large now for such changes rocking the markets.

Example of Turnaround: Adding MAT to Tax Free SEZ Units midway in 10-year time period.

SEZ were exempt from tax as scheme. One fine day MAT on SEZ was introduced. This is breaking a promise. Once an investor has started a project with knowledge that there won’t be taxes, and then taxes creep in, it is breaking the contracts through law. A sovereign right need not be used to disrupt and throw taxpayers under the bus.

Predictability attracts investments as it reduces risk and is the bedrock of Trust.

Finally, taxmen always ask this question: will all these increase tax compliance and revenue? The answer is yes, because this government itself has adopted some simplification measures that resulted in better compliance, more tax, and more taxpayers. Mahabharata says Dharma always wins in the end. It means if one does the right things, the end result will be right.

There is a vision and idea of Amrit Kal. Another article will deal with some of the specific changes that are necessary in tax laws and procedures and affecting most taxpayers. Some of these may be redundancy, absurdity, unclarity, complexity and the like. Amrit only comes from manthan, and income tax law requires true manthan, where Amrit and Laxmi can both emerge for all people of Bharat.

Auditor’s Report on Special Purpose Financial Statements

Special Purpose Financial Statements (SPFS) are prepared to meet the information needs of specified users. In February 2024, the Institute of Chartered Accountants of India (ICAI) issued the revised Standards on Auditing (SAs): SA 800 dealing with SPFS; SA 805 dealing with Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial statement and SA 810 dealing with auditor’s report on summary financial statements. This article provides an overview of the requirements of SA 800 (revised) and explains the key aspects of special purpose financial statements.

An entity generally prepares general purpose financial statements as per the general purpose framework. A general purpose framework is designed to meet the common financial information needs of a wider range of users, e.g. financials prepared as per applicable Generally Accepted Accounting Principles for tax filing purposes; financial statements prepared under the Companies Act, 2013. The general purpose framework, i.e. Indian Accounting Standards and Accounting Standards, are used for the preparation and presentation of the financial statements and such financial statements are called statutory financial statements (i.e. prepared pursuant to a regulation or statute).

However, under certain circumstances, an entity would be required to submit financial statements as per a special purpose framework or an audited financial statement, specific elements, accounts, or items of a financial statement to meet the requirements of a specific category of stakeholders, e.g. shareholders, investors, lenders. Financial service entities such as asset managers or management companies may also be required to prepare financial statements for a specific purpose or for specific users. Such financial statements are often called as special purpose financial statements.

Special purpose financial statements can often be more relevant and less costly to prepare than financial statements that are fully GAAP compliant, depending on the intended use of the financial statements. The audits of such special purpose financial statements are required to be conducted in accordance with special consideration standards issued by the ICAI. In February 2024, the Institute of Chartered Accountants of India (ICAI) issued the revised Standards on Auditing (SAs): SA 800 (Revised), “Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks; SA 805 (Revised), “Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement”; SA 810 (Revised), “Engagements to Report on Summary Financial Statements”. These Standards will be applicable to audits/engagements for financial years beginning on or after 1st April, 2024, i.e., these Standards will be applicable to audits / engagements for the financial year 2024-25 and onwards.

The objective of this article is to provide an overview of the requirements of the revised SA 800 issued by the ICAI and to explain the key aspects of special purpose financial statements. It is important to understand why special purpose financial statements are prepared and the underlying reporting framework for the preparation of such special purpose financial statements. For example, if the company is required to get a special audit of the financial statements based on a regulatory order, it is important to understand the reporting framework followed for the preparation of such financial statements. If financial statements have been prepared as per the general purpose framework, the auditor will apply the requirements in SAs 100 to 700 series and not SA 800. It is the primary responsibility of the management to prepare financial statements. In order to do so the management should understand the purpose for which such financial statements are being prepared and its intended users.

SA 800 deals with special consideration in the application of the SAs (100-700 series) to an audit of financial statements that are prepared in accordance with a special purpose framework. SA 800 is written in the context of a complete set of financial statements prepared in accordance with a special purpose framework. However, in addition to the application of all SAs (SA 100 to SA 700 series), an auditor is also required to comply with these special considerations specified in SA 800. Therefore, it is important to understand whether the reporting framework in accordance with which financial statements have been prepared is a ‘special purpose framework’ or not.

SA 805 deals with special considerations in the application of the SAs (100-700 series) to an audit of a single financial statement or a specific element, account or item of a financial statement.

In 2016, ICAI issued the revised auditor’s reporting standards, i.e. Revised SA 700 — ‘Forming an Opinion and Reporting on Financial Statements’, Revised SA 705 — ‘Modifications to the Opinion in the Independent Auditor’s Report’ and Revised SA 706 — ‘Emphasis of Matter Paragraphs and Other Matter Paragraph in the Independent Auditor’s Report’. These standards are effective for audits of financial statements for periods beginning on or after 1st April, 2018. The auditor’s reporting requirements for SA 800 and SA 805 engagements are linked directly to the reporting requirements in SA 700 (Revised).

What are special purpose financial statements?

Special purpose financial statements are prepared to meet the information needs of specified users. As a result, the special purpose financial statements are prepared using an applicable special purpose framework that meets those users’ needs.

A special purpose framework, as defined by SA 800, is a financial reporting framework designed to meet the financial information needs of specific users. The financial reporting framework may be a fair presentation framework or a compliance framework1.

The special purpose framework may comprise the financial reporting provisions of a contract. For example, for the purpose of establishing the value of net assets of a company at the date of its sale, the vendor and the purchaser agree that very prudent estimates of allowances for uncollectible accounts receivable are appropriate for their needs, even though such financial information is not neutral when compared with financial information prepared in accordance with a general purpose framework. In this case, the special purpose framework meets the needs of the specified users2.

1 Refer paragraph 7 of SA 700 for definition of fair presentation framework and compliance framework. 
2 Refer paragraph A8 of SA 800.

It is important to note that when financial statements are prepared based on the needs of a regulator, e.g. audit of an overseas subsidiary of an Indian company, which is not required in the host jurisdiction but required under Indian regulations, e.g. pursuant to FEMA regulations (filing of Annual Performance Report), it should not be construed that such financial statements are special purpose financial statements if the underlying framework is general purpose framework. Special purpose financial statements are financial statements with a special purpose framework which is designed to meet the financial information needs of specific users.

Other examples wherein special purpose financial statements may be prepared include:

  •  The cash receipts and disbursements basis of accounting for cash flow information that an entity may be requested to prepare for creditors.
  •  The financial reporting provisions established by a regulator to meet the requirements of that regulator.
  •  The financial reporting provisions of a contract, such as a bond indenture, a loan agreement, or a project grant.
  •  Combined financial statements prepared for submission to lenders or investors3;
3  Refer Guidance Note on Combined and Carve-Out Financial Statements issued by ICAI.

There may be circumstances when a special purpose framework is based on a financial reporting framework established by an authorised or recognised standards-setting organisation or by law or regulation but does not comply with all the requirements of that framework. In such a case, the special purpose framework will not be a fair presentation framework since it does not comply with all the requirements of the financial reporting framework that are necessary to achieve a fair presentation of the financial statements, e.g. all disclosures required by accounting standards, have not been made by a company.

Therefore, it will be inappropriate for the description of the applicable financial reporting framework in the special purpose financial statements (and in the auditor’s report) to imply full compliance with the financial reporting framework established by the authorised or recognised standards setting organisation or by law or regulation.

For example, a contract may require financial statements to be prepared in accordance with most, but not all, of the Accounting Standards. In this case, it is preferable that the description of the applicable financial reporting framework refers to the financial reporting provisions of the
contract (and may also refer to management’s description of those provisions in the disclosures to the financial statements) rather than make any reference to accounting standards.

Under SA 800, financial statements prepared on an accrual basis of accounting as per applicable Indian GAAP for filing with income tax authorities are considered to be general purpose financial statements and not special purpose financial statements.

Key considerations for acceptance of an engagement to express an opinion on special purpose financial statements

In deciding whether to accept an engagement to express an opinion on special purpose financial statements, the auditor should determine whether the special purpose framework applied in the preparation of the financial statements is acceptable. The auditor should obtain an understanding of –

  •  the purpose for which the financial statements are prepared;
  •  the intended users;
  •  the steps taken by management to determine that the applicable financial reporting framework is acceptable in the circumstances.

Such a special purpose reporting framework may comprise financial reporting standards established by an authorised or recognised standard-setting organisation. If so, these standards may be presumed acceptable if the organisation follows an established and transparent process involving deliberation and consideration of the views of relevant stakeholders. It could also be a special purpose framework prescribed by the jurisdiction to be used in the preparation of special purpose financial statements for a certain type of entity.

Forming an opinion and reporting considerations

The standard setter retained the approach in extant SA 800 and SA 805, whereby the reporting requirements in SA 700 (Revised) and other SAs are not repeated in SA 800 (Revised) and SA 805 (Revised). Therefore, SA 700 (Revised) contains the overarching reporting requirements applicable for auditor’s reports on special purpose financial statements and single financial statements, or elements of a financial statement, with additional requirements and guidance as considered necessary in SA 800 (Revised) and SA 805 (Revised). Therefore, when forming an opinion and reporting on special purpose financial statements, the auditor is required to apply the requirements in SA 700 (Revised).

Reference may be made to Illustrative auditor’s reports in the Appendix of SA 800 (Revised) and Appendix 2 of SA 805 (Revised).

Key revisions in SA 800 and SA 805 as compared to extant SA 800 and SA 805 include the following:

  •  Refinements to the requirements and corresponding application material in the standard, where applicable, to clarify the reporting responsibilities of the auditor in light of new concepts established by the new and revised Auditor Reporting Standards (i.e. SA 700, SA 705 and SA 706).
  •  New application material relating to Going concern, key audit matters, Other information and inclusion of the name of the Engagement Partner.
  •  Update illustrative auditor’s report that:

⇒Align with the reporting requirements in SA 700 (revised) in terms of the layout and content, including the ordering of elements (for example, the Opinion section is now positioned first) and use of heading and terminologies consistent with SA 700.

⇒Include more fulsome descriptions of the circumstances that are assumed for each of the illustrative auditor’s reports and indicate the applicability of the auditor’s reporting enhancements.

It is important to note that SA 800 makes reference to SA 700 for forming an opinion and reporting on special purpose financial statements, i.e. the auditor is required to apply the requirements in SA 700 (Revised).

Inclusion of restriction on use paragraph in auditor’s report

When an auditor’s report on special purpose financial statements is intended for the use of specified users, a restriction on use paragraph for the specific users’ needs to be included in the auditor’s report to avoid any unintentional reliance on our auditor’s report by others. For example, a financial reporting framework that is specified in a purchase agreement for the preparation of financial statements of an entity to be acquired may be acceptable, but only with respect to the needs of the parties to the agreement. In this case, the auditor restricts the use of the report to the parties to the agreement. The auditor informs management and those charged with governance, in writing, that the auditor’s report is not intended for use by non-specified parties. Such restriction on use paragraph is included in the auditor’s report as the auditor may not have any control over the distribution of the auditor’s report.

Emphasis of Matter paragraph

When preparing an auditor’s report, the auditor recognises that the special purpose financial statements may be used for purposes other than those for which they were intended; for example, a regulator may require certain entities to place the special purpose financial statements on public record. To avoid misunderstandings, auditors alert users of the auditor’s report by including an Emphasis of Matter paragraph explaining that the financial statements are prepared in accordance with a special purpose framework and, therefore, may not be suitable for another purpose. The auditor describes the purpose for which the financial statements are prepared and, if necessary, the intended users or refers to a note in the special purpose financial statements that contains that information.

Illustrative Emphasis of Matter — Basis of accounting

“We draw attention to Note X to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist [Name of entity] to meet the requirements of [name of regulator]. As a result, the financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter.”

The auditor may expand the Emphasis of Matter paragraph to include the restriction on use (instead of adding a separate Other Matter paragraph), and the heading in the auditor’s report can be modified accordingly (refer below).

Emphasis of Matter — Basis of accounting and restriction on use

We draw attention to Note X to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist [Name of entity] in complying with the financial reporting provisions of the contract referred to above. As a result, the financial statements may not be suitable for another purpose. Our auditor’s report is intended solely for the information and use of [Name of entity] and [Name of other contracting party] and should not be used by parties other than [Name of entity] or [Name of other contracting party]. Our opinion is not modified in respect of this matter.

Inclusion of a Reference to the Auditor’s Report on the Complete Set of General Purpose Financial Statements

SA 800 states that the auditor may deem it appropriate to refer, in an Other Matter paragraph in the auditor’s report on the special purpose financial statements, to the auditor’s report on the complete set of general purpose financial statements or to matter(s) reported therein. For example, the auditor may consider it appropriate to refer in the auditor’s report on the special purpose financial statements to a Material Uncertainty Related to Going Concern section included in the auditor’s report on the complete set of general purpose financial statements.

Adequate disclosures in the financial statements

The management should ensure that the special purpose financial statements contain adequate disclosures to enable the intended users to understand the information contained in the financial statements.

Concluding remarks

Financial statements prepared under a special purpose framework or special circumstances are specific engagements that provide specific information relevant to a specified group of users. Therefore, it is imperative for the management and the auditor to understand the requirements of such specific users. As the audit reports of general purpose financial statements and special purpose financial statements are governed by two separate sets of auditing standards, i.e. SA 700 and SA 800, an auditor should understand the difference between the two frameworks. Also, the auditors should exercise professional judgement while accepting such engagements and issuing opinions, as it helps maintain stakeholder confidence in the assurance.

Small Steps, Big Impact: Beginning Your AI Journey

For CAs grappling with late hours and an overwhelming workload, it’s time to unlock the transformative power of AI. This article explores how small, thoughtful AI implementations can drive significant efficiency gains, enabling a balanced and more productive professional life.

CA Rahul sat alone in his office. It was 9:15 pm, and the staff had long gone home. The faint hum of the air conditioner was the only sound breaking the stillness of the small office. His eyes drifted to his inbox, overflowing with hundreds of unread emails, while his phone buzzed with a barrage of WhatsApp messages from clients and staff, each demanding his attention.

Rahul sighed. The past years had felt like an endless loop of tax compliances, constantly racing to keep up with changing regulations. Finding capable staff and managing a shortage of article trainees only added to the stress. Then there were the clients — always needing reminders and follow-ups to share their data on time, making the job even more challenging.

He had heard and read a lot about AI in recent months. He recalled a seminar he had attended on AI and how it can improve efficiency at work. On his college-going daughter’s insistence, he had even installed ChatGPT on his mobile. But aside from a few casual attempts, he hadn’t explored its potential seriously.

Can you relate to Rahul’s story?

Rahul’s situation mirrors that of many small and medium-sized CA firms. The daily grind often leaves no time to focus on “important but not urgent” tasks, like finding ways to improve efficiency. While most CAs recognise AI’s potential, the sheer volume of information and multiplicity of solutions creates confusion. Like Rahul, you might be asking:

  •  Where do I begin?
  • With concerns about inaccurate results, should I use it at all?
  • Which tool should I choose among so many options?
  • How do I handle work from younger staff already using AI tools?
  • How do I prepare my firm to collaborate with young, tech-savvy clients?

Basics First

Before diving in, let’s clarify some fundamental concepts and understand some terms which keep appearing in AI related articles and conversations.

Artificial Intelligence

A branch of science concerned with the ability of computers or machines to perform tasks that usually require human intelligence, like learning, problem-solving, and decision-making.
Generative AI

A field of AI that focuses on generating new content (text, images, videos, etc.) based on patterns learned from existing data.
Large Language Model

Large Language Models are a specific category within Generative AI, trained on massive amounts of text data to understand and generate human-like text.

 

ChatGPT by OpenAI is a product of Generative AI that uses a Large Language Model (LLM) to understand context and produce coherent, human-like responses in a conversational format. Similarly, there are other tools in the market, such as Gemini by Google and Claude by Anthropic, which also utilise advanced AI models for similar purposes.

Making of a Large Language Model

A Large language model creation requires the following steps:

1. Collection of Data: Large Language Models (LLMs) are trained on vast amounts of publicly available data, including Wikipedia articles, news reports, educational materials, and legal documents. This diverse dataset helps the model understand human language patterns and usage. During the data selection process, careful filtering is done to minimise harmful or biased content.

2. Pre-processing Data: The collected data is then pre-processed to remove duplicate, irrelevant and low-quality data. The remaining data is then properly formatted and broken down into smaller units like words or sub-words.

3. Model Architecture and Training: At this stage, developers design and build the AI system’s structure, then train it to predict the next word in a sequence of text. This forms the technical foundation of how the model processes and generates language.

https://arxiv.org/abs/2303.18223v14

Is 100 per cent accurate output possible?

  • The content generated by LLMs is not guaranteed to be 100 per cent correct, and the main reasons for these inaccuracies are as follows:
    LLMs are trained on vast public datasets that may contain inaccuracies, outdated information, or biases. The model can unintentionally learn and replicate these errors.
  •  LLMs don’t “understand” the world as humans do. They predict likely sequences of words based on patterns in the data. While these predictions often appear coherent, they may not always be factually correct.
  •  If the user’s input is unclear or lacks detail, the model might make incorrect assumptions and provide an inaccurate response.
  •  LLMs rely on pre-trained data. If not continuously updated, they might lack knowledge about recent events or developments.
  •  While LLMs are versatile, they might provide superficial or generic answers in specialised fields without deep domain-specific knowledge.
  •  LLMs can “hallucinate” information, generating details or facts that seem convincing but are entirely fabricated

Although LLMs have inherent limitations, several scientific approaches can significantly reduce errors in their outputs. Using well-crafted prompts can guide the model to provide more accurate responses. Retrieval Augmented Generation (RAG) enhances accuracy by connecting the model to verified external information sources. Additionally, custom-trained models can be developed for specific domains to improve performance in specialised areas.

Why does a good prompt matter?

A prompt is the input text or query that guides the LLM to generate a response. As mentioned earlier, if the query is vague or not complete, the LLM will make certain assumptions and create output which may not be relevant. While precise, detailed prompts typically yield accurate and relevant responses.

Poor Prompt: “Write about AI.”

Good Prompt: “Write a 500-word article explaining the role of AI in automating repetitive tasks, with examples from the perspective of a tax practitioner, in a conversational tone.”

In fact, prompts are so important that Prompt Engineering is becoming a specialised area of expertise and a valuable skill of crafting and refining prompts to achieve specific, high-quality outputs from AI models.

Rahul makes a beginning.

After understanding the basics of LLMs, their inherent strengths and limitations, Rahul called a brainstorming session with his team. He invited ideas on how to start using AI to improve efficiency.

“Sir let’s use AI for routine drafting,” suggested Zaid, the new article trainee. Other young team members eagerly supported the idea. Alex demonstrated how
ChatGPT could draft client communications and compliance-related documents. The team was impressed.

The discussion continued, and a decision was arrived at to start the use of AI for drafting purposes, starting small but aiming for impactful results.

Standard Operating Procedure

To ensure smooth integration, Rahul outlined an SOP:

Scope: Specify which team members can use AI for drafting and clearly define the tasks AI can assist with.

  •  Routine emails to clients asking for data, payment reminders, etc.
  •  Explaining tax-related queries to a client.
  •  Drafting compliance-related documents, e.g., Minutes of Board Meetings, Resolutions, etc.
  • • Drafting Agreements, e.g., Partnership Deed
  •  Drafting replies to legal notices

Tool Selection: Evaluate various AI tools. Decide between free and paid versions based on usage needs and features.
Each tool comes with a free and paid version. The differentiation is in terms of limit of use, access to better models, access to better features, etc. Here is a brief comparison of a few prominent tools:

Tool Free Version Paid Version
ChatGPT • Access to GPT-4o mini.

• Standard voice mode.

• Limited access to file uploads, advanced data analysis, web browsing, and image generation.

 

 • Everything in Free, plus + the following:

• Extended limits on messaging, file uploads, advanced data analysis, and image generation.

• Limited access to o1 and o1-mini.

• Create and use custom GPTs.

• Subscription: USD 20 per month.
Claude • Limited daily message limit, which varies based on demand.

• Access to Claude 3.5 Sonnet model.

 • 5x more usage versus the Free plan.

• Access to Claude 3 Opus model.

• Early access to new features.

• Access to Projects to organise. documents and chats.

• USD 20 per month.
Gemini • Access to 1.5 Flash Model.

• Free flowing voice conversation.

• Connect with multiple Google Apps.

 • Access to 1.5 Pro model.

• Access to Deep Research.

• Work seamlessly with Gmail, Docs and more.

• Upload up to 1500 pages of text.

• Subscription: INR 1950 per month.
Microsoft
Co-Pilot		 • Limited Access during peak hours. • Priority Access.

• Early Access to new features.

• Works seamlessly with Word, Excel, PowerPoint, and OneNote.

• Subscription: USD 30 per month.

Note: These features are highly dynamic and are frequently updated by companies

Training: Basic training to each member for tool usage and effective prompt creation.

Maintaining a library of standard prompts.

Confidentiality Measures: Understand the privacy policy of the AI tool. Set up strict confidentiality protocols for inputting sensitive data. Avoid sharing client-identifiable information unless it is redacted or anonymised.

When uploading files or posting queries, ensure that all Personally Identifiable Information (PII) is deleted. For example, if you are uploading a document that contains details such as the company name, PAN, address, CIN, etc., remove this information before uploading.

Drafting and Review Process: Define the review process for each type of AI-generated output.

What kind of documents can be generated from scratch? What kind of documents require a rough draft to be written by a team member and then improved using an AI tool?

Each document must be reviewed before it goes externally. Some documents may be reviewed by seniors, and other more sensitive documents may require approval by proprietor / senior.

The review must be done to spot inaccuracies and correct them. Case law citations should always be sourced from authoritative and reliable references, not from AI-generated content.

Continuous Improvement: This SOP must be reviewed every quarter and amended for improvements and accuracy

Drafting- AI-Generated vs. Human Generated

As the use of AI tools for content generation continues to grow, various tools have emerged in the market to identify whether the content is human-written or AI-generated. Some of these detection tools include TraceGPT, Hive, and Originality.ai.

AI excels at generating content quickly, with accurate grammar, proper punctuation, and consistent style. However, it often struggles with complex requirements. On the other hand, human-created text, though more time-consuming, stands out for its uniqueness and ability to better convey human emotions. The ideal approach is combining AI efficiency with human creativity and insight.

AI should be used to enhance NI (i.e. Natural Intelligence) and not to substitute the latter. NI should be used to make effective use of AI. Excessive use of AI may kill creativity and natural skills, just as we lost our memory skills of remembering telephone numbers with the advent of cell phones.

Rahul’s office- Two months later

It was 7 pm, and Rahul was packing up to leave for home. Watching his favourite sports event and having dinner with family now felt like a luxury he could afford. The team’s adoption of AI for drafting tasks significantly reduced his workload.

“What’s next?” he wondered. Rahul was ready to explore some more ways AI could transform his practice.

Here’s how you can begin implementing AI in your office:

Ready to take the first step? The possibilities are endless. Start small, think big, and let AI handle the routine while you focus on what truly matters.

Identify a Starting Area: Choose a specific area to begin using AI. For example, Rahul’s firm started with drafting. You could consider areas like research or financial analysis, depending on your comfort level and the potential for time savings.

Select the Right Tool: Research and choose an AI tool that aligns with your chosen area of focus.

Conduct Team Training: Organise a formal training program to ensure team members understand how to use the tool effectively.

Develop a Standard Operating Procedure (SOP): Create a clear and structured SOP to streamline the AI implementation process and maintain consistency.

Note: This article was conceived, structured, and written entirely by a human. However, several sentences were paraphrased with the assistance of AI to enhance clarity and ensure grammatical accuracy.

Allied Laws

43 Rizwi Khan vs. Abdul Rashid and Ors.

AIR 2024 Jharkhand 167

12th July, 2024

Transfer of property — Gift deed — No title with the donor to start with — Illegal occupation over property — Gift deed invalid. [S. 122, Transfer of Property Act, 1882; O. 1, R. 10, Code for Civil Procedure, 1908].

FACTS

A suit was instituted by the Plaintiff (Rizvi Khan) for declaration of title over the suit property. The suit was filed on the strength of a gift deed executed by the donor (one Mr. Shamsher Ali, father of both Plaintiff and Respondents) in favour of the Plaintiff. The Respondents had argued, inter alia, that the said gift deed was null and void on the ground that the donor did not have a clear title over the suit property on the date of transfer of property.

HELD

The Hon’ble Jharkhand High Court observed that the suit property belonged to the state government, which was leased out to TISCO. Further, it was observed that the donor was illegally occupying the said land. Thus, relying on the legal maxim ‘Nemo dat quod non-habit’, i.e., one cannot give what he does not have, it was held that the gift deed was invalid.

The suit was, therefore, dismissed.

44 Parvati alias Parvati Mohapatra vs. Sadasiba Mohapatra (dead) and Ors.

AIR 2024 (NOC) 819 (ORI)

28th February, 2024

Succession — Void Marriage — Children from void marriage — Illegitimate children also have right over the property of parents. [S. 16, Hindu Marriage Act, 1955; S. 11, Hindu Succession Act, 1956].

FACTS

The Respondent (Original Plaintiff) had filed a suit for eviction of the Appellants (Original Defendant) from possession of the suit property. Plaintiff had contested that Defendant was staying with him for the last 30 years in the suit property. Thereafter, due to issues between the parties, the Plaintiff had asked the Defendant to vacate the property. The Defendant had contested the removal on the ground that the Defendant had been married (as per social norms) to the Plaintiff for the last 30 years and, therefore, she and their children had a legal right, title, and interest over the suit property and thus, cannot be evicted. Plaintiff had rebutted by stating that he was already married to somebody else and, therefore, Defendant was not his wife as per section 11 of the Hindu Marriage Act, 1956, and consequently, the children also did not possess any right, title and interest over the suit property. Thereafter, during the pendency, Plaintiff expired, and his legal heirs (children through his first wife) were made a party to the plaint. The Ld. Trial Court dismissed the plaint. Aggrieved, an appeal was filed before the Ld. division Bench. The Ld. Division Bench allowed the Plaintiff’s appeal.

Aggrieved, a second appeal was filed by the Defendant before the Hon’ble Orissa High Court.

HELD

On appeal, the Hon’ble Orissa High Court observed that the children of the Plaintiff and Defendant (Defendant 2 to 4) had become legal heirs to the suit property upon the death of the Plaintiff. Further, relying on section 11 of the Hindu Succession Act, 1956 and the decision of the Hon’ble Supreme Court in the case of Revanasiddapa and others vs. Mallikarjun and Others AIR 2023 Supreme Court 4707, it was held that Defendants 2 to 4 inherited right, title, and interest over the property even though they were born out of a void marriage.

The Appeal was, therefore, allowed.

45 Kripa Singh vs. GOI & Ors

2024 LiveLaw (SC) 970

21st November, 2024

Arbitration — Delay in filing appeal — Implications of the Limitation Act — Court of law to secure and protect appellants. [S.14, Limitation Act, 1963; S. 34, S. 37, Arbitration and Conciliation Act, 1996 (Act)].

FACTS

The appellant’s land was acquired by the Government vide an award. After receiving a certified copy of the award, the appellant filed an appeal before the High Court. Thereafter the appellant came to know about the appropriate action available, being the statutory remedy under Section 34 of the Act, and instituted proceedings under Section 34 of the said Act before the District Court.

The District Judge took up the application under Section 34 of the Act and dismissed the same on the ground that it was barred by limitation. An appeal under section 37 of the Act was also dismissed.

The appellant filed an appeal before the Supreme Court.

HELD

The substantive remedies under Sections 34 and / or 37 of the Act are by their very nature limited in their scope due to statutory prescription. It is necessary to interpret the limitation provisions liberally, or else, even that limited window to challenge an arbitral award will be lost. The remedies under Sections 34 and 37 of the Act are precious. Courts of law will keep in mind the need to secure and protect such a remedy while calculating the period of limitation for invoking these jurisdictions. Applying Section 14 of the Limitation Act, we hold that there is sufficient cause excluding the period commencing from the filing of the wrong appeal before the High Court to the filing of the correct appeal before the District Court will be excluded.

The Appeal was allowed.

46 Manohari R vs. The Deputy Tahsildar (Revenue Recovery) & Ors

2024 LiveLaw (Ker) 783

5th November, 2024

Writ Jurisdiction — Difference between Maintainability and Entertainability. [Art. 226, Constitution of India, S. 7 Kerala Revenue Recovery Act, 1968].

FACTS

The Appellant / Original Petitioner had challenged a notice issued under Section 7 of the Kerala Revenue Recovery Act, 1968 by filing a Writ Petition. The notice was issued by Respondent No.1, authorising the Village Officer, to seize the movable property of the Appellant for the defaulted amount of ₹1,10,096/- with interest due to the Kerala State Electricity Board (KSEB).

The Writ Petition was dismissed as not maintainable. Being aggrieved by the summary dismissal of the writ petition, the Petitioner filed appeal under Section 5 of the Kerala High Court Act, 1958.

HELD

There is a difference between the entertainability and maintainability of a writ petition. Even if the alternate remedy is available to the Petitioner, that cannot be a ground to hold the writ petition under Article 226 of the Constitution of India against an administrative authority as “not maintainable”. The powers under Article 226 of the Constitution of India can be exercised even if there exists an alternate remedy. However, it is in restricted circumstances, within well-defined parameters. As a matter of settled judicial practice, the jurisdiction under Article 226 of the Constitution of India is not exercised if there is an alternative efficacious remedy available and in such circumstances, the writ court may decline to “entertain” the writ petition. There is, therefore, a difference between maintainability and entertainability of a writ petition.

Therefore, the petition filed by the Appellant / Petitioner was maintainable. The impugned judgment was set aside, to decide whether the writ petition should be entertained.

The Appeal was allowed

From The President

Adios 2024!

The landmark calendar year of 2024 has come to a close, marking the 75th anniversary of our esteemed Society. This year has been an opportunity to express gratitude and recognise the numerous contributions made by our Society over the past several decades. It also served to reinforce our commitment and dedication to our Society’s mission for our shared future. The year commenced with the landmark ReImagine mega-conference and concluded on a high note with India’s inaugural CAthon — a marathon run for Chartered Accountants, which attracted over 1600 participants in support of noble causes. On behalf of the entire BCAS team, I would like to extend my heartfelt thanks to all our members and well-wishers for their unwavering support for the various BCAS initiatives throughout the year.

The beginning of a brand-new year is always a good spot to pause and reflect on the year gone by, as well as expectations from the new year. Whilst 2024 gave us new governments at the centre and the state, closer home, the new council of our Institute of Chartered Accountants (‘ICAI’) is also set to get started soon. In this backdrop, we discuss some trends affecting our profession that can seemingly unfold (or accelerate) as we glide into the new year:

i. Evolving Assurance Regulatory Landscape: In 2024, India’s assurance regulatory landscape underwent significant changes, with the NFRA demonstrating its strong intent through various amendments and circulars despite opposing views from other stakeholders. With a new council leading ICAI and the recent opinion from the Solicitor General of India, the outcome of the proposed amendments will be closely observed. Additionally, as the NFRA team expands, it is expected that their monitoring and oversight functions will accelerate, resulting in an increase in Audit Quality Review Reports, inspections, and orders.

The Accounting and Auditing Committee at BCAS initiated a series of webinars in December 2024 focusing on significant auditing standards and recent NFRA orders analysis. Featuring speakers from NFRA, the objective of these webinars was to enhance our members’ understanding of the evolving assurance landscape.

ii. Simplification Effort for Income Tax Act: In 2025, it is anticipated that meaningful amendments will be made to the Income Tax Act, 1961, in an effort to simplify its provisions. As announced by the Honourable Finance Minister in her Budget Speech of 2024, there is considerable expectation regarding the changes that may be proposed in the upcoming 2025 budget. These modifications are likely to be refined over the coming months, with the budget document setting the groundwork for this initiative.

At BCAS, the Direct Tax Committee has established a sub-group to provide suggestions on simplification initiatives. This sub-group will also focus on training and knowledge dissemination for our members following the announcement of these changes. Additionally, in December 2024, BCAS had the honour of hosting Dr. Pushpinder S. Puniha and other members from the Consultative Group on Tax Policy at NITI Aayog, where suggestions were shared on tax policy-related matters.

iii. The fruition of legal challenges under GST: The GST law has travelled through the phases of awareness > implementation > assessments > dispute resolution. Since the dispute resolution process is time-consuming, many important matters, including certain constitutional challenges to GST law, might see conclusion in 2025. It would not be of surprise if legislative amendments are resorted to cover some of these judicial pronouncements, as is the expectation with the Safari Retreats judgment. The commencement of matters at the appellate tribunal level is also expected to gather steam in the coming year.

The Indirect Tax Committee at BCAS recently hosted a comprehensive full-day workshop on recent developments in GST, which included a Brain’s Trust session addressing issues arising from recent judgments. Additionally, the committee is preparing a representation to be submitted to the Union Finance Minister and the CBIC, focusing on specific provisions related to the legal and procedural aspects of GST.

iv. Embedded usage of AI across practice areas: The discussion on AI has transitioned from questioning its impact to examining the extent of its influence. As more AI tools become widely used, AI adoption is expected to increase across all professional practice areas by 2025. It is unlikely that AI will replace accountants entirely, but it is entirely probable that ‘accountants with AI’ will replace ‘accountants without AI’.

At BCAS, our AI mission is to enable members to harness the power of AI rather than perceiving it as an adversary. The Technology Initiatives Committee has embarked on a journey of organising subject-specific AI discussions. Having successfully concluded a session on ‘Transforming Tax Practice through AI’, the team is all set to host an upcoming session on ‘Revolutionising CA Practice through AI’.

v. Acceleration in the trend towards audit-only firms and non-audit firms: The changing regulatory framework, increased stakeholder expectations, and the need for specialised domain knowledge are likely to accelerate the trend of firms focusing their efforts on either audit services or non-audit services. As this distinction becomes more pronounced, it may lead to the formation of audit-only firms that utilise their core assurance expertise to provide conflict-free services.

The forthcoming Members’ RRC in Lucknow-Ayodhya will feature insightful sessions on the topic of the future of firms, raising private equity for professional firms and developing non-conventional practice areas. While registration for the Members’ RRC is closed, individuals can join a waitlist to possibly secure a spot in the event of cancellations.

The BCAS membership extends across over 350 towns and cities in India. In December, the Vice President visited Coimbatore to conduct the first BCAS Townhall. These Townhall sessions, which are held outside of Mumbai, provide an excellent opportunity for the BCAS office bearers to engage with our membership and exchange thoughts. Coupled with the Sherpa initiative, these BCAS Townhalls will help reaching out to the growing diverse membership at BCAS.

This month, we surpassed 25,000 subscribers on our BCAS YouTube channel. The BCAS YouTube channel is a treasure trove of professional knowledge and deep insight on various topics. Now, all videos from the ReImagine mega-conference have been added to the BCAS YouTube channel for the benefit of our community.

BCAS congratulates the newly elected council members of the Institute of Chartered Accountants of India as they embark on leading and guiding our collective efforts towards the betterment of our profession.

Please also join me in congratulating the 11,500 newly qualified Chartered Accountants as they embark on their journey in this esteemed profession, with a promising future ahead of them.

As the new year begins, I hope you have obtained your copy of the BCAS Calendar and Diary. Best wishes for a healthy, happy and fruitful new year ahead. Bienvenue 2025!

CA Anand Bathiya

President

Do Not Kill The Golden Goose

Corporate Tax contributed 46.47 per cent, and Personal Income Tax contributed 53.31 per cent of total direct tax collections in India in the FY 2023-24.1 Total collection on account of direct taxes in the FY 2023-2024 was ₹19.60 lakh crores. Thus, we find that taxpayers, both corporate and non-corporate, are major contributors to the government exchequer. GST contributed ₹18.01 lakh crore for the FY 2023-20242.

1 https://incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Final-Approved-Time-Series-Data-2023-24-English.pdf
2 https://pib.gov.in/PressReleasePage.aspx?PRID=2016802

There were 7.5 crore individual taxpayers for the AY 2023-2024.3 This shows that only 5 per cent of the population pays tax in India or files tax returns. Out of this, 87 per cent has returned income of less than ₹10 Lakhs. Fifty per cent of the total individual taxpayers are salaried class, of which 82 per cent have income less than ₹10 lakhs. This shows that the majority of the taxpayers belong to the middle class. Individual taxpayers, and especially the salaried class are the worst hit by inflation and taxes. Over and above income tax, they pay GST on their gross spending. GST should be reduced on items of mass consumption to give relief to people. There is no social security for a large number of private sector employees, and they are taxed at a higher maximum marginal rate of 30 per cent as against the peak corporate tax rate of 25 per cent. There is a strong case for substantial relief to the middle class.

3 https://incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Approved-version-Income-Tax-Return-Statistics-for-the-AY-2023-24.pdf

The government refers to taxpayers as “Pratyek Karadata — ek Rashtra Nirmata”(प्रत्येक करदाता एक राष्ट्र निर्माता). However, unfortunately, this Rashtra Nirmata is not given his due credit, respect, benefit or any social security. In fact, a ‘taxpayer’ is debarred from many government benefit schemes. It pains to see the hard-earned money of the taxpayers utilised in freebies and unproductive work.

Instead of rewarding taxpayers, they are penalised by assessing officers with high-pitched assessments, unreasonable penalties / demands, unfriendly communications, prosecution notices, litigation and so on. Complex tax laws, long-drawn litigation and ambiguity have resulted in uncertainty in tax system / compliances.

It is interesting to note that Mr Sanjay Malhotra, then Revenue Secretary4, echoed the sentiments of taxpayers while addressing the Directorate of Revenue Intelligence5 on 4th December, 2024:

  •  The government aims to make the tax system simple, easier to understand and comply with. He said that the aim is to reduce disputes and litigation.
  •  He conveyed the government’s intent of building trust with taxpayers by avoiding harassment and inconvenience to honest taxpayers, at the same time dealing rigorously with dishonest.
  •  He exhorted members present to remain alert and keep the interest of the economy ahead of the interest of the revenue.
  •  He said that tax officials should desist from raising unwarranted high-pitched demands and keep economic growth in mind.
  •  He said, “If in the process of garnering some small revenue, we are hurting the whole industry and economy of the country, that is certainly not the intent,”
  •  He said, “Revenue comes in only if there is some income and so we have to be very cautious that in the process, as they say, ‘do not kill the golden goose’.”
4 Mr. Sanjay Malhotra has been appointed as the 26th Governor of Reserve Bank of India w.e.f. 11th December 2024
5 DRI is the apex anti-smuggling agency of the Central Board of Indirect Taxes & Customs (CBIC).

Mr. Malhotra’s comments carry a lot of weight, as he has played a pivotal role in shaping policies related to both direct and indirect taxes. On 31st May, 2024, he met BCAS along with many other organisations and trade bodies to understand the challenges faced by taxpayers. While he has now taken up office as Governor of the Reserve Bank of India, let us hope that his successor will follow a similar approach and provide much needed relief to the taxpayers.

It is heartening to note that the government is seized of these issues and has set up a Consultative Group on Tax Policy at NITI Aayog6 to analyse tax policies and processes and suggest reforms that help in tax simplification, enhance tax collections, reduce tax compliances, and other costs for the taxpayers through improved filing, grievance redressal mechanisms and reduced litigation. Dr Pushpinder Puniha, IRS, the chairman of the Consultative Group on Tax Policy, along with Mr Sanjeet Singh, IRS, Senior Adviser at NITI Aayog, visited BCAS on 10th December, 2024 to discuss the changes required in the direct tax laws to achieve the above objectives. They were very open, and their approach was pragmatic. The profession and business community have high hopes from this Consultative Group with regard to tax reforms.

6 National Institution for Transforming India (NITI)

UNION BUDGET 2025

Union Budget 2025 will be presented on 1st February, 2025. One hopes that the Government fulfils the hopes of Aam Adami (Common Man) and brings in reforms to ease the tax burden and compliances. The government consults various trade associations, professional bodies and stakeholders before the Budget. However, once it is announced, there is hardly any discussion by the honourable Members of Parliament (MPs) while passing the same. It would be better if a Committee of Experts from across sectors is set up to study and evaluate the proposals in the Union Budget, including the Finance Bill, before the same is taken up for debate and discussion in Parliament. This group can highlight the pros and cons of various proposals, which would guide MPs while passing them.

ECONOMIC CHALLENGES AHEAD

It is well known that India is facing tough competition from countries like Vietnam, Indonesia, etc. Somehow, India has failed to attract desired investments and capitalise on the present geo-political and economic upheavals and the economic turmoil in Bangladesh, China (credibility crisis post-Covid) and other war zone countries. If India is to attract foreign investment and play a crucial role in the global market, then it needs to address some of its perennial problems, such as lack of stability and consistency in tax laws, adversarial tax regime, corruption, long-drawn tax litigation and complex laws.

It is imperative that India creates an image of a taxpayer-friendly jurisdiction, that cares for and respects all contributors to the progress of the country. India needs to focus on the generation of employment, exports and economic development. Revenue is the by-product of economic growth and should not become a hindrance to development.

At present, India is facing multiple challenges, namely, the slowdown of the economy (for the Q.E. Sep 2024, it is expected to be 5.4 per cent — a seven-quarter low), rising inflation and depreciating rupee7. The new RBI governor has a tightrope to walk on.

7 Rupee ended at 85.53/$1 on 27th December, 2024 – the steepest single day fall since 15th March 2023 Source: The Economic Times dated 28.12.2024.

NEED OF THE HOUR

In the present global scenario, India needs to play its cards wisely. As Mr. Malhotra rightly said, if there is income, revenue will come automatically. All we need to do is to provide a conducive environment for the business community to grow and prosper. A friendly and reasonable tax regime will give much-needed relief to the middle-class population. GST rates need to be reduced, as they are regressive, and ultimately, the end consumer (which is largely lower and middle-income class people) bears the burden.

As we bid adieu to 2024, let us hope that 2025 will bring a simplified tax regime in which the golden goose (taxpayers) will be so well treated that it will give more and more golden eggs for a very long time.

I wish you all a happy New Year 2025!

Best Regards,

 

Dr CA Mayur Nayak

Editor

जानामि धर्मम् न च मे प्रवृत्ति: !

This is a wonderful line adopted from Pandav Geeta (57). It is also incorporated in ‘Vidurniti’, i.e. the preaching by Vidur to his eldest brother Dhrutarashtra in Mahabharata. It is an all-time truth, experienced by and applicable to almost every person. One needs the courage to accept it.

In Pandav Geeta, Duryodhana says this, while in Vidurniti, it is said by Dhrutarashtra, Duryodhana’s father. I am presuming that the readers are aware of the basic story of Mahabharata.

All persons, even uneducated or illiterate, have a basic idea of what is good and what is bad. The problem is that despite this knowledge, one is not inclined to do good things, nor can one refrain from doing bad or undesirable things. He leaves everything to the diktats of his ‘God’ at the time of actual action. The literal meaning: –

जानामि धर्मम् न च मे प्रवृत्ति: ! I know what is good, i.e. what is as per ‘Dharma’ — norms of good behaviour. But, I am not always inclined or willing to act according to the Dharma.

जानाम्यधर्मम् न च मे निवृत्ति:! I also know what is bad or not acceptable to the Dharma. But I am not able to refrain myself from doing that thing. I cannot withdraw myself from evil things.

केनापि देवेन हृदि स्थितेन Some God who is in my heart always guides me on what and how to do (behave) and I can’t disregard Him! I cannot resist His directions!

यथा नियुक्तोस्मि तथा करोमि! I act as per that ‘God’s diktat. (often in a selfish manner)

The learned and wise readers of BCAJ do not need any elaboration on this principle. We experience and observe this every now and then in all walks of life. We develop a feeling that it is ‘inevitable’. That is the ‘gift of Kaliyuga. That is the tragedy of human life.

In any walk of life — education, health, profession, business, administration, judiciary even in so-called ‘spiritualism’ bad or false things are routinely done. There is hypocrisy. There is a dichotomy between what we say and what we do. About politics, elections, etc., the less said, the better.

In the present scenario and systems in India, it is extremely difficult for any professional to remain completely above board. Either he is a victim of corruption or a forceful supporter of it for various reasons. It is sad to see that most professions are losing their charm, respect and credibility in society. The irony is that it is the same society and system, which force them to adopt unethical practices, and when they succumb to pressures, they are defamed.

One of the fallouts of unrighteous ways is the loss of courage to fight. When we are part of the rotten system, we cannot fight or complain against it. We have lost the courage to expose crimes happening before our eyes or in our knowledge. We need to learn a lesson from King Dasharatha in this respect.

Dasharatha, by mistake, killed Shravan. Dasharatha was a King and not answerable to anyone, yet he admitted his guilt and accepted the punishment (A curse from Shravan’s parents).

Hundreds of such examples can be given in our scriptures. However, in the DwaparYuga and Kaliyuga, the value system degenerated rapidly, and today, we are in this pathetic and undesirable situation! Today, the ‘self’ dominates over good morals, and we lack the courage and willingness to act dutifully and conscientiously!

Glimpses of Supreme Court Rulings

14 Deputy Commissioner of Gift Tax,

Central Circle-II vs. BPL Ltd.

(2022) 448 ITR 739 (SC)

Gift-tax – Equity shares during lock-in period are not ‘quoted shares’ as defined- Valuation of “unquoted equity shares” in companies – Schedule II to the G.T. Act read with Rule 11 of Part C of Schedule III of the W.T. Act is a statutory rule which prescribes the method of valuation of “unquoted equity shares” in companies, other than investment companies, which prescription and method of valuation is mandatory in nature – The effect of Rule 11 of Part C of Schedule III of the W.T. Act is that unquoted shares must be valued as per the formula prescribed – No other method of valuation is permitted and allowed – Ad hoc depreciation/reduction from the quoted price of equity shares transferable in the open market is not permitted and allowed vide Rule 9 of Part C of Schedule III of the W.T. Act.

The assessee company was engaged in the the manufacture and sale of consumer electronic products like television sets, VCR’s, audio and video products, etc.

The assessee had also invested in various other companies manufacturing allied or similar electrical, electronic and engineering goods. On 2nd March, 1993, the assessee transferred its holdings in eight companies to one Celestial Finance Ltd. for a total consideration of ₹23,10,03,974 which was equal to the cost of acquisition of the shares to the assessee.

The assessee had transferred the shares to Alpha Securities Pvt. Ltd., a 99.7 per cent subsidiary of the assessee. Alpha Securities Pvt. Ltd., in turn, had transferred the same to the 100 per cent subsidiary of Celestial Finance Ltd.

In the course of the assessment proceedings for A.Y. 1993-94, there was an audit objection dated 17th August, 1995. The assessee satisfied the Department that there was no element of gift.

Thereafter, in August, 1998, a search was carried out u/s 132 of the Income-tax Act. The Deputy Commissioner of Gift Tax issued a notice u/s 16 of the Gift Tax Act, 1958. An assessment order was passed that concluded that there was a deemed gift u/s 4(1)(a) [which provided for deemed gift in a case where the property is transferred for inadequate consideration] and 4(1)(b) [this dealt with the situation where consideration was not intended to be passed] to the extent of ₹69,78,49,800. The gift tax with interest u/s 16B (from July, 1993 to January, 2000) was quantified at ₹54,01,12,525.

On appeal, the Commissioner of Income-tax (Appeals) upheld the validity of reopening, but reduced the quantum of the gift tax. He held that the shares of BPL Sanyo Utilities & Appliances Ltd. and BPL Sanyo Technologies Ltd. [the transfer of these shares were also the subject matter of gift tax proceedings] had to be treated as unquoted equity shares as they were in the lock-in-period and, therefore, valued under Rule 5 of Gift Tax Rules and directed that the said value be substituted in place of valuation that adopted the quoted value of shares. He deleted the amount assessed u/s 4(1)(b) as it was difficult to hold that the consideration was not intended to be passed. He also modified the interest u/s 16B.

On further appeal by the assessee and a cross objection by the Revenue, the Tribunal approved the action of the AO but accepted the finding of the Commissioner with regard to issue u/s 4(1)(b). The Tribunal dismissed the assessee’s appeal and accepted the Revenue’s appeal in part.

On an appeal to the High Court by the assessee, it was held that (i) the gift tax proceedings were validly initiated in the facts and circumstances of the case; (ii) there was a ‘deemed gift’ in terms of section 4(1)(a) as the status of subsidiary company was given probably to avoid payment of gift tax; and (iii) as the shares in question were not traded and were not tradable, the valuation made by Commissioner was proper.

The High Court further held that the interest u/s 16B was leviable on the returned income and not on the assessed income.

The High Court noted that the finding of the Commissioner (Appeals) deleting the deemed gift u/s 4(1)(b) for alleged non-receipt of consideration was confirmed by the Tribunal and no further appeal having been filed by the Revenue, the order of the Commissioner (Appeals) had become final.

On an appeal by the Revenue, the Supreme Court noted that the limited issue raised in the appeal before it related to the valuation of 29,46,500 shares of M/s. BPL Sanyo Technologies Ltd. and 69,49,900 shares of M/s. BPL Sanyo Utilities and Appliances Ltd. which were transferred by the Respondent-Assessee, M/s. BPL Ltd. to M/s. Celestial Finance Ltd. on 2nd March, 1993. The shares of M/s. BPL Sanyo Technologies Ltd, and M/s. BPL Sanyo Utilities and Appliances Ltd, both public limited companies, were listed and quoted on the stock exchanges. However, these shares, being promoter quota shares, allotted to the Assessee on 17th November, 1990 and 10thJuly, 1991, were under a lock-inperiod up to 16th November,1993 and 25th May, 1994, respectively.

The Supreme Court noted that Sub-section (1)(a) to Section 4 of the Gift Tax Act, 1958 [G.T. Act] states that where a property is transferred otherwise than for adequate consideration, the amount by which the market value of the property, at the date of the transfer, exceeds the value of the consideration, shall be deemed as a gift made by the transferor. Sub-section (1) to Section 64 of the G.T. Act states that the value of any property, other than cash, which is transferred by way of gift, shall be its value on the date on which the gift was made and determined in the manner as laid down in Schedule II of the G.T. Act. Schedule II, which incorporates the rules for determining the value of a gifted property, states that the value of any property, other than cash, transferred by way of gift, subject to the modifications as stated, shall be determined in accordance with the provisions of Schedule III of the Wealth Tax Act, 1957 [W.T. Act]. The provisions of Part C of Schedule III of the W.T. Act lays down the method of valuation of shares and debentures of a company. Rules 9 and 11 of Part C of Schedule III of the W.T. Act relate to the valuation of quoted shares and debentures of companies and valuation of unquoted equity shares in companies other than investment companies respectively.

The expressions “quoted share” and “quoted debentures”, and “unquoted shares” and “unquoted debentures” have been defined vide Sub-rules (9) and (11), respectively, to Rule 2 of Part A of Schedule III of the W.T. Act. As per the definitions, the expression “quoted share” in case of an equity share means a share which is quoted on any recognised stock exchange with regularity from time to time and where the quotation of such shares is based on current transactions made in the ordinary course of business. Explanation to Sub-rule (9) of Rule 2 of Part A of Schedule III of the W.T. Act states that when a question arises on whether a share is a quoted share within the meaning of the rule, a certificate to that effect furnished by the concerned stock exchange in the prescribed form shall be accepted as conclusive. The expression “unquoted share”, in relation to an equity share, means a share which is not a quoted share.

The Supreme Court agreed with the view expressed by the High Court, which observed that the equity shares under the lock-in period were not “quoted shares”, for the simple reason that the shares in the lock-in period were not quoted in any recognised stock exchange with regularity from time to time.

According to the Supreme Court, when the equity shares are in a lock-in period, then as per the guidelines issued by the Securities and Exchange Board of India (SEBI), there is a complete ban on transfer, which is enforced by inscribing the words “not transferable” in the relevant share certificates.

The Supreme Court noted that the aforesaid position was accepted by the Revenue, which, however, had relied upon a general circular issued by SEBI, wherein it is stated that the shares under the lock-in period can be transferred inter se the promoters. This restricted transfer, according to the Supreme Court, would not make the equity shares in the lock-in period into “quoted shares” as defined vide Sub-rule (9) to Rule 2 of Part A of Schedule III of the W.T. Act, as the lock-in shares are not quoted in any recognised stock exchange with regularity from time to time, and it is not possible to have quotations based upon current transactions made in the ordinary course of business. The possibility of a transfer to promoters via a private transfer/sale does not satisfy the conditions to be satisfied to regard the shares as quoted.

The Supreme Court held that Rule 11 of Part C of Schedule III of the W.T. Act is a statutory Rule which prescribes the method of valuation of “unquoted equity shares” in companies (other than investment companies), which prescription and method of valuation is mandatory in nature. The effect of Rule 11 of Part C of Schedule III of the W.T. Act is that unquoted shares must be valued as per the formula prescribed. No other method of valuation is permitted and allowed. Any ad hoc depreciation/reduction from the quoted price of equity shares transferable in the open market is not permitted and allowed vide Rule 9 of Part C of Schedule III of the W.T. Act. The shares in question being “unquoted shares”, therefore, must be valued in terms of Rule 11 as a standalone valuation method.

Faced with the aforesaid position, the Revenue further relied upon Rule 21 of Part H of Schedule III of the W.T. Act before the Supreme Court.

The Supreme Court noted that Rule 21 of Part H of Schedule III of the W.T. Act had been enacted to clarify and remove doubts. It states that notwithstanding the negative covenants prohibiting or restricting transfer, the property should be valued for the purpose of the W.T. Act and the G.T. Act, but according to the Supreme Court, the valuation is not by overlooking or ignoring the restrictive conditions.

The Supreme Court held that the shares in the lock-in period have market value, which would be the value that they would fetch if sold in the open market. Rule 21 of Part H of Schedule III of the W.T. Act permits valuation of the property even when the right to transfer the property is forbidden, restricted or contingent. Rights and limitations attached to the property form the ingredients in its value. The purpose is to assume that the property which is being valued is being sold, and not to ignore the limitations for the purpose of valuation. This was clear from the wording of Rule 21 of Part H of Schedule III of the W.T. Act, which when read carefully expresses the legislative intent by using the words “hereby declared”. The Rule declares that the price or other consideration for which any property may be acquired by, or transferred, to any person under the terms of a deed of trust or through any other restrictive covenant, in any instrument of transfer, is to be ignored as per the provisions of the Schedule III of the W.T. Act. However, the price of such property is the price of the property with the restrictions if sold in the open market on the valuation date. In other words, notwithstanding the restrictions, hypothetically the property would be assumed to be saleable, but the valuation as per Schedule III of the W.T. Act would be made accounting and taking the limitation and restrictions, and such valuation would be treated as the market value. The Rules do not postulate a change in the nature and character of the property. Therefore, the property must be valued as per the restrictions and not by ignoring them.

In view of the aforesaid discussion, and for thereasons stated above, the appeal by the Revenue was dismissed.

Notes:

1. The above judgment of the Supreme Court gives an impression that this was a case of gift of shares. However, this was a case of transfer/sale of shares at cost and that had raised the issue of valuation of such shares and consequently the issue of deemed gift u/s 4(i)(a) of the Gift-Tax Act, 1958. The relevant facts are available in High Court judgment [(2007) 293 ITR 321(Karn)].

2. The Gift-Tax Act, 1958 is effectively inoperative from 1st October, 1998. Likewise, the Wealth-Tax Act, 1957 is also not operative from A.Y. 2016-17. However, the principle of valuation of shares of listed company during lock-in period of promoters’ quota shares decided by the Court will be still relevant.

15 Indian Institute of Science vs. Dy. Commissioner of Income Tax

(2022) 446 ITR 418 (SC)

Salary – Perquisite – Merely because an assessee might have adopted the Central Government Rules and/or the pay-scales etc., by that itself, it cannot be said that the assessee is a Central/State Government – Employees of such an assessee cannot be construed to be employees of the Central Government for the purposes of computing perquisite value which was governed by Sl. No. 2 of Table 1 appended to Rule 3 of the Rules.

The assessee, a premier research institution engaged in imparting higher learning and carrying out advanced research in science and technology, was recognised as a ‘Deemed University’ under the provisions of University Grants Commission Act, 1956 (‘the UGC Act’).

The service conditions of the employees of the assessee were governed by the rules as were applicable to the Central Government employees.

Accordingly, TDS returns in Form 24Q was filed by the assessee u/s 192 of the Act r.w.s 17(2) of the Act, for the period from 1st April, 2009 to 31st March, 2010, which was applicable in respect of the employees of the Central Government.

The AO, by an order dated 26th April, 2013 passed u/s 201(1) and 201(1A) r.w.s 192 of the Act (A.Y. 2010-11), held that the assessee had not correctly worked out the perquisite value of accommodation in accordance with amended Rule 3 of the Rules, and was liable to be treated as an assessee in default u/s 201(1) of the Act for non-deduction/short deduction. It was further held that the assessee was liable to pay interest u/s 201(1A).

The assessee thereupon filed an appeal before the CIT (A) who, by an order dated 22nd July, 2014, affirmed the orders passed by the AO.

The assessee thereupon filed an appeal before the Tribunal. The Tribunal, by an order dated 27th February, 2015, inter alia, held that the employees of the assessee cannot be construed to be employees of the Central Government for the purposes of computing perquisite value which was governed by Sl. No. 1 of Table 1 appended to Rule 3 of the Rules. Accordingly, the appeal was dismissed.

The assessee, thereupon, filed an appeal before the Karnataka High Court. The High Court noted that the assessee, which was a Trust under the 1890 Act, was controlled and financed by the Central Government, and governed by the Rules governing the service conditions of the employees of the Central Government. According to the High Court, the assessee may be an instrumentality of the State for the purpose of Article 12 of the Constitution of India. However, for the purposes of Rule 3, the requirement was that the accommodation should be provided by the Central or State Government to the employees either holding office or post in connection with affairs of the Union or of a State or serving with anybody or undertaking under the control of such Government from deputation. The High Court held that merely because the assessee is a body or undertaking owned or controlled by the Central Government, it cannot be elevated to the status of Central Government. Thus, the assessee cannot claim that valuation of perquisites in respect of residential accommodation should be computed as in case of an accommodation provided by the Central Government. Therefore, Sl. No. 1 of Table 1 of Rule 3 of the Rules did not apply to the assessee.

The assessee thereupon filed a Special Leave Petition before the Supreme Court.

The Supreme Court agreed with the findings recorded by the High Court that even if the petitioner may be considered as a State instrumentality within the definition of Article 12 of the Constitution of India, the same cannot be treated at par with the Central/State Government employees under Table-I of Rule 3 of the Income- tax Rules, 1962. Accordingly, the rules applicable to government employees for the purpose of computing the value of perquisites u/s 17(2) would not be applicable in the case of the petitioner. The Supreme Court held that merely because the petitioner might have adopted the Central Government Rules and/or the pay-scales etc., by that itself, it cannot be said that the petitioner is a Central/State Government. The Supreme Court therefore declined to interfere with the order of the High Court.

Insofar as the merits of the claim is concerned, the Counsel for the Petitioner pointed out that some of the crucial aspects had not been considered on merits by the High Court and, therefore, the petitioner proposed to file a review application before the High Court pointing out certain aspects on merits.

The Supreme Court, without expressing anything on the same, simply permitted the petitioner to file a review application on the aforesaid only and directed that as and when such a review application is filed, the same be considered in accordance with law and on its own merits.

16 ACIT vs. Kalpataru Land Pvt. Ltd. (2022)

447 ITR 364 (SC)

Reassessment – Assessment could not be reopened on a change of opinion.

The assessment of the assessee, engaged in the business of real estate, for A.Y. 2013-2014 was completed u/s 143(3) of the Income -tax Act, 1961 (the Act) on 20th February 2016 by determining nil total income.

On 27th March 2019, a notice u/s 148 was issued to the petitioner for A.Y. 2013-2014.

The assessment was reopened for the reason that the assessee company had issued its shares at premium of ₹990 per share in F.Y. 2012-13 (relevant to A.Y. 2013-14). During the said period, the assessee company had no significant transaction except having capitalized its interest expenses to the cost of the land purchased. The valuation of shares at a high premium of ₹990 per share by the company was based on the Discounted Cash Flow (DCF) method, which projections of profitability, according the AO, were computed on unrealistic future growth projections. The AO was of the view that the company had received consideration which exceeded the Fair Market Value (FMV) of the shares and therefore was liable to be taxed as the difference between the aggregate value of the shares and FMV u/s 56(2) (viib) of the Act.

The High Court noted that by a letter dated 5th October, 2015, the AO had called upon the assessee to produce evidence in support of increase of the authorised share capital, produce the evidence of share allotment and name and address of the parties from whom share premium was received, among other things. The assessee by its letter dated 23rd December 2015, provided the details of share premium received including name of the party from whom it was received. After considering the same, the assessment order has been passed on 20th February, 2016. Therefore, according to the High Court, it was not permissible for an AO to reopen the assessment based on the very same material with a view to take another view without consideration of material on record once view is conclusively taken by the AO.

The Supreme Court dismissed the SLP, considering the fact that earlier the AO had called upon the assessee to produce the evidence in support of increase of authorised share capital, produce the evidence of share allotment and names and addresses of the parties from whom share premium was received, among other things before passing the assessment order. According to the Supreme Court, the subsequent reopening could be said to be a change of opinion.

Note:

The Supreme Court has also dismissed SLPs of the Revenue for similar reasons in other two cases [(i) PCIT vs. State Bank of India (2022) 447 ITR 368 (SC); and (ii) DCIT vs. Financial Software and Systems P Ltd. (2022) 447 ITR 370 (SC)].

17 Harshit Foundation Sehmalpur Jalalpur Jaunpur vs. Commissioner of Income Tax, Faizabad

(2022) 447 ITR 372 (SC)

Charitable purpose – Registration –There is no provision in the Act by which it provides that on non-deciding the registration application u/s 12AA(2) within a period of six months there shall be deemed registration.

In an appeal filed u/s 260A of the Income-tax Act, 1961 (‘the Act’) by the Revenue before the Allahabad High Court from the order dated 28th June, 2013 passed by the Income-tax Appellate Tribunal, Lucknow, the Appellant had raised a question as to whether non-disposal of the application for registration within a period of six months will result in deemed grant of registration u/s 12AA(2) of the Act.

The High Court set aside the order of the Tribunal and allowed the Revenue’s appeal holding that non-disposal of the application for registration, by granting or refusing registration, before expiry of six months as provided u/s 12AA(2) of the Act would not result in deemed grant of registration by following the decision of its Full Bench in CIT vs. Muzafar Nagar Development Authority (2015) 372 ITR 209 (All) (FB).

After considering in detail the provisions of Section 12AA(2) of the Act, the Supreme Court found that there is no specific provision in the Act by which it provides that on non-deciding the registration application u/s 12AA (2) within a period of six months there shall be deemed registration.

According to the Supreme Court, the Full Bench of the High Court had rightly held that even if in a case where the registration application u/s 12AA is not decided within six months, there shall not be any deemed registration. The Supreme Court was in complete agreement with the view taken by the Full Bench of the High Court. The Special Leave Petition was, therefore, dismissed.

From The President

Dear BCAS Family,

The new year is here to welcome us, and so are the several new technologies that are knocking on our door to bring about a massive disruption in life soon. Every beginning implicitly means the end of the old, – however discomforting it is. Over the years of human evolution that we have witnessed, change was slow, gradually impacting the way we lived. However, that was a way back then. Since the last decade, we are all subjected to such a rapid pace of change that disruption has become a way of life than an exception. These disruptions are brought about through innovations made by a few individuals who refuse to accept limitations; who are keen to relook at the challenges and find a solution which can change the paradigm. Years ago, disruption was a word with strong negative connotations, and today it has become the fulcrum of creativity and the springboard to innovation.

Let me talk about a few of the recent disruptions that will change our way of living.

In the arena of energy, scientists in California have crossed a mega milestone by successfully replicating the power of the Sun in the laboratory. – What it means is that for the first time, more energy can be released than what has been consumed. This breakthrough is a leap ahead for the world in accessing green energy without any radioactive by-products. Using the universally abundant hydrogen and limitless, carbon-free supply of energy is possible. In a world dictated by energy-rich countries and companies, this is indeed a giant game-changer, with huge political and economic implications ahead.

In early December, the Artificial Intelligence powered, dialogue-based chatbot – ChatGPT was unleashed, garnering 1 million users in just 5 days. The bot has the remarkable ability to understand and respond in natural language, with incredible accuracy and creativity. It aptly demonstrates the increased ability of machines to imitate humans. With Machine Learning, this ability will escalate drastically…which could lead to some horror-story scenarios, in which machines could enslave humans. For the time being, these new-generation chatbots with their enormous power to process humongous amounts of data will become our personalised, all-knowing teachers…and give engineers at google and other search engines some sleepless nights!

5G is expected to re-invent the way we work, play and live, but most significantly, it will give a huge impetus to the adoption of the Fourth Industrial Revolution. High speed and low latency are the twin hallmarks of 5G that will have huge potential to transform industries. Shop floors with robotics and automated assembly lines will be able to connect seamlessly and streamline production with greater efficiency. Healthcare is another sphere that will benefit immensely from 3D imaging, advanced diagnostics, and wireless connections to robotic surgical tools in near-real time. The Internet of Things will also get a huge shot in the arm, as more devices can get connected, be it wearables, smart refrigerators, autonomous cars or just a laptop, to name but a few.

Moving to finance, we have in Unified Payment Interface (UPI) a disruption that has become an outstanding success, beating the best in advanced countries too. Launched in 2016, to move people away from the inconvenience of cash and the menace of black money, UPI has been widely adopted by banks, fin-techs, merchant establishments and the public. Thanks to UPI, many Indians today no longer carry a wallet in their pockets – but a wallet in their smartphones!

According to data released by the National Payments Corporation of India (NPCI), UPI reported transactions amounting to ₹10.72 lakh crore in August 2022 alone. In FY22, UPI processed more than 46 billion transactions amounting to over ₹84 lakh crore. In comparison, debit card spending stood at ₹7.3 lakh crore in FY22, while credit card spending stood at ₹9.7 lakh crore that same year. Not surprisingly, India has become the acknowledged leader in digital payments…and UPI has become a major disruptor.

Are we ready? Will we be able to accept the increased pace of disruption? I guess we have no choice but to evolve – physically, mentally and emotionally. We will need to grow the wings to soar with disruption.

Events:

A workshop, “ERM 101” on Enterprise Risk Management was organized jointly with the Institute of Risk Management on 3rd December, 2022 at the JIO World Convention Centre. It provided a good learning experience. A lecture meeting was organised on 15th December, 2022 jointly with The Auditors Association of Southern India on “Tax Implications on Reconstitution of Partnerships” with BCAS as Knowledge Partner. It received a very encouraging response. The lecture Meeting on the subject “Value in the Metaverse& Why Metaverse is Inevitable” gave a good insight into the subject.

The new calendar year is beginning with some exciting events on the anvil. A long-duration course on income tax, “Income Tax Ki Paathshala”, from 2nd January, 2023 to 30th January, 2023 will offer guidance on the theory and practical issues to the budding income tax practitioners, Lecture Meeting on “Penalties under Income Tax” will provide an opportunity to understand the practical issues around the subject and ways to deal with them. HRD Committee has planned several activities to stimulate soft skills by organising a workshop on “Effective Public Speaking and Business Presentation Skills” and improving the quality of life by organising a Lecture Meeting on “Learnings from Swami Vivekananda Biography” on 12th January, 2023. A Leadership Retreat is organized on the subject of “Leadership Skills & Management – The Chanakya way” on 14th and 15th of January 2023. The most awaited students’ programme, “Tarang 2K23” under the auspices of Jal Each Dastur Student’s Annual Day Fund, is happening on 8th January, 2023. I request you all to participate and sponsor your interns, students and colleagues. Please do keep a tab on the BCAS announcements to avoid missing any event.

Budget preparations have already started at theFinance Ministry. The Budget and the Finance Bill to be presented on the 1st February, 2023 will be the last by the current government. BCAS has already made recommendations to the Hon. Finance Minister on the number of issues that need to be fixed and clarified for better governance. Let us hope to have a good response to those.

As we leap into 2023, let us be ready to ride the crest of disruption and change, with confidence…always keeping in mind that the future belongs to brave and the stout-hearted. To those who harbour doubts, I would quote Shakespeare from his play ‘Measure for Measure’ where Lucio the protagonist states “Our doubts are traitors and make us lose the good, we oft might win but fearing to attempt”. So, on this note…let me take this opportunity to wish you a Happy New Year full of exciting opportunities and pleasant surprises!

Thank You!

Best Regards,

CA Mihir Sheth

President

Full day seminar on charitable trust held on 7th November, 2015

fiogf49gjkf0d
The Seminar was held at the Walchand Hirachand Hall. The Vice President
CA. Chetan Shah inaugurated the programme and was then joined by
President CA. Raman Jokhakar. CA. Shri Arvind Dalal spoke on the
Importance and the way forward in respect to Charities. The main
speakers at the said seminar were

                          

  • M
    r. S. B. Savale – Maharashtra Charity Commissioner who spoke on the
    regulatory requirements of the Charity Commissioner’s office and what is
    expected for the filing requirements and documentary requirements from
    the trusts. He also dwelt on the issues that arise post the filings, the
    deficiencies and the methods to control them.
  • Mr. Shaily
    Jindal – CIT (Exemptions) who spoke on the issues faced by the trust and
    the problems of the department vis-a-vis the trusts and the
    expectations of the departments from the trustees and the consultants to
    the trusts.
  • CA. Vipin Batavia spoke on the important
    provisions of the Maharashtra Public Trust Act and the important clauses
    to be incorporated in the Trust Deed at the time of drafting.
  • CA.
    Paras Savla spoke on the rules and regulations for the trusts and
    highlighted the registration aspect u/s 12 AA of the Income-tax Act.
  • CA.
    Rajesh Kadakia spoke on the taxation aspect of the trusts with special
    reference to Section 10 (23C) and Section 80 – G provisions, steps and
    methods to obtain the said registration and the problems faced in the
    said registration and its remedial measures.
  • CA. Shailesh
    Haribhakti spoke on the Foreign Contribution Regulation Act, its
    provisions and the specific important issues that all should be aware
    about in relation to the trusts. After that he dwelt on the CSR
    Provisions and the way and means a trust can avail the benefits of the
    CSR provisions to raise funds for their projects.

The
Seminar was conducted by the Corporate & Allied Laws Committee of
the Bombay Chartered Accountant Society jointly with the Chamber of Tax
Consultants and was well received by the participants including CAs,
Consultants, Trustees, and employees of Trusts.

Workshop on Advance Professional Writing & Communication Skills on 21st November, 2015

This Workshop was held on 21st November and was well attended. A summary of the proceedings of the Workshop is as under:

CA. Dr. Dilip Sheth spoke on the Art of professional communication.

CA.
Dr. Dilip Sheth mentioned that the most important point while
communicating is the objective or purpose of communication. For
professionals, the objective is to convey what a client wants to know,
so use of plain, easy-to-understand language is preferred. However, if
the objective is to show off knowledge then use of flowery language and
complex words are allowed.

He shared the following basic principles of communication as:

  • follow logical sequence
  • have meaningful communications by making it concise and clear
  • consider that communication reflects individual’s competence and enables others to form a judgement about speakers
  • communication
    killers like long sentence, redundant words, archaic words or words
    requiring frequent reference to dictionary to be avoided.

While
giving an opinion, it is important that a CA should read, absorb and
understand the case, to give the best of his knowledge to a client.

He
discussed the art of report writing, opinion writing, drafting minutes
and action plan and synopsis of written submission with examples. He
also discussed case studies report of investigation to board, report of
80-IA and other reports.

With continuous changing objectives of
professional communication, the style and manner of communication
changes, and gives way for innovative clarity in expression. He
described this case on innovation by charactering persons – seer,
observer, alchemist, fool, sage, etc. Each one of us have each of these
characters at different stages of life.

His style of
communicating through personal life experiences enabled the audience to
connect with him and learn ways of communicating effectively through
writing.

From the eyes of an Editor – Anil Sathe

BCA
Journal has been in existence for 45 years. The journal provides
information about latest updates and case laws related to core subjects
of the Chartered Accountant profession and articles that are of
professional interest

CA. Anil Sathe’s expectation from writers are

  • article must be written from target audience perspectives
  • must be complete on standalone basis
  • information shared must be corraborated with analysis.

A
comprehensive article must have each of the following components –
Introduction, Facts, Reasons, Analysis, Opinion and Conclusion. In the
introduction, the writer must introduce the reader to the topic. Facts
and reasons are the information that a writer aims to share with the
reader. Analysis and opinion are a writer’s own thoughts. Generally,
factually-based writing is stronger and more persuasive than writing
that relies on opinion. All analysis must be corraborated with facts, to
enable reader to clearly understand the writer’s message. The
conclusion must leave a clear message in mind of readers. The conclusion
must be free from any ambiguity.

After writing the first draft,
the writer must go through it in detail. He or she must ensure that the
article is complete piece and all paragraphs are connected. To ensure
that the article is error free, it is better to bounce it off with
colleagues or friends and seek their independent point of view. While
sharing articles for opinion, the writer must share it with a non-biased
reader.

To develop effective writing skills, individual must be
voracious reader. He shared a few tips that he personally followed
while reading other articles or books.

He encouraged each participant to write articles for BCAS Journal.

Writing effectively – experience from managing a professional content exchange website – Sharmila Ramani



Sharmila Ramani emphasised on following points which sharing her experience from her journey to becoming effective communicator

  • use of correct grammar and sentence formation
  • use of simple language
  •  importance of punctuation mark style and manner of use of acronym
  • preference towards use of active voice over passive voice
  • facts be correctly stated

She
emphasised on the importance of editing. Each copy of the written word
to be edited by an independent person to ensure that it is free from
error. She shared 3 styles of editing – copy editing, substantive
editing and proof editing

The ABC of Professional Writing – Swati Jalal



Swati Jalal made her presentation by sharing 6 elements of effective communication starting with C.

  • Clarity – use of familiar words, avoid sentence construction and punctuation error
  • Concise – avoid redundant and repetitive words
  • Complete – to ensure sentence is complete – focus on 5 W – who, what, when, where and why
  • Coherent – sequential flow of sentences. parallel structure
  • Correct – facts should be correctly stated and errors to be avoided
  • Courteous – pleasant and positive tone and maintain level of professional formality.

Each element of effective communication was discussed, followed by examples and activity.

Drafting in Tax litigation – Submission, Appeals and Opinions – CA. Yogesh Thar

CA.
Yogesh Thar shared effective writing techniques from regulatory aspects
and customary / preferred aspects. Relevant column of forms of appeal
memorandum. He also shared points to be considered while drafting
application for condonation for delay, admission of additional evidence.

Style and manner of submission and important points of
consideration were discussed. Sequence to be followed for each
submission and philosophy behind submission of each opinion was
explained to the participants.

At the end of each session,
participants were encouraged to ask questions. All the participants
carried with them the treasure of knowledge in communicating effectively
with them from this practical seminar. After 5 interactive session, the
day of learning effective writing skills has opened up avenues for each
participants to impress their clients and officers by their writing
skills. .

Publication Release on 24th November 2015



The
official launch of the book “Novel and Conventional Methods of Audit,
Investigation and Fraud Detection” authored by CA. Chetan Dalal and
co-published by Bombay Chartered Accountants’ Society (BCAS) along with
Wolters Kluwer was released by Padmashri CA. T. N. Manoharan on 24th
November 2015 at Crossword, Kemps Corner, Mumbai. The book is the 3rd
edition by the author. It offers an insightful and descriptive account
of the frauds and accounting irregularities and methodologies to detect
them by using combination of novel and conventional audit approaches.

The
objective of this book is to provide practical approach for
investigation to auditors and person entrusted with the task of
investing white collar crimes. The MRP of the book is Rs. 2,295/-. BCAS
is offering the book to its members at a discounted price of Rs.1,380/-
along with additional postage of Rs.100/-. The publication pre-booking
is open till 30th December 2015 at BCAS office. Orders from publishing
house will be made post close of pre-booking period and couriered
directly to members after 5th Jan 2016.

So Hurry!!!! Book your copy now.

Seminar on Cloud Hosted Apps from Google and Microsoft on 28th November, 2015

The
Human Development & Technology Initiatives Committee had organised
the half day workshop. The speaker Mr. Punit Thakkar explained the
concept and importance of the cloud computing. Cloud computing, also
known as ondemand computing, is a kind of Internet-based computing,
where shared resources, data and information are provided to computers
and other devices on-demand.

He further discussed the features
of “Google Apps for Work” which is a cloud computing and storage
solution by Google. He emphasised on the security features, ease of
usage and cost effectiveness of the product. The speaker also explained
the various apps from Google like Gmail, Drive, Docs, Calender, Forms
etc.

The speaker continued with explaining the cloud computing
product of Microsoft that is named “Office 365”. He also outlined the
unique features and advantages of Office 365. The speaker made good use
of technology for live demonstration of the cloud computing.

The participants benefited immensely from the presentation and experiences shared by the speaker.

Two days Students’ Orientation Programme on 4th & 5th Dec 2015:


Human
Development & Technology Initiatives Committee Committee of our
Society organised a two-day orientation programme on 4th& 5th
December 2015. Focus of the program was on the practical a s p e c t s
of work as an articled student under the seniors in their respective
offices. The orientation programme laid emphasis on how to work on given
assignments. Practical issues faced while handling assignment on
important subjects was the key area of discussion.

The
programme commenced with guidance on effective articleship addressed by
CA. Atul Bheda. He made a presentation to guide students as to how to
make best use of opportunities during their three years of practical
training. He highlighted the fact that working during article ship
invariably involves real life situations. It helps to sharpen one’s
skill and knowledge across diverse industries on various subjects. The
speaker explained at length the concept of industrial training, armed
forces training and facility of secondment for an all round exposure.

CA.
Mukesh Trivedi presented the session on Direct Taxes. The speaker
explained some important definitions and concepts at length. He covered
important topics viz. heads of income, types persons, residential status
as well as method of computing income under different heads, claim of
deductions, credit for pre assessed taxes, various important dates for
statutory compliance, losses and clubbing provisions. He explained the
procedure and check list of preparing and uploading the different ITR
forms. While explaining the procedure of rectifications he emphasised on
accuracy of data entry.

While concluding his presentation he
shared information about references & study material, websites way
to study the Income Tax Law etc.

Speaker
Kewal Shah presented concepts on Indirect Taxes, Zonobia Kagzi on
Accounts and Audit and Pankaj Tiwari on Company Law. All the speakers
provided valuable inputs for working on assignments effectively with
accuracy and integrity. CA. Kamlesh Doshi provided insightful tips on
Tally software and use of Excel. He gave useful guidance on the subject.

On
the 1st day, in the post lunch session the Film ‘ Nani Palkhiwala a
crusader’ was screened. Advocate Jignesh Mr. Punit Thakkar (Speaker) Mr.
Atul Bheda (Speaker) Mr. Jignesh Shah (Speaker) Mr. Mukesh Trivedi
(Speaker) Mr. Kewal Shah (Speaker) Mr. Kamlesh Doshi (Speaker) Shah
shared his personal experience and learning from the life of senior
advocate Nani Palkhiwala.

Students
were provided with some key tools to equip themselves for excellent
learning and guidance in their respective articleship training.
President Raman in the welcome address shared Arunima Sinha’s life story
who bravely climbed the Mount Everest after loss of one and injury on
the other leg.

The
grit, determination and focus on goal with hard work is the key to
success. Chairman of the Committee Nitin Shingala also addressed the
students, emphasising on attitude, hard work and consistency in the
work.

Human Development Study Circle Meeting on “Happiness : “A Choice” on 8th December 2015

This meeting was addressed by Presenter: Kalpesh Thakkar.

The
Discussion was about: How, it is our Choice ‘to be happy’ or ‘not to be
happy’. What is happiness and how to be happy in all circumstances.

Overall,
the participants acknowledged as to how true it is that it is in our
hands to be happy and we hardly know it. We keep blaming others for our
miseries. The major lesson was that we have to take charge of our lives
right now and Be Happy.

Lecture Meeting on “Software and Other Intangibles – Indirect Tax Implications” on 9th December 2015

CA.
Sagar Shah explained the basic concept of intangible property. He
discussed, in detail, whether intangibles are goods, services or both
and its taxability under Indirect Tax laws. To explain this, he
discussed various judgements on the subject viz. Tata Consultancy
Services, BSNL, Tata Sons, etc. He discussed Indirect Tax implications
for various intangibles such as Trade marks, Designs technical know-how,
patent, Copy rights, Franchise and more particularly and in length, an
intangible in the nature of software.

In respect of software, he
deliberated on the tax implications vis-a-vis transfer of right to use
v/s license to use, packaged software, customised software and import /
export of software. He touched upon GST perspective and answered
questions by participants. .

2 Days Intensive Seminar on
Income Computation & Disclosure Standards (ICDS) :Held at the
Walchand Hirachand Hall, IMC on 11th & 12th December, 2015 :

A
2 Day seminar on ICDS was organized by Taxation Committee on 11th &
12th December, 2015 at Walchand Hirachand Hall, IMC in Mumbai.

The
seminar received an overwhelming response. The object of the seminar
was to help the participant to understand the application of ICDS and
their far-reaching implications for all taxpayers following mercantile
system of accounting.

The
proceedings commenced with a Keynote address by CA. Milin Mehta, who
was involved in the Committee which formulated the Standards (ICDS). He
explained to the members the view of the government, and the purpose for
notifying ICDS. Thereafter in the following sessions, the learned
speakers covered all the 10 standards.

ICDS
I & VII was covered by CA. Anil Sathe, ICDS III by CA. Ravikant
Kamath, ICDS V & IX by CA. Gautam Nayak, ICDS VIII by CA. Pradip
Kapasi, ICDS VI by CA. Alpesh Gandhi, ICDS IV & X by CA. Yogesh
Thar, ICDS II by CA. Atul Suraiya.

They dealt with:

1) Applicability & coverage of each standard (ICDS),

2) Various terms as defined under ICDS,

3) Comparison between ICDS and relevant Accounting standards (AS) and Ind-AS,

4) Disclosure requirements and Transitional provisions,

5) I ssues arising in regard to interpretation of the standards.

6) Impact where ICDS was in conflict with a judicial pronouncement.

The
learned speakers help the participants to understand all the applicable
10 ICDS with practical examples. The presentations given during the
seminar were very useful to understand the impact of ICDS on the tax
computation. The speakers also showed the way forward and the manner in
which all issues should be dealt with. The seminar was of immense value
to all participants.

Workshop on Successful Implementation of ERP Package and Audit Features in SAP on 12th December, 2015

The Human Development & Technology Initiatives Committee had organised the full day workshop.

The
speaker for first session was CA. Jairam Motwani, Sr. GM Internal
Audit, M&M. He explained in detail, the nuances, need and benefits
of the Enterprisewide Resource Planning (ERP) Solutions. He discussed
the SAP R/3 Integration Model, the various SAP terminologies and the
financial enterprise structure in SAP.

The speaker also shared
his experiences on the ERP implementation and auditing in the SAP
environment at Mahindra & Mahindra. He concluded with a discussion
on the Governance & Risk Compliance (GRC) in SAP.

The
second speaker Mr. Madhav Pai, Director (Solution Engineering), SAP
India took up the topic on successful implementation of SAP. He
suggested the recommended path, approach and pillars for ERP
Implementation. He explained in detail the various stages, timeline of
implementation methodology.

The speaker also elaborated on the
various reasons for failure of ERP and gave suggestions for mitigating
the failure risks. He further discussed the new SAP S4 HANA Finance
platform and explained its features. The second session was followed by a
panel discussion where both the speakers answered the questions and
issues raised by the participants. The workshop was well attended and
participants benefited immensely from the presentation and experiences
shared by both the speakers.

Lecture Meeting on “Recent Developments in Securities Laws” by Advocate Somasekhar Sundaresan on 16th December, 2015

The
learned speaker Mr. Somasekhar Sundaresan gave a bird’s eye view of the
developments in Securities Laws in 2015. He highlighted important
changes made through the new Insider Trading Regulations, the new
Listing Regulations and some far reaching changes in the SEBI Act. He
also touched upon the complexity arising out of Takeover regulations and
Delisting regulations. He covered in great detail changes concerning
making of disclosures of material developments, related party, document
preservation, etc. Considering the positive policy of SEBI in engaging
in public consultation for even the smallest of proposed changes, the
speaker suggested making the best use of this, instead of complaining
about difficulties in new laws/ changes later. He replied all of the
several queries raised to him by participants.

Study Circle on Outbound Investment – Nuances and Issues on 17th December, 2015

The
Study Circle meeting on “OUTBOUND INVESTMENT – NUANCES AND ISSUES” was
held on 17th December which was very well led by CA. Sagar Maru. He took
the participants through various issues surrounding outbound investment
specially issues around calculating the networth of the Indian Parties,
precautions to be taken for export capitalisation as a method of
funding, structuring oubound investment with debt and guarantee , round
tripping, flipping of structures etc. The participants deliberated on
these issues and shared their personal knowledge as well. In all it was a
very enriching meeting. On account of time constraint, few issues will
be taken up in the next meeting.

Study Circle Meeting on Highlights of Release 5.0 Tally.ERP9 with special focus on Service Tax on 18th December, 2015

The
Technology Initiatives Study Circle of the Society organised this Study
Circle to equip our members with the updated knowledge about Tally’s
latest offering. The objective of the meeting was met by way of an
interactive Q&A by the speaker with the audience over the course of
the session. The speaker for the session was CA Punit Mehta. This
program was well received by the members after the successful Part-1
session held by the same speaker on Tally. ERP9 with focus on VAT in
November 2015.

Study Circle Meeting on “Acceptance of
Deposits by Companies u/s. 73 and Loans and Investments by Companies
u/s. 186 of the Companies Act 2013 – Recent Amendments and Issues with
special reference to the relaxations in rules for acceptance of deposits
by private limited companies.” on 19th December, 2015

 The
Suburban Study Circle jointly with Company Law, Accounting &
Auditing Study Circle had organised the study circle meeting.

The
speaker CA. Paresh Clerk explained the provisions of section 73 of the
Companies Act, 2013(CA, 2013) governing the Acceptance of Deposits by
companies. He made good use of tables to answer key questions on
acceptance of deposit rules by private, public and eligible company.
Various case studies were also discussed by the speaker.

The
speaker further discussed provisions of section 185 and 186 of the CA,
2013 on Loans to Director and Loans & Investments by company. The
presentation highlighted the exemptions and also the penal provisions
for non compliances.

The participants benefited from the presentation and experiences shared by the speaker.

Statistically Speaking

Society News

fiogf49gjkf0d
Lecture Meeting on Capital Market Opportunities for SMEs on 3rd December, 2014


This lecture meeting was held at Walchand Hirachand Hall, IMC, Churchgate, Mumbai. CA. Nisha Subhash, Sr. AVP, National Stock Exchange shared her insights on various aspects of Capital Market Opportunities for SMEs. The faculty being associated with the National Stock Exchange for a long time was able to elaborate on the opportunities for SME’s Capital Market in depth. The main focus was on the difference between two platforms, that is SME Platform & Institutional Trading Platform. Members present gained immensely from the knowledge shared by the speaker. The presentation and video of the lecture is available at www.bcasonline.org & www.bcasonline.tv, respectively, for the benefit of all.

Lecture Meeting on Economic Offences: Criminal Law Systems; Cheque Bouncing Cases and EOW on 10th December, 2014

This lecture meeting was held at Walchand Hirachand Hall, IMC, Churchgate, Mumbai.

Mr. Niranjan Mundargi, Advocate and Mr. Yogesh Israni, Advocate, shared their experience on the various aspects of Economic Offences. The purpose of the lecture meeting was to make the members aware on the procedures of Economic Offences and their categories.
The faculty answered the various queries raised by the members which reflected how deeply the audience got interested on the subject. More than 200 members present gained immensely from the expert deliberation from the faculties. The video of the lecture is available at www.bcasonline.org & www.bcasonline.tv, respectively, for the benefit of all.

Lecture Meeting on Pursuing Excellence in Profession – A Holistic Approach on 17th December, 2014

This lecture meeting was organised under the auspices of Shri Dilip N. Dalal Oration Fund at the Auditorium, K.C. College, Churchgate, Mumbai. Swami Swatmananda, Acharya, Chinmaya Mission, the learned speaker, threw light on how excellence in all spheres of life is a must as also in profession. He gave examples in his talk which revolved around professional excellence in their professional life. More than 300 members gained immensely from the deep knowledge shared by Swamiji. The presentation and video of the lecture is available at www.bcasonline.org & www.bcasonline.tv, respectively, for the benefit of all.

levitra

Society News

Human Development Study Circle Meeting
on “Introduction to Management Concepts in
Acharya Chanakya’s Arthashastra” held on
24th October, 2016

Human Development Study Circle organised a meeting
on “Introduction to Management Concepts in “Acharya
Chanakya’s Arthashastra” on 24th October, 2016 at
BCAS Conference Hall which was addressed by Mr.
Mahendra Garodia.

Mahendra Garodia is the Author of “Chanakya Business
Sutras” & “What’s Stopping your Growth”. He spoke about
Chanakya Pandit’s Artha Niti. He simplified management
concepts in 4 steps which are called as T.I.M.E. (Think,
Ink, Map and Execute).

Everyone should learn the crux delivered by the Speaker
in these 4 steps along with 14 principles of management
concised in Chanakya Business Sutras.

The talk was well received by all participants and was
followed by question & answer session.

Human Development Study Circle Meeting
on “Ahimsak Lifestyle” held on 8th November,
2016

Human Development Study Circle Meeting on “Ahimsak
Lifestyle” was conducted on 8th November, 2016 at BCAS
Conference Hall where CA. Atul Doshi presented the
various facets of lifestyle in a challenging environment.

The Speaker Mr. Doshi explained through many videos
and picture clips on how Animals need our Love and Care
and how we can be healthy and enjoy our life by adapting
Ahimsak Lifestyle to live in such a manner that we do not
harm other human, any living beings or environment.

“Ahimsa Paramo Dharma” (Non-violence is supreme
religion) is the foundation of humanity. Knowingly or
unknowingly, we consume or use lot of things which
causes harm to other living beings and environment as
well. India, a country of origin of word –‘ahimsa’ is the
highest meat exporter in world. India is also a large
producer & exporter of leather and dairy products which
are supporting slaughter houses. This is worst for both
animals and humans. India has highest numbers of
diabetes patients and facing sever diseases like cancer,
heart attacks and obesity.

As per affidavit filed by Government of India in theSupreme
Court, 68% of milk is adulterated in the country. Thus, the
milk we consume may not be pure.

Veganism is a buzz across globe. Vegan people do not
consume any products which contain animal ingredients.
Globally, people are giving up meat and dairy products for
health and environment reasons and its negative impact.
The presentation created awareness about cruelty free and
healthy living and the videos made the presentation lively.

Full day Seminar on Alternative Fund Raising
Options for Corporates held on 25th November
2016

A Full day Seminar on Alternative Fund Raising Options
for Corporates was held on 25th November 2016 at
Babubhai Chinai Hall, IMC, Jointly by the Corporate &
Allied Laws Committee of BCAS and the Chamber of Tax
Consultants.

CA. Kanu Chokshi, Chairman
of Corporate & Allied Laws
Committee of the Society
inaugurated the Seminar and was
then joined by the Vice President
CA. Narayan Pasari. Mr. Manish
Gunwani, the Guest Speaker
spoke about his analysis on Macro
economic Outlook and impact
of Demonetisation on various
financial markets.

The other speakers at the seminar
were:

CA. Abizer Diwanji who took participants through current scenario of Bank credit in
India. He dwelt on various types of financing prevailing
in India which can be used by corporates for various
purposes like Acquisitions, Infrastructure as well as
restructuring of assets.

Mr. Bhavesh Shah explained
the role of Private Equity and
advantages and disadvantages in
PE funding. He also touched upon
the process and documentation of
PE funding, global scenario of PE
funding and challenges faced by
PE industry.

Mr. Shameek Ray talked about
bond and debenture markets and
the current situation of efflux for
fixed income securities with the
declining interest rates in India.
He also dwelt upon the need for
dynamic and liquid bond markets.
Mr. N. S. Venkatesh explained the
overall impact of Demonetisation
on the Indian Economy in general
and the Banking & Financial sector
in specific. He also explained the
various instruments and options for
raising funds in foreign currency.
He touched upon the advantages
and disadvantages of various
options and also emphasised the
importance of hedging contracts
as safeguard to currency fluctuation with various real life
case studies.

The queries of the participants were answered by the
speakers and the seminar was very well received by the
delegates.

Lecture Meeting on Prevention of Money
Laundering Act (PMLA) and its implication on
Assurance and Advisory services provided
by Chartered Accountants held on 29th
November 2016

BCAS, Jointly with Corporate & Allied Laws Committee,
organised a lecture meeting on Prevention of Money
Laundering Act (PMLA) and its implication on Assurance
and Advisory services provided by Chartered Accountants,
on 29th November 2016 at BCAS Conference Hall.
CA. Chetan Shah, President BCAS welcomed the
participants and set the tone for the meeting by
highlighting the relevance of the topic in the current
regulatory perspective.

The Speaker – Mr. Satyabrata
Kumar (IRS), Joint Director –
Enforcement Directorate (Western
Region), explained the important
provisions of Prevention of Money
Laundering Act. He explained the
concept of money laundering and
modus operandi used to launder
the money viz, layering, placement and integration. The
Speaker dealt with the investigation process generally
adopted by investigating agency while investigating the
offence of money laundering.

He also shared his experience about the cases where
Chartered Accountants were prosecuted for offence
relating to money laundering and also the safeguards to
be adopted by Chartered Accountants while rendering the
assurance and consultancy services to their clients.

The speaker shared various case studies and satisfactorily
replied to the queries raised by the participants. There was
an overwhelming response to the meeting both through
personal attendance as well as online viewership.

Study Circle Meeting on Ind-AS held on 30th
November 2016.

The third Meeting of the Company Law, Accounting
& Auditing Study Circle on Ind AS was held on 30th
November 2016 at the BCAS Conference Hall.

CA. Kishor Parikh led the discussion on the topic Ind AS
12 – Taxes on Income. He covered the major issues of
the accounting standard like recognition of current tax
assets and liabilities, recognition of deferred tax assets
and liabilities with particular reference to taxable and
deductible temporary differences, unused tax losses
and unused tax credits, measurement, presentation and
disclosure. He also covered the various types of events
and transactions that normally give rise to deferred tax
adjustments with regard to business combinations that are
accounted for acquisitions such as fair value adjustments,
tax deductible goodwill, etc.

He explained the key differences between Ind AS and
Indian GAAP and then ended the session with multiple choice questions and case studies which were discussed
and solved by the participants.

Study Circle Meeting on “Draft GST Rules”
held on 3rd December, 2016

The Suburban Study Circle jointly with Indirect Tax Laws
Study Circle organised the Study Circle Meeting on “Draft
GST Rules” on 3rd December, 2016 at Directiplex, Andheri
(E).

The group leader CA. Darshan Ranavat explained the
Draft GST Rules in regard to Registration and Returns.
The group leader discussed the flow of migration of
existing assesses and rules for fresh registration. He
further explained the types of returns, flow of generic
returns and pre-requisites for filing the returns. The
speaker also informed the group about the rules for
Refunds and Invoices.

CA. Samir Kapadia, Chairman of the Meeting provided
his insights and analysis of the draft rules. He also
deliberated on the issues that could arise out of the draft
rules and difficulties faced by assessees in migration from
existing registrations.

The participants benefited from the presentation and
experiences shared by the chairman and the group leader.

Interactive Lecture meeting on “Issues
and Impact of Demonetisation” held on 5th
December 2016 at Santokba Hall, Near N. M.
College, Vile Parle (West), Mumbai

After the great viewership of Expert Chat session on
“Issues and Impact of Demonetisation”, the students
of NM College enthusiastically approached the BCAS
for conducting a similar session with them. The BCAS
interactive lecture meeting was held on 5th December 2016
at Santokba Hall which was fully packed by around 200
students of the college. The students of the Finance and
Investment Cell of N. M. College welcomed the President,
Vice President and the Speakers for the meeting CA.
T. P. Ostwal and CA. Ameet Patel. The session started
with opening remarks by President Chetan Shah informing
the students about the BCAS and educating them on the
benefits what they can gain from the Society. This was
followed by session by CA. Ameet Patel who touched
upon the various aspects of Demonetisation, its benefits
to the society, the tax implications and the importance
of digitization involved in the process. This was further
followed by session of CA. T. P. Ostwal who expressed his
thoughts on the various issues faced by the common man
on demonetisation. He touched upon the global impact of
Demonetisation and how the Modi government is bringing
about simple and good tax administration.

The students heard them with great enthusiasm which
was followed by a series of overwhelming and intelligent
Q&A session. The students attending posed various
questions to which both the speakers responded with
great in-depth detailing.

Study Circle Meeting on “Income-tax
implications due to Demonetization of High
Denomination Currency Notes” held on 6th
December 2016.

The captioned meeting by Direct Tax Study Circle was
held at BCAS Conference hall where the Chairperson
CA. Gautam Nayak gave his introductory remarks and
explained as to how the Government has planned and
brought out amendments in the income tax laws pre
and post demonetisation scheme. He pointed out the
important amendments in the penalty provisions.

The group leader, CA. Darshana Deshmukh, gave an
overview of the provisions of Second Amendment Bill
2016 which consist of amendments in sections 115EE,
271AAB, 271AAC and insertion of new Chapter IXA
‘Pradhan Mantri Garib Kalyan Yojana 2016’. She then
moved onto case studies whereby the group discussed
the possible tax implications in case of various scenarios
such as cash deposits in the bank accounts, holding of
jewellery, disclosure of income in the income tax return,
search proceedings, agricultural income, household
savings and charitable trusts. Attention was drawn to few
old case laws which have dealt with issues relating to
demonetization of the currency notes. The meeting was
interactive and the participants benefitted a lot.

FEMA Study Circle Meeting held on 8th
December 2016

The second FEMA Study Circle Meeting was held on 8th
December, 2016 at BCAS Conference Hall on the topic
of “Foreign Direct Investment in India” where CA. Rutvik
Sanghvi & CA. Naziya Siddiqui led the discussion. The
session was chaired by CA. Naresh Ajwani.

The Group Leaders discussed FDI in Single Brand Retail
Trade (SBRT) & e-commerce. In SBRT, various topics such as ownership of brand, E-commerce, sourcing
norms, exemption from the sourcing norms, Indian
branded products, FDI in Multi Brand Retail Trade were
discussed. The Group Leaders deliberated on market
place model of E-commerce and business model of an
existing e-commerce player in India. They also discussed
about the provisions related to transfer of shares and the
valuation methods. Chairman CA. Naresh Ajwani shared
his experience on various issues and that was a valuable
takeaway for the participants who benefited from his rich
experience on the subject.

Lecture Meeting on “Cyber Crime, Cyber
Security and Cyber Laws” held on 9th December
2016 Jointly with Corporate & Allied Laws
Committee

BCAS organised a Lecture Meeting on Cyber Crime,
Cyber Security and Cyber Laws on 9th December 2016
at BCAS Conference Hall, Jointly with Corporate & Allied
Laws Committee.

CA. Narayan Pasari, Vice-President, BCAS welcomed
the participants and set the tone for the meeting by
highlighting the relevance of the topic in the current
perspective, post demonetisation, where the masses
shall encounter quantum jump in digital transactions.

The Speaker – CA. Sachin Patil
(IPS), Deputy Commissioner
of Police, Cyber Crime Branch
(EOW) – Mumbai Police explained
the concept of cyber frauds and
explained various kinds of cyber
frauds like Credit Card Frauds,
Email Spoofing, Nigerian Lottery
fraud, fake profile, matrimonial frauds, cyber terrorism
etc. The speaker gave live demonstrations of recorded
mobile phone conversations of some credit card and
internet banking frauds.

He shared some useful tips and safeguards to prevent
online frauds, Dos and Don’ts for young citizens while
sharing personal information on social medial like
facebook, precaution to increase the safety of personal
computers, Wifi, routers etc. He explained the modus
operandi for frauds relating to stealing of personal
information stored on mobile phones (Smart Phones) and
tips to increase Mobile Security.

He also deliberated upon various types of cyber crimes and
prosecution provisions enumerated under the Information
Technology Act and the Indian Penal Code respectively.
The Speaker dealt with the investigation process for
investigating cybercrimes and various hindrances/
limitations faced by law enforcement agencies due to
inherent limitation of cyber space.

Through various case studies, he shared his experience
about precautions to be taken by a Chartered Accountant
(CA) to protect and safeguard the client’s data especially
in view of the recent cases of ransomware used by cyber
criminals to extract money from CA.

The meeting received an encouraging response from the
participants who found the lecture useful as to how to
avoid such cyber-criminal elements.

Report on Full Day Seminar on GST at Kolkata
on 10th December 2016.

It is said that GST will be a game changing reform for
Indian economy by developing a common Indian market
and reducing the cascading effect of tax on the cost of
goods and services. It will impact the Tax Structure, Tax
Incidence, Tax Computation, Tax Payment, Compliance,
Credit Utilization and Reporting leading to a complete
overhaul of the current indirect tax system. GST will
have a far reaching impact on almost all aspects of the
business operations in the country, for instance, pricing
of products and services; supply chain optimization; IT,
accounting and tax compliance systems.

Having acknowledged the significance of GST, your
Society, under its initiative to expand its horizons and
reach out to professional members across the country,
extended support through its Indirect Tax Committee
to DTPA Chartered Accountants Study Circle – EIRC,
Kolkata in organizing a full day seminar on Goods and
Service Tax at Kolkata on 10th December 2016.

The session was inaugurated by
Chief Commissioner of Service
Tax, Kolkata, Mr. S. K. Panda,
who in his opening remarks gave
brief overview about compliances
under registration and significance
of anti-profiteering clause. The
President of the Society, CA.
Chetan Shah gave a homely welcome to all the participants
and shared with them various initiatives that BCAS has
taken up and would be taking up in law making process and in spreading awareness about
GST. Chairman of Indirect Tax
Committee of the Society, CA.
Govind Goyal along with CA. Sunil
Gabhawalla, CA. Mandar Telang
and CA. Udayan Choksi acted as a
faculty for four technical sessions
in the said seminar and addressed
more than 350 participants. Vice
President of the Society, CA. Narayan Pasari in his
address covered various activities undertaken by BCAS
in general and appealed to members to strengthen BCAS
initiatives by becoming a part of it.

During the technical sessions,
CA. Sunil Gabhawalla explained
to the participants, the framework
of GST and concept of supply.
CA. Mandar Telang dealt with
provisions relating to time and
value of supply and Input Tax
Credit. CA. Udayan Choksi took
up various case-studies and
examples and elaborated the
provisions governing Imports/
Exports/Inter-State transactions
and Place of Supply of Goods
and Services. CA. Govind Goyal
enlightened the members about
the procedural aspects dealing
with registration, payment, filing of
returns and also various critical issues which the industry
as well as tax practitioners would have to face.

The program was attended 400 members from Kolkata
and adjoining areas.

ITF Study Circle held on 13th December, 2016

International Taxation Committee of BCAS conducted
its ITF Study Circle meeting on 13th December, 2016 at
BCAS Conference Hall. The study group discussed the
charge and scope sections under the Income-tax Act. CA.
Bhaumik Goda gave an overview of the provisions and
then dealt with some case studies on salaries received in
India for services rendered outside India, deemed transfer
provisions, inadequate consideration through gifting
of shares by non-residents and presumptive taxation
under section 44BB. The interactive session brought out
several issues and nuances in the law and case law on
the subject.

Seminar on “Estate Planning, Wills & Family
Settlement” held on 14th December 2016

A Seminar was organised by our Corporate & Allied Laws
Committee at BCAS Conference Hall to throw light on
importance of Estate Planning, Wills & Family Settlement
and to create awareness about some of the critical
aspects thereof.

CA. Chetan Shah, President of the Society welcomed
the delegates and CA. Kanu S. Chokshi, Chairman of
the Corporate & Allied Laws Committee introduced the
subject. The Seminar was inaugurated by the speaker of
the first session CA. Dileep Choksi.

CA. Dileep Choksi inter alia highlighted the emerging
need for Estate Planning & Family settlement / Family
Arrangements (Through Trust / Companies).

Dr. Anup Shah took the members
through intricacies of Wills,
including Hindu Succession
Law, Indian Succession Law,
various types of trusts etc. He
also touched upon the relevant
provisions of Special Marriage
Act, Adoption and Succession law
in other religions such as Muslims
/ Christians / Parsis etc.

Mr. Mahesh Shah, Solicitor,
enlightened the participants on
the clause-wise drafting of Will as
well as stamp duty, registration &
documentation aspects. He also
explained the intricacies of family
arrangements / family settlements
relating to properties held in joint family or joint business and related documentation
aspects.

CA. Yogesh Thar dealt with the
taxation issues in estate planning
/ Family Settlements / Family
Arrangements / Wills / Private
Family Trusts etc., Taxation of HUF
/ Partitions etc., Filing of returns of
deceased, Returns of Executors of
Estate.

The speakers responded to the queries of the participants.
The Seminar received an overwhelming response.

Study Circle Meeting on Ind-AS held on 14th
December 2016.

The fourth Meeting of the Company Law, Accounting
& Auditing Study Circle on Ind AS was held on 14th
December 2016 at the BCAS Conference Hall.

The discussion on Ind AS 9 – Revenue Recognition
and Ind AS 7 – Construction Contracts was led by
CA. Sachin Khopde. In the first part of the meeting he
covered key definitions, timing of revenue recognition
and measurement of revenue with respect to sale of
goods and rendering of services. He also explained some
important concepts like Agency Agreements, Gross v/s
Net Reporting, Multiple Element Transactions and Barter
Transactions.

In the second part of the meeting, he covered various
industry specific issues with regard to Service Concession
Agreements, Real Estate Transactions and also shared
insights as to how certain E-commerce companies and
Telecom companies recognise sales and revenue. The
discussion during the meeting was very interactive.

Human Development Study Circle Meeting on
‘Introduction into the World of Handwriting
and Signature Analysis” held on 15th
December, 2016.

HRD Study Circle organized a meeting on ‘Introduction
into the World of Handwriting and Signature Analysis” on
15th December, 2016 at BCAS Conference Hall.

The discussion was led by Mr. Navin Thantri (Graphologist)
Mr. Navin is a Professional Consultant and Trainer in the
field of Graphology, Numerology, Vaastu and many such
allied alternative sciences having close to 10 years of
experience.

He discussed about the scope and utility of the subject
for CAs and their Families i.e. Recruitment, Professional
Success and Health amongst others. He also explained
about the relevance and importance of the signature of a
person and emphasised as to what the signature reveals
about a person signing.

The participants expressed a desire for such workshops
and presentations in future.

Lecture Meeting on “Crude Diplomacy and
Global Economy and Q & A” held on 21st
December, 2016

A Lecture Meeting on “Crude Diplomacy and Global
Economy and Q & A” was held on 21st December, 2016
at BCAS Conference Hall which was addressed by the
Speaker Mr. Kushal Thaker, an Investment Strategist
and Consultant.

President Chetan Shah welcomed the speaker.

Mr. Thaker made a straight forward analysis on crude oil,
its products, uses, strategies in pricing, costs, production,
technology, financials, hedging tendencies, issues which
affect the economy. He made an in-depth study of many
countries in this regard and shared his research and
statistical analysis. He also touched upon some vital data
that can enable right speculation and investment.

The audience came up with good questions that made the
discussion interesting.

Society News

CHARTERED ACCOUNTANTS’ PROGRAM IN
MANAGEMENT, BUSINESS & ACCOUNTING
ORGANIZED BY MPR & HDTI COMMITTEES
OF BCAS AT ISME CAMPUS

To hone the Management, Leadership and Technical skills
of Chartered Accountants to achieve growth, whether in
practice or in industry, Membership & Public Relations
Committee (MPR Committee) and Human Development
and Technology Initiatives Committee (HDTI Committee)
jointly organized Chartered Accountants’ Program in
Management, Business and Accounting (CAMBA) at the
ISME Campus, Lower Parel, which is equipped with the
latest facilities for a conducive learning environment. The
CAMBA Course was designed by BCAS along with the
Management Institute of ISME. The 1st batch of the course
started in May, 2017 and concluded in December, 2017.
.
With an eligibility criteria of minimum 2 years of postqualification
experience, the first batch saw participation
from 16 CAs in practice as well as those working with
Big 4s or in the industry. The participants shared their
experiences and ideas, problems faced in their respective
work environments and best practices employed.
The course, designed to conduct 120 hours of classroom
training of which 102 hours were dedicated to various
emerging aspects of Entrepreneurship, Management,
Human Resources, Strategy, Soft Skills and Marketing
was conducted by highly experienced faculty from ISME.
The subjects were taken up with a variety of interactive
pedagogical techniques including discussing case
studies, role playing, movies, model building and team
work by learned and experienced faculties like Prof.
David Wittenberg, Dr. Amarpreet Singh Ghura, Dr. A.
Doris Greenwood, Prof. Anjana Vinod, Dr. Ramkishen Y,
Prof. Omkar Pandharkame, Ms. Anubhuti Gupta,
Mr. Moksh Juneja and CA. Nikhil Srinivas.

The remaining 18 hours of the course included sessions
designed by the BCAS team on subjects relevant to the
professionals. The speakers and the topics discussed
during these well-conceived sessions in the 1st batch are
enumerated hereunder:

The participants thoroughly enjoyed their journey of
this long course, experiencing a transformation in their
perspective towards their profession.
It was indeed a very enlightening experience for the
participants who benefitted a lot from the sessions.

“Motivational Talk for Young Chartered
Accountants & Felicitation of CA’s cleared in
Nov’2017” held on 19th February, 2018 at BCAS
Conference Hall.

The Membership & Public Relations Committee organized
a motivational talk for Young Chartered Accountants on the
topic of “How to become an Extraordinary Professional?”.
The talk was addressed by CA. Mudit Yadav, a TEDx
Speaker and Success Coach.
The session began with the
opening remarks by CA. Chetan
Shah, Chairman, MPR Committee
who briefed the audience about
BCAS and its initiatives. He also
encouraged new CAs to become
members of BCAS. Few rank
holders of Nov’ 2017 were felicitated and they shared
their views on success in CA exams.

The Speaker CA. Mudit took up the following major issues
faced by young professionals:

 How to choose the ideal career path for oneself?
 Difference between an average and a star professional.
 Habits of the most extraordinary professionals.
 How to develop the mind-set of a true professional?
 How to develop a sharper executive presence?
 How can you be a pioneer of the future of CA profession?

CA. Mudit Yadav also shared his experiences and the
challenges he faced while carving out his career as
a motivational speaker, in unconventional and nontraditional
field.

The talk was attended by more than 150 young Chartered
Accountants and the participants benefited from the
experience shared by the Speaker.

“8th Residential Study Course on IndAS” held
from 22nd February to 24th February, 2018

Accounting & Auditing Committee organized its 8th IndAS
Residential Study Course (RSC) from 22nd to 24th February,
2018 at Hotel Gateway, Pune. The Course was conducted
to address the Ind AS implementation challenges being
faced as well as to impart knowledge of its execution to the
professionals. This would enable a smooth transition for
the corporate sector and also appraise them of impending
changes which are applicable in future. The Course was
attended by 110 participants from all across India.
This year’s RSC was structured with three sessions
based on Case Studies which involved group discussions.
The RSC also had four more papers for presentation by
eminent faculties.

RSC started with group discussion on First case study
paper by CA. Jayesh Gandhi on “Case Studies on Business
Combinations and Consolidated Financial Statements”.

The case studies highlighted the
complexities involved in carrying
out accounting for business
combinations and consolidation
as well as the evaluation of the
relevant consolidation standard
in specific circumstances.

The session commenced with the inaugural address by
CA. Narayan Pasari, President, BCAS. He urged nonmembers
enrolled for this course to become members of
BCAS and enumerated various activities/initiations being
undertaken by BCAS for the benefits of profession and
industry. The Chairman of the Committee CA. Himanshu
Kishnadwala gave introductory remarks on the design
and structure of the course and the purpose of selection
of the topics for group discussion and presentation.
Inaugural session was followed
by presentation paper on Revised
Audit Report Requirements by
CA. Vijay Maniar which covered
SA 701 on Key Audit Matters to
be applicable from FY 2018-19.
CA. Jayesh Gandhi analysed and
replied to the issues raised on the
Case Studies during the group discussion.
The 2nd day started with group
discussion on the paper by
CA. Arvind Daga on “Case
Studies on PPE and Financial
Instruments” that highlighted the
intricate issues on measurement,
recognition and impairment
under relevant standards. He
also made a presentation on his paper explaining finer
points of the standards as
well as dealing with the
issues which came up for
deliberation. CA. Raghu
Iyer presented the paper
on “Derivative and Hedge
Accounting” and explained
what is ‘derivative’, types
of hedges, its purpose and
importance in the commercial world.
There was another group
discussion on the paper by
CA. Archana Bhutani on
“Case Studies on Revenue
Recognition IndAS 115”. The
case studies dealt with typical
situations in various sectors
including real estate, bundled
services, FMCG and retail
distribution and also some other related issues. She
further made the presentation on her paper explaining
finer points and concepts and principles of revised IndAS
115 which is likely to be applicable from 1st April 2018.

The last day began with the
presentation on “IndAS 116
– Leases” by CA. Srinath
Rajanna who came all the
way from Dubai to address
the participants. It is for the
first time that an international
faculty has addressed an
IndAS RSC. He explained the
major differences in the revised
standard as compared to IAS 17 as also the thought
process for the same at IASB. Thereafter, CA. Himanshu
Kishnadwala gave presentation on “Global Developments
in IFRS” and made the participants aware about the projects
in pipeline at IFRS for the next five years and the way it will
impact industry as well as the profession. He also explained
the process of development of standards at IFRS as also
how as a stakeholder everybody can participate in the
said process.

The concluding session was presided over by the
Chairman CA. Himanshu Kishnadwala who acknowledged
the contribution of the faculty, group leaders and other
participants for the success of the RSC.

Participants were satisfied with the level of discussion
and the value imparted through the RSC.

Workshop on “Transfer Pricing – CBCR and
Master File” held on 27th February 2018 at
BCAS Conference Hall

“The Workshop on Transfer Pricing – CBCR and Master
File was conducted on 27th February 2018 at BCAS
Conference Hall which was attended by over 110
participants from profession and industry.
The speakers CA. Hasnain Shroff
and CA. Anjul Mota provided a
comprehensive insight on the
conceptual understanding and
interpretation of legal provisions
and other key issues surrounding
the CBCR and Master File. This
was followed by case studies
touching upon intricacies in filing
the CBCR and Master File. The
speakers also outlined some
practical suggestions in dealing
with inherent issues.

The Workshop was well received
by the participants who benefitted
a lot from the sessions.

Interactive Fire Side Chat on “Strengthening
the Profession” held on 28th February, 2018 at
IMC, Churchgate

The CA profession is passing through tectonic shifts which
have posed various challenges for the professionals. To
address the issues of profession and challenges faced
by the CA firms, review the regulatory impediments, learn
the possible changes in this regard for strengthening
and developing the capacity of Indian CA firms, enhance
the competence and improve the visibility amongst the
business community, BCAS organised a Fire Side Chat
with the experts from the profession and industry.

The Panelists for the discussion were:
1. Mr. M. Damodaran, Former Chairman, SEBI
2. CA. Mukund Chitale, Former President, ICAI
3. CA. T. N. Manoharan, Former President, ICAI
The Fire Side Chat was moderated by CA. Himanshu
Kishnadwala, Past President, BCAS.

President CA. Narayan Pasari in his opening remarks
stated that presently the Chartered Accountancy profession
is in a constant state of flux on account of profound changes
in the sphere of economy, regulation, technology & society
that throw many challenges resulting in higher complexity.
CA. Himanshu Kishnadwala while opening the chat
referred to the Prime Minister’s address to the CA
community on the CA foundation day on 1st July, 2017 and
threw light on the various statistics about the members and
the firms. He also mentioned as to what can be done to
improve the profession and counter the challenges of the
bigger multinationals. CA. Himanshu also talked about the
SEBI Order in Satyam Case, RECO Scam, PNB Scam and
Supreme Court Order on multinational firms etc.

The Fire Side Chat commenced with the expert opinions
of the panelists:

CA. Mukund Chitale started with a comment of Nani
Palkhivala “The time has come to see as to who will shave
the barber”, which was citing Institute’s motto given by
Yogi Anand “Ya esa suptesu jagarti”. He expressed that
strengthening the profession doesn’t come automatically
and for that there has to be an introspection as to what to
do with failures individually & in a communicative manner
because any profession which is rendering service exists
as long as society expects it to exist. Quality of our
work should match the Society’s expectations at the
highest level.

Mr. M. Damodaran was of the view that professionalism
is not derived just from academic qualification.

Professionalism is to contribute to the informed discussion
and debate where professionals should set the agenda
and plan in the direction of strengthening the profession.

He emphasized that Chartered Accountancy Course is
enhancing the quantity but must also ensure that quality
shall not be compromised.

CA. T. N. Manoharan’s remarks were amply supported with
hardcore statistics of the CA profession. He stated that
CA firms lack playing the role of knowledge partner. Each
CA firm should ensure that any new article who comes to
the office be given an open idea that they are welcome to
the firm and can grow to the level of employee, manager,
director or even can become partner of the firm. Every firm
should have partners in different age groups that is how
succession happens and the seniors will have smooth
exit after handholding and guiding. The focus should not
be only on tangibles like top line, bottom line, physical
infrastructure etc. but also on the quality & integrity aspects.
One of the issues of Indian firms is reluctance to invest
in Infrastructure and growth projects. He said that we can
follow principles having eternal utility for humanity and we
can adopt values which will hold good forever.

Later on CA. Himanshu Kishnadwala posed some
pertinent issues faced by the profession, for the response
of the panelists, which were deliberated in great depth.
Participants were provided fair insights as to the current
state of affairs in the profession, how the society perceives
the profession and what should be the measures initiated
to shore up the image of the profession.

The participants got extremely enlightened with the
invaluable insights from discussion by the expert panelists.

ITF STUDY CIRCLE

Meeting on “Proposed Amendments to
International Taxation Provisions in Budget,
2018” held on 15th March 2018 at BCAS
Conference Hall

The International Taxation Committee organized a panel
discussion on 15th March, 2018 at BCAS Conference Hall,
to analyze the impact of the amendments to International
Taxation provisions, proposed in the Union Budget, 2018.
The meeting was kicked-off with a discussion on the
proposed amendment in the Explanation 2 (a) to section
9 (1) (i) where if a non-resident appoints a person who
will negotiate but not conclude contracts on his behalf, it
may still constitute a Business Connection in India. It was
discussed how the OECD had reviewed the definition of
a Permanent Establishment in Action Plan 7 to prevent
avoidance of tax by fragmentation of business and to align
with the modified definition of MLI. The discussion was then
turned to the newly introduced Explanation 2A in section
9 (1) (i) which clarifies meaning of a significant economic
presence. It was also discussed that there was a need for
proposing this amendment as a result of digital economy,
whether physical presence of a person in a country is
no longer the only measure of an economic connection,
challenges in implementing such an amendment, impacts
of such amendments on taxation, etc.

The session was very interactive and the participants
benefitted a lot from the panel discussion.

INDIRECT TAX STUDY CIRCLE

Meeting on “GST E-Way Bill Provisions –
Analysis and Demo of Online Preparation”
held on 17th March, 2018

The Suburban Study Circle organized a meeting on GST
E-way Bill Provisions on 17th March, 2018 which was
addressed by CA. Manish Gadia & CA. Jignesh Kansara.
Speaker CA. Manish Gadia discussed the revised
provisions and rules regarding the E-Way Bills Under
GST and its applicability wef 1st April, 2018. He made
detailed presentation on the following issues:

a) Procedure for generation of e-way bill, b) Multiple
Consignments, c) Exemptions, d) Cancellation, e) Validity,
f) Acceptance or Rejection, g) Verification of documents,
h) Case Studies etc.

Speaker CA. Jignesh Kansara made a step-by-step online
demonstration of the process regarding various aspects
of E-Way bill through the GSTN portal. He covered the
following activities in relation to the e-way bills:
a) Registration as dealer and transporter, b) Creation of
masters for clients, products and godowns, c) Generation
of Part A and Part B of E Way Bills, d) Generation of
Consolidated E-way bill, e) Cancellation / Modifications in
E-way Bills generated earlier, f) MIS reports.

He also threw light on the various technical and statutory
glitches faced by the dealers and gave suggestions for
corrective actions.

The participants benefited from the sessions and
experience shared by the learned speakers.

Learning Events at BCAS

1. 16th Jal Erach Dastur CA Students’ Annual Day — ‘Tarang @75’ at BCAS Hall on 2nd & 3rd December 2023 and CA Member’s event — JhanCAr on 10th December 2023 at M.M. Pupils School, Khar(W), Mumbai

‘Tarang @75’

In its Platinum Jubilee year, BCAS celebrated student’s annual day viz. ‘Tarang @75’ in a grand style with a huge enrolment of around 500 students. The day began with all of the students unleashing their literary journey with the power of words. The Talk Hawk Competition provided a platform where ideas were presented and stage fear was battled for many. The talks were not only enriching but also highlighted very sensitive areas around men’s mental health, feminism, cancel cultures, etc., the narratives left a lasting impression emphasizing the power of communication and their delivery. The Talk Hawk was followed by a Debate Competition, a dynamic forum of intellectual exchanges and challenging thoughts. It was moderated by CA Parth Patani. As arguments clashed and ideas collided, the atmosphere was charged with discussions and controversies. Thought-provoking perspectives came to life as the students put their points forward with well-researched statistics and their own general understanding of the topics.

The next day, started with enthusiasm of treasures and clues, and students running around the streets of south Bombay and taking photos around the place. ‘Treasure Hunt’ was an event largely participated by the students showing the spirit of adventure and teamwork. The spirit of adventure and teamwork took over the day that began with zeal and zest! After all the chaos and actions, students finally gathered at the BCAS hall with all fun and excitement awaiting how the rest of the day unfolds!

The fun of the evening quickened as the spotlight shifted to a dazzling talent hunt, where students showcased their skills in music, dance, and various performing arts categories. The stage came alive with a fusion of creativity and talent, leaving the audience cheering for their friends and enjoying the love and light of the energies around them.

Almost 279 students participated in various activities like Treasure Hunt, Reel Mix Competition, Photography Competition, Antakshari Competition, Talk Hawk’, Essay Writing Competition and Talent show.

‘JhanCAr 20K3’

JhanCAr 2k23 marked its beginning by kicking off with an exhilarating event Corporate Roadies — a multisport adventure — a team play filled with excitement, surprises, and physical challenges with diverse courses of action!!

As the opening bell chimed, signalling the commencement of the Mock Stock Exchange, the room buzzed with excitement and nervous energy. Participants, each armed with a virtual portfolio and a strategy, gathered around their mobile screens, ready to engage in a thrilling financial adventure. Little did we know that the next few hours would be a rollercoaster of fun, thrills, and chaos. The rounds kicked off with a flurry of buy and sell orders. Excitement was palpable as stock prices fluctuated wildly. Laughter and cheers erupted when someone made a brilliant move, while groans echoed across the room when others faced unexpected losses. With CA Jigar Shah creating expert comments and news being read, the entire place was full of screams and laughter!

Following the physically exhausting games, now finally came the mental exhaustion, where teams gathered, each armed with a case file and a determination to uncover the secrets hidden within the financial statements in the event named ‘Investigator’. As the simulated crime scene unfolded on spreadsheets and balance sheets, teams meticulously combed through financial statements, scrutinizing every transaction, entry, and ledger balance. The case study presented a scenario where the cash flow appeared to be at odds with the company’s reported revenues and expenses, creating a financial puzzle. In the end, the true victory lay not just in solving the financial mystery but in the collaborative spirit that had driven each team.

JhanCAr took an innovative turn with the introduction of a captivating ‘Reverse Shark Tank’ — an investment ideology game. Participants showcased their entrepreneurial acumen by justifying the pitching of unconventional and creative business ideas to a panel of judges. This unique twist added a strategic and competitive edge to Jhancar 2k23, challenging participants to think outside the box and answer questions that judges had for them.

The pulse of the evening quickened as the spotlight shifted to a dazzling talent hunt, -Starquest where individuals and teams showcased their skills in music, dance, and various performing arts categories. The stage came alive with a fusion of creativity and talent, leaving the audience in awe of the diverse abilities displayed by the participants. CA Hrudyesh Pankhania truly brought the event to life with his supercharged energy and shayaris!!

A drumroll of anticipation seemed to echo and the winners were announced. Cheers erupted and the smiles and high-fives were not just a celebration of victory but a testament to the dedication, collaboration, and analytical skillset that had propelled them to the top.

The Winners of various competitions are as under:

Winners- 16th Jal Erach Dastur CA Students’ Annual Day
Treasure Hunt Antakshari
‘Suronke Maharathi’		 Debate
‘War of Words’
Winning Teams
Naman Jogani, Khushi Kaushal Vishesh Mehta
Raghav Singhal, Virati Shah Yash Mehta
Siva Vignesh Shan Ruchita Gupta Arnav Singh
Reel Mix
‘Tarang Reel-Star’		 Photography
‘Khinch Le’		 Talk Hawk
‘Aspire to Inspire’
Best Performers*
Vrushti Mehta Yashwardhan Mandoth Vaidik Parwal
Essay Writing
‘Awaken the Writer Within!’		 Talent Show*
‘CA’s Got Talent’
Music Ashwati Nair
Neha Agnihotri –
1st Prize		 Dancing Tanvi Shenoy
Siddhi Sancheti –
2nd Prize		 Instruments Vineet Mishra
Sunidhi Gaur -3rd Prize Other Performing Arts Sakshi Chaubey

Winners- 16th Jal Erach Dastur CA Students’ Annual Day

Starquest Mock Stock Investigator
Winning Teams
Rishikesh Joshi –
1st Prize		 Bansari Sanghvi Bansari Sanghvi
Sagar Shah –
2nd Prize		 Lokesh Rathod Lokesh Rathod
Nidhi Bawri – 3rd Prize Arnav Goyal Arnav Goyal
Reverse Shark Tank Corporate Roadies Overall games Winners
Winning Teams
Hardik Thakkar Sagar Patel Bansari Sanghvi
Smit Jain Parth Dongra Lokesh Rathod
Vriddhi Rawtani Pushkar Arnav Goyal

As the night progressed, the rhythm intensified with an electrifying Jamming session that got everyone on their feet, celebrating the success of Jhancar 2k23. The event reached its pinnacle with a dinner, providing a perfect finale to a day filled with excitement and creativity.

Both events were conducted by the Human Resource Development Committee (HRD) Team under the able guidance of CA Anand Kothari, CA Jigar Shah, CA Dnyanesh Patade and CA Utsav Shah. The Society is thankful to the Bank of Baroda and J.K.Shah Classes for partnering with BCAS by sponsoring JhanCAr 20K3.

2. The International Tax and Finance Study Circle organised a meeting “Moving to Singapore — A Singapore Perspective” on 12th December, 2023 in an Online Mode.

Group Leader Mr. Sanjay Iyer shared his practical insights with respect to nuances in setting up the presence in Singapore in the session. The topics covered in the discussion were:

1. Recent amendment of capital gains on foreign assets becoming taxable in Singapore.

2. Various routes of investments along with procedures and relevant government authorities involved.

3. Opening of a bank account in Singapore and the potential difficulties a new investee may face.

4. The concepts of Single and Multi-Family Offices along with key processes and potential issues that may arise.

5. Key aspects of succession planning.

Towards the end, some important practical aspects of living in Singapore including an approximate cost of living were also discussed. The session provided great insight into the overall operational aspects of moving to Singapore.

3. HRD Study Circle Meeting held a Film Screening — “The Power of Vision” on 25th November, 2023 @ BCAS.

The participants watched the film “The Power of Vision” by Joel Barker (known as a futuristic visionary) and discussed the same as a case study. Mr. Vinod Kumar Jain explained about the film. He explained the importance and power of having a vision in a person’s life, in a commercial or one’s socio-economic endeavours.

The participants discussed that the said film demonstrated how having a positive vision of the future is the most forceful motivator for change and success that companies, schools, communities, nations, and individuals possess.The film explained how a prisoner found the will to survive suffering on earth — at Auschwitz concentration camp — so he could help others find the meaning of life. How did most students in a neighbourhood finish high school beating all the odds paving their way to college? How do organisations inspire employees to be more than observers, exercise their choices wisely and create their futures?

Futurist Joel Barker showed why a shared vision makes decision-making easier, why effective visions are never expressed in numbers, and why a vision must be inspiring enough to challenge each member of the vision community to grow and reach beyond their previous limits.

“The Power of Vision” showed how in your organisation thinking together, dreaming together, and acting together can make a difference in the world.

Key Learnings:

1. Creating a compelling vision that goes beyond numbers

2. Challenging others to stretch beyond their perceived limits

3. Inspire a personal, daily connection to a shared vision

4. Improved decision making

5. New employee training

6. Leadership

7. Team building

After the screening of the film, participants discussed their learnings from the film, their experiences and how the same can be applied in their personal lives, educating their students and children. They also discussed how our nation’s present image-building action by our government will help our country grow to much greater heights.

4. Webinar on “Digital Brandscaping for Professionals” held on 25th November, 2023 in Online Mode.

The Technology Initiatives Committee of BCAS conducted a Webinar on Digital Brandscapting for Professionals. The webinar was planned to guide professionals in creating and nurturing their brand digitally within the Code Of Ethics of ICAI.

The webinar began with Mr. Mihir Karkare, a founder of a renowned social media marketing company, sharing with the participants the importance of branding digitally on various social media platforms. He also emphasised and shared insights on why digital branding is important for professionals in this digital age and era.

The webinar in its second part, addressed basic but important and relevant questions on balancing digital branding ourselveswith the Code of Ethics of ICAI as far as CAs in profession are concerned. Speaker CA Aseem Trivedi shared the practical aspects and clarified the ambiguity around using social media without violating the code of conduct.

The third part was quite an eye-opening session where our committee member CA Hrudyesh Pankhania gave participants a hands-on demonstration of how to use social media and make every bit of one’s reach count. The session focussed on refining social media networking and reach.

The webinar had participants from 25 cities across all age groups.

5. Suburban Study Circle Meeting on “Recent Litigation Trends in GST” on Friday 24th November, 2023 at Golden Delicacy Multicuisine Restaurant, Borivali (W).

The Group Leader CA Prerana Shah discussed with the group various issues arising in GST Compliance at the time of filing various returns including annual returns and commonly raised issues during assessments. She shared an educative presentation on important points based on judicial precedents/circulars and notifications and her views thereon.

In a knowledge-oriented and practical session, she lucidly covered all important points. She illustrated the interpretation of some of the important provisions with the help of case studies.The session was very interactive with participants deliberating upon a large number of practical queries. CA Prerana’s experience with the subject area was well appreciated by the group.

6. Indirect Tax Laws Study Circle on “GST Portal — Recent Developments and Challenges” held on 24th November, 2023 in Online Mode.

Group leader CA Umang Talati presented various issues & challenges faced by taxpayers on the GST portal as well as various recent developments on the portal. The presentation covered the following aspects for detailed discussion:

1. Discussion on Circular 170/02/2022-GST and its impact on disclosure to be made while filing GSTR-9.

2. New functionality of Electronic Credit Reversal and Reclaimed Statement enabled on the portal.

3. New functionality of Return Compliance Portal — DRC-01B/ DRC-01C enabled on the portal and manner of replying to such notices.

4. Implementation of Rule 37A and associated issues.

5. Procedural challenges in filing an appeal.

6. Geocoding facility on the portal – applicability & other challenges.

7. Utility of verifying RFN facility introduced on the portal.

Around 60 participants from all over India benefitted while taking an active part in the discussion.

7. ITF Study Circle Meeting held on 16th November, 2023 in Online Mode.

In the study circle meeting, the participants discussed the implications of the landmark Supreme Court ruling in the case of Nestle SA on the MFN Clause in a tax treaty:

  • The group leader CA Gunjan Kakkad explained the facts of both the lead cases which were adjudicated in the common order by the Supreme Court, along with providing some background to the controversy at hand.
  • The Supreme Court’s ruling was discussed in great detail.
  • This was followed by a detailed analysis of the ruling and its reasoning.
  • The Way Forward and the potential consequences of the ruling were discussed in detail. Many members expressed divergent views on the potential consequences.
  • There was also a discussion on the potential arguments that may be taken in various proceedings initiated as a result of the Supreme Court ruling.

CPE and COE

Arjun : Hey Bhagwan, I am really tired.

Shrikrishna : That you always are! What is the reason today?

Arjun : Want to complete my CPE hours.

Shrikrishna : What is CPE?

Arjun : As per the Continuing Professional Education (CPE), every member must devote at least 30 hours, every years to studies to keep himself updated.

Shrikrishna : Very good. 10,000 years ago, we also had this system. My Guru Sandipani and all other Gurus used to give us send-off on completion of our education of 12 years. They used to give a few instructions for life, from Taittireeya Upanishad.

Arjun : What were those instructions?

Shrikrishna : ‘Satyam Vada’ – Speak the Truth. Dharmam Chara – Perform your duty religiously and Swadhyayat Ma Pramadah – Never commit default in continuous Studies. Never give up on studies!

Arjun : Oh! I heard somebody saying these are the foundations of our Code of Ethics. Your last point is nothing but our CPE!!

Shrikrishna : Now tell me, what is your difficulty?

Arjun : Somehow, I managed 20 hours out of the target of 30 hours.

Shrikrishna : You people are known as the ones who ‘manage’ everything. Even CPE hours you manage?

Arjun : Yes, Lord, we can’t help it. Who has time to go and attend those boring lectures? From my college days, I lost my habit of attending any lectures and sitting there.

Shrikrishna : In college, was attendance not compulsory?

Arjun : It was; but the muster was kept outside the classroom. We used to sign and be elsewhere! Sometimes, we friends used to sign for one another. Proxy is acceptable in law as well!

Shrikrishna : Oh! So, right from your college days, you had no connection with ethics!

Arjun : Ethics? Ah! Who cares?

Shrikrishna : Still, I didn’t understand your problem.

Arjun : Bhagwan, nowadays our branches and study circles hold many Seminars and lectures to enable the members to complete their CPE Hours. 31st December is the last date.

Shrikrishna : That means, as usual, you wake up not at the 11th hour but at the 11th month! I wonder when you will learn ‘pro-activeness’. First things first!

Arjun : Further trouble is that it is mandatory to complete at least 2 hours on Ethics and at least 2 hours for Standard on Audits. Conveners are saying, “Now all good speakers are booked, and no venue is available!”

Shrikrishna : But why do you wait till the last moment? Your Branches and Study Circles should arrange mandatory lectures at the beginning of the year, between January to June.

Arjun : Nobody attends so early. Lord, we CAs cannot work unless it becomes compulsory. And we are quite used to getting an ‘extension of time’. But nowadays, no extension is granted. So, this ‘running around’.

Shrikrishna : So now, you need to be always on your toes. You can’t afford to relax and take things lightly. Actually, you should learn ethics before you start working on audits and taxation. There is no point in knowing about them when all audits and tax filings are over!

Arjun : Lord, I agree. I will tell the conveners to arrange COE and SA lectures before June every year so that we are equipped with knowledge before doing audits.

Shrikrishna : That’s it. You need to be eternally vigilant and proactive. That is your motto – Ya Esha Supteshu Jagarti.

Arjun : I agree, My Lord!

“Om Shanti”

Note:

This dialogue is based on the need for a proper attitude towards CPE and COE. It is in our interest to understand the spirit behind it.

Interesting Apps

lashDim

Many Android users have marvelled at the ability to control the intensity of the flashlight in iPhones. Your wait is now over! FlashDim does just that.

Once installed, it allows you to adjust the intensity of your flash. This comes in useful when you are using it as a flashlight. The app provides three flash intensity levels: minimum, half and maximum.

It also has an SOS mode, where the flashlight blinks repeatedly at regular intervals, for as long as you wish. You may adjust the frequency of the beats per minute or even adjust the interval time from 50 to 10,000 ms.

A neat little feature is that you can adjust the blips to mimic Morse Code. So you can send messages from a distance to someone in the dark, and he will be able to decipher the same — provided he knows Morse Code.

A very handy tool for day-to-day use.

Android: https://bit.ly/3FTfDDZ

AfterShip

AfterShip is a package tracker which is pretty simple. It allows you to track packages for over 700 carriers worldwide. Just enter your tracking number and sit back and relax!

AfterShip will track your package in real-time. You can check your shipment location on a Map, and get notified of the progress automatically no checking frequently on an app / website for the status of your documents / parcels. Once your package is out for delivery or delivered, it will notify you about that too.

The app is smart. When you enter the tracking number, it will automatically detect the carrier — how cool is that! If, for some reason, it cannot do so, it will give you a few options to choose from, and most likely, the carrier will be one of them! You just have to tap to accept the carrier.

If you link your Gmail account with the app, it can even pick up the tracking number from your Gmail. If you copy a tracking number from your WhatsApp account or any other app on your phone, it will automatically tell you when it detects it in your clipboard and remind you to enter it in the app, for easy access and tracking.

So, if you send / receive many parcels / documents, this is a very easy way to track them. And even if the frequency is less, it is so easy and convenient. Try it out today!

Android: https://bit.ly/3QyY5Su

iOS: https://apple.co/49LojtR

Otter: Transcribe Voice Notes

Otter is a pioneer in transcribing voice to text. Whether you are in a lecture, seminar or classroom, just activate the app, and it will transcribe speech to text on your screen in real-time, so that you can focus on the discussion at hand.

You can even OtterPilot your meetings with AI. Get a meeting assistant that records audio, writes notes, automatically captures slides and generates summaries.

All notes are searchable. The app is currently available only in English. You can collaborate, share and highlight your notes. You can also ask questions for topics covered, and it will point to the exact sections where it has been discussed.

Speech recognition systems are never perfect, but this one is as close to being perfect as it could be.

Android: https://bit.ly/47vZv6U

iOS: https://apple.co/3SxE0OZ

Lensa

Lensa is a different type of photo editor – it combines photo editing with AI art. It is most suitable for retouching portrait selfies. Forget about conventional filters and photo editing tools. The app has many photo editing filters and techniques for pictures to get you a sweet selfie, remove any blurred background or do other necessary editing. With its simple editing features and camera editor effects, you can make every photo perfect.

You can perfect the complexion, make eyes impeccable, adjust the background and even use auto-adjust if you don’t have time to do each of these individually.

You can capture memorable moments and do the necessary photography editing to freeze each moment in time. You don’t need a lab or dark room because within seconds, your peachy selfie is ready. Most of the time, the AI effects are beautiful, though not every picture is perfect.

And now, they have introduced Magic Avatars 2.0, a phenomenal update that empowers you to express yourself in ways you have never imagined. With an entirely new quality level and tens of unique styles, Magic Avatars 2.0 takes the app to new heights. You must try it now!

Android: https://bit.ly/40yqVa2

iOS: https://apple.co/47wMt9t

Miscellanea

1. TECHNOLOGY

1 Apple set to open its fourth iPhone factory in India in a China+1 strategy

Apple is set to get its fourth manufacturing facility in India, with the Tata Group reportedly planning a new factory that will manufacture iPhones, a move that aligns with Apple’s strategy of accelerating its supply chain in India. The new factory, according to a Bloomberg report that cites unnamed sources, is expected to have 20 assembly lines and employ 50,000 staffers within two years of being operational.

The sources further said that the group plans to make the factory operational in the next 12 to 18 months. “India is important to many big tech companies for several reasons — the human capital, relatively cheap labor pool, a maturing supply chain, and the country’s pragmatism,” said Prachir Singh, senior analyst at Counterpoint Research.

In October, the Tata Group acquired an iPhone assembly plant, located in Karnataka, from Taiwanese manufacturing firm Wistron for $125 million. The acquisition is still pending regulatory approval.Queries sent to the Tata Group and Apple went unanswered.

These developments come at a time when Apple is looking to scale down its operations in China, due to the ongoing trade war between Washington and Beijing, and scale up its operations in Asian economies, including India, Thailand, Vietnam and Malaysia.

“Apple has been looking for a second place to expand and diversify its manufacturing operations beyond China. The new plant at Hosur could be a clear indication that India is that second destination,” said Abhilash Kumar, industry analyst at TechInsights. “The year 2023 saw a lot of activity in India that propelled the nation to be the 4th largest in terms of Apple’s supply chain network,” Kumar added.

Apple’s strategy to shift its manufacturing operations to India gained more mileage in January this year as New Delhi provided initial clearance to several Chinese suppliers, who assemble multiple Apple products and sell parts for these products to Apple.

Other than the Tata Group, other contract manufacturers such as Foxconn and Pegatron, are also manufacturing Apple products in India. Foxconn, the largest contract manufacturer globally, has a plant at Sriperumbudur in Tamil Nadu, which manufactures iPhones, metal casings and other components.

The company, which is the only manufacturer of Apple’s latest iPhone 15 and 15 plus models, has announced plans to open two other manufacturing facilities at Devanahalli, Karnataka, and Kongara Kalan, Telangana. Pegatron, which manufactures older models of iPhones at its Singaperumal Koil plant in Tamil Nadu, is also reportedly planning a second plant in Tamil Nadu.

The new plant from Tata Group, according to Kumar, could generate a lot of employment opportunities for Indians while putting the country at the forefront of Apple’s manufacturing plans.

Another proof of India’s growing importance to Apple, Kumar said, is the recent launch of two retail stores by the company in Mumbai and New Delhi.

(Source: www.computerworld.com— 8th December, 2023)

2 Attacks against personal data are up 300 per cent, Apple warns

Apple tells us more than 2.6 billion personal records have already been compromised by data breaches in the past two years.

It’s almost as though the best way to ensure your online data is safe is to make sure no one stores any of it. It feels likely that the Apple-commissioned study (“The Continued Threat to Personal Data”) is designed to reinforce the company’s arguments around the need for strong end-to-end data encryption and security.

• What Apple said?

In a statement, Craig Federighi, Apple’s senior vice president of software engineering, warned:

“Bad actors continue to pour enormous amounts oftime and resources into finding more creative andeffective ways to steal consumer data, and we won’trest in our efforts to stop them. As threats to consumer data grow, we’ll keep finding ways to fight back onbehalf of our users by adding even more powerful protections.”

• Attack velocity is increasing incredibly fast

The study, conducted by Massachusetts Institute of Technology professor Stuart Madnick, found clear proof that data breaches have become a global epidemic. The number of data breaches more than tripled between 2013 and 2022 and has continued to worsen in 2023.

The big message is that robust protection against breaches needs to be mandatory. End-to-end encryption, for example, is all the more important when criminals and dodgy government-backed spies are attempting to break into the servers your data sits on.

That’s less of a problem when even the server doesn’t understand and can’t read that information. If the server can’t read it, chances are neither can the perpetrators.

• We should use Advanced Data Protection

The report also delivers a pretty powerful message of recommendation for the need to enable Apple’s recently introduced Advanced Data Protection for iCloud.

Apple’s data protection already extends to encryption of critical information such as passwords and other sensitive information. Advanced Data Protection adds protection for Notes, iCloud Backup, and Photos to the list, though there are some limitations.

It really should concern anyone online that the momentum of these attacks is increasing so dramatically. In the US alone, there were nearly 20 per cent more breaches in just the first nine months of 2023 than in any prior year, Apple said.

The report also warns that more than 80 per cent of breaches involved data stored in the cloud, even as attacks against cloud infrastructure nearly doubled between 2021 and 2022.

• Attackers are sophisticated and well-resourced

Hackers are becoming more professionalised and better resourced, most security experts agree.Some even run help desks to assist impacted customers!

The deal is that ransomware is a huge business, one that benefits from more sophisticated attackers who have always known how to gather and combine small pieces of data from individuals lower down the enterprise security chain to violate security elsewhere.

Simen Van der Perre, strategic advisor at Orange Cyberdefense, recently warned that many of the most sophisticated ransomware attacks take place over time in different stages.

In this environment, you must expect every small vulnerability to be prodded and explored.

“Hackers are evolving their methods and finding more ways to defeat security practices that once held them back. Consequently, even organizations with the strongest possible security practices are vulnerable to threats in a way that wasn’t true just a few years ago,” Apple said.

• Encrypt all the things

“In recent years, we have seen an unprecedented increase in both the number of cyber threats and their sophistication, with attacks becoming more tailored as criminals aim for maximum impact, and maximum profit,” according to Bernardo Pillot (INTERPOL’s Assistant Director of Cybercrime Operations) who’s quoted in the report.

But making sure data is incomprehensible even if it is accessed is the company’s approach to personal and enterprise security. After all, if someone breaks into your online data but can’t make any sense of it, your data remains effectively safe.

Of course, data isn’t solely a problem for employees and users. All those data lakes held by a myriad of different firms are potential targets, and we’ve seen data brokers and government-related systems broken into enough times to understand that the information those systems hold about people should also be more effectively protected.

• We need bigger walls, not larger gates

Apple warns that because people now live more of their lives online, corporations, governments and other types of organisations collect more and more personal data — sometimes with little choice from individuals.

At the same time, the interconnected nature of global business means a successful hack against one small supplier making use of data about people at the company stolen elsewhere can give attackers access to information stored on servers belonging to a much larger company, putting everyone at risk.

Attacks of this kind can ruin customer relationships and bankrupt companies — and those nations that remove the protection of end-to-end encryption from consumer and business users alike had better recognise the risk they are taking with their population’s digital security and enterprise success.

Strong and robust digital protection is essential in a connected world, weakening that is a luxury no one can afford.

(Source: computerworld.com— 10th December, 2023)

2. ENVIRONMENT

1.World’s biggest iceberg A23a on the move after 30 years

The iceberg, called A23a, split from the Antarctic coastline in 1986. But it swiftly grounded in the Weddell Sea, becoming, essentially, an ice island. At almost 4,000 sq km (1,500 sq miles) in area, it’s more than twice the size of Greater London. The past year has seen it drifting at speed, and the berg is now about to spill beyond Antarctic waters.

A23a is a true colossus, and it’s not just its width that impresses. This slab of ice is some 400m (1,312 ft) thick. For comparison, the London Shard, the tallest skyscraper in Europe, is a mere 310m tall.

A23a was part of a mass outbreak of bergs from the White Continent’s Filchner Ice Shelf. At the time, it was hosting a Soviet research station, which just illustrates how long ago its calving occurred. Moscow dispatched an expedition to remove equipment from the Druzhnaya 1 base, fearing it would be lost. But the tabular berg didn’t move far from the coast before its deep keel anchored it rigidly to the Weddell’s bottommuds.

So, why, after almost 40 years, is A23a on the move now?

“I asked a couple of colleagues about this, wondering if there was any possible change in shelf water temperatures that might have provoked it, but the consensus is the time had just come,” said Dr Andrew Fleming, a remote sensing expert from the British Antarctic Survey.

“It was grounded in 1986 but eventually it was going to decrease (in size) sufficiently to lose grip and start moving. I spotted the first movement back in 2020.” A23a has put on a spurt in recent months, driven by winds and currents, and is now passing the northern tip of the Antarctic Peninsula.

Like most icebergs from the Weddell sector, A23a will almost certainly be ejected into the Antarctic Circumpolar Current, which will throw it towards the South Atlantic on a path that has become known as “iceberg alley”.

Eventually, all bergs, however big, are doomed to melt and wither away. Scientists will be following the progress of A23a closely. If it does land in South Georgia, it might cause problems for the millions of seals, penguins and other seabirds that breed on the island. A23a’s great bulk could disrupt the animals’ normal foraging routes, preventing them from feeding their young ones properly.

But it would be wrong to think of icebergs as being just objects of danger — Titanic and all that. There’s a growing recognition of their importance to the wider environment. As these big bergs melt, they release the mineral dust that was incorporated into their ice when they were part of glaciers scraping along the rock bed of Antarctica. This dust is a source of nutrients for the organisms that form the base of ocean food chains.

“In many ways, these icebergs are life-giving; they are the origin point for a lot of biological activity,” said Dr Catherine Walker, from the Woods Hole Oceanographic Institution, who was born in the same year as A23a. “I identify with it; it’s always been there for me.”

(Source: www.reuters.com— 25th November, 2023)

2 COP28 Summit in Dubai: Indian climate activist Licypriya Kangujam storms the stage

A 12-year-old protester burst onto the stage at the COP28 climate summit in Dubai. Conference of the Parties or COP28 saw many firsts this year. From organising the COP’s first-ever “Health Day” to hosting “the first-ever COP ministerial dialogue on building water-resilient food systems” — there were many events and “landmark” moments that embraced the COP28 climate summit.

Several countries clashed over a possible agreement to phase out fossil fuels at the COP28 summit in Dubai, jeopardising attempts to deliver a first-ever commitment to eventually end the use of oil and gas in 30 years of global warming talks.

Activists designated Saturday a day of protest atthe COP28 summit in Dubai. But the rules of thegame in the tightly controlled United Arab Emirates at the site supervised by the United Nations meant sharp restrictions.

Public protests have been limited at the United Nations talks that are being held in the United Arab Emirates, which bans many organised groups, including political parties and labour unions.

COP28 Summit in Dubai: Who is Licypriya Kangujam, an Indian protestor who dashed onto the stage?

1) Licypriya Kangujam is a child climate justice activist from India who was escorted away as the audience clapped, Reutersreported.

2) She delivered a short speech after rushing onto the stage at the COP28 summit in Dubai. The teenager protested against the use of fossil fuels.

3) “End fossil fuels. Save our planet and our future”, a 12-year-old protester ‘Licypriya Kangujam’ burst onto the stage at the COP28 climate summit in Dubai on Monday, holding a sign above her head.

4) COP28 Director-General Ambassador Majid Al Suwaidi said he admired the enthusiasm of young people at COP28 and encouraged the audience to give Kangujam another round of applause.

5) In a post on X (formerly Twitter), the activist wrote, “Here is the full video of my protest today disrupting the UN High-Level Plenary Session of #COP28UAE. They detained me for over 30 minutes after this protest. My only crime — Asking to Phase out Fossil Fuels, the top cause of the climate crisis today. Now they kicked me out of COP28.”

6) “Governments must work together to phase out coal, oil and gas – the top cause of the climate crisis today. Your action today will decide our future tomorrow. We are already the victims of climate change. I don’t want my future generations to face the same consequences again. Sacrificing the lives of millions of innocent children for the failures of our leaders is unacceptable at any cost,” she said.

7) The teenager also wrote, “Millions of children like me are losing their lives, losing their parents and losing their homes due to climate disasters. This is a real climate emergency. Instead of spending billions of dollars in wars, spend it on ending hunger, giving education and fighting climate change.”

8) “I’m a child who is completely frustrated by today’s climate crisis. We are the first line of victims. I feel the core issues of phasing out fossil fuels are kept inside in the negotiations process going on in the COP28 with over 2,500 fossil fuel lobbyists,” she added.

(Source: www.livemint.com— 12th December, 2023)

Regulatory Referencer

I. COMPANIES ACT, 2013

1. Specified public companies may issue securities for listing on permitted exchanges in permissible foreign jurisdictions: MCA has notified 30th October, 2023 as the effective date for enforcement of section 5 of Companies (Amendment) Act, 2020. Section 5 of Companies (Amendment) Act deals with provisions related to public offers and private placement. New sub-sections have been inserted which states that a specified class of public companies may issue such class of securities for the purpose of listing on permitted stock exchanges in permissible foreign jurisdictions or other jurisdictions as may be prescribed. [Notification No. S.O. 4744(E), dated 30th October, 2023]

2. MCA notifies LLP (Significant Beneficial Owners) Rules, 2023: The MCA has notified LLP (Significant Beneficial Owners) Rules, 2023. The provisions of these rules shall apply to all the LLPs. As per the newly notified rules, every reporting LLP shall take steps to find out if there is any individual who is a significant beneficial owner, in relation to that LLP, and if so, identify him and cause such individual to make a declaration in Form No. LLP BEN-I. Existing SBOs shall file a declaration within 90 days from the commencement of these rules. [Notification dated 9th November, 2023]

II. SEBI

3. SEBI redesigns format for Mutual Fund scheme offer documents: In order to enhance the ease of preparation of the Scheme Information Document (SID) by mutual funds and increase its readability for investors, SEBI undertook an exercise to revamp the format of SID. In the revised format, SEBI has mandated AMCs to disclose the risk-o-meter of the Benchmark on the Front page of the initial offering application form, Scheme Information Documents (SID), and Key Information Memorandum (KIM); in the Common application form. The updated format is to be implemented w.e.f. 1st April, 2024.
[Circular No. SEBI/HO/IMD/IMD-RAC-2/P/CIR/2023/000175, dated 1st November, 2023]

4. SEBI introduces a procedural framework for dealing with unclaimed amounts lying with InvITs, REITs & specified entities: SEBI with an objective to make the process of claiming unclaimed funds by investors uniform, has specified a procedural framework for dealing with unclaimed amounts lying with InvITs, REITs and entities having listed non-convertible securities. Further, the norms w.r.t the manner of claiming such unclaimed amounts by investors have also been prescribed. The circular shall be effective from 1st March, 2024.
[Circular No. SEBI/HO/DDHS/DDHS-RAC-1/P/CIR/2023/178, dated 8th November, 2023]

5. SEBI mandates brokers to inform the most important terms and conditions to clients: SEBI with an objective to bring into focus the critical aspects of the broker-client relationship and for ease of understanding of the clients, mandates brokers to inform a standard Most Important Terms and Conditions (MITC) to the clients. Further, this MITC shall be acknowledged by the client. Further, the detailed norms for implementation of MITC shall be published latest by 1st January, 2024, by the Brokers’ Industry Standards Forum (ISF) in consultation with SEBI. [Notification No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2023/180, dated13th November, 2023]

6. SEBI sets aside the norms w.r.t freezing of folios without PAN, KYC details and nomination: Earlier, the SEBI notified the norms w.r.t furnishing PAN, KYC details and nomination. Under the extant norms, if PAN, nomination, and other details were not submitted by holders of physical securities by 1st October, 2023, the folios shall be frozen by the RTA and shall also be referred by the RTA / company to the administering authority under the Benami Act/ PMLA. Now SEBI has decided to take away this to mitigate unintended challenges on account of freezing of folios. [Circular No. SEBI/HO/MIRSD/POD-1/P/CIR/2023/181, dated17th November, 2023]

III. FEMA AND IFSCA REGULATIONS

1. Permission to International Branch Campuses and Offshore Educational Centres at GIFT-IFSC to avail infrastructure services from Academic Infrastructure Service Providers: The IFSC (Setting up and Operation of International Branch Campuses and Offshore Education Centres) Regulations, 2022 enable globally reputed foreign universities or foreign educational institutions to set up International Branch Campuses (IBC) or Offshore Educational Centres (OEC) in IFSC. Based on requests from stakeholders, a circular has been issued allowing IBCs and OECs to avail of infrastructure and other support services from Academic Infrastructure Service Providers (AISP). The circular prescribes several conditions with respect to the type of infrastructure and support services that are permissible; eligibility conditions for the AISP; and obligations of the IBCs/OECs. [Circular eF.No.IFSCA-BDev./FU/1/2023-BD dated 14th December, 2023]

Part A – Company Law

16 Case Law No. 01 /Jan 2024

In the matter of Shri Thiyagarajan Parthasarathy

Registrar of Companies, Tamil Nadu

F.NO.ROC/CHN/THIYAGARAJAN/ADJ ORDER/S.155/2023

Adjudication Order

Date of Order: 10th July, 2023

Adjudication Order for the violation of the provisions of Section 155 of the Companies Act, 2013 which do not permit holding more than one “Director Identification Number” (DIN).

FACTS

Shri Thyagrajan Parthsarathy made an application in DIR 5 before the office of the Regional Director (Northern Region) hereinafter RD for the surrender of his DIN.

RD further observed upon processing of application received in e-form DIR-5 with respect to the surrender of the second DIN that, the applicant earlier had applied for and obtained two DINs on the MCA portal, namely DIN: 03191514 dated 23rd August, 2010 (First DIN) and DIN: 09018479 dated 4th January, 2021 (Second DIN).

Thus, the applicant himself had admitted to holding two DINs and the same had been verified by the e-records of MCA. Further, it was observed that the DIN being surrendered was still associated with a company namely “M/s SPS HPL” and a new DIN was applied, while forming the new company i.e. “M/s SPS MPL”.

Thereafter, on request from the office of RD vide letter dated 5th September, 2022, the Adjudication Office (AO) i.e. Registrar of Companies, Tamil Nadu issued a Show Cause Notice to the director Shri. TP on 19th October, 2022 for violation of provisions of Section 155 of the Companies Act, 2013 for holding 2nd DIN. The AO issued an Adjudication hearing notice to the director Shri. TP vide letter dated 15th June, 2023.

Thereafter, Mr F, Practising Company Secretary representative of the Shri TP had appeared before the AO on 30th June, 2023 and admitted to the violation on behalf of Shri. TP.

Provisions of the Section 155 of the Companies Act, 2013 states that:

“No individual, who has already been allotted a Director Identification Number under Section 154, shall apply for, obtain or process another Director Identification Number.”

Whereas Section 159 of the Companies Act, 2013 reads as under:

“If any individual or director of a company makes any default in complying with any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each days after the first during which such default continues.”

HELD

AO after examination and hearing, held that Shri. TP had violated the provisions of Section 155 of the Companies Act, 2013 for which a penalty was imposed as per Section 159 of the Companies Act, 20l3. Further, AO noted that the clarification provided with respect to duplication did not seem satisfactory and that the 2nd DIN was obtained in violation of Section 155 of the Companies Act, 2013.

Therefore, in the exercise of the powers vested with AO under Section 454 (l) & (3) of the Companies Act, 2013 penalty imposed was as follows:

Name of the Officer in default Amount of Penalty for 1st Default Additional Penalty for Continuing Offence Total amount of Penalty Imposed
Shri TP ₹50,000 ₹4,53,500
(500*907)
No. of days of default: 907 days		 ₹5,03,500

17 Case Law No. 02/Jan 2024

M/s Sarada Pleasure And Adventure Limited

No. ROC/PAT/Sec. 88/13364/691

Office of the Registrar of Companies, Bihar-Cum-Official Liquidator, High Court, Patna

Adjudication order

Date of Order: 27th July, 2023

Penalty order for non-maintenance of Statutory Registers under section 88 of the Companies Act, 2013.

FACTS

Registrar of Companies, Bihar (“RoC”) during the course of their inquiry, noticed that M/s SPAL had failed to maintain the statutory registers as required under sections 88 of the Companies Act, 2013. Thus, M/s SPAL and Mr RS, Mr SD and Mr SR, directors of M/s SPAL had violated the provisions of section 88(1) of the Companies Act, 2013 w.r.t. non-maintenance of the register of members, etc.

As per Section 88(1) of the Companies Act, 2013: Every company shall keep and maintain the following registers in such form and in such manner as may be prescribed, namely:

(a) register of members indicating separately for each class of equity and preference shares held by each member residing in or outside India;

(b) register of debenture-holders; and

(c) register of any other security holders.

Further, RoC had issued a show cause notice to M/s SPAL and Mr RS, Mr SD and Mr SR, directors of M/s SPAL for default under section 88(1) of the Companies Act, 2013 vide office letter dated 12th June, 2023 on which no reply was received.

Hence, RoC observed that the provisions of Section 88 (1) of the Companies Act, 2013 were contravened by M/s SPAL and therefore were liable for penalty under section 88 (5) of the Companies Act, 2013.

Section 88(5) of Companies Act, 2013 states that:

“If a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2), the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees”.

It was further observed that, as per the MCA portal, the paid-up capital of M/s SPAL is ₹2,22,56,77,000. As regards to its turnover, M/s SPAL has not filed its balance sheet since the financial year 2014-2015, hence the turnover M/s SPAL could not be ascertained. Therefore, the benefits of a small company under Section 446B could not be extended to M/s SPAL while adjudicating penalty.

HELD

The Adjudicating Officer (“AO”) after considering the facts and circumstances of the case, imposed a penalty as stated below for violation of Section 88(1) of the Companies Act, 2013 and the matter was disposed of.

Penalty on M/s SPAL: ₹3,00,000

Penalty on officers in default:

Mr RS (Director of M/s SPAL): ₹50,000
Mr SD (Director of M/s SPAL): ₹50,000
Mr SR (Director of M/s SPAL): ₹50,000

Further, it was directed to pay the penalty within 90 days of the date of the order.

Part B – Service Tax

I. TRIBUNAL

25 Ours Aariya Bhavan vs. CGST & CE

2023-TIOL-1-36-CESTAT-MAD

Date of Order: 13th October, 2023

Whether service charge for the supply of bed rolls for the use of passengers travelling in A/C and First Class during train journeys would amount to business auxiliary service. Held, No.

FACTS

Appellant vide an agreement with Indian Railways Catering and Touring Corporation (IRCTC) supplied bed rolls for the use by passengers and collected a service charge from IRCTC and paid no service tax. A show-cause notice was issued proposing to levy service tax considering the activity and service charge towards business auxiliary service along with interest and imposed penalties. It was upheld by the adjudicating authority and also in the first appeal. It was argued for appellant that the clause (vi) of definition of business auxiliary service contained in section 65(19) of Finance Act, 1994 (the Act) relates to rendering of a service on behalf of a client whereas the service in the instant case of providing bed rolls is rendered to IRCTC and charge also is collected from them and no amount is collected from passengers. According to the department, the demand was legal and proper as the appellant had to clean bed rolls periodically and supply the same for passengers. Hence, it was covered by the definition of business auxiliary service in the clause invoked.

HELD

On examining the definition contained in section 65(19) of the Act, there was no merit found in sustainability of demand apart from non-justification of invoking of extended period.
Appeal was thus allowed on merits.

26 HSBC Electronic Data Processing India Pvt. Ltd. vs. CCT
2023-TIOL-1102-CESTAT-HYD
Date of Order: 20th November, 2023

Input services of advertising, air travel agents, courier services, erection, commissioning insurance, insurance auxiliary service, management consultancy etc., whether can be disallowed ad hoc?

FACTS

Appellant provided Information Technology (IT) or IT enabled service and claimed CENVAT credit on input services utilized for providing these output services. However, credit was disallowed under Rule 14 of CCR though a similar issue involved in refund proceeding under Rule 5 of CCR read with Notification No. 26/2012 and nexus theory was examined in detail allowing CENVAT credit. Hence, pursuant to the order of Commissioner (Appeals) which recorded that disallowances were arbitrarily done during adjudication and as a result of inadequate effort to determine justifiability, the eligibility or otherwise of the credit of tax on input services was in dispute. Considering the nature of activity, its relevance and judicial rulings, the benefit was extended to appellants on input services listed above in the said refund proceeding.

HELD

It was observed that the proceedings under Rule 14 and Rule 5 of CCR are similar in nature. Taking notice, the order of the Commissioner (Appeals), it was found that the issue involved was already adjudicated in detail and has been allowed in favour of appellants.

Hence the order was set aside.

27 Hawkins Cookers Ltd vs. CCGST & CE
2023-TIOL-1136-CESTAT-MUM
Date of Order: 6th November, 2023

CENVAT credit of service tax on outdoor catering service provided for canteen facilities for employees and staff during shifts and office hours, whether an eligible input service.

FACTS

Appellant, a manufacturer registered under Central Excise and also under service tax under reverse charge mechanism had a dispute with the department on eligibility of CENVAT credit of service tax paid on canteen facility provided by outdoor caterer. Per department, outdoor catering service is excluded from the definition of “input service” contained in Rule 2(l) of CCR for the period 1st January, 2016 to 30th June, 2016, and hence credit is disallowable with interest and attracting penalty under section 78. Both adjudicating authority and the appellate authority confirmed the liability with interest and penalties and hence, the present appeal. For appellant, it was conceded that the issue stood covered in the Larger Bench of the Tribunal in the case of Wipro Ltd. vs. CCE Bangalore – III 2018-TIOL-3256-CESTAT-Bang-LB. However, the extended period of limitation along with imposition of interest and penalty are not sustainable in view of the decisions of higher judicial forum in support of the same. Reliance was placed on:

a) ICCE 7 ST Rohtak vs. Merino Panel products Ltd. 2023 9383) ELT 129 (SC)

b) Hindustan Coca Cola Beverages Ltd. vs. CCE & ST Vadodara (2023) 2 CENTAX 116 (Tri. Ahmd), and

c) Sasken Technologies Ltd. vs. CCE Bangalore 2019-TIOL-3374 CESTAT Bang.

It was submitted for appellant that for the earlier period in their own case, Tribunal had allowed the appeal by way of remand for verification and passing of fresh order vide order dated 29th November, 2017. Thus it was claimed that the department was well aware of the issue of taking credit in respect of outdoor catering service. According to the department, however the issue has attained finality when Supreme Court upheld Karnataka High Court’s order denying credit of service tax on outdoor catering services in the case of Toyota Kirloskar Motors Pvt. Ltd. 2021(55) GSTL129 (SC) post 01/04/2011 and interest on irregular availment of CENVAT credit is provided under section 75 read with Rule 14 of CCR and consequently penalty imposed was sustainable.

HELD

Submissions of both the parties were heard, considered and discussed in detail to reach a conclusion that the appellant was registered under both Central Excise and Service Tax, and the department was well aware of the factual matrix of the case and grounds of suppression was unable to be accepted. Reliance in this context was placed on the case of Pushpam Pharmaceutical Company vs. CCE Bombay 1995 (78) ELT 401 (S.C) ruling that when the Revenue is aware of the facts, issuance of show cause notice should be confined to normal period. Also it was observed, similar situation and decision in the case of Anand Nishi Kawa Co. Ltd. vs. CCE Meerut 2005 (188) ELT 149 (SC) and it was observed and held that various Tribunal decisions bring out the fact that there was lack of clarity during the disputed period on the issue of availment of CENVAT credit of service tax on outdoor catering service and hence, was considered an interpretational issue. There were divergent views prevailing until it got settled by the Larger Bench in case of Wipro (supra) and ultimately also at the highest forum in Toyota Kirloskar (supra). Hence, invoking suppression and penalty under Rule 15(2) for demanding inadmissible credit cannot sustain. Hence, interest and penalty imposed were set aside and the matter was remanded back to original authority for re-quantification of demand for the normal period with regard to outdoor catering service and thus allowed appeal partly.

28 Naya Sarai SSS Ltd vs. CST & Others

2023-TIOL-1135-CESTAT-KOL

Date of Order: 23rd November, 2023

When work order clearly provided for execution of jobs as contractors, confirmation of demand as manpower supply was unsustainable.

FACTS

All the three appellant societies involved executed various jobs entrusted to them by Heavy Engineering Corporation Ltd. (HEC) and the impugned common order was passed for all the three appellants. Hence, all are taken together. As per specimen work order issued by HEC, according to appellants, fixed rate on Tonnage basis and the quantity was specified and not the number of workers to be employed. It had to be decided by each of the appellant societies to display the workers as required and number of days as they deemed appropriate. HEC being a PSU, however was responsible to avoid exploitation of labour and hence ensured adherence by appellants of Minimum Wages Act, deductions of ESI, CPF etc. and depositing the same to the respective authorities. The execution of work did not amount to supply of manpower as defined in section 65(68) of the Act read with section 65(105)(L). Reliance was placed inter alia on 2016 (41) STR 806 (Bom) CCCEX & ST Aurangabad vs. Shri Samarth Sevabhavi Trust and 2023 (73) GSTL 363 (Tri. Chennai) S Selvam vs. CCE & ST Tiruchirapally.

HELD

After interpreting the contract between the parties and perusing statutory provisions of manpower recruitment and supply agency and considering relied upon authorities, it was held that the work orders issued by HEC clearly revealed job and the quantity by contractors and not to supply or recruit manpower.

Hence, the orders were set aside.

Effect of Unregistered Documents

INTRODUCTION

A transfer of a movable property can be affected by mere delivery and possession. However, any transfer of interest in an immovable property requires an instrument which is duly registered. What happens when such an instrument which needs to be registered is not registered? Can it transfer any interest or can it be used for any other purpose? Can it attract income-tax liability on the transferor? What would be the position under the Stamp Act on such unregistered instruments? These are some of the very interesting questions in this respect which have been answered by different decisions of the Supreme Court and High Courts. This article analyses some of the key principles and pronouncements on this very important facet of conveyancing law.

REGISTRATION ACT

The Registration Act, 1908 (“the Act”) provides for the registration of various documents. Under the Act, certain documents are subject to compulsory registration while for certain documents registration is optional. Under the Act, instruments which create, declare, assign, limit or extinguish any right, title or interest (vested or contingent) in any immovable property, exceeding ₹100 in value, need to be compulsorily registered. Similarly, leases of immovable properties which are made on a yearly basis exceeding a term of one year or reserving a yearly rent.

Documents containing contracts to transfer for consideration any immovable property in Part Performance of a Contract u/s. 53A of the Transfer of Property Act, 1882, which was executed on or after 24th September, 2001 must be compulsorily registered. It has been further provided that if such documents are not registered, then they shall not have any effect for the purposes of s. 53A of the Transfer of Property Act, 1882. A corresponding amendment has also been made to the Transfer of Property Act. In this respect, the decision in Rambhau Namdeo Gajre vs. Narayan Bapuji Dhotra, 2004 (8) SCC 614 is relevant wherein it held:

“Protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party.”

In addition to the Registration Act which specifies registration of certain documents, some other Statutes also provide for registration of documents pertaining to immovable properties. For instance, s. 54 of the Transfer of Property Act, 1882 provides that sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Such a transfer, in the case of tangible immovable property of the value of ₹100 and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. It further provides that a contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties and it does not, of itself, create any interest in or charge on such property. In Narandas Karsondas vs. S.A. Kamtam (1977) 3 SCC 247, the Supreme Court observed:

“A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967] 1 SCR 293. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein.”

U/s. 107 of the Transfer of Property Act, 1882, a lease of immovable property from year to year for any term exceeding one year or reserving a yearly rent can be made only by way of a registered instrument. It further provides that all other leases of immovable property may be made by a registered instrument or by an oral agreement accompanied by delivery of possession.

EFFECT OF NON-REGISTRATION

U/s. 49 of the Act, any document which is required to be registered and is not registered shall not affect any immovable property, comprised in the document, or be received as evidence of any transaction affecting such property. S. 50 provides that registered documents shall in respect of the property they comprise, take effect against every unregistered document relating to the same property.

However, an unregistered document pertaining to immovable property and which is required to be compulsorily registered either under the Act or under the Transfer of Property Act shall still be admitted as evidence in a suit for specific performance or as evidence for any collateral transaction which does not require a registered instrument.

SC IN SURAJ LAMPS

The Supreme Court’s decision in the case of Suraj Lamp & Industries (P) Ltd. vs. State of Haryana, (2012) 1 SCC is of great significance in this respect. In that decision, the issue was the legality of the transfer of immovable property in the National Capital Region by executing an unregistered Agreement of Sale + an unregistered General Power of Attorney from the seller to the buyer and a Will executed by the Seller in favour of the buyer bequeathing the property to the buyer as a safeguard against the consequences of the death of the vendor before the transfer. This hybrid system was devised as an alternative to obtaining a registered and stamped conveyance for the property. The Court was faced with the validity of such an arrangement.

Ill-effects – The Court frowned on such hybrid arrangements and held that its consequences were disturbing and far-reaching, adversely affecting the economy, civil society and law and order. Firstly, it enabled large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the government and the public. Secondly, such transactions enabled persons with undisclosed wealth / income to invest their black money and also earn profit / income, thereby encouraging the circulation of black money and corruption. These transactions also had disastrous collateral effects. For example, when the market value increased, many vendors (who effected power of attorney sales without registration) were tempted to resell the property taking advantage of the fact that there was no registered instrument or record in any public office thereby cheating the purchaser. Such power of attorney sales indirectly led to the growth of the real estate mafia and the criminalisation of real estate transactions.

Agreement to Sale – The Supreme Court next considered the effect of an unregistered agreement to sell. It held that a transfer of immovable property by way of sale could only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property could be transferred. Any contract of sale (agreement to sell) which was not registered would fall short of the requirements of sections 54 and 55 of the Transfer of Property Act and would not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of that Act). According to that Act, an agreement of sale, whether with possession or without possession, was not a conveyance. Section 54 of the TP Act enacted that a sale of immovable property could only be made by a registered instrument and an agreement of sale did not create any interest or charge on its subject matter.

Power of Attorney – It then considered the scope of a Power of Attorney and held that a power of attorney was not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney was the creation of an agency whereby the grantor authorised the grantee to do the acts specified therein, on behalf of the grantor, which when executed were binding on the grantor as if done by him.

Will – Lastly, it is considered the essence of a Will. According to the Court, a Will was the testament of the testator. It was a posthumous disposition of the estate of the testator directing the distribution of his estate upon his death. It was not a transfer inter vivos, i.e., between living persons. The two essential characteristics of a Will were that it was intended to come into effect only after the death of the testator and was revocable at any time during the lifetime of the testator. So long as the testator was alive, a Will was not worth the paper on which it was written, as the testator could at any time revoke it. In the case under review, the seller was an individual and the buyer was a company. The seller had executed a Will in favour of the buyer. The Supreme Court observed:

“Execution of a Will by an individual bequeathing an immovable property to a company, is also incongruous and absurd.”

It is respectfully submitted that the above statement of the Court made in the context of the case needs reconsideration. There is no bar as to who can be a beneficiary under a Will. In this context the decision of the Supreme Court in Krishna Kumar Birla vs. Rajendra Singh Lodha, (2008) 4 SCC 300, is relevant. It was concerned with a Will being affected in favour of a `stranger’. It held that why an owner of the property executed a Will in favour of another was a matter of his / her choice. She had a right to do so. The court was only concerned with the genuineness of the Will. If it was found to be valid, no further question as to why she did so would be completely out of its domain. It concluded that a Will may be executed even for the benefit of anyone including animals.

SUBSEQUENT CASES

The above decision of Suraj Lamps has been endorsed by several subsequent Supreme Court decisions, including the latest one in Shakeel Ahmed vs. Syed Akhlaq Hussain, CA 1598/2023, Order dated 1st November, 2023, which it has again held that the law is well settled that no right, title or interest in an immovable property can be conferred without a registered document. It also held that the decision of Suraj Lamps is retrospective in nature since it emanates from various Statutes and earlier judgments on the same point. Hence, the principles laid down therein applied even to unregistered agreements to sale executed prior to the date of the decision, i.e., before 2009.

On facts similar to those found in Suraj Lamps, the Karnataka High Court in Smt. K. Shashikala vs. ACIT, [2023] 147 taxmann.com 315 (Kar)has held that in order to attract Section 2(47)(v) of the IT Act, it is absolutely essential that the sale agreement should be a registered agreement to sale. In the absence of the same, there was no transfer under the Income-tax Act by the land owner in favour of the buyer and hence, there was no liability to capital gains tax.

UNREGISTERED JDA

In the case of CIT vs. Balbir Singh Maini, [2017] 86 taxmann.com 94 (SC),the Supreme Court considered whether capital gains arose to the land owner by executing an unregistered joint development agreement (JDA). The Court negated this argument and analysed the provisions of s. 2(47) of the Income-tax Act along with s.53A of the Transfer of Property Act. It held that it was well-settled law that the protection provided under Section 53A was only a shield, and could only be resorted to as a right of defence. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. The Court held that this position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words “the contract, though required to be registered, has not been registered, or” in Section 53A of the 1882 Act were omitted. Simultaneously, Sections 17 and 49 of the 1908 Act were amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of the 1882 Act) was registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument.

The Supreme Court held that the effect of the aforesaid amendment was that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA, was not registered, then it had no effect in law for the purposes of Section 53A. In short, there was no agreement in the eyes of law which could be enforced under Section 53A of the Transfer of Property Act. Thus, in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act showed that in the eyes of the law, there was no contract which could be taken cognizance of, for the purpose specified in Section 53A. Hence, it concluded that there was no contract in the eyes of law in force under Section 53A after 2001 unless the said contract was registered. This being the case, and it being clear that the said JDA was never registered, since the JDA had no efficacy in the eyes of the law, no “transfer” under the Income-tax Act could be said to have taken place under the JDA.

POSITION UNDER MAHARASHTRA STAMP ACT

It may be noted that even though the legal position is as stated above, the Maharashtra Stamp Act, 1958 has amended the definition of conveyance in Article 25 of Schedule I to the Stamp Act. It provides that in the case of an agreement to sell immovable property, where the possession of any immovable property was transferred or agreed to be transferred to the purchaser before the execution, or at the time of execution, or after the execution of, such agreement, then such Agreement to Sell is deemed to be a conveyance, and stamp duty thereon shall be leviable accordingly. Hence, the net effect of this is that in the State of Maharashtra, an Agreement to Sell is stamped as if it were a conveyance.

Based on this feature in the Stamp Act, a question arose whether such an agreement changed the legal position in Maharashtra. The Bombay High Court in Naginbhai P. Desai vs. Taraben A. Sheth, 2003 AIR(Bom.) 192 answered the question in the negative. The Court held that Section 54 of the Transfer of Property Act specifically provided that an Agreement for Sale by itself did not create any interest in or charge on the property agreed to be sold. There was no transfer of any interest in the property. The fiction created by Explanation I to Article 25 of the Bombay Stamp Act by which the agreement for sale was to be treated conveyance was limited only for the purposes of the Stamp Act and for no other purpose.

USE FOR COLLATERAL PURPOSES

The Supreme Court in K.B. Saha and Sons P Ltd vs. Development Consultant Ltd, (2008) 8 SCC 564 has laid down how an unregistered document can be considered for collateral purposes. It could be used as evidence of collateral purpose as provided in s. 49 of the Registration Act. A collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration. A collateral transaction must be a transaction, not itself required to be effected by a registered document, that is, a transaction creating, etc. any right, title or interest in immovable property.

In M/s Paul Rubber Industries P Ltd vs. Amit Chand Mitra, CA No. 1598/2023,the Supreme Court held that the determination of the nature and character of a lease could not be treated as collateral under an unregistered lease deed since that constituted the primary dispute and hence the Court was excluded by law from examining the unregistered deed for that purpose.

It has been held in Ameer Minhaj vs. Dierdre Elizabeth (Wright) Issar,(2018) 7 SCC 639, that a contract to transfer the right, title or interest in an immovable property for consideration is required to be registered if the party wants to rely on the same for the purposes of Section 53A of the Transfer of Property Act to protect its possession over the stated property. However, when an unregistered sale deed is tendered in evidence, not as evidence of a completed sale, but as proof of an oral agreement of sale, then such a deed can be received as evidence. However, an endorsement needs to be made that it is received only as evidence of an oral agreement of sale. The Court held that the document is received as evidence of a contract in a suit for specific performance and nothing more.

In Balram Singh vs. Kelo Devi, CA 6733/2022, the Supreme Court was considering a question of the use of an unregistered Agreement to Sale for collateral purposes. It had to decide whether a decree for a permanent injunction could be passed on the basis of such an agreement which restrained the defendant from interfering with her possession. The Court held that such an unregistered document / agreement to sell was not admissible as evidence. The Supreme Court disallowed the permanent injunction. It held that being conscious of the fact that the plaintiff might not succeed in getting the relief of specific performance for such an unregistered Agreement to Sale, the plaintiff filed a simple suit for permanent injunction. While it was true that in a given case, an unregistered document could be used and/or considered for collateral purposes, but the plaintiff could not get the relief indirectly which otherwise he cannot get in a suit for substantive relief, namely, the relief for specific performance. Therefore, the Court held that the plaintiff could not get the relief even for a permanent injunction on the basis of such an unregistered document / agreement to sell.

It appears that this decision of Balram Singh is somewhat of a variance to the above-mentioned decision in the case of Ameer Minhaj. In Ameer Minhaj’s case, the Court allowed an unregistered contract as evidence in a suit for specific performance whereas in this case, the Court made an observation that the plaintiff would not succeed in getting the relief of specific performance for such an unregistered contract.

EPILOGUE

As would be evident from the above discussion, an unregistered document offers very little protection. Registering a document offers a “notice to the entire world” regarding the execution of the document. Registration also leads to revenue in the form of stamp duty and helps curb undervalued transactions in immovable properties.