BCAJ | Bombay Chartered Accountant Journal

Article 8 of India-Mauritius DTAA – Shipping Company is not entitled to benefit under Article 8 if its place of effective management is located in a third country; on facts, booking agent did not constitute DAPE.

4. [2025] 172 taxmann.com 857 (Mumbai – Trib.)

DCIT (IT) vs. Bay Lines (Mauritius)

IT Appeal Nos. 4858 and 4859 (Mum.) of 2018

CO Nos. 185 and 186 (Mum.) OF 2019

A.Y.: 2013-14 & 2024-15 Dated: 28^th March, 2025

Article 8 of India-Mauritius DTAA – Shipping Company is not entitled to benefit under Article 8 if its place of effective management is located in a third country; on facts, booking agent did not constitute DAPE.

FACTS

The Assessee was a shipping company incorporated in Mauritius. Mauritius Tax Authorities had issued a tax residency certificate to the Assessee. The Assessee contended that the freight income received by it was exempt from tax in India under Article 8 of India-Mauritius treaty. The AO observed that the Place of Effective Management (‘POEM’) of the Assessee was in UAE (i.e. neither in Mauritius nor in India). Hence, the Assessee did not qualify for benefit under Article 8. Accordingly, the AO held that such income would be subject to provisions of Article 7 of India-Mauritius DTAA. The AO further observed that the booking agent in India habitually concluded contracts on behalf of the Assessee. Hence, it constituted a dependent agent PE (“DAPE”) of the Assessee. Accordingly, the AO held that the shipping income was taxable in India in terms of Article 7 of India-Mauritius DTAA.
In appeal, while upholding the contention of the AO that the shipping income earned by the Assessee was not covered by Article 8 of India-Mauritius DTAA, the CIT(A) held that the booking agent in India was an independent agent and as it did not conclude contracts in India on behalf of the Assessee, nor did it maintain stock of goods in India on behalf of the Assessee. Accordingly, the agent did not constitute DAPE of the Assessee in India.

Aggrieved by the order of CIT(A), both the revenue and the Assessee preferred an appeal to the ITAT.

HELD

As per Article 8(1) of India-Mauritius DTAA, profits of a shipping company from the operation of ships in international traffic is taxable in the contracting state where the POEM of the company is situated.

Since the Assessee had not pressed the issue of location of POEM, on basis of the findings of the ITAT in the Assessee’s own case, it concluded that the POEM of the Assessee was in UAE. As the POEM of the Assessee was neither in Mauritius nor in India, the ITAT held that the Assessee did not qualify for benefit under Article 8(1) of India-Mauritius DTAA.

The ITAT further held that the booking agent did not constitute DAPE of the Assessee in India for the following reasons:

The activities of the booking agent were limited to accepting bookings on behalf of the Assessee. The booking agent did not conclude contracts on behalf of the Assessee in India. The AO had not provided any evidence in support of the contention that the booking agent had concluded contracts in India on behalf of the Assessee.
The booking agent was an agent of independent status since the revenue derived from booking services for the Assessee constituted only 25% of its revenue from all operations.

Therefore, the ITAT held that in absence of a PE in India of the Assessee, its freight income was not taxable in India.

Note: It may be noted that despite concluding that the POEM of Mauritius company was in UAE, the ITAT did not clarify why it could be considered to be resident in Mauritius? The ITAT also did not clarify whether the Assessee could qualify for benefit, if any, under India-UAE DTAA.

BCAJ Admin

Article 13 of India-Singapore DTAA – Short Term Capital Gains from transfer of mutual funds is taxable under Article 13(5) of DTAA, and taxing right vests only with State of Residence.

3. [2025] 173 taxmann.com 570 (Mumbai – Trib.)

Anushka Sanjay Shah vs. ITO (IT)

IT (IT) A NO.174 (MUM) OF 2025

A.Y.: 2022-23 Dated: 26^th March, 2025

Article 13 of India-Singapore DTAA – Short Term Capital Gains from transfer of mutual funds is taxable under Article 13(5) of DTAA, and taxing right vests only with State of Residence.

FACTS

The Assessee is a non-resident Indian and a tax resident of Singapore. During the relevant AY, the Assessee had earned short-term capital gain from sale of debt-oriented and equity-oriented mutual funds, amounting to ₹0.89 Crores and 0.47 Crores, respectively. The Assessee had contended that she was a tax resident of Singapore. Hence, she qualified for benefits under Article 13(5) of India-Singapore DTAA and therefore, only Singapore had taxing rights on such gain.

The AO held that gains from transfer of mutual funds were taxable in India and denied benefit under Article 13(5) of DTAA. The DRP held that units of mutual funds derive substantial value from assets located in India, therefore, such gains are taxable in India.

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

HELD

The ITAT relied on the coordinate bench ruling in DCIT vs. K.E. Faizal [2019] 178 ITD 383 (Cochin – Trib.), wherein the ITAT dealt with the meaning of the term ‘shares’ in the context of India-UAE DTAA. Article 13(4) of UAE provides taxing rights to India in respect of gains from transfer of shares and in case of other property, the taxing rights vested with state of residence.

Further, the ITAT relied on the following aspects that were dealt with by the Coordinated bench:

The ITAT applied Article 3(2) of DTAA, section 90(3) of the Act, and definition of ‘share’ as per Section 2(84) of Companies Act. It noted that shares mean a share in company’s capital and include stock.
The term ‘company’ means a company incorporated under the Companies Act, 2013 or under previous law. As per SEBI Mutual Fund Regulations 1995, a mutual fund in India can be established only in the form of a trust and not as company. Hence, units of mutual funds cannot be regarded as shares.
As per Securities Contract Regulation Act, 1956, the term ‘Securities’ includes shares, scrips, stocks….and unit or any other instrument issued to investors under any mutual fund scheme. The definition categorically provides that shares and units are two different classes of securities. Therefore, units of mutual funds cannot be regarded as shares.

Following the ratio of the decision of the coordinate bench, the ITAT held that under the residuary clause in Article 13(5) of India-Singapore DTAA, short-term capital gains on sale of mutual funds shall be taxable only in Singapore.

BCAJ Admin

S. 271(1)(c) – Where the AO did not specify in the penalty notice the limb of section 271(1)(c) under which penalty had been initiated, such notice was ambiguous and void ab initio and all subsequent proceedings became nullity in the eyes of law.

19. (2025) 174 taxmann.com 59 (Raipur Trib)

Nilima Agrawal vs. ITO

ITA No.: 126 (Rpr) of 2025

A.Y.: 2015-16 Dated: 24 April 2025

S. 271(1)(c) – Where the AO did not specify in the penalty notice the limb of section 271(1)(c) under which penalty had been initiated, such notice was ambiguous and void ab initio and all subsequent proceedings became nullity in the eyes of law.

FACTS

The AO issued penalty notice under section 274 read with section 271(1)(c) where the notice referred to both the limbs under section 271(1)(c), that is, concealed the particulars of income and furnished inaccurate particulars of income. The AO had not struck off the inappropriate limb.

CIT(A) / NFAC upheld the penalty order.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) The legal parameters that have been set forth by the judicial pronouncements is that through the penalty proceedings initiated against the assessee, he is put to pecuniary burden. Accordingly, it is essential from the aspect of natural justice that he should be made aware of the charges for which penalty is levied against him so that he can be ready with his defense.

(b) The bedrock of any judicial system is based on ultimate epitome of natural justice. This cannot be eroded by any process of law until and unless fraud is detected or malafide conduct is detected on the part of the assessee.

(c) In the present case, the ambiguity that was existing in the notice issued under section 274 read with section 271(1) (c) hampered the rights of the assessee from the perspective of natural justice. There was no evidence placed on record by the revenue to suggest any malafide conduct on the part of the assessee. Therefore, at the threshold, the parameters of the penalty notice had to be decided and as per the principles laid down by the Courts, before issuance of penalty notice, the A.O was required to apply his mind to the material on record and specify clearly to the assessee what is being put against him. In other words, which limb of Section 271(1)(c) was attracted in the given facts and circumstances of the case must be specified in the notice which is sent to the assessee.

The Tribunal held that since in the penalty notice was ambiguous where both the limbs were clubbed together, such notice itself was void ab initio, and therefore, all the subsequent proceedings became a nullity in the eyes of law. Thus, it held that the order of the CIT(Appeals)/NFAC itself became non-est.

Accordingly, the appeal of the assessee was allowed.

BCAJ Admin

S. 12AB – Where objects of assessee-trust were for benefit of residents and members of a specific society and were not meant for public at large, assessee-trust was not entitled to registration under section 12AB.

18. (2025) 173 taxmann.com 744 (Ahd Trib)

Dwarika Greens Foundation vs. CIT(E)

ITA No.: 1812 (Ahd) of 2024

A.Y.: N.A. Dated: 17 April 2025

S. 12AB – Where objects of assessee-trust were for benefit of residents and members of a specific society and were not meant for public at large, assessee-trust was not entitled to registration under section 12AB.

FACTS

The assessee-trust was registered under the Bombay Public Trusts Act on 23.06.2020. It filed an application in Form 10AB for registration under section 12AB.

During the registration proceedings, CIT(E) observed that the objects of the Trust were for the benefit of the residents of the Dwarika Green Society and its members and are not for the benefit of the public at large and therefore, he denied registration under section 12AB to the assessee.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) Perusal of clause (d) to Explanation of Section 12AB(4) clearly lays down that registration of the trust or institution established for charitable purpose created or established after the commencement of the Act, wherein the trust has applied any part of its income for the benefit of any particular religious community or caste can be cancelled. In this context perusal of the main objects of the assessee made it abundantly clear that all the objects enumerated therein were related to members of the Dwarika Green Society which was a specific violation under clauses (c) and (d) to Explanation to Section 12AB(4).

(b) CIT (E) had considered the provisions of section 13(1)(b), which was applicable only in a case of charitable trust or institution created or established after commencement of the Act and only for the benefit of the residents of the Dwarika Green Society and its members and thereby denied the registration, which was well within the provision of amended section 12AB.

Thus, the Tribunal held that since the objects of the assessee-trust which was meant only for the residents and members of the society and not for public at large, there was no infirmity in the order passed by CIT(E).

Accordingly, the appeal of the assessee was dismissed.

BCAJ Admin

S. 194IA – Even though the transferee’s share in the sale transaction exceeded the threshold, where the amount paid to each seller / transferor was below ₹50,00,000, the assessee was not required to deduct tax under section 194IA.

17. (2025) 173 taxmann.com 772 (Ahd Trib)

Archanaben Rajendrasingh Deval vs. ITO

ITA No.: 1465 (Ahd) of 2024

A.Y.: 2015-16 Dated: 2 April 2025

S. 194IA – Even though the transferee’s share in the sale transaction exceeded the threshold, where the amount paid to each seller / transferor was below ₹50,00,000, the assessee was not required to deduct tax under section 194IA.

FACTS

The assessee, along with co-owner, purchased agricultural land for a total consideration of ₹1,23,67,360, and her share in the said transaction was ₹53,67,360, which was paid in two parts to two separate sellers – ₹21,83,680 and ₹31,83,680 respectively. She did not deduct TDS on the said payments contending that the payment to each seller was below ₹50,00,000.

The AO invoked the provisions of section 194IA and held the assessee to be an assessee-in-default under section 201(1) for non-deduction of TDS and levied consequential interest under section 201(1A).

CIT(A) affirmed the action of the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal found merit in the submission of the assessee that the amendment made by way of insertion of a proviso to section 194IA(2), by the Finance (No. 2) Act, 2024 with effect from 1.10.2024, was not applicable to the present year under appeal (AY 2015-16).

Following Bhikhabhai H. Patel vs. DCIT (ITA No. 1680/Ahd/2018, order dated 31.01.2020) and Vinod Soni vs. ITO (ITA No. 2736/Del/2015, order dated 10.12.2018), the Tribunal held that since the assessee had paid ₹21,83,680 to one seller and ₹31,83,680 to another seller, both of which were individually below ₹50,00,000, the provisions of section 194IA were not attracted and therefore, the assessee could not have been held to be an assessee-in-default under section 201(1).

Accordingly, the appeal of the assessee was allowed.

BCAJ Admin

Payment of consideration, pursuant to an unregistered agreement, towards interior fit out costs claimed as cost of improvement, entered into prior to receiving possession of the property held to be allowable.

16. Shivani Bhasin Sachdeva vs. Assessment Unit

ITA No. 3218/Mum./2024

A.Y.: 2021-22 Date of Order: 21 January 2025

Section : 48

Payment of consideration, pursuant to an unregistered agreement, towards interior fit out costs claimed as cost of improvement, entered into prior to receiving possession of the property held to be allowable.

FACTS

The assessee, in the return of income filed, returned capital gains on sale of immovable property for a consideration of ₹15.21 crore and while computing capital gains arising from sale thereof had claimed deduction of cost of acquisition of ₹9.96 crore and ₹2.47 crore as cost of improvement. The assessee was asked to furnish details of cost of improvement claimed in respect of the property sold along with evidences.

From the response furnished by the assessee, the Assessing Officer (AO) noticed that assessee had purchased a flat on 27.12.2017 which was booked in October 2009. On 31.5.2010, the assessee had entered into an agreement with DLF Hotel and Apartment Pvt. Ltd. to carry out improvement. The AO was of the opinion that since the property was purchased on 27.12.2017 it was not possible to have made improvements without having owned the property. He also remarked that the agreement dated 31.5.2010 is an unregistered agreement. The AO, believing that improvement cannot happen before purchase disallowed the claim of ₹2.47 crore made by the assessee towards cost of improvement.

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

Aggrieved, assessee preferred an appeal to the Tribunal where it was contended that the payments made pursuant to agreement dated 31.5.2010 was for civil and electrical work as the flat was purchased “khokha”. After receiving occupancy certificate, civil and electrical work was completed on 29.3.2014 and letter of possession was given on 31.3.2014. The assessee leased the flat w.e.f. 25.6.2014 and sold it vide agreement for sale of flat dated 4.11.2020. The assumption of the AO that assessee could not have spent cost of improvement before taking ownership of the flat is against the facts of the case.

HELD

The Tribunal noted that the entire quarrel revolves around the fact that the assessee had purchased the flat on 27.12.2017, therefore, the assessee could not have spent cost of improvement paid to DLF Hotels and Apartments Pvt. Ltd. as per agreement dated 31.5.2010. The Tribunal noted the relevant clauses of the said agreement dated 31.5.2010 which provided detailed particulars of the fit-out work to be carried out under the said Agreement. It was pursuant to the said Agreement that the payments were made by the assessee and the AO has not disputed them.

The Tribunal held that after completion of the fit-out work which is now integral part of the apartment, letter of possession was received on 31.3.2014. Immediately after having received possession, flat was leased. These demonstrative evidences, according to the Tribunal, demolish the view taken by the AO that the assessee could not have incurred cost of improvement prior to 27.12.2017.

The Tribunal set aside the findings of the CIT(A) and directed the AO to allow cost of improvement as claimed by the assessee.

BCAJ Admin

Property received by assessee from his step-sister is not taxable under section 56(2)(vii). Receipt of property from step-sister qualifies as a receipt from a relative viz. sister.

15. Rabin Arup Mukerjea vs. ITO, International Tax

ITA No. 588/Mum./2024

A.Y.: 2016-17 Date of Order: 21 March 2025

Section : 56(2)(vii)

Property received by assessee from his step-sister is not taxable under section 56(2)(vii). Receipt of property from step-sister qualifies as a receipt from a relative viz. sister.

FACTS

The assessee, a non-resident individual, did not have any source of income in India and was therefore not filing return of income. In January 2021, he made an application under section 197 for grant of certificate authorising the payer to deduct tax on sale of his property at a lower rate. The property being sold by the assessee was received by him as a gift from Ms. Vidhie Mukerjea vide a Registered Deed of Gift dated 21.1.2016.

The Assessing Officer (AO) was of the view that the receipt of property was not from a relative and therefore should have been taxed under section 56(2)(vii) and therefore he recorded reasons and reopened the assessment for assessment year 2016-17.

The AO in his order disposing objections raised by the assessee to reopening the assessment rejected the contention of the assessee that the step-brother and step-sister are covered within the ambit of the definition of the expression “relative” provided in clause (e) of the Explanation to section 56(2)(vii) of the Act. He held that step-brother and step-sister cannot be treated as relatives. The AO drew a pictorial tree of the members in the family.

The AO holding that the receipt of property from step-sister does not qualify as a receipt from a relative, taxed ₹7,50,68,525 under section 56(2)(vii) of the Act.

Aggrieved, assessee preferred an appeal to CIT(A) who confirmed the action of the AO and held that the definition stated in section 56(2) is to be interpreted keeping the blood relationship, lineal ascendant and lineal descendant and hence no further meaning could be ascribed to this term.

Aggrieved, assessee preferred an appeal to the Tribunal where it cited various provisions of different Acts to canvass that `step’ child has been recognised in various Acts e.g. section 2(15B) of the Income-tax Act, 1961, section 45S of the Reserve Bank of India Act, 1934 and section 2(77) of the Companies Act, 2013.

HELD

The Tribunal noted that Ms. Vidhie is daughter of Ms. Indrani Mukerjea from her husband Mr. Sanjeev Khanna whereas Mr. Rabin Mukerjea is first son of Mr. Peter Mukerjea with his first wife Mrs. Shabnam Singh. After the marriage of Ms. Indrani Mukerjea with Mr. Peter Mukerjea, Ms. Vidhie Mukerjea and Mr. Rabin Mukerjea became step-sister and step-brother due to alliance of marriage between their respective parents.

The Tribunal having noted the definition of the expression “relative” in clause (e) to the Explanation to section 56(2)(vii), observed that ergo, the Act uses the word `brother and sister of an individual’, in common parlance, there are 5 kinds of brother and sister relations.

The Tribunal considered the meaning of the term “relative” as given in Black’s Law Dictionary and also the meaning of the term “affinity” as explained in various dictionaries.

It held that as per the Dictionary meaning of the term “relative”, it includes a person related by affinity, which means the connection existing in consequence of marriage between each of the married persons and the kindred of the other. If the aforesaid Dictionary meaning is to be referred and relied upon, then the term ‘relative’ would include step-brother and step-sister by affinity. If the term `brother and sister of the individual’ has not been defined under the Act, then the meaning defined in common law has to be adopted and in the absence of any other negative covenant under the Act, it held that brother and sister should also include step-brother and step-sister who by virtue of marriage of their parents have become brother and sister.

The Tribunal held that the property received by the assessee from his step-sister being received from a relative is not taxable under section 56(2)(vii) of the Act.

BCAJ Admin

Section 50 applies only if the asset qualifies for inclusion in block of assets and therefore for grant of depreciation. Accordingly, section 50 was held not to apply to gains on transfer of trademarks since they were acquired by the assessee before the amendment by Finance (No. 2) Act, 1998 providing for inclusion of intangible assets in block and grant of depreciation thereon.

14. TS – 131 – ITAT – 2025 (Mum.)

Johnson & Johnson Pvt. Ltd. vs. DCIT

A.Y.: 2011-12 Date of Order: 10 February 2025

Sections : 2(11), 32, 50

Section 50 applies only if the asset qualifies for inclusion in block of assets and therefore for grant of depreciation. Accordingly, section 50 was held not to apply to gains on transfer of trademarks since they were acquired by the assessee before the amendment by Finance (No. 2) Act, 1998 providing for inclusion of intangible assets in block and grant of depreciation thereon.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee, engaged in the business of manufacturing and sale of pharmaceutical formulation, sold two trade marks “Coldarin” and “Raricap”. Gains arising on transfer of these trademarks were offered for taxation under the head “Capital gains” as long-term capital gains. The Assessing Officer (AO) issued show cause notice asking the assessee to explain why the gains were offered as “long-term” and not as “short-term”. In response, the assessee submitted that the trademark “Coldarin” was acquired on 16.3.1998 and the trademark “Raricap” was acquired on 29.7.1992. It was submitted that since both these trademarks were acquired before 1.4.1998, they did not qualify for depreciation under section 32(1)(ii) of the Act. Therefore, the provisions of section 50 did not apply and consequently the gains were offered for taxation as “long-term capital gains”.

The AO held that allowance granted to absorb such expenditure is depreciation and nothing else. Nomenclature used by the assessee does not change the character of the allowance. Accordingly, he held that capital gains accruing on transfer of both trademarks fell within ambit of section 50 of the Act as The assessee availed depreciation in respect of cost of acquisition of these trademarks.

Aggrieved, assessee preferred an appeal to the CIT(A) who dismissed the same.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal noted that in line with the accounting policy followed by the assessee the cost of trademark was charged by the assessee to the profit & loss account for financial year 1992-93 and similar treatment was given in computation of total income for AY 1993-94 and entire cost of trademark “Raricap” was claimed as deduction. As regards cost of trademark “Coldarin”, the same was claimed in Profit & Loss Account over a period of seven years in equal instalments. However, for tax purposes the cost so charged to P & L Account was disallowed and added back to taxable income but deduction was claimed under section 35AB in 6 equal instalments from AY 1998-99 to AY 2003-04.

The revenue contended that since the cost of trademarks was amortised, the allowance granted to absorb such expenditure is depreciation and the nomenclature does not change the real character of the allowance. Therefore, the capital gains accruing to the assessee squarely fall within the ambit of section 50 of the Act. The assessee contended that it is only intangible assets acquired on or after 1.4.1998 which qualified for inclusion in block of assets and claim of depreciation. Since the two trademarks sold were acquired prior to 1.4.1998, the same did not form part of block of assets in respect of which depreciation has been allowed. Therefore, the provisions of section 50 do not have any application to the facts of the present case. Both the trademarks having been held for a period of more than 3 years before their transfer, gain arising on transfer thereof has rightly been offered for taxation as “long-term capital gain”.

The Tribunal noted that the intent of section 50 is clear from its heading as well viz. that it provides for procedure for computation of capital gains in case of transfer of capital assets which form part of the block of assets and in respect of which depreciation has been allowed under the Act.

The Tribunal having noted the provisions of sections 2(11), 32 and 50 and also the Explanatory Memorandum to Finance (No. 2) Bill, 1998 concluded that depreciation is granted on intangible assets acquired on or after 1.4.1998. The expression “block of assets” includes intangible assets within its ambit only w.e.f. 1.4.1999. Prior thereto there was no provision in the Act for inclusion of intangible assets into the block of assets. The Tribunal held that provisions of section 50 did not have applicability to the facts of the present case. It quashed the findings of the lower authorities and upheld the action of the assessee in treating the capital gains to be “long-term”.

BCAJ Admin

Disallowance in respect of interest expenditure, attributable to interest free advances, under section 36(1)(iii), is unsustainable when commercial expediency in transaction is substantiated.

13. TS-53-ITAT-2025 (Mum.)

ACIT vs. T Bhimjiyani Realty Pvt. Ltd.

A.Y.: 2018-19 Date of Order: 25 January 2025

Section: 36(1)(iii)

Disallowance in respect of interest expenditure, attributable to interest free advances, under section 36(1)(iii), is unsustainable when commercial expediency in transaction is substantiated.

FACTS

The assessee company, engaged in real estate business was developing a residential project at Thane. During the course of assessment proceedings, the Assessing Officer (AO) noticed that assessee had borrowed funds and was paying interest on such borrowings. It had also given interest free advances to various persons. Accordingly, the AO disallowed ₹16.98 crore being interest expenditure attributable to interest free advances.

Aggrieved, assessee preferred an appeal to CIT(A) who allowed this ground of appeal.

Aggrieved, revenue preferred an appeal to the Tribunal where the assessee, apart from supporting the legal principles followed by CIT(A), relying on the ratio of the following decisions, also argued that the advances were made in earlier years and in those years the AO did not make a disallowance, therefore no disallowance is called for in the year under consideration.

i) ITO vs. Abhinand Investment Ltd. [ITA No. 982/Kol./2016; Order dated 7.2.2018];

ii) CIT vs. Sridev Enterprises [192 ITR 165 (Kar.)];

iii) Virendar R Gandhi vs. ACIT [Tax Appeal No. 20 of 2004 and 124 of 2005 dated 27.11.2014].

HELD

The Tribunal noticed that the AO took a view that the assessee should have charged interest on advances given by it. It also noted that CIT(A) has followed 2 legal principles – first being examination of existence of commercial expediency in the transaction. It noted that the ratio of the decision of the Supreme Court in S A Builders vs. CIT [288 ITR 1 (SC)] is to examine if there is “commercial expediency” in giving of an interest free advance. If there exists “commercial expediency” then the same cannot be considered as diversion of interest bearing funds, since the same is for the purpose of business and under section 36(1)(iii) interest on capital borrowed for the purposes of business is allowable as deduction. The second legal principle which was followed by CIT(A) was, the ratio of the decision of the Bombay High Court in Reliance Utilities and Power Ltd. [313 ITR 340 (Bom.)], that if an assessee has both interest bearing funds as also interest free funds then the presumption is that the investment has first been made out of interest free funds. In that case disallowance of interest under section 36(1)(iii) shall not arise.

The Tribunal noted that each of the interest free advances were given pursuant to MOUs which were entered into by the assessee company in the course of carrying on of its business and for the purpose of business. It observed that the advances have been made in connection with business ventures with expectation of profits from the deal that will be entered by the respective parties. Since advances were made in the course of business with an expectation to earn share of profits from the deal, the CIT(A) held that the advances were made out of commercial expediency. It also noted that the advances were given in earlier years and AO did not make any disallowance in those years.

The Tribunal held that THE CIT(A) was justified in deleting the disallowance made by AO.

BCAJ Admin

Learning Events at BCAS

1. “Blood Donation & Platelet Donation Awareness Drive” on 16^th May, 2025

On Friday, 16^th May, 2025, the BCAS Foundation, jointly with the Seminar, Membership & Public Relations Committee of BCAS, held the annual “Blood Donation Drive”, enlisting the support of Tata Memorial Hospital (TMH).

Doctors and technicians from TMH screened 74 potential donors through the detailed questionnaire filled in by them. Contrary to popular belief, patients diagnosed with cholesterol, thyroid, blood pressure issues could also donate blood, provided they met certain criteria. 54 units of blood were collected from eligible donors, which included the President, Chairman of the SMPR committee, BCAS members and staff.

To create awareness and dispel the myths about platelet donation, a “Platelet Donation Awareness Drive” was also held with donors giving blood sample for the platelet donation eligibility check.

For their invaluable contribution, each blood donor was presented a “Life Saver” medal, the BCAS Calendar and a BCAS publication from the Book Mela which was held on the same day

2. International Economics Study Group – Operation Sindoor, Ceasefire or Surrender? What Comes After the Silence & Beyond the Battlefield: The Economic Repercussions of India’s Stand-off held on Monday, 12^th May, 2025 @ Virtual

In the meeting, CA Harshad Shah and CA Vijay Maniar presented the following points. Operation Sindoor, named to honour women widowed in the Pahalgam terror attack, marked a paradigm shift in India’s military strategy by challenging Pakistan’s assumption that nuclear threats deter conventional responses. Its objectives included disrupting terrorist infrastructure, preventing future attacks, and establishing a deterrence doctrine equating terrorism with conventional aggression. In 88 hours, India neutralised 9 terror infrastructures and 11 Pakistani airbases with precision strikes using BrahMos, HAMMER, and SCALP missiles while dismantling Pakistan’s air defences. The Indian Integrated Defense System (S-400, Akash platforms, anti-aircraft guns, fighter jets and electronic warfare system) successfully intercepted missile and drone attacks, showcasing cutting-edge technology. Strikes on strategic sites like Kirana Hills and Nur Khan Airbase crippled Pakistan’s nuclear command centres. Operation Sindoor delivered a psychological and tactical blow, signalling zero tolerance for terrorism and elevating India’s defence capabilities. Pakistan’s halt to hostilities under U.S. pressure highlighted its vulnerability. Key outcomes included bolstering India’s resilience, leveraging non-kinetic tools like Indus Waters Treaty suspension, and redefining counter-terrorism norms globally.

3. Indirect Tax Laws Study Circle Meeting on “GST on Societies, Trusts, Charitable Institutions, etc.” held on Monday, 5^th May, 2025 @ Virtual

Group leader, CA Mohit Gupta prepared and presented various case studies on GST on Societies, Trusts, Charitable Institutions, etc.

The presentation covered the following aspects for detailed discussion:

Concept of Clubs, Society, Members, Trust, etc.
Supplies by Resident Welfare Association (RWA), Different charges collected by RWA, Clubs.
Activities undertaken by Trusts, CSR Donation received by Trusts.
Taxability of different charges paid to RWA and Clubs.

Around 75 participants from all over India benefitted while taking an active part in the discussion. Participants appreciated the efforts of the group leader & group mentor.

4. Lecture Meeting on Fund Raising Opportunities through GIFT IFSC

Group leader CA. Nihar Dharod, prepared case studies covering various contentious issues around refunds under GST in consultation with Group Mentor Adv Keval Shah, Mumbai.

The Bombay Chartered Accountants’ Society (BCAS) hosted a lecture meeting detailing fundraising opportunities through GIFT IFSC (Gujarat International Finance Tec-City International Financial Services Centre) on 30th April, 2025. Speakers from the IFSCA, India International Exchange (India INX), and a legal firm discussed the regulatory framework, tax benefits, and strategic advantages for Indian and foreign companies seeking capital.

Arjun Prasad (GM, IFSCA) delivered a Keynote address and explained that the IFSCA acts as the unified regulator for GIFT City’s SEZ, streamlining regulations. He highlighted that GIFT City SEZ is treated as foreign jurisdiction under FEMA, enabling unrestricted capital flows and treating flows to domestic India as foreign investments. GIFT City has experienced substantial growth, with a significant increase in entities, banking assets, funds, and exchange turnover, aiming to compete with global financial hubs.

Riddhi Vora (Head of Listing, India INX) discussed India INX’s role as the first international exchange in GIFT IFSC, aiming to establish Gift City as a global price setter. Recent regulatory changes now permit direct equity listings for Indian companies on IFSC exchanges without mandatory prior domestic listing, facilitating capital raising from both resident and non-resident investors. IFSC listing regulations are designed to be less stringent than domestic ones, with lower minimum public shareholding requirements and flexible issue periods. India INX also promotes Green/ESG bond listings.

Ketki Gor Mehta shared that the IFSC within GIFT City’s SEZ functions as India’s offshore platform and transactions occur in freely convertible foreign currencies. While subject to Indian laws, IFSC entities enjoy specific tax exemptions and fiscal benefits. Beyond equity and debt, the IFSC supports ECBs and a growing fund management market, with advantages in specialized sectors like aircraft and ship leasing.

Vishal Yaduvanshi discussed recent regulatory changes that have created a robust framework for various entities to raise funds on IFSC exchanges through diverse instruments, including equity, debt, REITs, and InvITs. A key attraction is that FATF-compliant foreign companies can undertake fundraising without redomiciling to India. Generating liquidity is crucial for IFSC exchanges to attract more listings and investors.

Speakers responded satisfactorily to the queries raised by the participants. More than 200 participants attended the Lecture Meeting.

Youtube Link: https://www.youtube.com/watch?v=8yh3VNNfEvs

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5. ITF Study Circle Meeting on “Provisions of the New Income Tax Bill 2025 related to International Tax – Part 1” held on Tuesday, 29^th April, 2025 @Zoom

Group Leaders – CA Nemin Shah and CA Hansh Gangar

Decode the New Income Tax Bill, 2025 – International Tax Focus

Corresponding provisions of sections 6, 7 and 115A of the Income-tax Act, 1961 in the Income Tax Bill, 2025- Group Leader CA Nemin Shah

During the session, CA Nemin Shah started the discussion with general changes in the New Income Tax Bill, 2025 (ITB), such as changing the previous year and assessment year to tax year and replacement of provisos and explanations with sub-sections. The Group Leader discussed that broadly, except for the section numbering, there was no change in the language of the corresponding clauses to sections 6, 7 and 115A of the Income-tax Act, 1961(Act). The corresponding clauses in the ITB are sections 6, 7 and section 207. The Group Leader pointed out that in Explanation 1(a) of section 6 of the Act, the language ‘for the purpose of employment been changed to ‘for employment outside India ‘ in the corresponding clause in ITB clause 6(3)(b). The group discussed that this would result in a narrowing of the language. Another thought was whether it was just an attempt to simplify the language or something else. Further, the Group Leader went on to point out that the redundant sections in the Act were removed in the Bill.

Corresponding provisions of sections 9, 9A, 90 to 91of the Income-tax Act, 1961 in the Income Tax Bill, 2025 – Group Leader CA Hansh Gangar

CA Hansh Gangar started with the macro analysis of the changes in sections 9, 9A, 90 to 91. He pointed out that the provisions of business connection and Indirect Transfer were pushed behind in clause 9 of the ITB. Section 9A of the Act is now merged with clause 9 of ITB under clause 9(12). Further, eligibility conditions relating to business connections were listed in Schedule I. In the ITB, the term “for the purpose of” has been removed has been removed from many provisions. Further, provisions which are either redundant or have a sunset clause have also been removed. Provisions with single para with long explanations are now broken down into pointers. In the detailed comparative analysis, the Group Leader pointed out the changes in language, such as section 9(1)(ii) of the Act relating to Salaries has a language ‘…if it is earned in India’. This language has been removed from the ITB. He pointed out that in section 9(1)(vi)(b) of the Act relating to royalty, the restriction imposed by the term “any right, property or information used or services utilized” has been removed in the corresponding section 6(a)(ii) of ITB thereby widening the scope of royalty payments made for business outside India. The Group Leader also pointed out a typographical error in clause 6(a)(iii)(B) wherein the word ‘outside’ has been used. Further, in the definition of ‘royalty’ given in clause 6(b) of the ITB after the term ‘transfer’, the term ‘grant’ has also been inserted under ITB.

6. Direct Tax Laws Study Circle Meeting on Income-Tax Provision Applicable for FY 2025-26 held on Saturday, 26^th April, 2025 @Zoom

CA Avinash Rawani discussed important provisions of the Income Tax Act applicable for FY 2025-26:

i. New Tax Regime (Section 115BAC): Tax slabs have been revised, and the standard deduction under this regime has been increased from ₹50,000 to ₹75,000, effective 01.04.2025.

ii. Capital Gains Tax: Short-term capital gains (STCG) under Section 111A will be taxed at 20% (earlier 15%), and long-term capital gains (LTCG) under Section 112A will be taxed at 12.5% (earlier 10%) with indexation benefits withdrawn for post-23.07.2024 transactions.

iii. Business Income (Section 28): Rental income from residential properties held as stock-in-trade will now be taxed under “Income from House Property,” even if let out as part of the business.

iv. Start-up Incentives (Section 80-IAC): The eligibility period for start-ups to claim a 100% deduction of profits for three consecutive years has been extended to those incorporated before 01.04.2030.

v. Presumptive Taxation (Section 44BBC): Introduced for non-resident cruise ship operators, taxing 20% of gross receipts from passenger carriage.

vi. TDS and TCS Amendments: Numerous threshold limits have been increased across sections like 194A (interest) and 194 (dividends); new sections such as 194T introduced TDS on payments to partners in firms/LLPs.
vii. Form 3CD Reporting: Updated with new clauses to include presumptive income reporting, expenditure related to legal contraventions, MSME dues, and buy-back of shares compliance.

viii. Updated Return Filing (Section 139(8A)): Time limits extended up to 48 months post-A.Y. end, with corresponding increases in additional tax liability.

ix. Charitable Trusts: Registration validity for small trusts (income ≤ ₹5 Cr) was extended from 5 to 10 years, and procedural amendments were made for mergers and application errors.

x. Miscellaneous: Sunset clauses for IFSC tax concessions were extended to 31.03.2030, and numerous procedural and compliance changes (e.g., in reassessment, penalty provisions) were introduced.

The presentation was well received and appreciated by the participants.

7. Finance, Corporate and Allied Laws Study Circle – Overview of recent regulatory changes in Company Law & SEBI Listing Regulations and certain important ROC Adjudication Orders held on Thursday, 24^th April, 2025 @ Virtual

The Study Circle session on 24^th April, 2025, led by CS Gaurav Pingle, focused on recent changes in Company Law and, SEBI LODR Regulations and ROC / RD adjudication orders.

Key highlights on Company Law updates covered MCA’s launch of the e-Adjudication platform and CPC, CPACE to also undertake LLP strike-off, and facilitating changes in mobile/email of a DIN holder through DIR-3 KYC, ease of merger of a foreign holding company with its Indian WOS, extension of timelines for compulsory demat, LEAP rules for facilitating listing in IFSC, etc.

SEBI updates inter alia covered rumour verification, new norms for the appointment of secretarial auditors (brought in line with those applicable to statutory auditors), RPT exemptions, and changes in the procedure of reclassification of promoters.

The learned speaker deliberated on some Important ROC/ RD adjudication orders (relevant from CA’s perspective) on CSR lapses, delays in the appointment of internal auditors, private placement, etc.

The session was quite informative, giving an overview of the practical implications of the reforms as well as responding to all the queries raised by the participants.

8. FEMA Study Circle Meeting “Decoding FEMA Draft Regulations and Directions on Foreign Trade” held on Tuesday, 22^nd April, 2025 @Zoom.

Group Leader : CA Naziya Sayyed

Overview of Draft Regulations under FEMA:

• Examination of the key objectives behind the draft regulations and directions issued by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1999, focusing on modernisation, simplification, and alignment with current global trade practices.

Revised Framework for Import and Export Transactions:

• Discussion on the proposed changes in compliance procedures for cross-border trade, including timelines for realisation and repatriation of export proceeds and settlement of import payments.

Liberalisation vs. Control Mechanisms:

• Analysis of how the draft balances ease of doing business with necessary foreign exchange controls to safeguard India’s external sector stability.

Impact on Advance Payments and Deferred Payment Terms:

• Clarification of norms regarding advance remittances for imports and extended credit terms for exports, including risk mitigation measures suggested in the draft.

Directions on Third-Party Payments in Trade:

• Interpretation of the provisions regulating third-party payments in export/import transactions and their alignment with global banking practices.

Trade Credit Regulations:

• Review of updated norms for suppliers’ credit and buyers’ credit, including ceilings, maturity periods, and all-in-cost benchmarks.

Treatment of Merchanting Trade Transactions (MTT):

• Discussion on streamlined procedures and compliance requirements for merchanting trade, ensuring transparency and monitoring of such transactions under FEMA.

Penal Provisions and Non-Compliance Consequences:

• Overview of the enforcement mechanisms, penalties for contraventions, and the role of Authorized Dealers (AD Banks) in ensuring adherence to the directions.

Alignment with WTO and International Trade Norms:

• Evaluation of how the draft regulations harmonise India’s foreign exchange laws with international trade agreements and obligations.

Stakeholder Implications and Compliance Challenges:

• Identification of practical challenges for exporters, importers, banks, and consultants in adapting to the new regulatory environment and recommendations for ensuring a smooth transition once these drafts are finalised.

9. Full Day Seminar on “TDS and TCS Provisions – a 360° Perspective” held on Thursday, 17^th April, 2025 @ IMC.

Taxation Committee of the Bombay Chartered Accountants’ Society, in collaboration with the Indian Merchant Chamber of Commerce and Industry and the Chamber of Tax Consultants, organised a full-day seminar on “TDS and TCS Provisions – a 360° Perspective”.

The seminar commenced with a welcome address by office bearers of the organising institutions, followed by a keynote address by Shri Raj Tandon, Principal Chief Commissioner of Income Tax (Mumbai), who emphasised the government’s evolving approach toward compliance and streamlining of tax deduction and collection mechanisms.

Session 1 delved into critical issues under domestic TDS and TCS provisions, particularly Sections 194R, 194Q, 194D, 194J, and TCS on goods. The discussion focused on interpretational ambiguities, industry challenges, and compliance strategies. The session was moderated by CA Vikas Aggarwal, with panel insights from Ms. Vidhi Killa and CA Bhaumik Goda.

Session 2 dealt with enforcement-related aspects such as penalties, prosecutions, and compounding procedures under the TDS/TCS regime. It was chaired by Shri G.M. Doss, CCIT (TDS), Mumbai, who also delivered a keynote on departmental expectations and recent trends. The session was moderated by CA Mahendra Sanghvi and featured expert inputs from CA Rahul Verma and CA Jagdish Punjabi.

Session 3 addressed issues under Section 195 – TDS on payments to non-residents, including complexities involving Significant Economic Presence (SEP) and the Multilateral Instrument (MLI). The session began with a keynote by Smt. Malathi Sridharan, Principal CCIT (International Taxation & Transfer Pricing), West Zone, and was moderated by CA Sushil Lakhani, with panel contributions from Mr Vinod Tanwani (Pr. CIT, Mumbai), CA Sunil Choudhary and CA Ganesh Rajgopalan.

Session 4 focused on procedural and system-level issues, including TDS return filing errors, refund mismatches, credit issues, and lower deduction certificates. The discussion was moderated by CA Ameet Patel and featured participation from senior tax officers, including Mr Mudit Nagpal (CIT-TDS, Mumbai), Mr Sanjeev Kashyap (CIT-TDS), a representative from DGIT (Systems)/CPC, and CA Prayag Kinariwala.

The seminar concluded with closing remarks by Mr. Rajan Vora, Chairman Direct Taxation Committee, IMC. The event was highly appreciated for its expert-led, solution-oriented discussions and its 360° coverage of TDS and TCS provisions, offering valuable insights for both corporates and tax professionals.

10. CAMBA 2025 held on 11^th – 13th April, 2025 @ Atlas SkillTech University, Mumbai.

The Human Resource Development Committee of BCAS recently wrapped up an enriching and impactful event in collaboration with Atlas Skilltech University, Mumbai – CAMBA 2025. CAMBA 2025 was a 3-day course thoughtfully curated to cater to the evolving needs of Chartered Accountants across different stages of their careers.

This year, three specialised batches were conducted to maximize relevance and learning outcomes: below 35, below 35 (advanced) and above 35. Each batch featured content tailored to the specific professional journeys and aspirations of the participants, making CAMBA 2025 more focused and effective than ever before.

The program saw enthusiastic participation from 90+ Chartered Accountants representing almost 20 cities across India, bringing together a vibrant and diverse group of professionals.

A standout element of the course was the Speed Mentoring session, which allowed participants to engage directly with experienced leaders from the profession. This interactive session was particularly well-received and widely appreciated for its practical value and engaging format.

CAMBA 2025 was more than a course—it was a catalyst for transformation. The sessions inspired attendees to think strategically, act like leaders, and embrace the mindset of a visionary problem solver.

Programs like CAMBA continue to reflect the Society’s unwavering commitment to empowering its members with the tools, insights, and confidence they need to thrive in an ever-evolving professional landscape.

11. ESG Essentials seminar held on Friday 4^th April, 2025 @ Hotel Ginger

The seminar on ESG Essentials addressed the growing importance of Environmental, Social, and Governance (ESG) frameworks in shaping sustainable business practices and responsible corporate governance.
The introductory session established the urgency of integrating sustainability into business, emphasising the need for present actions to preserve resources for future generations and highlighting the pivotal role of professionals, especially Chartered Accountants, in ESG reporting and assurance.
The first technical session explained the ESG framework, recent global developments, and the significance of compliance, providing participants with practical insights on implementing ESG standards and building a sustainable foundation for organisations.
The session on green financing explored how climate change is influencing investment strategies, the role of public and private funding in supporting green infrastructure, and the current gaps and opportunities in green finance for India’s transition to a green economy.
Panel 1 provided an in-depth look at the SEBI-mandated BRSR (Business Responsibility and Sustainability Reporting) framework, discussing the nine guiding principles, the adoption of emerging technologies beyond AI and blockchain for ESG reporting, and the need for materiality and comparability in disclosures.
The panel also discussed India’s standing in ESG relative to global benchmarks, the broadening of assurance providers for ESG reports, and strategies for capacity-building within the profession, including the potential for India-specific ESG standards.

Panelists examined emissions management, especially the complexities of Scope 1, 2, and 3 emissions, and shared insights on how energy companies are transitioning from thermal to renewable energy, supported by innovative technologies and policy incentives.
Panel 2 addressed governance and transparency challenges, including the integration of ESG at the board level, embedding ESG into budgeting and resource allocation, and the importance of stakeholder engagement to ensure meaningful and credible ESG reporting.
The risks of greenwashing were discussed, with practical indicators for identifying superficial ESG claims and strategies for enhancing the reliability and value of ESG disclosures, including the proactive role of internal audit.
The seminar concluded with a discussion on ESG leadership models, debating the merits of dedicated sustainability roles versus integrated responsibilities and highlighting the need for clear accountability, robust governance, and ongoing professional development to advance ESG maturity.

Speakers: Gandharv Tongia, Himanshu Kishnadwala, Om Prakash Chandak, Priti Savla, Prabhu Narayan Singh, Rakesh Agarwal, Sarita Bahl, Mitika Bajpai, Vijayalakshmi Suresh.

12. One Day Conference on “Practical Issues under FEMA” jointly with CTC held on Saturday, 22^nd February, 2025 @IMC.

The International Taxation Committee of the Bombay Chartered Accountants’ Society, in collaboration with the Chamber of Tax Consultants, organised a full-day Conference on Practical issues under FEMA.

The seminar commenced with a welcome address by office bearers of the organising institutions, followed by a keynote address by Shri Prashant Kumar Dayal, General Manager, RBI. The keynote address was followed by a panel discussion session where General Managers and Deputy General Managers from RBI provided their detailed replies to various queries which were circulated to them and the participants before the conference. The responses of RBI managers, the depth and explanation of the answers and the forthcoming nature of the RBI managers to discuss the practical issues faced by the Professionals and AD banks were well appreciated by the participants.

The post-lunch session was taken up with CA Rutvik Sanghvi delved into certain very important recent developments on capital and current account transactions in FEMA. Dr. CA Mayur Nayak ably chaired the session.

The last session of the day was a Panel Discussion, which featured Shri. Himanshu Mohanty (Ex-General Manager, RBI), Mr Suhas Bendre – ex-AD Banker and CA Shabbir Motorwala as panellists and the discussion was ably chaired and moderated by CA Paresh P. Shah. The panel discussion involved discussion on case studies on practical issues such as cross-border share swap transactions, cross-border mergers, recent foreign investment clarifications and issues on certain specific transactions from an AD banker’s perspective.

The seminar concluded with closing remarks by office bearers of BCAS and CTC. The event was highly appreciated for its expert-led, solution-oriented discussions and practical insights due to the presence of the RBI managers.

II. BCAS QUOTED IN NEWS & MEDIA

BCAS was quoted in 6 news and media platforms during April 2025 and May 2025. These coverage reflect our thought leadership and commitment to the profession. For details

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

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BCAJ Admin

Shift In US Trade Policy on Tariffs – Impact on the Indian Economy and the World

The Trump Administration 2.0 began with an ‘America First Trade Policy’. Mr. Trump has issued several Executive Orders and Proclamations since assuming his office on January 20, 2025. The significant among them is an increase in tariffs across the board by 10 per cent which is slated to increase to higher tariffs on some select 57 countries with which the US has major trade deficit in goods. Although the latter hike in tariffs is put on hold till July 8 2025, the actions by the US have created enough turmoil in international trade, with some countries imposing retaliatory tariffs, while other countries, including India, having chosen to negotiate a trade deal with the US. This article covers various aspects of tariffs by the US, the background and the impact of these measures on the Indian economy and the World.

INTRODUCTION

The recent tariff measures by the United States of America (“US”) have thrown much of the global trade in goods into disarray. The frequent changes to the policy, particularly the ‘tariff-on’ and ‘tariff-off’ policy, have made business planning difficult for companies, particularly those having exposure to the US. The threat of tariffs has made many countries rush to the US to secure trade deals to avoid punitive tariffs for their export goods. Businesses thrive when there is certainty in policy measures, but in the face of these frequent threats and policy changes, is it possible for a country or business to avoid the US market? The answer lies in some numbers. The US is the largest economy in the World, with a GDP of $29.18 trillion, i.e. about 26% of the World’s GDP.¹ According to the World Bank, the US is the largest consumer in the World with an annual consumption expenditure of $22.54 trillion, which represents about 30% of the World’s annual consumption expenditure² despite having only 4.22% of the World’s population³, giving it a high annual GDP per capita of $85,810. The American consumers spent about $6.1 trillion on goods alone in 2024.⁴ Hence, in today’s globalised economy, it may not be possible for a business to simply ignore the US consumer. This brings us to the issues which this Article wishes to address, namely, to understand the recent measures by the US and their rationale, their basis in law – both the local US law and the World Trade Organization (“WTO”) law and analyzing its impact on the economy and business.

1 GDP of 2024 at current prices as per International Monetary Fund (IMF)
https://www.imf.org/external/datamapper/profile/USA
2 Source: World Bank, 2023 estimates, https://data.worldbank.org/ [both goods and services, household final consumption expenditure (private consumption) and general government final consumption expenditure]
3 https://www.worldometers.info/world-population/us-population/
4 https://www.visualcapitalist.com/americas-19-trillion-consumer-economy-in-one-chart/#:~:text=Where%20Americans%20Spend%20Their%20Money,as%20well%20(%2417.8T).

Section I of the Article provides the foundational basis for the current US policy, particularly the shift in policy to tariffs. Section II gives a brief of the US legislation and the actions taken by the US President till date with insights on ongoing litigation in the US courts. Section III discusses the legality of US actions under the GATT/WTO. Section IV discusses the impact of the US tariffs on the global economy with changing supply chain dynamics as well as opportunities and threats for Indian businesses. The Article closes with the concluding remarks on US tariffs and their impact.

I. SHIFT IN US TRADE POLICY TO TARIFFS

On 20^th January, 2025, the first day of taking charge as the US President, Mr. Donald J. Trump (“Trump”) issued a series of Executive Orders (“EO”) and proclamations. Among them was the EO titled ‘America First Trade Policy’ (“AFTP EO”) which gave insights into the policy which the President would be following in days to come. The AFTP EO stated that the American economy, the American worker, and the National security of America will be at the forefront of US policy decisions. It also stated that the aim of the new US administration is to promote investment and manufacturing in the US. One of the ‘National Security’ risks highlighted in the AFTP EO was the ‘unfair and unbalanced trade’ with its major trading partners. To put a perspective, the table below provides the trade balance of the US with its major trading partners.

The table shows that in 2024, the US had an overall trade deficit in goods of $1.29 trillion, which means that the US imported more goods than it exported to other nations. The highest trade deficit was with China, at $319 billion, followed by the EU at $203.5 billion, Mexico at $176 billion and Vietnam at $129.37. There was a trade deficit even with Canada, India and other nations. On the services front, in 2024, the US’s exports were $1107.8 billion, and imports were $814.4 billion, giving a surplus of ~ $293.4 billion.⁵ Even if one offsets this surplus, the overall trade deficit in goods and services for the US in 2024 was close to $1 trillion.

5 https://www.bea.gov/news/2025/us-international-trade-goods-and-services-december-and-annual-2024

The ever-increasing trade deficit in goods has been a subject matter of debate between economists in the US for several decades. The trade deficit in goods has continuously increased from $690.16 billion in 2010 to $1.29 trillion in 2024, as shown in the graph below.

The burgeoning US trade deficit can be explained with the textbook theory of macro-economic factors of disbalance between savings and investment rates. In simple terms, this implies that Americans have been spending more money on consumption expenditure (i.e., buying more goods than they produce) with low savings and investment spending rates. This additional spending goes to foreign goods, which is then financed through borrowing from foreign lenders (US treasury bonds) or foreigners purchasing US assets.

Some policymakers argue that macro factors of the stronger dollar (which encourages imports and discourages exports), more buying power of consumers in the US, and manufacturing shift to lower labour cost jurisdictions would naturally lead to higher trade deficits. While others argue that shifting manufacturing to low-cost jurisdictions like the ASEAN (Thailand, Vietnam, Malaysia, Indonesia, etc.) and other parts of the World like China has been a result of unfair foreign government policies and incentivisation. It is argued that the rise of China during the last three decades as a World’s powerhouse of manufacturing, resulting from unfair trade practices of the Communist regime in Beijing, is a major cause of the situation. In particular, it is argued that Beijing’s State control and subsidisation of manufacturing led to the establishment of huge capacities in China far exceeding the domestic demand, boosting of exports through unfair incentives, tax enforcement of the IPR regime, manipulation of currency through devaluation to boost exports, unfair labour and environmental practices of China has led to the situation.

One set of policymakers focused their efforts on tackling this situation by addressing the inherent deficiencies like boosting investments in infrastructure and targeted incentives to increase the domestic manufacturing base. The previous US President Biden’s policy initiatives were efforts in that direction, such as the Bipartisan Infrastructure Law (BIL), formally known as the Infrastructure Investment and Jobs Act (IIJA) which focused on funding a wide range of infrastructure projects, the Build America, Buy America Act (BABA) which mandated that iron, steel, manufactured goods, and construction materials used in US federal funded infrastructure projects must be produced in the US, the CHIPS and Science Act which focused on boosting US semiconductor manufacturing. A similar set of policy initiatives may also be seen in the Indian context, like the ‘Make in India’ policy and infrastructure parks (Electronics Parks, Plastic Parks, PM MITRA Textile Parks, Mega Food Parks, etc.).

The other set of policymakers believe that directly disincentivizing or curtailing imports, inter alia through Tariff measures, is an immediate solution to the situation. The current US President Trump’s policy measures by imposing punitive import tariffs are efforts in that direction, even if it involves disrupting the rule based international trade and the principles established by the WTO.

Hence, there is a clear shift in the US policy under the new administration with tariffs as one of the main policy instruments. Tariffs have also been used by the US as a threat to negotiate better trade deals with its trading partners. With this background in mind, the next section looks at the relevant legislation used by the US in its renewed policy.

II. LEGISLATION USED BY THE US FOR IMPOSING TARIFFS AND ACTIONS TAKEN THEREUNDER

In his first term (2017-2021), Trump had used Section 232 of the Trade Expansion Act, 1962 (“TEA”) in 2018 to impose import tariffs of 25% and 10% on Steel and Aluminium, respectively, subject to some product / country-specific exemptions. These tariffs were expanded to include specified derivatives of Steel and Aluminium in 2020. In 2018, Trump also used Section 301 of the Trade Act, 1974 (“TA”) to impose tariffs ranging from 7.5% to 25% on several goods of China (covered in four lists ranging from $34 billion in list 1 to $300 billion in list 4). These tariffs continue to exist today and have been further expanded in Trump’s second term.

In his second term (2025-), effective March 12, 2025, Trump used Section 232 of the TEA to expand the scope of import tariffs on Steel and Aluminium by bringing both on par at 25% each, withdrawing all previous exemptions, and significantly increasing the scope of coverage of derivatives products. The President has also used the same section to impose tariffs of 25% on specified Automobiles (“Auto”) and Auto parts from all countries, subject to quota-based exemptions.⁶ Due to the close integration of Auto supply chains between the US, Canada and Mexico, the Tariffs on Autos, which qualify the USMCA rules of origin,⁷ have been exempted to the extent of US content of such vehicles. Further, the USMCA qualified Auto parts imported into the US from Canada and Mexico have also been exempted.

6 Auto Tariffs apply only to passenger vehicles (sedans, sport utility vehicles, 
crossover utility vehicles, minivans, and cargo vans) and light trucks. 
Auto parts cover Engines and engine parts, Transmissions and powertrain parts, 
and Electrical components of passenger vehicles and light trucks. 
Auto tariffs were effective April 3, 2025, and Auto parts Tariffs were effective May 3, 2025.

7 USMCA is the United States-Mexico-Canada Free Trade Agreement which 
replaced the North American Free Trade Agreement (NAFTA) and become 
effective July 1, 2020, in Trump’s first term.

In addition, Trump has extensively used another US Act, called as International Emergency Economic Powers Act, 1977 (“IEEPA”), to impose import tariffs on Canada, Mexico and China (including Hong Kong) by taking the cue of fentanyl trade⁸, which has claimed to cause a situation of ‘National Emergency’ and public health crisis in the US. A tariff of 10% was imposed on goods from China and Hong Kong with effect from 4^th February, 2025, which was increased to 20% effective 12^th March, 2025. Similarly, effective 4^th March, 2025, the goods from Mexico and Canada have imposed a tariff of 25% (except potash/specified energy products having a tariff rate of 10%). This tariff measure was later amended to exempt USMCA-qualified goods.

The US President has also used IEEPA to impose a baseline tariff of 10% with effect from April 5, 2025, on all countries (including India)and a higher-country specific reciprocal tariff on 57 listed countries varying from 11% to 50%⁹ with effect from April 9, 2025 (currently on pause for 90 days, till 8th July, 2025). For China¹⁰, the reciprocal tariffs were increased to 125% from April 10, 2025, due to retaliation by China with similar tariffs on US goods (the 125% tariff has been suspended for 90 days and rolled back to 10% with effect from 14^th May, 2025, pending negotiations between US and China).

8 Fentanyl is a synthetic opioid drug used for pain relief and anesthetic. 

The US has argued that Canada and Mexico have permitted the Fentanyl 

drug to flow into the US through its porous borders creating a 

situation of National Emergency and public health crisis in the US.

9 India is amongst the 57 countries and India’s tariff rate is specified to be 26%.

10 Includes Hong Kong and Macau

Further, under the IEEPA, the US has withdrawn the de-minimis exemption¹¹ for goods, including international parcels from China and Hong Kong (effective 2^nd May, 2025).

11 A de-minimis exemption is exemption given under US law to goods of value less 
than $800 from duties and certain procedural requirements at the time of imports into the US.

The above tariffs imposed by the US are in addition to normal customs duties (called MFN rates), fees, taxes, exactions, or charges applicable to imported articles. Further, the above tariffs stack on each other, i.e., becomes cumulative unless otherwise specified.¹²

Legislations	Conditions and Actions	Previous illustrative uses and the current usage
Sec 232 of TEA	» If certain imports threaten the ‘National Security’ of the US. » Authorises the President to bypass Congress and modify /adjust the imports by tariffs/quotas. » Investigation by the Department of Commerce (“DOC”) and a report by the Secretary of Commerce to the President is a pre-condition to take action.	» Last imposed tariffs or other trade restrictions three decades before in 1986. Shift in policy under Trump’s first term. » The President opened 8 investigations, and Tariffs were imposed under 2 such cases on Steel and Aluminium. » Other investigations were on Auto and Auto parts, etc. but no actions were taken, or agreements were reached with countries. Continued actions under Trump’s second term » Expanded the tariffs on Aluminium and Aluminium derivatives to 25%. » Expanded the coverage of derivatives of Steel and Aluminium. » Imposed Auto and Auto parts tariffs of 25% from all countries, subject to some quota-based exemptions for Auto parts (acting on the 2019 report of the Secretary of Commerce).
Sec 301 of TA	» United States Trade Representative (“USTR”) does an investigation and recommends action to enforce US rights under a trade agreement or to respond to certain foreign unfair trade practices. » Consultations by USTR with targeted Government. » If the determination is affirmative, it decides actions to be taken. » Authorises the President to impose duties or other import restrictions and actions.	» Since the formation of WTO in 1995, the US used this measure to build cases and pursue dispute settlement at the WTO. Shift in policy under Trump’s first term. » 2018 – China was acted against due to its IPR violations. » 2019 – The EU (including the UK) were acted against due to their subsidies on large civil aircraft (Tariffs later suspended in July 2021) » 2019 – Investigation on France against its ‘discriminatory’ Digital Services Taxes (DST) (Tariffs later suspended due to larger investigation on countries adopting similar taxes). » 2020 – Several countries, including India, were investigated for their ‘discriminatory’ foreign DST laws (No tariffs currently, pending negotiations). » 2020 – Vietnam was investigated for their ‘unfair currency valuation’ and use of ‘illegally harvested timber’ (Tariffs not imposed based on an agreement with Vietnam to improve its currency valuation and timber trade practices)
IEEPA	» Unusual and extraordinary threat, which has its source in substantial part outside the US, to the National Security, foreign policy, and economy of the US. » Power given to the President with some exceptions and checks »Report to be submitted later to Congress on actions taken.	»Trump, in his second term, has used this legislation extensively to impose tariffs on China / Mexico /Canada for failure to check the Fentanyl trade. » Imposed baseline tariff of 10% on all countries due to ‘unfair and unbalanced trade” position with trading partners. » Higher country specific reciprocal tariff on 57 countries (currently on pause for 90 days, till 8^th July, 2025). »Tariffs on de-minimis shipments from China and Hong Kong.

12 As per another executive order issued on April 29, 2025, 
the goods which are subject to Auto/Auto parts tariffs under
 Sec 232 of TEA will not be subject to Tariffs imposed on Canada/Mexico
 under IEEPA or Tariffs on Steel/Aluminium under Sec 232 of TEA. Further, 
the goods which are subject to IEEPA tariffs on Canada/Mexico will not be 
subject to Tariffs on Steel / Aluminium under Sec 232 of TEA.

The tariffs imposed by the US have been challenged in several lawsuits filed across the US, particularly by the Democratic States, including the States of Arizona, Colorado, Connecticut, Delaware, Illinois, New York and Oregon. In particular, the reciprocal tariffs have been challenged in the US courts on the grounds that the IEEPA does not specifically authorise the President to impose tariffs and that the US trade deficit cannot be equated to a “National Emergency” as contemplated under the IEEPA. In addition, the State of California has also filed a lawsuit to halt the tariffs imposed by the Trump administration, which the State believes was not taken with Congressional approval and will negatively impact its economy. In a recent decision of the Court of International Trade (CIT) in V.O.S. Vs. The USA, the CIT at Manhattan, New York has set aside all Trump’s actions under IEEPA and accordingly invalidated the reciprocal tariffs (10% baseline and higher country specific tariffs) and tariffs imposed on China/Canada/Mexico for failure to curb the fentanyl trade. The CIT held that Trump exceeded his authority granted by the Congress under the IEEPA to impose tariffs. The US government has appealed this decision before the Court of Appeals for Federal Circuit which has temporarily granted a stay on the CIT’s decision until the court hears both parties.

III. WTO/ GATT PERSPECTIVE OF US TARIFFS

“In the pre-World War II era, the market access for trade in goods was based on trading partners’ economic or political clout. With uncertainty and protectionist measures by different countries to further their economic objectives, several countries got together and entered into an agreement called the General Agreement on Tariffs and Trade (GATT, 1947), which formed the basis for rule-based international trade. This agreement was signed in Geneva in 1947 by 23 countries. Both India and the US were parties to the GATT. The GATT was a crucial step towards rebuilding the global economy after World War II with an aim to reduce trade barriers and promote free and fair trade among partner nations. The GATT aimed to reduce tariffs and eliminate other trade barriers to promote free trade. Importantly, it was the US which played a leading role in the creation of GATT because it wanted liberalisation of protectionist policies to help the US export more goods to other countries. It was the GATT, 1947, which, after several rounds of multilateral negotiations, led to the formation of WTO in 1995 by the Marrakesh Agreement, signed in Marrakesh, Morocco. While the WTO replaced GATT, the principles of GATT are still incorporated into the WTO agreement.

One of the basic principles enshrined in GATT/WTO is the Most Favored Nation (MFN) principle under Article I. The MFN principle essentially states that if a country grants a trade advantage (like lower tariffs) to one trading partner, it must unconditionally and immediately extend the same advantage to all other WTO members. Another important Article II of GATT is the schedule of concessions of each member nation, which binds the member not to increase the customs duty rates beyond the bound rate given in its schedule.

Article XXI(b)(iii) of GATT covers the national security exception, which allows the members to violate the GATT principles if such actions are “taken in time of war or other emergency in international relations”. The US has lost several cases at the WTO wherein it violated the GATT principles by invoking the national security exception under Article XXI(b)(iii). The argument of the US before the WTO’s judicial Panels, that this exception is ‘self-judging’ and cannot be subject matter of judicial review, has been rejected by the WTO panels. In the US-Origin Marking (Hong Kong, China) case,¹³ the argument raised by the US that human rights violations in Hong Kong can be used as a basis to violate the GATT disciplines was rejected by the WTO panel. It was held that such human rights violations in HK, even if evidenced, cannot be escalated to the threshold of requisite gravity to constitute an “emergency in international relations”. This phrase was held to refer to a state of affairs of the utmost gravity – a breakdown or near-breakdown in the relations between states.

13 WT/DS597/R (WTO Panel Report dated 21 December 2022)

More importantly, the US also lost WTO cases relating to the imposition of tariffs under Sec 301 of the TA against China¹⁴ and under Sec 232 of the TEA on Steel and Aluminium.¹⁵

14 The US defense built under Article XX(a) which deals with general exception of 
“necessary to protect public morals” was rejected on the ground that there was 
no genuine relationship of “ends and means” and hence it was held that the US had 
violated GATT disciplines relating to MFN and bound rates (WT/DS543/R WTO Panel 
Report dated 15 Sep 2020)
15 US’s defense under Article XXI(b)(iii) was rejected – measures not 
“taken in time of war or other emergency in international relations” and hence it
 was held that the US had violated MFN, bound rates and Quantitative Restrictions 
under GATT (WT/DS544/R WTO Panel Report dated 9 Dec 2022)

It may be worthwhile to note that since 2017 the US has blocked the appointment of new judges to the WTO’s Appellate Body (AB) due to complaints over judicial activism at the WTO and concerns over US sovereignty.¹⁶ This has brought the WTO’s dispute settlement system to a standstill making it effectively non-functional. There are currently no members in the seven member AB with the term of the last sitting member expired on 30^th November, 2020.¹⁷ Hence, today, all appeals filed by the WTO members including the US against the Panel rulings are pending adjudication at WTO’s AB with no judges in place. It would not be out of place to say that the country which argued for liberalisation leading to the creation of GATT / WTO has itself turned back full circle to bring in an era of protectionism in trade.

16 The World Trade Organization: The Appellate Body Crisis | Economics Program and Scholl Chair in International Business | CSIS
17 https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm

IV. IMPACT OF THE US TARIFFS ON THE INDIAN ECONOMY AND THE WORLD

In today’s globalised World, supply chains are integrated across nations, and most products pass through manufacturing stages in several countries before landing in the hands of the consumer in the country of consumption. If the country of consumption is the US, the moot question which arises is what will be the tariff rate applicable to such product at the time of import into the US? Whether it is the country where the principal raw material was manufactured (say, China) or where further processing on it was undertaken (say, India). This question assumes importance because US tariffs are now based on the country to which the product belongs. Complicating the situation is the test of the last ‘substantial transformation’ applied by the US in judging this criterion with a plethora of complex judicial rulings in the US courts. This has led to several supply chain shifts by companies away from China to avoid punitive US Tariffs.

In addition, reciprocal tariffs under IEEPA provide an exemption to the US content of the product if such US content is at least 20% of the total value of the product. Further, tariffs under Sec 232 on Steel and Aluminium derivatives are exempt if the Aluminum is smelted and cast in the US or Steel is melted and poured in the US. These issues are leading the companies to rethink their supply chain modelling to reduce the impact of US tariffs and stay export competitive.

While the threat of US tariffs remains, there are certain opportunities for Indian businesses looking to export more to the US. A look at the table below shows that India is exporting products to the US under Chapters overlapping with China, which gives an opportunity to the Indian business to increase their exports on account of the present 30% tariffs on China vs. 10% tariffs on Indian goods under the IEEPA.

With the India-US currently engaged in intense negotiations for the Bilateral Trade Agreement (BTA), it still needs to be seen whether the Indian Government can negotiate a deal with the US which can lead to enhanced export competitiveness of Indian goods to the US, particularly in labour-intensive sectors like plastics, textiles, gems and jewellery, electronics, pharma and chemicals.

V. CONCLUSION

The US concern stems from an ever-increasing trade deficit in goods with most of its major trading partners. This has led to a discernible shift in the US trade policy to tariff measures. With the WTO in a state of limbo particularly due to the non-functional Appellate Body (AB) mechanism, the US seems to be not concerned with the legality of its measures with the GATT / WTO disciplines. As a result of US tariffs, the businesses World over, including in India, are forced to rethink the supply chains of their goods. The present situation is both a threat and an opportunity for Indian businesses and the success will depend upon how the businesses can rekindle their decision-making and whether the Indian government is able to negotiate a good deal with the US helping the Indian exporter community.

BCAJ Admin

Specialised Investment Funds (SIFs) – Way To New Investment Opportunities

1 . THE EVOLVING INVESTMENT LANDSCAPE

India’s capital markets have long been characterized by a dichotomy in investor behaviour: retail investors gravitate towards mutual funds for their risk-diversified portfolios and ease of access, while High Net-Worth Individuals (HNIs) and institutional investors often prefer PMS for its personalized portfolio construction and active management. However, the absence of an intermediary vehicle that caters to investors seeking more flexibility than mutual funds, but without the significant capital commitment demanded by PMS, has left a regulatory void. This gap had led to the emergence of unregulated schemes that, while attractive to investors, carry substantial operational and financial risks due to their lack of oversight.

The introduction of Specialized Investment Funds (SIFs) under the SEBI (Mutual Funds) Regulations, 1996 vide circular dated 16^th December, 2024, directly addresses this regulatory vacuum. This initiative also reinforces the stability of the broader asset management ecosystem by channelling investor interest into a regulated space, thereby reducing systemic risk.

2. RATIONALE BEHIND THE INTRODUCTION OF SIFs

The decision to introduce SIFs is driven by several strategic considerations that reflect both current market needs and long-term objectives for the development of India’s capital markets.

Bridging the Investment Gap: SIFs are designed for investors who require a degree of customization beyond what traditional mutual funds provide but do not wish to engage in the bespoke, high-commitment strategies associated with PMS. By incorporating elements of both approaches, SIFs provide a unique solution that blends the accessibility and diversification of mutual funds with a level of portfolio flexibility and customisation that traditionally resided within the realm of PMS.
Mitigating Regulatory Arbitrage: Historically, the lack of a formal product designed for these sophisticated investors led to regulatory arbitrage, where investors sought alternative, often unregulated, investment avenues. By establishing SIFs within the existing mutual fund regulatory framework, SEBI curtails the proliferation of such unregulated schemes and ensures that the capital raised through SIFs is subject to the same transparency, governance, and oversight as traditional mutual funds.
Enhancing Investor Protection: The regulatory framework governing SIFs includes stringent disclosure requirements and risk management protocols, which help safeguard investor interests. These regulations reduce the risk of operational and counterparty risks, ensuring that investors are more likely to receive fair treatment and that their investments are protected by the same regulatory safeguards afforded to other mutual fund products.
Market Deepening and Liquidity Enhancement: By introducing a new investment product category, SEBI aims to deepen India’s capital markets, fostering greater liquidity. With a larger, more diverse range of investment products, the Indian market is better positioned to attract both domestic and foreign capital, thus improving overall market efficiency.
Global Alignment: SEBI’s introduction of SIFs also aligns with international best practices. Similar structures, such as the European Union’s Alternative Investment Fund Managers Directive (AIFMD), have successfully implemented regulatory frameworks for specialized investment vehicles. The adoption of a similar model in India enhances its attractiveness as a destination for foreign investors, while also ensuring that the domestic products are consistent with global standards.

3. KEY FEATURES OF SIFs

The introduction of SIFs is characterised by several distinct features designed to cater to sophisticated investors, while maintaining robust regulatory oversight.

Sound Track Record, Registration and Approval Process: SEBI has allowed existing mutual funds to launch SIFs with prior approval from SEBI under their current trust structures without the need for creating a new trust, provided they comply with no disciplinary action criteria along with sound track record under Route 1 and in case of MF registered under alternate route, appointment of separate CIO and Fund Manager of SIF with defined experience requirement.

This streamlined process enhances operational continuity and minimises regulatory overhead for fund houses, thus simplifying market entry for investors.

Minimum Investment Threshold: To ensure that SIFs are accessible only to qualified investors, SEBI mandates a minimum investment of ₹10 lakh at the PAN level for all investors exclusively for participating in SIFs. This threshold acts as a filter to ensure that only those with sufficient financial capacity and risk tolerance are eligible to invest. However, accredited investors, as defined by SEBI’s criteria, are exempt from this threshold, which ensures that high-net-worth individuals and institutional investors can access these products without being constrained by the minimum investment requirement. The AMCs shall be required to monitor Investment threshold and ensure that there are no active breaches.
Investment Strategy and Launch Framework: The framework for launching SIF strategies follows the established process for mutual fund schemes. AMCs must submit an offer document to SEBI, along with the requisite fees and approvals from their trustees. A standardized application format ensures consistency across SIF strategies, contributing to operational transparency and efficiency. Additionally, AMCs are required to submit an Investment Strategy Information Document (ISID) that outlines the fund’s specific investment objectives, strategy, and risk management practices, rationale for compliance ensuring that investors are well-informed before making their investment decisions.
Investment Permissibility and Restrictions: SIFs are permitted to invest across a wide array of asset classes authorised under the Mutual Fund Regulations, with specific investment caps and restrictions designed to manage risk effectively. For instance, exposure to debt instruments from a single issuer is limited to 20% of the fund’s NAV, SIFs can also invest in derivatives, with a cap of 25% of the fund’s NAV, thus offering enhanced flexibility in terms of market positioning. These caps reflect SEBI’s balanced approach to enabling flexibility while safeguarding against undue concentration risk.
Expense Ratio and Fee Structure: The expense ratios for SIFs are governed by the same regulations as other mutual fund schemes, ensuring uniformity in cost structures across the industry.
Distribution of SIF
Distribution of SIF products shall be subject to such entity having passed National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination
Branding
To maintain clear differentiation between SIFs and traditional mutual funds, SEBI mandates that AMCs employ distinct branding and marketing strategies for their SIF products as per SEBI guidelines, including separate branding, advertising, standard disclaimers, guidelines on usage of sponsor or asset management company or mutual fund’s brand name, and maintenance of a separate website/webpage to differentiate SIF offerings, etc.

This ensures that investors are aware of the differences in risk profile, investment strategy, and expected returns between SIFs and conventional mutual funds.

Benchmarking
Investment Strategies of SIF shall follow a single-tier benchmark structure. The AMC at its discretion may also provide second tier benchmark for investment strategies as applicable for specific schemes. The AMC shall appropriately select any broad market indices available, as a benchmark index depending on the investment objective and portfolio of investment strategy.
Governance, and Risk Management
In terms of governance, AMCs and trustees must ensure robust risk management frameworks, including comprehensive stress-testing and scenario analysis, to ensure the protection of investor interests. These governance measures are designed to prevent any reputational risk spillover from the SIF to the broader mutual fund industry, preserving the integrity and trust of the Indian asset management ecosystem.

4. RECENT CLARIFICATIONS AND DEVELOPMENTS

In line with SEBI’s commitment to refining its regulatory framework, recent clarifications have been issued to further streamline the operation of SIFs:

Clarification on Investment Threshold: SEBI clarified that the ₹10 lakh minimum investment requirement applies at the PAN level, covering all SIF strategies under a single AMC. This removes potential confusion for investors allocating capital across multiple SIF offerings from the same fund house.
Flexibility for Interval Strategies: SIFs adopting interval strategies have been granted greater flexibility in the selection of instruments with longer tenures or lower liquidity, providing fund managers with more freedom to optimise returns over extended periods.
Standardised Application Format: SEBI introduced a standardised format for mutual funds intending to establish SIFs, ensuring greater operational efficiency and consistency in the application process.

FUTURE OUTLOOK FOR SIF

SIFs thus represent more than just a new category of investment vehicles—they signal SEBI’s commitment to fostering a robust, transparent, and inclusive asset management ecosystem. As these funds mature, they are poised to attract capital from domestic and global investors alike, serving as a critical bridge to deeper market penetration and sophistication.

With their introduction, the focus shifts to the meticulous crafting of asset allocation strategies, portfolio innovation, and investor engagement, all under the vigilant oversight of SEBI’s regulatory framework. The long-term trajectory of SIFs will ultimately depend on how well they balance these dual imperatives—flexibility and control—ensuring that the evolution of India’s capital markets is both dynamic and resilient.

The strategic deployment of SIFs will invariably drive market efficiency and liquidity, supporting India’s ambition to become a competitive global investment hub.

BCAJ Admin

Section 43B(H) Of The Income Tax Act And MSME Payments: Interpreting The Fine Print

The Finance Act 2023 introduced clause (h) in section 43B of the Income-tax Act, 1961, with a laudable objective of helping micro and small business enterprises recover their dues faster and improve their cash flows. The provision is made for allowance of expenses that are paid beyond the prescribed time limit only upon actual payment. However, this provision has resulted in a number of issues, as the allowance of expenses under the Income-tax Act is subject to provisions of the other Act, namely, Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Recently, in March 2025, the criteria for the classification of Micro, Small, and Medium Enterprises have been revised, widening its coverage. This article deals with various interesting aspects of section 43B(h) as well as the relevant provisions of the MSMED Act.

INTRODUCTION

Recent Notification No. S.O. 1364(E) dated 21st March, 2025, issued by the Ministry of Micro, Small and Medium Enterprises (MSMEs) in line with various other initiatives for the MSME industry declared by the government in Budget 2025, brought about a significant revision in the criteria for the classification of Micro, Small, and Medium Enterprises, altering the thresholds for investment and turnover that determine MSME status. These changes have expanded the coverage of enterprises falling within the MSME definition, thereby bringing a larger set of business relationships under the purview of various regulatory and tax provisions designed to safeguard the interests of such entities.

The revised recognition criteria as per this Notification are as under:

Against this backdrop, section 43B(h) of the Income-tax Act, 1961 (the Act) — introduced by the Finance Act, 2023 — has gained renewed attention.

The introduction of clause (h) to section 43B of the Act marked a significant legislative intervention designed to enhance the financial discipline in commercial dealings with Micro and Small Enterprises (MSEs). Applicable from the Assessment Year 2024–25 onwards, this provision introduces a conditional disallowance of expenditure under the Income Tax Act, 1961, in cases where payments to MSEs are not made within the timelines prescribed under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Therefore, tax-deductibility of an otherwise legitimate business expenditure has been tethered directly to compliance with another legislation — the MSMED Act.

Section 43B of the Act, since its inception, has functioned as an anti-avoidance provision, disallowing certain statutory and contractual liabilities unless they are actually paid. Traditionally, these have included items such as taxes, contributions to employee welfare funds, and interest on loans from public financial institutions. Clause (h) extends this principle to amounts payable to micro and small enterprises beyond the timelines prescribed under the MSMED Act.

However, a key distinction between clause (h) of section 43B of the Act and the other clauses of the said section must be noted. While the other clauses allow the deduction of specified categories of expenditure only upon actual payment, clause (h) restricts deduction only in respect of payments to micro and small enterprises that are made beyond the timelines prescribed under the MSMED Act. In other words, clause (h) does not provide that all amounts payable to MSEs shall be allowed only on a payment basis; rather, it disallows only those payments that are not made within the prescribed time limit under the MSMED Act. The practical implications of this distinction are discussed in the forthcoming paragraphs.

While the language of this clause is straightforward in its drafting, its interplay with the relevant provisions of the MSMED Act gives rise to several practical implications.

For the sake of convenience, the relevant extracts of section 43B(h) of the Act are reproduced here as under:

“43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

…..

(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),

shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him

…..

Explanation 4. -For the purposes of this section,-

…..

(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006);
…..

(g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).”

Therefore, the provision mandates that any sum payable to a micro or small enterprise — as defined under the MSMED Act —beyond the time limits prescribed thereunder shall be allowed as a deduction under the head ‘Profits and Gains of Business or Profession’ only in the year in which it is actually paid.

Section 15 of the MSMED Act, in turn, stipulates that payments to suppliers for goods or services must be made either within fifteen days of the day of acceptance (or deemed acceptance) of the goods or services or within the period agreed upon in writing between the buyer and the supplier — provided that such period does not exceed forty-five days.

In this context, the day of acceptance means the day of actual delivery of goods or rendering of services; or where any objection is made in writing by the buyer regarding acceptance of goods or services within a period of fifteen days of delivery of goods or rendering of services as the case may be, the day of acceptance would mean the day on which such objection is removed by the supplier. The day of deemed acceptance means where no objection is made as above within fifteen days, the day of actual delivery of goods or rendering of services.

Further, as per section 2(n) of the MSMED Act, supplier is defined to mean a micro or small enterprise, which has filed a memorandum with the prescribed authority and includes certain specified entities.

From the reading of section 43B(h) of the Act r.w.s. 15 & section 2(n) of the MSMED Act, it is clear that the provisions of section 43B(h) are applicable only in case of payments to micro and small enterprises and not in case of medium enterprises.

Let us see some of the practical implications arising from the provision:

(A) IDENTIFICATION OF QUALIFYING ENTERPRISES FOR THE PURPOSE OF SECTION 43B(H)

One of the pressing challenges posed by section 43B(h) is the burden of identification. It is incumbent upon the assessee to identify which of its suppliers qualify as micro or small enterprises under the MSMED Act.

Medium enterprises eligible for benefits available to small or micro enterprises:

In this context, it is important to take note of the Notification No. S.O. 2119(E) dated 26th June, 2020, issued by the Ministry of Micro, Small and Medium Enterprises, which lays down the criteria for the classification of micro, small and medium enterprises based on investment, turnover, etc., as subsequently amended by Notification No. S.O. 4926(E) dated 18^th October, 2022. It states that in case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise shall continue to avail of all non-tax benefits of the category (micro or small or medium), as it was in before the re-classification, for a period of three years from the date of such upward change.

To illustrate – From 1^st April, 2024, a supplier is classified as a medium enterprise on account of it exceeding the investment/turnover criteria specified for small enterprises. However, up to 31^st March, 2024, the supplier was classified as a small enterprise. During FY 2024-25, the said supplier provides services to the assessee. In this case, even though as on the date of providing services to the assessee, the supplier was classified as a medium enterprise, said supplier is still entitled for three more years to all the non-tax benefits available to a small enterprise under the MSMED Act. The benefits under section 15 and section 16 of the MEMED Act (i.e. prescribed time limits for payments to MSEs and interest payable on delayed payments) are clearly in the nature of non-tax benefits. Consequently, even though the supplier holds the Udyam certificate as a medium enterprise as on the date of providing services, the assessee is still required to make payment within the timelines specified under section 15 of the MSMED Act, and non-compliance with these timelines may lead to consequential disallowance under section 43B(h) of the Act if payment is not made within the same financial year.

Therefore, in the case of medium enterprises, it may not be sufficient to rely on the status of the supplier mentioned on the Udyam Registration, and the assessee shall have to maintain a register of suppliers with their status for three previous years as well to avoid the risk of misstatements in tax computations. It is also unclear whether obtaining such status confirmation annually would suffice or whether it needs to be maintained on a transaction-by-transaction basis.

On the other hand, one may argue that the words micro or small enterprise appearing in clause (h) of section 43B restrict the scope of applicability of this section only to micro and small enterprises as defined in clause (h) and clause (m) of section 2 of the MSMED Act r.w. section 7(1) thereof, and that the Notifications mentioned above would not extend the scope of applicability of section 43(B) to medium enterprises even if those are entitled to the benefits of section 15 of the MSMED Act for three years after upward re-classification of status as per the said Notifications. However, this proposition would require further in-depth analysis, and as of now, there is no clarity available on the issue.

Exclusion of Traders:

Retail and wholesale traders are allowed to be registered as MSMEs on the Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are restricted to Priority Sector Lending only, and they are not entitled to any other benefits under the MSMED Act, including the time limits for payment prescribed under section 15 and applicability of interest on delayed payments under section 16 of the MSMED Act. This has been clarified vide Central Government’s office memorandum 1/4(1)/2021- P&G Policy, dated 1^st September, 2021.

Though there is no express provision in the MSMED Act which may indicate that the trader MSEs are not covered within the definition of MSMEs, relying on the said Office Memorandum, buyers are taking a view that in the case of trader MSEs, section 15 and section 16 of MSMED will not apply and consequently, provisions of section 43B of the Act will also not be attracted.

Till the time the said Office Memorandum remains effective, it would appear to be a reasonable view to take for the assessees.

(B) DATE OF ACCEPTANCE IN THE PRACTICAL SCENARIO

The date of delivery of goods/rendering of services and the date of acceptance — both critical to computing the due date under section 15 of the MSMED Act — are often subject to practical disputes or internal accounting ambiguities, especially in industries with staggered delivery schedules. For instance, in industries like construction or manufacturing, deliveries are often made in parts or batches, whereas the buyer may inspect and approve the goods after complete delivery. In such cases, the question of whether the period of 15 days available for raising an objection should be counted from the date of partial delivery or from the date of complete delivery can be a contentious one.

Let us consider another case where services are rendered by the supplier, and an invoice is raised after the expiry of 15 days from the date of rendering of services, within which period the buyer is required to raise objections, if any. If there is an objection with respect to the invoice raised vis a vis the services rendered, such objection can be raised by the buyer only after receiving the invoice. In such cases, can the date of rendering services be said to be the date of deemed acceptance?

Similarly, under EPC contracts, typically, there is a retention clause which is intended to serve as a performance guarantee. The retention amount, often calculated at a certain percentage of the total invoice amount, is held back for an agreed defect liability period. Since the MSMED Act does not exempt the retention amounts and therefore payment beyond the due date specified under section 15 may attract disallowance even when no interest is demanded by the supplier in accordance with the agreed commercial terms. Whether it is possible to contend that in respect of the retention money, the date of delivery/rendering of services should be construed as the date on which the defect liability period ends, is another debatable issue.

(C) YEAR-END PROVISIONS

In respect of the year-end provisions made by following the accrual and matching concept, the actual liability to pay may arise in the subsequent year. To give an example, the provision for tax audit fees made in the books as on 31^st March, 2024 would become actually payable in FY 2024-25 after the services are rendered. As on the date of issuing the tax audit report, it would not be known whether the payment will be made by the assessee to the tax auditor (assuming it to be an SME) within the stipulated time after raising the invoice. Therefore, as on the date of issuing the tax audit report, it would be impossible to determine as to whether the provision qualifies as ‘sum payable by the assessee beyond the time limit specified in section 15 of MSMED Act’.

As pointed out in the opening paragraphs, it is important to note that, unlike other clauses of section 43B, clause (h) gets attracted only when there is a delay in payment to MSEs, and the provision does not stipulate that all amounts payable to MSEs are allowable on payment basis.

Therefore, in the case of year-end provisions which are not due for payment before the date of making computation of income, whether such provisions would fall within the ambit of section 43B of the Act is uncertain as on the date of making such computation of income.

Strictly interpreting the provision, one may take a view that where an expense is otherwise allowable, the disallowance under section 43B(h) would be triggered only if it is established that payment was made beyond the time limit prescribed under the MSMED Act. In the absence of such a finding at the time of making the computation of income, the expense ought to be allowed. However, when viewed in light of the legislative intent behind the provision, the position is not entirely free from doubt.

CONCLUSION

In summation, while the intent behind section 43B(h) is laudable — to empower MSEs by improving their cash flow discipline — its implementation has ushered in a new layer of tax risk and documentation burden for larger businesses. As with many well-intentioned provisions, the practicalities of execution could result in unintended hardship. It is commonly observed that larger businesses may not yet be equipped with systems to capture all the details required for ensuring compliance with section 15 of the MSMED Act. This may lead to a scenario where, rather than promoting the MSME sector, the additional compliance burden and tax risks dissuade larger enterprises from engaging with small suppliers, thereby proving counterproductive to the government’s objective of supporting and integrating MSMEs into mainstream supply chains. Tax practitioners will thus play a critical role in sensitising clients, setting up supplier verification systems, and aligning accounts payable processes to ensure proper compliance with the provisions and consequent reporting in the tax audit report.

BCAJ Admin

Regulatory Referencer

DIRECT TAX : SPOTLIGHT

1. Amendment in Form No. 27EQ to report collection of tax at source on sale of notified luxury items- Income-tax (Eleventh Amendment) Rules, 2025 – Notification No. 35/2025 dated 22^nd April, 2025

2. CBDT notified ten goods for collection of tax at source, when the sale value exceeds ten lakh rupees – Notification No. 36/2025 dated 22^nd April, 2025

3. Any expenditure incurred to settle proceedings initiated in relation to contravention or defaults under the following laws shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure – Notification No. 38/2025 dated 23^rd April, 2025

(a) the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(d) the Competition Act, 2002 (12 of 2003)

4. CBDT notifies ITR-1 (Sahaj) & ITR-4 (Sugam) for AY 2025-26 – Income-tax (twelfth Amendment) Rules, 2025 – Notification No. 40/2025 dated 29^th April, 2025.

ITR-1 or ITR-4 can be filed with Long term capital gains taxable under section 112A (up to ₹1.25 lakh with no brought forward/ carry forward loss)
Changes made to capture details of deductions claimed under various sections.
Section under which TDS is deducted will be captured in Schedule-TDS.

5. Form ITR-3 amended- Income-tax (Thirteenth Amendment) Rules, 2025 – Notification No. 41/2025 dated 30^th April, 2025

6. Form ITR-5 amended – Income-tax (Thirteenth Amendment) Rules, 2025 – Notification No. 42/2025 dated 1^st May, 2025

7. Form ITR-2 amended – Income-tax (Fifteenth Amendment) Rules, 2025 – Notification No. 43/2025 dated 3^rd May, 2025

8. Form ITR-6 amended – Income-tax (Sixteenth Amendment) Rules, 2025 – Notification No. 44/2025 dated 6^th May, 2025

9. Form ITR-V amended – Income-tax (Seventeenth Amendment) Rules, 2025 – Notification No. 45/2025 dated 7^th May, 2025

10. Form ITR-7 amended – Income-tax (Eighteenth Amendment) Rules, 2025 – Notification No. 46/2025 dated 9^th May, 2025

11. In view of the extensive changes introduced in the notified ITR forms and considering the time required for system readiness and rollout of ITR utilities, CBDT has extended the due date for filing of ITRs for A.Y. 2025-26 which were due for filing on 31^st July, 2025, to 15^th September, 2025 – Press release dated 27^th May, 2025

II. FEMA

1. RBI released draft import-export regulations and directions on 4^th April, 2025

RBI had issued draft Regulations and draft Directions to the Authorised Dealers on Export and Import of Goods and Services, vide Press Release dated July 02, 2024 and kept it open for public feedback. Based on the feedback received and after consultations with various stakeholders, the draft Regulations and Directions have been further revised. RBI has now released these revised draft Regulations and Directions under FEMA. Comments and feedback were invited till 30^th April 2025. BCAS has submitted its representation on the draft regulations which is available on the BCAS website. Presently no timeline has been provided by when RBI will issue final import-export regulations and directions.

[Press Release no. 2025-26/41, dated 4^th April 2025]

2. RBI allows repatriation of full export value from ‘Bharat Mart’ UAE within 9 months of sale from warehouse

‘Bharat Mart’, is a multi-modal logistics network-based marketplace in United Arab Emirates (UAE). It provides Indian traders, exporters and manufacturers access to markets in UAE and worldwide. The following relaxations have been provided:

i) Exporters to realise and repatriate full export value within nine months from date of sale of goods from the warehouse.

ii) AD banks, after verifying the reasonableness, may allow the following without any pre-conditions:

a. Opening / hiring warehouse in ‘Bharat Mart’ by Indian exporter with valid Importer Exporter Code (IEC)

b. Remittances by Indian exporter for initial as well as recurring expenses for setup and continuing business operations of its offices.

[A.P. (DIR Series 2025-26) Circular No. 3, dated 23^rd April 2025]

3. FPIs now permitted to invest in corporate debt securities via general route without short-term investment and concentration limits: RBI.

The RBI has amended Master Directions on ‘Non-Resident Investment in Debt Instruments, 2025’ dated 7th January, 2025. Till now investment by FPIs in corporate debt securities through the general route were subject to the short-term investment limit and concentration limits. To provide greater ease of investment to FPIs, the RBI has decided to withdraw the requirement for compliance with these limits. The Master Directions have also been suitably modified.

[Circular FMRD.FMD.No.01/14.01.006/2025-26 dated 8^th May 2025]

4. IFSCA removes net worth requirement for all ‘Customers’ on ‘India International Bullion Exchange’

The net worth requirement for all class of customers participating in the bullion market is dispensed with. This comes in order to broaden participation and on receiving representation from India International Bullion Exchange (IFSC) Ltd. However, net worth requirement under IFSCA for Qualified Suppliers and Qualified jewellers continue to apply.

[Circular No. IFSCA-DMC/3/2023-Dept. of Metals and Commodities,dated 29^th April 2025]

BCAJ Admin

Recent Developments in GST

A. NOTIFICATION

Vide Notification No. G.S.R. 256(E) dated 24.4.2025, the Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025 are notified.

B. ADVISORY

i) Vide GSTN dated 11.4.2025, the information relating to Reporting Values in Table 3.2 of GSTR-3B is provided.

ii) Vide one more GSTN dated 11.4.2025, the information relating to changes in Table-12 in HSN Code in GSTR-1 or GSTR-1A is provided.

iii) Vide GSTN dated 1.5.2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Sikkim is provided.

iv) Vide GSTN dated 1.5.2025, the information relating to changes in Table-12 and list of documents in table 13 of GSTR-1 or GSTR-1A is provided.

v) Vide GSTN dated 6.5.2025, the information about Invoice-wise Reporting Functionality in Form GSTR-7 on portal is provided.

vi) Vide GSTN dated 8.5.2025, the information about updates in Refund Filing process for various refund categories is provided.

vii) Vide GSTN dated 8.5.2025, the information about updates in Refund Filing process for Recipients of Deemed Export is provided.

C. INSTRUCTIONS

(i) The CBIC has issued instruction No.3/2025-GST dated 17.4.2025 by which instructions for processing of applications for GST registration are provided which are further revised vide instruction dated 18.4.2025.

(ii) The CBIC has issued instruction No.4/2025-GST dated 2.5.2025 by which Grievance Redressal Mechanism for processing of application for GST registration is provided.

(iii) The CBIC has issued instruction No.5/2025-GST dated 2.5.2025 by which instruction about timely production of records/information for audit is provided.

D. ADVANCE RULINGS

Classification – PVC Floor Mats

Manishaben Vipulbhai Sorathiya (Trade Name: Autotech)

(AAAR Order No. GUJ/GAAR/APPEAL/2025/10 (In Application No. Advance Ruling/SGST&CGST/2023/AR/06) Dated: 28.2.2025) (Guj)

The present appeal was filed by M/s. Manishaben Vipulbhai Sorathiya (for short – ‘Appellant’) against the Advance Ruling No. GUJ/GAAR/R/2023/10 dated 9.3.2023 – 2023-VIL-46-AAR in which the AAR, determined classification of above product under CTH 8708, liable to tax @ 28%. In appeal, ld. AAAR noted the facts as under:

The PVC floor mat is made of the following four raw materials.

“[i] PVC leather commonly known as artificial leather

It gives the impression of leather;
It is derived by laminating PVC and fabric;
It is cheaper than leather;
It is classified under HSN 59031090 and leviable to GST @ 12%.

[ii] PU Foam also known as polyurethane foam

It is classified under HSN 39211390 and leviable to GST @ 18%.

[iii] XLPE foam known as cross linked polyethylene foam

It’s a cross linked closed cell foam with compact feel;
Its resistant to water;
It is classified under HSN 39211390 and leviable to GST @ 18%.

[iv] PVC mat, commercially known as Heel pad

The heel pad is nothing but additional foot support for the driver of the vehicle;
It is classified under HSN 39211390 and leviable to GST @ 18%.”

The manufacturing process of the said floor mat was also elaborated.

The ld. AAR held that PVC floor mats will not fall under 3918 but under 8708 because:

” the HSN note 8708 covers parts and accessories of the motor vehicles falling under 8701 to 8705 subject to two conditions first being that the goods in question must be identifiable as being suitable for use solely or

principally with the vehicles mentioned from 87.01 to 87.05 which stands satisfied as the floor mats made of PVC, is suitable for use principally with the motor vehicles for which it is being manufactured, it being a tailor made product;

The second condition is that these goods must not be excluded by the provisions of the note 2 of Section XVII; that PVC floor mats for four wheel motor vehicles docs not fall in the exclusion;”

Appellant reiterated its facts and submissions in appeal. Appellant raised new ground for classification under CTH 5705.

The ld. AAAR observed that this plea of classifying the product under HSN 5705 is made for the first time before it and hence it cannot be entertained. For this purpose, Ld. AAAR relied upon judgment of the Hon. Supreme Court in the case of M/s. I.T.C. Ltd. [2004 (171) EL 433 SC – 2004-VIL-13-SC-CE].

Thus, ld. AAAR rejected to entertain the ground of classifying product under HSN 5705.

In respect of existing decision of AAR, which is in appeal, the appellant sought to argue that floor mats in question have been excluded from HSN 8708 by explanatory notes. However, ld. AAAR noted that the said issue is already dealt with by AAR and considering overall position, Ld. AAAR confirmed AR passed by AAR and dismissed the appeal.

Classification of service – Restaurant vis-à-vis Composite Supply

Pioneer Bakers

(AAAR Order No. 02/ODISHA-AAAR/APPEAL/2024-25 Dated: 18.12.2024) (Odisha)

The facts are that the Petitioner (appellant) M/s Pioneer Bakers is a partnership firm and had filed an application for Advance Ruling on 04.05.2020. Their principal business is producing and selling of bakery products viz cakes, artisan cakes, pastries, pizza, patties, sandwich, self- manufactured ice-creams, handmade chocolates, cookies, beverages etc. They also offer a number of customisation options to customers with respect to the above-mentioned products.

The appellant put various questions for ruling before the ld. AAR and the AR was passed bearing no. 06/ODISHA-AAR/2020-21 dated 09.03.2021 – 2021-VIL-196.

Broadly the ld. AAR held that items prepared at premises of appellant and supplied to customer
from counter are falling in restaurant service, whereas dealing in bought out items is not restaurant service.

Aggrieved by the AR passed by the AAR, the Jurisdictional Officer i.e. Asst. Commissioner, filed an appeal on 28.04.2021 before the AAAR on allegation that the order is obtained by way of colouring the facts and pleaded that the said ruling is liable to be struck down.

The AAAR, concurring with the Department, reversed the AR vide its order No. 02/Odisha- AAAR/Appeal/2021-22 dated 27.07.2021 – 2021-VIL-36-AAAR.

The appellant then approached Orissa High Court by way of writ petition. High Court remanded matter back to AAAR for taking fresh decision after due compliance of the principles of natural justice.

Therefore, these fresh appeal proceedings.

The appellant reiterated the submissions made vide letter dated 28.08.2024 and relied upon the CBIC Circular No. 164/20/2021-GST dated 06.10.2021. Various precedents were cited.

The appellant submitted that it is providing all the services and facilities as in any other restaurant and as such cannot be given a discriminatory treatment and submitted that it charges consideration for various services described by it.

The ld. AAAR summarized facts of the appellant as under:

“5.1. We are given to understand that the Petitioner has established itself as a band in the field of bakery items and especially in cakes. The business of the Petitioner is producing and selling of bakery products viz cakes, artisan cakes, pastries, pizza, patties, sandwich, self-manufactured ice-creams, handmade chocolates, cookies, beverages etc in its various outlets operating in the state of Odisha. It was submitted that the raw materials are manufactured in the nearby workshops which are brought to the outlets for further processing. Nothing is sold directly from the workshop and each and every item is brought to the outlets for sale. Further, it has been submitted that outlets of the Petitioner are equipped with all the facilities to dine such as table and chairs, air conditioner, drinking water, stylish lights for providing nice ambience which provide an overall good experience to the customers. The customers are provided with the option of either enjoying their food in the outlets itself by utilizing the facilities present in the outlets or they are at the liberty to take away their food. At the time of personal hearing, Mr Suresh Tibrewal, Advocate stated that the outlets after a whole lot of customization options and the majority of the goods sold are processed or go through any kind of service such as special packaging, decoration, customization before reaching the customers. He has also stated that the nature of business in the present case is not merely selling of goods but is a combination of goods and services in which the customer avails the services/facilities along with the goods in the outlets of the Petitioner.”

Referring to definition of ‘composite supply’ in Section 2(30) and clause (b) of para 6 of Schedule-II, the activity was held as ‘service’.

The ld. AAAR also referred to Notification No 11/2017-Central Tax (Rate) dated 28-06-2017, as amended by notification No. 46/2017-Central Tax (Rate) dated 14-11-2017, determined the rate to be @ 5% provided no ITC is taken on goods and services used in supplying the service.

However, in respect of supply of items such as birthday stickers, candles, birthday caps, Balloon, Carry Bags, snow sprays etc., the ld. AAAR observed that the said items are being purchased and sold as such without any further processing in the restaurant. The ld. AAAR held that sale of such bought out goods as such, is not a service but sale of goods and not covered by Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 but by Notification No. 1/2017-Central Tax (Rate) as amended from time to time.

Finally, the ld. AAAR passed an issue-wise ruling which is on the same lines as in the original AR, wherein the benefit of 5% was given to restaurant service but not given to brought out items sold without any process.

Classification of service – leasing of electric vehicles, transfer of right to use goods.

True Solar Private Limited.

(AAAR Order No. 03/ODISHA-AAAR/APPEAL/2024-25 Dated: 18.12.2024) (Odisha)

Applicant M/s. True Solar Private Limited is engaged in supply of goods and Services. The applicant has executed a vehicle lease agreement with Lessee named M/s. Techsofin Private Limited of Bhubaneswar, Odisha for supply of electric vehicles (E-Bikes) without operator on lease basis.

The applicant has sought ruling in respect of following questions:

“whether leasing of electric vehicles (E-Bikes/ EVs) without operator can be classified under the heading 9973 – “Leasing or rental services without operator vide Sl. No. 17(viia) or (iii) of the Notification No. 11/2017 – CT(R) dated, 28th June, 2017 as amended vide Notification No. 20/2019 – CT(R) dated, 30^th September, 2019”.

The contention of applicant was that it fulfils criteria laid down by Supreme Court in BSNL and the transaction is for transfer of the right to use the goods and hence transaction is specifically covered under Sl.No.17(iii) of rate notification no. 11/2017 – Central Tax (Rate) dated 28th June 2017 as amended. It was also submitted that even if entry Sl. No.17(iii) is not applicable, entry No.17(viia) will apply where the applicant will be liable to pay tax at the rate of tax applicable to the supply of like goods.

However, in AR proceedings, both the members of AAR took different opinions/views which is summarised below:

“Opinion/ View of AAR SGST Member: – Leasing of electric vehicles (E-Bikes) without operator is classifiable under the heading 9971 i.e. Financial and related services under entry Sl. No. 15 (ii) of Notification No. 11/2017 – CT(R) dated, 28^th June, 2017 as amended vide Notification No. 20/2019 – CT(R) dated, 30^th September, 2019” and the rate of tax will be the same rate as applicable on supply of like goods involving transfer of title in goods.

Opinion/ View of AAR CGST Member – “Leasing of electric vehicles (E-Bikes/ EVs) is classifiable under the heading 9971 under entry Sl. No. 15 (vii) of Notification No. 11/2017 – CT(R) dated, 28th June, 2017 as amended and the rate of tax as applicable is 18% (CGST-9% + SGST-9%).”

Hence the matter was transmitted to Appellate Authority of Advance Ruling (AAAR), Odisha in view of the Section 98(5) of the CGST Act, 2017.

The ld. AAAR observed that lease agreement is executed between the Applicant and its lessee. Ld. AAAR observed that leasing can be of two types – financial lease and operating lease. A financial lease is a lease where the risks and the returns get transferred to the lessee as they decide to lease assets for their businesses. An operating lease, on the other hand, is a lease where the risk and the return stay with the lessor. The AAAR also referred to various differences between a financial lease and operating lease.

Based on above basic position, in respect of Lease Agreement of applicant, the ld. AAAR observed that the applicant has agreed to give and deliver EVs to lessee on lease for forty-eight months, unless termination of the contract/agreement. It also observed that the leasing period of the EVs seems to cover a major part of its economic life of EV and it is contract for the long term.

The ld. AAAR also noted other conditions like maintenance, permits etc. Option was provided to lessee to purchase the asset after expiration of
lease. Therefore, the ld. AAAR observed that the applicant has entered into a financial lease agreement with the lessee and applicant is engaged in supply of financial leasing services/financial and related services. The ld. AAR held that the appropriate heading for the said service would be 9971, entry at Sl. No. 15 of Notification No. 11/2017-C.T. (R), dated 28-6-2017 as amended from time to time and the rate of tax will be the same rate as applicable on supply of like goods involving transfer of title in goods.

ITC vis-à-vis Transportation facility

Kirby Building Systems & Structures India Pvt. Ltd. (AAAR Order No. AAAR.COM/01/2024 dt. 20.2.2025 (in Order in Appeal No. AAAR/07/2025 (Telangana)

The appellant, M/s. Kirby Building Systems & Structures India Private Limited are engaged in manufacture and supply of pre-engineered
buildings and storage racking systems. They provide canteen and transportation facilities to its employees at subsidised rates as per the terms of the employment agreement entered into between the appellant and the employee. The appellant has framed four questions for advance ruling.

Amongst others, vide the impugned order no. 22/2023 dated 15.11.2023 – 2023-VIL 198-AAR, the AAR gave advance ruling on the question raised by the appellant on issue (4) as under:

The appellant filed appeal in respect of above point no. (4).

Appellant submitted that it is arranging for transportation facility at subsidised rate as per the employment agreement by hiring non-air-conditioned buses from third party vendors and discharging applicable GST under Reverse Charge Mechanism (RCM).

The appellant submitted that ITC cannot be restricted merely because there is no statutory obligation for providing transportation facilities.

The ld. AAAR referred to provision of section 16(1) which authorised eligibility to ITC.

The ld. AAAR also referred to provision of Section 17(5) of the Act which blocks ITC in certain cases.

Proviso to Section 17(5) provides as under:

“Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”

The ld. AAAR observed that Section 17(5) clearly stipulates that input tax credit shall be available only if it is obligatory on the part of the employer to provide the impugned services to its employees under any law. In case of appellant, the facility is for personal convenience. The ld. AAAR observed that since the appellant is not under statutory obligation to provide transportation facility to their employees, in terms of Section 17(5)(g) of CGST Act, 2017 read with above proviso, input tax credit is not available to appellant.

The appellant’s contention that they are providing transport services under contractual agreement and ITC cannot be restricted merely because there is no statutory obligation for providing transportation facilities was rejected by the ld. AAAR by observing that a “contractual obligation” cannot be equated with “statutory obligation”. It is also observed in AR that outward transportation activity is held not liable to tax, being covered by Circular no.172/04/2022-GST dt. 6.7.2022 and therefore also ITC is not eligible.

Accordingly, the AR is confirmed by dismissing the appeal.

Classification – HDPE Woven Fabrics, Geo-membrane technical textile

Lamifabs & Papers Pvt. Ltd.

[AAAR Order No.GST-ARA-32/2024-25/B-154 Dated: 26.03.2025 (Mah)]

The applicant, engaged in manufacture/supply of HDPE Woven Fabrics, sought advance ruling in respect of the following questions.

“Q.1 What is the HSN code for GEO MEMBRANCE laminated HDPE woven polymer lining?

Q.2 What is the GST Rate on GEO MEMBRANCE laminated HDPE woven polymer lining?”

Applicant provided relevant information including for raw material, manufacturing process and technical details.

It was submitted the that “other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials” are covered by HSN 3920 and liable to GST @ 18%.

However, Textile products and articles, for technical uses, specified in Note 7 to this Chapter; such as Textile fabrics, felt and felt-lined woven fabrics, coated etc. are covered by HSN 5911 and liable to tax @ 12%.

The ld. AAR observed that “the first stage of manufacturing is the ‘Tape Extrusion Process’ wherein HDPE Granules with UV Stabilized property, with appropriate carbon black admixture are extruded through sheet die to produce solid sheet which is further uniformly slit into number of tapes, which are then passed through hot air oven for twist stretching with proper orientation to the tapes to achieve the required tape width and desired strength. The width of the tape is between 2.1mm to 3.7mm. HDPE Tapes / Strips are then wound on bobbins for further processing. The Second stage of the manufacturing process is the ‘Fabric Weaving Stage’ where the said HDPE Tapes/ Strips of width less than 5mm are taken to circular looms and are woven into HDPE Woven Fabrics. The said High Density UV Stabilized Woven Fabrics are manufactured with specific weaving pattern through circular ring on horizontal and vertical direction to impact the essential property of Geomembrane fabrics i.e. impermeable to water for the specific end use of water retention. The third stage of the manufacturing process is ‘the Lamination Coating’ where the HDPE Woven Fabrics are laminated on both sides, along with sandwich lamination, wherever required, with the suitable combination of specific thickness LDPE Film, LLDP Bonding, UV Stabilizer, some other additives and black masterbatch for carbon content. The fourth stage of the manufacturing process is ‘Cutting and Sealing’ of Geomembrane Fabrics wherein two or more pieces of Geomembrane fabrics are cut to size or length and thereafter used to make the Geomembrane for pond liner by carrying out the process of sealing /joining them together by a suitable heat air blower sealing process keeping an overlap as per standard sealing process.”

The ld. AAR made reference to chapter 5911 which covers Textile products and articles, for technical uses, specified in Note 7 to this Chapter.

The ld. AAR made reference to judgment in case of Porritts and Spencer (Asia) Limited, reported in 1983 (13) ELT 1607 (SC) = 2002-TIOL-2707-SC-CT -1978-VIL-03-SC wherein it is held that when yarn, whether cotton, silk, woollen, rayon, nylon or of any other description or made out of any other material, is woven into fabrics, what comes out is a textile.

The ld. AAR observed that the fabrics woven out of the HDPE tapes are laminated on both sides, along with sandwich lamination, wherever required, with the suitable combination of specific thickness LDPE Film, LLDP Bonding, UV Stabilizer, some other additives and black masterbatch for carbon content.

Referring to General Rules of Interpretation of the Tariff, the ld. AAR observed that in the instant case. Chapter Heading 5911 clearly envisages the use/functionality test for determination of classification of products under this heading in as much as the tariff heading itself mentions that textile products and articles, for technical uses, will be classified under the said heading.

The ld. AAR also made reference to certain decided cases related to same product given by High Court and different AAR.

In view of above, the ld. AAR passed following ruling:

“Question 1: What is the HSN code for GEO MEMBRANCE laminated HDPE woven polymer lining?

Answer: – Geo Membrane for Water Proof Lining is classifiable under Tariff item 59111000.

Question 2: What is the GST Rate on GEO MEMBRANCE laminated HDPE woven polymer lining?

Answer: – GEO MEMBRANCE laminated HDPE woven polymer lining attract @ 12% GST.

BCAJ Admin

Goods And Services Tax

HIGH COURT

16. (2025) 27 Centex 331 (Gau.) DNA Aggrotech Pvt. Ltd. Vs. State Of Assam

Dated 21^st March, 2025

Mere issuance of attachment regarding determination of tax, along with the summary of SCN in DRC-01, cannot be a substitute for issuance of SCN.

FACTS

Petitioner was served with only a summary of the SCN in Form GST DRC-01, along with a statement of tax determination without issuing a proper SCN providing any basis or reasoning for issuance of such SCN. Due to the absence of a detailed SCN, the petitioner was unable to effectively respond. Thereafter, Respondent proceeded to pass the order confirming the demand solely based on summary of SCN in DRC-01. Hence petitioner filed this Writ.

HELD

The Hon’ble High Court observed that a “Statement of SCN” issued in Form DRC-02 as well as Summary of SCN in Form DRC-01 cannot substitute the requirement of issuance of SCN. It is the legal requirement as per section 73 of CGST Act read with Rule 142 of CGST Rules, 2017 and precedent condition prior to passing any order. Accordingly, Impugned Order was not sustainable in the eyes and was set aside.

17. (2025) 26 Centax 241 (Guj.) Infodesk India Pvt. Ltd. vs. Union of India

Dated: 2^nd January, 2025

Refund of unutilised ITC cannot be denied as software consultancy services supplied by wholly owned subsidiary to its foreign holding company qualify as “export of services”.

FACTS

Petitioner was engaged in providing software consultancy services exclusively to its foreign holding company. Petitioner filed a refund application of unutilised ITC treating it as “export of services”. Respondent rejected the claim of petitioner stating that such services are classified as “intermediary services” and consequently refused to sanction refund. Being aggrieved by such rejection, the petitioner filed this Writ Petition before the Hon’ble High Court.

HELD

The Hon’ble High Court observed that the petitioner had rendered services to its foreign holding company in an independent capacity and on a principal-to-principal basis. Accordingly, the Court held that such services qualified as “export of services” and did not fall within the scope of “intermediary services.” Therefore, the rejection of the refund claim was not sustainable, and petition was disposed-off in favour of petitioner.

18. (2025) 27 Centax 292 (Del.) Nand Kishore Gupta vs. Additional Director General, Directorate General of GST Intelligence

Dated 17^th December, 2024.

Proper officer is legally not empowered to seize currency or valuable assets merely on the ground that they constitute unaccounted wealth since they are not relied under any proceedings under GST Law.

FACTS

Respondent carried out a search and seizure operation at the petitioner’s premises. This was done as part of an investigation into alleged fake ITC claims by a third-party entity. During the search, cash amounting to ₹23,50,000/- and silver bars were seized on the grounds of being unaccounted assets. Aggrieved by such seizure, the petitioner approached the Hon’ble High Court, challenging the legality of the action by way of a writ petition.

HELD

The Hon’ble High Court held that the seizure of cash and silver bars was beyond the scope of powers under section 67 of the CGST Act, 2017 by considering the legislative intent of being relevant to any proceedings. It further observed that the power of seizure under this provision is confined to documents, books, or other devices where such information or records is stored and relevant to the investigation of tax evasion, and the meaning of “things” does not extend to currency or valuable assets by applying purposive interpretation. Consequently, the Court directed the respondent to release the seized cash and silver bars along with applicable interest.

19. (2025) 27 Centax 81 (Jhar.) BLA Infrastructure Pvt. Ltd. vs. State of Jharkhand

Dated 30^th January, 2025.

Refund claim of statutory pre-deposit filed after two years of appeal decided favourably cannot be rejected as time limit stated under section 54 of CGST Act is discretionary. Government does not have right to retain the same as per Article 265 of the Constitution of India.

FACTS

An order confirming GST demand for mismatch between GSTR 1 and GSTR 3B was passed in September 2019 under section 74 of CGST Act, 2017. Against this order, petitioner filed an appeal and deposited 10% of the disputed tax as a statutory pre-deposit. The appeal was allowed in petitioner’s favour, and Order-In-Appeal in Form APL-04 was issued on 10th February, 2022. Subsequently, on 11th September, 2024, petitioner filed a refund application for the pre-deposit made at the time of filing the appeal. However, Respondent rejected the application on the ground that it was filed beyond the two-year period prescribed under section 54(1) of the CGST Act, 2017. Hence challenging the rejection, the present petition is made.

HELD

The Hon’ble High Court held that refund of the statutory pre-deposit is a vested right of the assessee, once the appeal is decided in its favour. Further, application for refund of pre-deposit made beyond the period i.e. 2 years from the date of communication of appellate order cannot be rejected on the basis of time bar as per section 54(1) of the CGST Act, 2017 by reading ‘may’ as ‘shall’ looking into the intent of legislature by relying Rakesh Ranjan Shrivastava vs. State of Jharkhand [2024] 4 SCC 419 and Lenovo (India) (P.) Ltd. vs. Jt. Commissioner — 2023 (79) G.S.T.L. 299 (Mad.). The Court in its analysis stated that such rejection of refund and retention of money would defeat the purpose of Article 265 of the Constitution of India which restricts Government to levy and collect tax without authority of law and resulting in conflict with the Limitation Act. Accordingly, the High Court allowed the petition and instructed the Respondent to process the refund application. .

20. [2025] 174 taxmann.com 475 (Jharkhand) Sri Ram Stone Works vs. State of Jharkhand

Dated 9^th May, 2025

Notices issued under section 61 of the JGST Act, 2017, comparing the petitioners’ declared sale prices with prevalent market rates were held to be beyond jurisdiction, as section 61 is limited to identifying discrepancies within filed returns. The Court further held that unless transactions of sale are shown to be sham transactions, the mere fact that the goods were sold at a concessional rate / rate less than the market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value.

FACTS

Petitioners are engaged in the business of selling stone boulders, stone chips, etc. to various customers. In exercise of powers under section 61 of JGST Act, 2017, notices were issued to petitioners stating, in substance, inter alia, that petitioners have sold stone-boulders/stone chips at a price less than the prevalent market price and, accordingly, petitioners were directed to show cause as to why proceeding under section 73/74 be not initiated against them.

The petitioners challenged the validity of the notices, arguing that the issuance of GST-ASMT-10 notices under section 61, in conjunction with Rule 99 of the JGST Rules, was beyond the jurisdiction of the authorities. They contended that the notices did not highlight any discrepancies within their filed returns but rather relied on their own disclosed figures. The notices then sought to compare these declared prices with market rates, which the petitioners argued were outside the scope of Section 61.

HELD

The Hon’ble Court held that the objective of section 61 is to enable an Assessing Officer to point out discrepancies and errors occurring in the return filed by a registered person with the related particulars. In the present case, instead of pointing out discrepancies in the returns filed by writ petitioners, the competent officer has embarked upon an exercise of comparing the price at which petitioners have sold their stone-boulders/stone-chips with that of prevalent market price and, thereafter, accordingly, issued notices to writ petitioners asking them to show cause as to why appropriate proceedings for recovery of tax and dues be not initiated against them. The Court therefore held that notices issued comparing the particulars at which petitioners have sold their goods with that of the prevalent market price are wholly without jurisdiction and beyond the scope of section 61 of the Act. It is settled law that unless transactions of sale are shown to be sham transactions, the mere fact that the goods were sold at a concessional rate/rate less than the market price, would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value.

21. [2025] 174 taxmann.com 474 (Andhra Pradesh) Kishor Kumar Reddy vs. Deputy Assistant Commissioner of State Tax

Dated 30^th April, 2025

In absence of a signature and DIN number on the assessment order, the Court set aside the order and attachments and directed the State Tax Officer to proceed afresh after giving notice and by assigning a DIN number.

FACTS

The petitioner was issued an assessment order by the Deputy Assistant Commissioner of State Tax, followed by notice in Form GST DRC-16 directing the attachment of the petitioner’s immovable property. The properties of the petitioner were attached. These orders were challenged by the petitioner. The assessment order, in Form GST DRC-07, was challenged by the petitioner on various grounds, including the ground that the said proceeding does not contain the signature of the assessing officer and also DIN number, on the impugned assessment order.

HELD

Relying upon various judgments, the Hon’ble Court held that the absence of the signature of the assessing officer on the assessment order would render the assessment order invalid. As regards the issue of non-mentioning of the DIN on the assessment order, the Hon’ble Court referred to CBIC circular No.128/47/2019-GST dated 23rd December, 2019 and the order of Hon’ble Supreme Court in the case of Pradeep Goyal vs. Union of India & Ors 2022 (63) G.S.T.L. 286 (SC) to hold that due to non-mentioning of DIN number and absence of the signature of the assessing officer, the impugned assessment order and consequent attachment would have to be set aside. The Court directed the State Officer to conduct a fresh assessment, after giving notice and by assigning a DIN number and signature to the said order.

22. [2025] 174 taxmann.com 114 (Allahabad) Arena Superstructures (P.) Ltd. vs. UOI

Dated 22^nd April, 2025

The assessment orders and demand issued to the assessee after the approval of the Resolution Plan by the NCLT are liable to be quashed.

FACTS

The petitioner went into a Corporate Insolvency Resolution Process. As per the procedure, the creditors were asked to submit their claims before the Resolution Professional. The specific notice was also sent to the G.S.T. department by the Resolution Professional to the petitioner. On 19th July, 2022, the Resolution Plan was approved by the NCLT. The impugned order for the Assessment Year 2017-18 was passed on 4th February, 2025, i.e. after the Resolution Plan was approved by NCLT.

HELD

Relying inter alia upon the decisions in the cases of (i) N.S. Papers Ltd. vs. Union of India [Writ Tax No. 408 of 2021 dated 11-12-2024] and (ii) Vaibhav Goyal vs. Deputy Commissioner of Income Tax [Civil Appeal No. 49 of 2022, dated 20-3-2025] [2025 172 taxman.com 601 (SC], Hon. High Court held that as per the law laid down by Hon’ble Supreme Court, the principle is crystal clear that once the Resolution Plan has been approved by the NCLT, all other creditors are barred from raising their claims subsequently, as the same would disrupt the entire resolution process. The Court therefore quashed the assessment orders and demand notices passed under section 74 of the CGST/UPGST Act, 2017.

23. [2025] 174 taxmann.com 629 (Calcutta) Kuddus Ali vs. Assistant Commissioner of Central Tax

Dated 28^th April, 2025

When self-assessed tax declared in the statement of outward supplies furnished under section 37 is included for payment in returns filed under section 39 of the CGST Act, there cannot be the direct recovery of the disputed demand by resorting to section 75(12) of the CGST Act.

FACTS

A notice in Form ASMT 10 dated 20^th September, 2024 was issued, identifying certain discrepancies in the returns filed by the pointing out short payment of duty arising out of a difference between tax payable as per declarations in GSTR-9. The petitioner responded, explaining that it had mistakenly disclosed a higher liability of IGST in GSTR-9 and the correct liability is disclosed in GSTR-9C. The petitioner admitted delay in filing of GSTR-3B returns and sought payment of interest in instalments. The orders were passed and the GST authorities proceeded to recover the aforesaid amount by invoking the provisions of section 75(12) of the said Act.

HELD

The Hon’ble Court clarified that “self-assessed tax” under section 75(12) of the CGST Act includes tax payable on outward supplies furnished under section 37 but not included in the return under section 39. In this case, the petitioner’s self-assessed tax under section 37 was duly included in the returns filed under section 39, and the respondents did not dispute this. Consequently, the Court held that section 75(12) could not be invoked once the self-assessed tax under section 37 is incorporated in the returns under section 39, as per the explanation to the provision. Furthermore, since the proceedings were initiated under section 61 and the petitioner’s explanation was not accepted by the department, the Court ruled that the appropriate course of action must be under sections 65, 66, 67, 73 or 74, rather than section 75(12) of the CGST Act.

The Court therefore set aside the recovery proceedings and directed the petitioner to treat the recovery orders as show cause notices and respond thereto.

BCAJ Admin

शीलं परं भूषणम् (नीति शतक ८०)

Character is ultimate ornament

This is a wonderful verse from Neetishatak. The great Sanskrit poet Bhartruhari wrote 3 ‘shataks’, i.e. 100 verses each on 3 subjects.

Neeti (नीति) Ethics

Shrungar (शृंगार) Romance

Vairagya (वैराग्य ) Renunciation or detachment.

The text of the captioned verse is as follows: –

ऐश्वर्यस्य विभूषणं सुजनता शौर्यस्य वाक्संयमो

ज्ञानस्योपशमः श्रुतस्य विनयो वित्तस्य पात्रे व्ययः ।

अक्रोधस्तपसः क्षमा प्रभवितुर्धमस्य निर्व्याजता

सर्वेषामपि सर्वकारणमिदं ,शीलं परं भूषणम् ।।

Bhartruhari describes what are the things that glorify or adorn certain virtues or qualities.

ऐश्वर्यस्य विभूषणं सुजनता Courteous and dignified behaviour glorifies one’s wealth or richness. We use the word Aishwarya to denote wealth. However, Aishwarya really means ‘power’.

शौर्यस्य वाक्संयमो Restraint on your ‘tongue’ glorifies the valour. If one is brave, one should not be boasting but remain quiet.

ज्ञानस्योपशमः Your rich or deep knowledge is glorified by your quietness or gentleness. As we say, ‘shallow water makes much noise’. Conversely, deep water does not make noise!

श्रुतस्य विनयो श्रुत means Vidya. Your talent, knowledge, skills. That becomes impressive if you are polite, unassuming. All of us know विद्या विनयेन शोभते!

वित्तस्य पात्रे व्ययः Wise and proper spending dignifies your money. One should not be extravagant, and showing off wealth-wise spending also includes help to a deserving person or cause.

अक्रोधस्तपसः Your penance (तप) is glorified by your restraint on anger. The sages conquered or managed their anger and avoided cursing others now and then.

Durvasa was known to be a short-tempered sage who kept cursing others even for small faults. But this is an exception.

क्षमा प्रभवितु: Forgiveness glorifies the person in power or authority.

धर्मस्य निर्व्याजता One’s s traightforward and innocent behaviour is the real indicator of one’s religiousness. A truly religious person cannot be fanatic or crooked.

सर्वेषामपि सर्वकारणमिदं Above all these virtues and qualities, the supreme is ‘character’.

शीलं परं भूषणम् Character glorifies everything!

भूषण (Bhushan) means ornaments; something that lends grace, beauty or fes tivity; a manner or quality that adorns. The word ‘character’ denotes purity, honesty, and integrity in every respect. It is moral excellence and firmness.

Even for a professional like us, knowledge, skills, talents, and wealth may be impressive; but nothing can be as graceful as character or ethics.

There is another verse with a parallel meaning.

हस्तस्य भूषणं दानम् Helping or doing charity is the ornament of your hand.

सत्यम् कण्ठस्य भूषणम् ! The real ornament of your neck (throat) is ‘truth’.

श्रोत्रस्य भूषणम् शास्त्रम् The ornament of your ears is listening to shastras (gaining knowledge).

भूषणै: किं प्रयोजनम् !! Then why are golden ornaments or diamonds required at all?

Another version of the last line is: –

शीलं सर्वस्य भूषणम् Character is the real ornament of your entire personality.

Today, in industry, we find that certain groups may be compromising on ethics and showing off their prosperity. As against this, certain groups command respect and reputation for their ethical behaviour or dealings, i.e. their character. The same is the case with professionals like CAs, lawyers, doctors and so on. Scientists and highly placed persons like Dr. Abdul Kalam were known for their simplicity and character. Our saints like Dnyaneshwar, Tukaram, Kabirji, and Mirabai are still remembered because of their character. Readers can observe this principle in all walks of life!

So, friends, let us be ethical – both internally and externally.

BCAJ Admin

Miscellanea

1. TECHNOLOGY AND AI

#Chatbots Having Minimal Impact on Search Engine Traffic: Study

AI chatbots have barely made a dent in traffic to popular search engine sites over the past two years, according to a study by SEO and backlink services firm.

The study analysed global web traffic from April 2023 to March 2025. In the most recent year, chatbot sites accounted for just 2.96% of the visits received by search engines. Between April 2024 and March 2025, search engine traffic declined only slightly — down 0.51% to 1.86 trillion visits — while chatbots saw an 80.92% year-over-year spike in traffic.

The modest drop in search traffic suggests that, despite explosive growth, AI chatbots are not yet displacing traditional search behavior in any meaningful way.

“Even with ChatGPT’s massive growth, it still sees approximately 26 times fewer daily visits than Google,” wrote the author of the study, Sujan Sarkar, founder of OneLittleWeb.

The study also maintained that search engines are evolving rather than fading, integrating AI tools to offer a richer, more personalized user experience. At the same time, chatbots are carving out their niche in tasks requiring direct, customised responses.

The study also ranked chatbots by visits. ChatGPT was at the top of the list, followed by DeepSeek, Gemini, Perplexity, Claude, Microsoft Copilot, Blackbox AI, Grok, Monica, and Meta AI.

It noted the fastest-growing chatbots were DeepSeek and Grok. DeepSeek experienced a staggering surge in traffic, with total visits jumping from 1.5 million to 1.7 billion during the two-year study period, an increase of 113,007%. Grok’s growth was 353,787%, increasing from 61,200 visits to 216.5 million.

Vena contended that the real contest isn’t just about traffic. “It’s about controlling the user’s starting point when they have a question or goal,” he said. “Chatbots may win in productivity or assistance, while search engines still dominate for broad exploration and commerce. Integration and default positioning will shape the future more than features alone. The next wave may involve blended experiences that merge the strengths of both.”

Sterling agreed that the simple traffic analysis approach doesn’t tell the whole story about how usage is changing. “As people become more sophisticated about AI, they’re being more discriminating about how to use it versus search,” he noted. “The idea that people either use AI or search is false. Both are being used, but the ways that AI and search are used are evolving.”

Enderle pointed out that the market is at the very beginning of this trend. “I expect by 2030 kids will look back at non-AI search engines like they now look back at dial phones, asking, how anyone lived in these dark times,” he predicted.

(Source: www.techworld.com dated 6^th May, 2025)

2. WORLD NEWS

#US loses last perfect credit rating amid rising debt

The US has lost its last perfect credit rating, as influential ratings firm Moody’s expressed concern over the government’s ability to pay back its debt. In lowering the US rating from ‘AAA’ to ‘Aa1’, Moody’s noted that successive US administrations had failed to reverse ballooning deficits and interest costs.

A triple-A rating signifies a country’s highest possible credit reliability, and indicates it is considered to be in very good financial health with a strong capacity to repay its debts. Moody’s warned in 2023 that the US triple-A rating was at risk. Fitch Ratings downgraded the US in 2023 and S&P Global Ratings did so in 2011. Moody’s held a perfect credit rating for the US since 1917.

The downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s said in the statement. In a statement, the White House said it was “focused on fixing Biden’s mess”, while taking a swipe at Moody’s.

“If Moody’s had any credibility,” White House spokesman Kush Desai said, “they would not have stayed silent as the fiscal disaster of the past four years unfolded.” A lower credit rating means countries are more likely to default on their sovereign debt, and generally face higher borrowing costs.

Moody’s maintained that the US “retains exceptional credit strengths such as size, resilience and dynamism and the continued role of the US dollar as the global reserve currency”. The firm said it expects federal debt to increase to around 134% of gross domestic product (GDP) by 2035, up from 98% last year.

GDP is a measure of all the economic activity of companies, governments, and people in a country. The BBC has reached out to the US Department of Treasury for comment. The downgrade came on the same day as Trump’s landmark spending bill suffered a setback in Congress. Trump’s so-called “big, beautiful bill” failed to pass the House Budget Committee, with some Republicans voting against it.

Figures showed the US economy shrank in the first three months of the year as government spending fell and imports surged due to firms racing to get goods into the country ahead of tariffs. The economy contracted at an annual rate of 0.3%, a sharp downturn after growth of 2.4% in the previous quarter, the Commerce Department said.

(Source: www.bbc.com dated 17^th May, 2025)

3. ENVIRONMENT

# ‘Why the mighty Himalayas are getting harder and harder to see

I grew up in Nepal’s capital watching the Himalayas. Ever since I left, I’ve missed sweeping, panoramic views of some of the highest mountain peaks on Earth. Each time I visit Kathmandu, I hope to catch a glimpse of the dramatic mountain range. But these days, there’s usually no luck.

The main culprit is severe air pollution that hangs as haze above the region. And it’s happening even during the spring and autumn months, which once offered clear skies. Just last April, the international flight I was in had to circle in the sky nearly 20 times before landing in Kathmandu, because of the hazy weather impacting visibility at the airport.

Even from the major vantage point of Nagarkot, just outside Kathmandu, all that could be seen was haze, as if the mountains did not exist.

“I no longer brand the place for views of ‘sunrise, sunset and Himalayas’ as I did in the past,” said Yogendra Shakya, who has been operating a hotel at Nagarkot since 1996.

“Since you can’t have those things mostly now because of the haze, I have rebranded it with history and culture as there are those tourism products as well here.”

Scientists say hazy conditions in the region are becoming increasingly intense and lasting longer, reducing visibility significantly.

Haze is formed by a combination of pollutants like dust and smoke particles from fires, reducing visibility to less than 5,000m (16,400 ft). It remains stagnant in the sky during the dry season – which now lasts longer due to climate change. June to September is the region’s rainy season, when Monsoon clouds rather than haze keep the mountains covered and visibility low.

Lucky Chhetri, a pioneering female trekking guide in Nepal, said hazy conditions had led to a 40% decrease in business. “In one case last year, we had to compensate a group of trekkers as our guides could not show them the Himalayas due to the hazy conditions,” she added

On the Indian side, near the central Himalayas, hoteliers and tour operators say haze is now denser and returns quicker than before. “We have long dry spells and then a heavy downpour, unlike in the past. So with infrequent rain the haze persists for much longer,” said Malika Virdi, who heads a community-run tourism business in the state of Uttarakhand.

South Asian cities regularly top lists of places with highest levels of air pollution in the world. Public health across the region has been badly impacted by the toxic air, which frequently causes travel disruption and school closures. Experts believe the Himalayas are probably the worst affected mountain range in the world given their location in a populous and polluted region. This could mean the scintillating view of the Himalayas could now largely be limited to photographs, paintings and postcards.

“We are left to do business with guilt when we are unable to show our clients the mountains that they pay us for,” said trekking leader Ms Chhetri. “And there is nothing we can do about the haze.”

(Source: www.BBC.com Author Navin Singh Khadka dated 13^th May, 2025)

BCAJ Admin

Trust Under A Will

INTRODUCTION

Several readers would be aware of the concept of a Will. It is the last wish / desire of a person and takes effect once the person making the Will dies. Many readers would also be familiar with the concept of a Trust.

A trust is defined under the Indian Trusts Act, 1882 as an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. A Trust Deed is the deed executed between the settlor and the trustees which lays down the constitution of the trust. It is the charter of incorporation of the trust which defines the beneficiaries and the settlor. It also lays down the rights and duties of the trustees in relation to the beneficiaries. In Superintendent of Stamps and Chief Controlling Revenue Authority vs. Govind Farmeshwar Nair, AIR 1967 Bom 369, a Full Bench of the Bombay High Court ruled:

“When a man creates a trust and constitutes himself a trustee,

he undoubtedly disposes of his property though he is not transferring it.”

However, what if the Trust is a Trust under a Will? This combines the salient features of both a Will and a Trust. The Trust is created by virtue of a Will and hence, is called a Trust under a Will.

Let us examine the important facets of this document.

KEY CONCEPTS

A Trust has 3 parties – a Settlor, Trustees and one or more Beneficiaries.

(a) Settlor: He is the person who settles the trust or forms the trust by appointing the trustees. His role is only limited to forming the trust. Once the trust deed is executed and the trust is set- up he is no longer associated with the trust in any manner whatsoever. However, if the settlor, under the trust deed, retains any powers to enjoy the property settled in the trust, then it would become a revocable trust. The settlor can be any person, individual, company, etc.

(b) Trustee: Just as Directors are the organs by which a company functions, trustees are the organs by which a trust functions. In fact, the relation between the trustees and the trust is stronger than that between directors and the company. In several instances, the trust entity is not recognised but only the trustees are recognised. The trustees could be individuals or even a company. For instance, in most mutual funds, the trustee is a Trustee Company. In case of a trustee company, the board of directors of the trustee company would administer the trust. The number of trustees could be 1, 2, 3, etc. The initial trustees are appointed in the Deed by the Settlor. A person appointed as a trustee is not bound to accept the trusteeship and he may refuse the obligation. A settlor may also become a trustee. The trustees are subjected to several obligations and duties under the Act and also have several rights and powers. In addition, they also derive their powers under the Deed.

(c) Beneficiaries: The beneficiary is the person for whose benefit the trust was created in the first place. He is the raison-d’etre behind a trust. If it were not for the beneficiaries, there would be no trustees and there would be no trust. The beneficiaries could be individuals, companies, etc. The settlor / trustee can also be a beneficiary. However, certain precautions should be taken depending upon the facts of the case. Any person capable of holding property may be a beneficiary. Even a minor or a lunatic or an insane person may be a beneficiary.

A Trust under a Will also has the same 3 parties but the Settlor in this case is the testator, i.e., the person drafting the Will. Hence, such a Trust is not a transfer inter vivos (transfer between living persons) but it is a testamentary document. A trust created in the lifetime of the settlor is a living trust while a trust under a Will is created only once the settlor dies.

The trust may be created for any lawful purpose. Thus, in case the purpose of the trust is forbidden by law, or it defeats the provisions of the law or it is fraudulent or it involves injury to the person or property of another or it is such that the Court regards as immoral or opposed to public policy, then it would be treated as if it is not for a lawful purpose. In case the purpose is unlawful then the trust is void ab intio. For instance, if a trust under a Will is set up to facilitate illegal gambling business in India, the object of the trust being unlawful, it is void ab initio.

Just like all Wills, this Will too needs to comply with the requirements of being a valid Will. If the Will is held to be invalid or forged or obtained by fraud, then both the Trust and the Will will fail. The Will needs to be dated, attested by two witnesses and the testamentary capacity of the testator must be sound. Elsewhere in this publication, these concepts are examined in greater detail. Those principles would equally apply to such a Will that also creates a Trust.

Thus, this document would be jointly governed by the provisions of the Indian Succession Act, 1925 (in as much as they pertain to Wills) and the Indian Trusts Act, 1882 (in respect of the trust portion).

The Madras High Court in Athmaram Rao vs. Shanthan Phawar, A.S.(MD) No.111 of 2015, Order dated 28.03.2018, has held that a trust is called a Private Trust when it is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained. Private Trusts are governed by the Indian Trusts Act, 1882. A Private Trust may be created inter vivos or by Will. If a trust is created by Will, it shall be subject to the provisions of Indian Succession Act, 1925.

MODE OF INCORPORATION

The first step towards the formation of such a trust is the execution of a Will by the testator. The draft Trust Deed would be annexed to the Will and would come into effect once the Will is executed. Alternatively, instructions could be given to the Executors for setting up a Trust and laying down key features of the Trust.

The Will would specify the Trustees of this Trust. It is essential that at the time when the Will is executed, the Trustees named under the Will should be capable of and willing to act as Trustees of this Trust.

A Trust under a Will does not need registration with the Sub-registrar of Assurances even if it is in relation to an immovable property. This is because the document creating the Trust is a testamentary instrument.

BENEFITS

There is no income-tax incidence on the testator / his estate in case of a trust created under a Will. India does not levy estate duty / inheritance tax and hence, this too would not be an issue. The Trust created under the Will is akin to a legatee / beneficiary of the Will.

The receipt of any assets by the trust would be under the Will and hence, there would not be any incidence of income-tax under s.56(2)(x) of the Income-tax Act, 1961. It may be noted that this not a transfer by a settlor to a trust but one of a testator to a trust and hence, the condition of all beneficiaries being the relative of the settlor would not be applicable for the trust to claim a tax exemption. This is a big advantage that a trust under a Will enjoys compared to a living trust.

The Income-tax Act, 1961 has beneficial tax provisions for trust created under a Will:

(a) Business income received by a trust is taxable at the maximum marginal rate. However, business income received by a trust, created under the Will of a person that is created exclusively for the benefit of any relative dependent upon the testator for support and maintenance, is taxable on a slab rate basis. The condition is that such a trust must be the only one so created by the testator.

(b) The income of a discretionary trust is generally taxable at the maximum marginal rate. However, the income of a trust under a Will is not taxable at the maximum marginal rate. The condition is that such a trust must be the only one so created by the testator. Here there is no condition that the beneficiary must be a relative dependent upon the testator for support and maintenance. Thus, a trust under a Will created for any beneficiary would enjoy this tax treatment.

The Ahmedabad ITAT in Nathiben Kalidas Patel Family Trust vs. ITO, [2025] 173 taxmann.com 992 (Ahmd. ITAT) has held that a trust created by a Will are not be subjected to be taxed at maximum marginal rate (MMR), but are to be taxed at rates applicable to AOPs and they are not to be taxed at MMR as specified in Section 167B of the Income-tax Act 1961, since the applicability of MMR has been specifically excluded by Section 164(1) First Proviso itself. This specific exclusion would override the general provision of Section 167B of the Act. Again, the Ahmedabad ITAT in the case of ITO vs. Rajnikant Gulabdas Sheth Family Trust [1987] 20 ITD 668 (Ahmd. ITAT) held that a discretionary trust created under a Will was to be taxed at normal rate and not at MMR.

The CBDT also vide its Circular has discussed the question of whether the provisions of section 167B, which generally provide for charging of tax at MMR on the total income of an AOP where the individual shares of members are unknown, would also apply to income under a trust declared by any person by Will where such trust is the only trust declared by him. It has held that there was never an intention to subject the income of such trusts to tax at MMR. Where a specific provision had been made in the law in relation to any matter and where that provision was beneficial to the taxpayer, that matter was to be governed by that special provision and not by any other general provision. Accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an AOP and not at MMR.

STAMP DUTY

The Maharashtra Stamp Act, 1958 does not define an instrument of trust. Art. 61 of Schedule I to the Maharashtra Stamp Act lays down the duty applicable on a Trust Deed executed in the State of Maharashtra. This Act levies duty on a trust that is not created under a Will. Thus, a trust under a Will does not attract any stamp duty. Similarly, Art. 64 of Schedule I to the Indian Stamp Act, 1899, that levies duty on a trust does not apply to a trust created under a Will. Hence, even if immovable property is bequeathed under a Will to a trust or bequeathed to a trust that is created under a Will, there would not be any stamp duty. This is one of the biggest advantages of a trust under a Will.

Similarly, registration is not needed for a trust under a Will that includes immovable property. This is because the Registration Act, 1908 expressly exempts any testamentary instrument.

PRECAUTIONS

While a trust under a Will enjoys marked tax benefits compared to a living trust, it also comes with its shares of concerns.

If the Will is held to be invalid, improperly attested, lacking in testamentary capacity, one obtained by fraud / forgery, etc., then the trust also fails. If the Will requires a probate, then the trust cannot be functional until the Will is probated. Thus, the trust is intricately linked with the Will and failure of the Will leads to a failure of the trust. However, the converse may not always be true. If the trust fails owing to some reasons, the Will need not necessarily fail. In such a case, the bequest to the trust would fail and the assets would then be bequeathed to the alternative beneficiary/universal beneficiary, if any, named under the Will.

CONCLUSION

A trust created by a Will is an interesting document and one that needs to be carefully considered before using. It is very useful when a person wants to place assets in trust for the benefit of his relatives but he does not want to cede control over those assets during his lifetime.

BCAJ Admin

Own Use Exception

Ind AS 109 is applicable to commodity contracts / contracts to buy or sell non-financial items that may be settled net. What is the meaning of “net settlement”? In accordance with Ind AS 109, there are various ways in which an entity may be able to net settle a contract to buy or sell a non-financial item. These include:

a) The terms of contract permit either party to settle it net.

b) The contract does not contain any specific terms permitting parties to settle it net. However, the entity has a past practice of settling similar contracts net. For example, net settlement may occur either with the counterparty, or by entering into an offsetting contract or by selling the contract before it is exercised or lapses. Infrequent historical incidences of net settlement in response to events that could not have been foreseen at inception of a contract would not taint an entity’s ability to apply the own-use exception to other contracts; for example, an unplanned break-down in a power plant. However, any regular or foreseeable events leading to net settlements would taint the entity’s ability to apply the own-use exception to other contracts.

c) For similar contracts, the entity has a practice of taking delivery of the underlying and selling it within a short period after delivery to generate a profit from short-term fluctuations in price or dealer’s margin.

d) Non-financial item covered in the contract is readily convertible to cash.

However, it is noted that Ind AS 109 will not apply to all contracts that may be settled net in cash. A contract for purchase or sale of non-financial items will still be scoped out from Ind AS 109, if the entity can demonstrate that the contract was entered into and continue to be held for the receipt / delivery of a non-financial item in accordance with its expected purchase, sale or usage requirements. This is commonly referred to as ‘own use exception’ or ‘normal purchase or sale exception (NPSE)’.
There was always a question around how to apply the own-use exception to renewable energy contracts for which the source for production of the renewable electricity is nature-dependent so that supply cannot be guaranteed at particular times or in particular volumes. Examples of sources include wind-, solar- and hydroelectricity.

Consider the example below.

EXAMPLE

Kleen Co. enters into a power purchase agreement (PPA) with a windmill operator to purchase electricity. Both Kleen and the operator are connected through a common national grid. The PPA obliges Kleen to acquire a 45% fixed share of the wind energy produced by the operator. The price per unit for the energy is fixed in advance and remains stable throughout the contract duration of 25 years. The operator does not guarantee a specific amount of output (energy) but estimates with 80% probability an expected amount. The energy produced is transferred to Kleen through the national grid.

The total energy demand of Kleen by far exceeds both the contracted share of the estimated output and the contracted share of the peak output of the wind park. However, Kleen does not operate its production facilities 24/7 but pauses production during the night times, on weekends and holiday season. There is thus a mismatch between the demand profile of Kleen and the supply profile of the wind park.

Kleen is obliged to acquire the energy of the wind park in the amount (45% of the current production volume) and at the time it is produced. Since Kleen has no feasible option to store the energy, it sells energy that cannot be consumed immediately (e.g., on weekends or overnight) to the spot market and repurchases (at least) the same amount from that market at times when the production facilities are operated. The windmill operator continues to transfer the amounts of energy fed into the grid to the account of Kleen and Kleen has to sell unused amounts from its account to third parties. The process of selling and repurchasing is designed to be an autopilot that acts without the intention of trading to realise profits and has the sole intention to enable the Kleen’s operations. The process of selling and repurchasing is delegated to a service provider.

For the purpose of this discussion, it is assumed that the conditions do not change throughout subsequent periods and that some market transactions become necessary for unused amounts of energy.

Will own-use exception apply in this case, and consequently whether the above PPA is to be treated as a derivative or not?

Kleen has considered aspects relating to whether the PPA is accounted for applying another Ind AS Accounting Standard, for example Ind AS 110 Consolidated Financial Statements, Ind AS 111 Joint Arrangements and / or Ind AS 116 Leases, and believe those do not apply in the extant fact pattern.

RELEVANT REQUIREMENTS OF IND AS 109 FINANCIAL INSTRUMENTS

Paragraph 2.4 of Ind AS 109 states:

This Standard shall be applied to those contracts to buy or sell a non financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non financial item in accordance with the entity’s expected purchase, sale or usage requirements. However, this Standard shall be applied to those contracts that an entity designates as measured at fair value through profit or loss in accordance with paragraph 2.5.

Paragraph 2.6 of Ind AS 109 states:

There are various ways in which a contract to buy or sell a non- financial item can be settled net in cash or another financial instrument or by exchanging financial instruments. These include:

(a) when the terms of the contract permit either party to settle it net in cash or another financial instrument or by exchanging financial instruments;

(b) when the ability to settle net in cash or another financial instrument, or by exchanging financial instruments, is not explicit in the terms of the contract, but the entity has a practice of settling similar contracts net in cash or another financial instrument or by exchanging financial instruments (whether with the counterparty, by entering into offsetting contracts or by selling the contract before its exercise or lapse);

(c) when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling it within a short period after delivery for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin; and

(d) when the non-financial item that is the subject of the contract is readily convertible to cash.

A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or delivery of the non financial item in accordance with the entity’s expected purchase, sale or usage requirements and, accordingly, is within the scope of this Standard. Other contracts to which paragraph 2.4 applies are evaluated to determine whether they were entered into and continue to be held for the purpose of the receipt or delivery of the non financial item in accordance with the entity’s expected purchase, sale or usage requirements and, accordingly, whether they are within the scope of this Standard.

ACCOUNTING FOR THE PPA

On the date of inception of the contract, Kleen regards the sole purpose of the PPA as a contract to buy a non-financial item as it is entered for the purpose of the receipt of energy in accordance with the it’s expected usage requirements as laid out in Ind AS 109.2.4. Kleen does not designate the contract as measured at fair value through profit or loss in accordance with Ind AS 109.2.5. Kleen views the difference in prices (lower prices during night times, on weekends and during holiday season when production is paused vs. higher prices when repurchased on spot markets during peak times) as costs of storage, i.e., it uses the energy spot market as a storage facility. Kleen does not operate as a trading party in the market, the production schedule and the consumption profile dictate spot price transactions.

Kleen further analyses whether the contract can be settled net in cash in accordance with Ind AS 109.2.6.

Kleen is always in a net purchaser position, i.e., it buys more energy from the spot market than it has sold to it based on a monthly view (meaning that for every calendar month, the Kleen has purchased more energy on spot markets than it has sold). The average purchase price exceeds the average sale’s price, so that Kleen incurs expenses for “storing” the energy on sport markets which is part of the fee paid to a service provider involved to sell unused amounts of energy to and repurchase additional demands from the grid/spot markets.

The various views are presented below.

VIEW A

Kleen assesses at the inception of the contract that:

(a) the terms of the contract do not provide for an option to settle net in cash or by exchanging financial instruments.

(b) Kleen has no practice of settling similar contracts net in cash or another financial instrument or by exchanging financial instruments.

(c) Kleen intends to sell unwanted energy out of the contract to the spot market and also intends to purchase at least the same amount of energy at times when it is needed. Kleen uses the spot market as a storage mechanism and does not intend to generate profits from those transactions although it cannot rule out that some transactions will lead to profits or losses. Transactions on the spot market are solely used to store the energy.

(d) Kleen assesses the non-financial item to be readily convertible to cash as there is an active market where unused energy can be sold and purchased at any time.

Kleen concludes that the own-use-exception applies to its contract because it is entered into and continues to be held for the purpose of taking delivery of the non-financial asset (energy) in accordance with the entity’s expected (energy) consumption.

VIEW B

Kleen expects transactions on the spot market already at inception of the contract for the amount of energy it cannot use when it is produced. Under View B this would disqualify the contract from the application of the own-use-exception because the contract was not – in its entirety – being held to the purpose of the receipt of the energy at the specific time of production (Ind AS 109.2.4) but with some anticipated sales transactions.

VIEW C

As Kleen intends to sell unused energy to the spot market, it creates a practice of settling similar contracts on the spot market and therefore the contract is not entered into for the purpose of the receipt of the energy (Ind AS 109.2.6(b)).

VIEW D

Under this View D, the transactions on the spot market may lead to a breach of the requirement set out in Ind AS 109.2.6(c) (generating profit from short term fluctuations in price or dealer’s margin) because Kleen cannot rule out that profit arises from some sales transactions, even though this is not intended.

AMENDMENTS TO IND AS 109

As can be seen above, multiple views were possible. However, Ind AS 109 is now proposed to be amended with respect to contracts referencing nature-dependent electricity that requires an entity to buy and take delivery of the electricity when it is generated. These contractual features expose the entity to the risk that it would be required to buy electricity during a delivery interval in which the entity cannot use the electricity. The entity might also have no practical ability to avoid making sales of unused electricity because the design and operation of the electricity market in which the electricity is transacted under the contract require any amounts of unused electricity to be sold within a specified time. Such sales are not necessarily inconsistent with the contract being held in accordance with the entity’s expected usage requirements. An entity entered into and continues to hold such a contract in accordance with its expected electricity usage requirements if the entity has been, and expects to be, a net purchaser of electricity for the contract period. An entity is a net purchaser of electricity if it buys sufficient electricity to offset the sales of any unused electricity in the same market in which it sold the electricity.

In determining whether an entity is a net purchaser of electricity, the entity shall consider reasonable and supportable information (that is available without undue cost or effort) about its past, current and expected future electricity transactions over a reasonable amount of time. The entity identifies ‘a reasonable amount of time’ by considering the variability in the amount of electricity expected to be generated due to the seasonal cycle of the natural conditions and the variability in the entity’s demand for electricity due to its operating cycle. In determining whether the entity has been a net purchaser, ‘a reasonable amount of time’ shall not exceed 12 months.

An entity shall apply these amendments for annual reporting periods beginning on or after 1st April, 2026. Earlier application is not permitted. Some of the amendments are subject to prospective application and others subject to retrospective application.

BCAJ Admin

Section 271(1)(c) : Penalty – Notice must be precise and there should be no room for ambiguity – Veena Estate (P.) Ltd. (Bom) distinguished.

6. Pr. Commissioner of Income Tax- 2, Thane vs. Pacific Organics Pvt. Ltd., [ITXA No. 58 OF 2020, Dated: 29/04/2025 (Bom) (HC)]

Section 271(1)(c) : Penalty – Notice must be precise and there should be no room for ambiguity – Veena Estate (P.) Ltd. (Bom) distinguished.

The ITAT held that the penalty show cause notice was ambiguous, as the relevant portions were not ticked, or the irrelevant portions were not struck off.

The Hon. Court referred to the Full Bench decision, in the case of Mohd. Farhan A. Shaikh vs. Deputy Commissioner of Income Tax, Central Circle 1, Belgaum [2021] 125 taxmann.com 253 (Bombay), wherein it was held that if the notice contains no caveat that the inapplicable portion was to be deleted, any action based on such notice would be inferred. The Full Bench held that the notice must be precise and there should be no room for ambiguity.

The tax department relied upon Veena Estate (P.) Ltd. vs. Commissioner of Income-tax [2024] 158 taxmann.com 341 (Bombay) wherein, the Appellant-Assessee, who had never raised any ground about the ambiguity of the notice before the Assessing Officer, Appellate Authority and ITAT, attempted to raise such a ground for the first time in an Appeal under Section 260-A of the Income Tax Act, 1961. This was not allowed by the coordinate bench.

The Hon. Court observed that such facts do not exists in the present Appeal, and therefore, the decision in Veena Estate (P.) Ltd. (Supra) was distinguishable. The ITAT had rightly followed the Full Bench in the case of Mohd. Farhan A. Shaikh (supra).

The Appeal was accordingly dismissed.

BCAJ Admin

Section 37 : Disallowing write-off of the deposits and interest – the business loss incurred by the appellant company u/s 28 of the Act in the course of its business – commercial expediency: Section 115J : The provision does not contain any reference to concept of ‘above the line’ or ‘below the line’:

5. M/s. Mahindra & Mahindra Ltd. vs. CIT

City – II, Mumbai

[ITXA No. 416 OF 2003, Dated: 2^nd May, 2025 (Bom)(HC)][AY 1990-91]

Section 37 : Disallowing write-off of the deposits and interest – the business loss incurred by the appellant company u/s 28 of the Act in the course of its business – commercial expediency:

Section 115J : The provision does not contain any reference to concept of ‘above the line’ or ‘below the line’:

The appeal pertains to Assessment Year 1990-91. Facts are that the assessee is a public limited company and is engaged in the manufacture of Jeeps, Tractors, Implements and other products. The assessee filed the return of income for the period from 1^st April, 1989 to 31^st March, 1990 (Assessment Year 1990-91). The Assessing Officer, by an order of assessment dated 26^th March, 1993, inter alia; held that the assessee had placed deposits with certain concerns, who have declined to pay the deposits and interest on the ground that the deposits are linked to the amounts provided to M/s. Machinery Manufacturers Corporation Ltd. (MMC) by them, which have now become irrecoverable as MMC was directed to be wound-up by the Bombay High Court by an order passed on 16^th April, 1989. It was further held that amount of deposit and interest due to the assessee has been adjusted by various concerns against loan given by them to MMC. Therefore, the assessee cannot claim to have not recovered its dues. It was also held that the assessee had liquidated the liability of MMC which act is for consideration other than business. The Assessing Officer, therefore, disallowed a sum of ₹49,18,786/- claimed under the head miscellaneous expenses as well as a sum of ₹200.47 lac claimed by the assessee on account of deduction of write-off of deposits and interest.

On appeal, the CIT(Appeals) held that the assessee did not incur the expenditure to carry on the business and the business of the MMC was not the business carried out by the assessee. Therefore, the expenses incurred by the assessee are not admissible under Section 37(1) of the 1961 Act. The CIT (Appeals), while computing the book profit under Section 115J of the 1961 Act, held that the provision for warranties made by the assessee cannot be allowed.

The Tribunal, by an order dated 25^th February, 2003 confirmed the disallowance in view of the order passed by the Tribunal in assessee’s own case being ITA No.6886/Bom/92 for the Assessment year 1989-90. The Tribunal further held that the provision for warranties made by the assessee on the estimated basis in view of the past experience cannot be termed as an ascertained liability. It was also held that a provision for past services liability in respect of retirement gratuity has to be added back. It was also held that the amount was debited in the profit and loss account below the line and hence, it cannot be said that the profit and loss account was prepared as per Part II and III of Schedule VI to the Companies Act and cannot be disturbed.

The Hon. High Court referred to the decision of Hon. Supreme Court, in CIT vs. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC) wherein the court examined the question, whether an expenditure incurred on account of commercial expediency is admissible as deduction under Section 37 of the 1961 Act. The Supreme Court held that the expenditure incurred was a deductible expenditure.

The Court observed that the claim of the assessee for the expenditure of 42.89 lac and the deduction of write-off ₹622.01 lac being the amount lent to MMC including interest due and advances for purchase of machinery given in the course of dealing with MMC was disallowed by the authorities under the Act for the preceding year i.e. the year 1989-90. The assessee filed an appeal viz. ITXA No.626 of 2002 which was decided by a Division Bench of Bombay High Court vide order dated 9^th June, 2023 in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax.

It was observed that the revenue, while negating the claim of the assessee for allowing the expenses, has relied upon the order passed by it in ITA No.6886/Bom/92 for the Assessment Year 1989-90. The aforesaid order passed by the Tribunal was set aside by a Division Bench of Bombay High Court in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax (order dated 9^th June, 2023). The order passed by the Division Bench of the Bombay High Court has been accepted by the revenue and it has not filed any SLP against the judgment of the Division Bench.

The Hon. Court agreed with the view taken by Division Bench of this Court in assessee’s own case in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax (order dated 9^th June, 2023) for the following reasons. Admittedly, MMC is a subsidiary of the assessee and assessee held 27% equity capital of MMC since its incorporation. The assessee promoted MMC on 15^th May, 1946. From the date of incorporation of the assessee, it was the managing agent of MMC and the assessee has acted as a managing agent till 1974 when the Companies Act, 1974 abolished the Managing Agency System. However, due to severe recession in the textile industry, MMC started making losses. Thereupon, the MMC was wound-up. The assessee, in its board meeting held on 27^th March, 1989 agreed to incur expenditure for maintenance of MMC. Thereafter, on 10^th July, 1990, the Board of Directors of the assessee agreed to resolve the dispute to meet the expenditure till the affairs of MMC were wound-up. The Board of Directors approved the expenditure of ₹49,19,000/- (Rupees Forty-nine lac nineteen thousand only) made by the assessee in the previous year relevant to Assessment Year 1990-91. The assessee held substantial portion of equity capital of MMC and MMC was regarded in public and official circles as a Mahindra Company. The assessee, in order to protect and preserve the assets and to protect the value of goodwill attached to the assessee by various sections of the society and on the ground of commercial expediency, incurred expenditure, which is permissible as deduction.

The contention urged on behalf of the revenue in opposition to the aforesaid claim had already been dealt with by a Division Bench of the Bombay High Court. Therefore, even otherwise, the assessee is entitled to deduction of the sum of ₹49,18,786/- as well as a sum of ₹200.47 lac.

As far as the second substantial question of law on Section 115J of the Act, the same mandates that in case of a company whose total income as computed under the provisions of the Act is less than 30% of the book profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI of the Companies Act 1956, after certain adjustments, the total income chargeable to tax will be 30% of the said book profit. Explanation to Section 115J (1A) provides that the net profit so computed is to be increased by certain amounts and it is to be reduced by certain amounts which are mentioned therein. The provision does not contain any reference to concept of ‘above the line’ or ‘below the line’.

The Hon. Court referred to decision of the Hon.Supreme Court, in Apollo Tyres Ltd. vs. Commissioner of income tax [2002] 255 ITR 273 (SC) wherein it dealt with the issue whether the Assessing Officer can question the correctness of the profit and loss account prepared by the assessee and certified by the statutory auditors of the Company as having been prepared in accordance with the requirements of part II and III of Schedule VI to the Companies Act. It was held that sub section (1A) of Section 115J mandates the company to maintain its accounts in accordance with the requirements of Companies Act and is bodily lifted from the Companies Act into the Act of 1961 for the limited purpose of making the said account so maintained as a basis for computing the company’s income for levy of income-tax. It was also held that the provision does not empower the authority under the Act to probe into the account accepted by the authorities under the Companies Act. It was also held that if the legislature intended the Assessing Officer to reassess the company’s income, then it would have stated in Section 115-J that “income of the company is accepted by the Assessing Officer”.

The aforesaid principle was reiterated by the Supreme Court in Malayala Manorama Company Limited vs. Commissioner of Income Tax, Trivandrum [2008] 300 ITR 251. Thus, from the aforesaid enunciation of law by the Supreme Court, it is evident that the Assessing Officer does not have jurisdiction to go behind the net profit shown in profit and loss account except to the extent provided in Explanation to Section 115J. For the aforementioned reasons the second substantial question of law was answered in favour of the assessee.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

Settlement Commission — Settlement of case — Power of Settlement Commission — Immunity from penalty and prosecution — Factors to be considered — Assessee co-operated in process of settlement and made full and true disclosure — Settlement Commission exercising discretion to proceed with application and granting immunity from penalty and prosecution considering Bonafide conduct of assessee — Order of Settlement commission need not be interfered with in writ jurisdiction:

17 . Dy. CIT vs. ASM Traxim Pvt. Ltd.:

[2025] 474 ITR 25 (Del):

A.Ys. 2004-05 to 2011-12:

Date of order 28^th October, 2024:

Ss. 245C, 245D(4) and 245H of ITA 1961:

Settlement Commission — Settlement of case — Power of Settlement Commission — Immunity from penalty and prosecution — Factors to be considered — Assessee co-operated in process of settlement and made full and true disclosure — Settlement Commission exercising discretion to proceed with application and granting immunity from penalty and prosecution considering Bonafide conduct of assessee — Order of Settlement commission need not be interfered with in writ jurisdiction:

During the search u/s. 132 and survey u/s. 133A of the Income-tax Act, 1961, the Department seized documents and material and also recorded the statements of various individuals of the assessee-company which belonged to the same group. During the pendency of assessment proceedings u/s. 153A and 153C Settlement applications were filed based on a combined or consolidated account which was prepared by chartered accountants. The Settlement Commission held such accounts to be unreliable on grounds of discrepancies found and the auditors themselves having expressed reservations with respect to the finding in their report and which was also qualified by various disclaimers. The Settlement Commission thereafter, directed a joint verification of all available primary records. Pursuant to the joint verification the Settlement Commission rejected the audited book results and based upon the joint verification determined the income for the purpose of disposal of the settlement applications.

On a writ petition filed by the Revenue challenging the order of the Settlement Commission u/s. 245D(4) in so far as it granted immunity to the assessee from prosecution and penalty proceedings the Delhi High Court held as under:

“i) Once the conditions of full and true disclosure is held to be satisfied, the same would not partake of a separate or different hue for the purpose of section 245H of the Income-tax Act, 1961. Any view to the contrary if taken, would result in an incongruous situation arising since it would constrain the court to hold that the test of full and true disclosure applies differently for the purpose of computation and grant of immunity from prosecution and penalty proceedings. While the power to grant immunity stands enshrined in a separate provision in Chapter XIX-A, such power is exercised Contemporaneously by the Settlement Commission while disposing of an application u/s. 245D for settlement . The Statute does not prescribe the power of computation and grant of immunity being exercised on the basis of tests and precepts which could be said to be separate or distinguishable. Section 245H postulates the power of immunity being liable to be invoked identically on a full and true disclosure of income and co-operation rendered before the Settlement Commission. The Act confers a finality and conclusiveness upon orders made by the Settlement Commission. This becomes evident from the reading of section 245-I which proscribes any matter or issue which stands concluded by an order of the Settlement Commission being reopened in any proceedings under the Act. The Legislature intended to imbue finality upon an order of the Settlement Commission is further underscored by section 245-I using the expression “save as otherwise provided ….”. Thus, an order under Chapter XIX-A could be reviewed or reopened only on grounds set out therein and no other.

ii) The Settlement of the case was primordially based on the applicant making a full and true disclosure before the Settlement Commission which was enjoined thereafter to conduct proceeding in terms of the provisions contained in Chapter XIX-A. It was such disclosure which was thereafter tested and evaluated by the Settlement Commission in terms as contemplated under subsection (2) and (2C) of section 245D. The applications as made by the assessee had crossed that threshold. The Computation of income itself was concluded by the Settlement Commission based upon a joint verification that was undertaken. The assesses themselves had taken a stand that their audited accounts were not liable to be taken in to consideration and that they could not form the basis for the proceedings as were laid before the Settlement Commission and had admitted that those accounts were unreliable. It was in such backdrop they had participated in the proceedings before the Settlement Commission and had agreed to collaborate in the ascertainment of a true and correct computation of income for the A. Ys. 2004-05 to 2011-12 being undertaken. It was this position as struck by parties which appear to have informed the decision of the Settlement Commission to order a joint verification.

iii) The Settlement Commission had at no stage concluded that the application as made were liable to be rejected either on the ground that the assessee had failed to make a full and true disclosure or that they had failed to co-operate in the proceedings. If these twin conditions were found to be satisfied for the purpose of section 245D(4), such issue could not be questioned or reagitated while examining the validity of the discretionary power exercised by the Settlement Commission u/s. 245H. Both section 245D(4) and section 245H are premised on identical considerations. It would be incorrect to uphold the contention of a perceived dichotomy between the opinion with respect to full and true disclosure u/s.245D and that which would guide section 245H.

iv) The essential ingredients liable to be borne in consideration by the Settlement Commission for the purpose of grant of immunity are co-operation by the applicant in the computation of total income in the settlement proceedings and a full and true disclosure of income being made. The joint survey which was undertaken was itself based on all original documents and material having been duly placed by the assessee. It was therefore, not alleged that the assessee either failed to co-operate in those proceedings or withheld information. Chapter XIX-A also does not envisage the Settlement Commission to be bound by the voluntary disclosure that an applicant may choose to make. It is empowered to enquire and investigate as well as call for report and material before completing the computation of income. The order of the Settlement Commission u/s. 245D(4) did not warrant interference under article 226 of the Constitution of India.

v) The power to sever and disgorge a part which is offending and unsustainable could be wielded, provided it does not impact the very foundation of an order. The consideration for the framing of an order u/s. 245D(4) and 245H did not proceed on a consideration of factors which could be said to be distinct or independent. Both were informed by and founded upon co-operation and full and true disclosure and which were the essential prerequisites for computation of the settlement amount as well as consideration of grant of immunity. These two factors thus constituted the very substratum of an application for settlement. Interfering with the grant of immunity on grounds as suggested by the Department would essentially amount to the court questioning the validity of the acceptance of the application itself by the Settlement Commission and that was not even their suggestion in these proceedings. If the twin statutory conditions are found to be satisfied and thus meriting an order of settlement u/s. 245D(4) being rendered, the position would not very or undergo a change when it came to the question of grant of immunity.”

BCAJ Admin

Salary — Perquisites :— 1) Meaning of perquisite — Condition precedent for considering payment as perquisite — Amount must have been paid to the Assessee as employee — Stock options provided to ex-employees — Stock option was not perquisite — No exercise of stock option — No income chargeable to tax; 2) Assessability — Stock options given to ex-employee — No exercise of stock option — No income chargeable to tax:

16. Sanjay Baweja vs. DCIT(TDS):

[2025] 474 ITR 376 (Del.):

Date of order 30^th May, 2024:

Ss. 5 and 17(2) of ITA 1961

Salary — Perquisites :— 1) Meaning of perquisite — Condition precedent for considering payment as perquisite — Amount must have been paid to the Assessee as employee — Stock options provided to ex-employees — Stock option was not perquisite — No exercise of stock option — No income chargeable to tax; 2) Assessability — Stock options given to ex-employee — No exercise of stock option — No income chargeable to tax:

The Assessee is an ex-employee of a company FIPL, which is a wholly owned subsidiary of FMPL, and FMPL in turn is a wholly owned subsidiary of FPL, Singapore. In 2012, FPL introduced an Employee Stock Option Plan (ESOP) wherein FPL granted certain stock options to eligible persons, including employees of its subsidiaries. As per the plan, the Assessee was granted 1,27,552 stock options on and from 01-11-2014 to 31-11-2016 with a vesting schedule of four years. Due to the restructuring at FPL, the Assessee received a communication in April 2023 from FPL that based on the number of options held by the Assessee as on 23-12-2022, FPL had, as a one-time measure, decided to grant compensation of USD 43.67 per option towards loss in the value of options. Further, it was also stated that FPL would be withholding tax on the said compensation.

Thereafter, the Assessee filed an application u/s. 197 for no deduction of tax by FPL. However, the application was rejected on the ground that the amount received would be in the nature of perquisite u/s. 17(2)(vi) of the Act. Against the said rejection, the Assessee filed a writ petition before the High Court. The Delhi High Court allowed the petition of the Assessee and held as follows:

“i) An amount received by an employee as a perquisite would be taxable. Perquisites, as defined in section 17(2) of the Act, constitute a list of benefits or advantages, which are made taxable and are incidental to employment and received in excess of salary. As per section 17(2)(vi) of the Act, perquisites include the value of any specified security allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at a concessional rate to the employee-assessee. The most crucial ingredient of this inclusive definition is “determinable value of any specified security received by the employee by way of transfer or allotment, directly or indirectly, by the employer”. As per Explanation (c) to section 17(2)(vi) of the Act, the value of specified security could only be calculated once the option is exercised. A literal understanding of the provision would provide that the value of specified securities or sweat equity shares is dependent upon the exercise of option by the assessee. Therefore, for an income to be included in the inclusive definition of “perquisite”, it is essential that it is generated from the exercise of options, by the employee. Hence the condition precedent for considering a payment as a perquisite, is that the payment must be made by an employer to his employee.

ii) The manner or nature of payment, as comprehensible by the deductor, would not determine the taxability of such transaction. It is the quality of payment that determines its character and not the mode of payment. Unless the charging section of the Income-tax Act, 1961 elucidates any monetary receipt as chargeable to tax, the Department cannot proceed to charge such receipt as a revenue receipt and that too on the basis of the manner or nature of payment, as comprehensible by the deductor of tax at source.

iii) The stock options were merely held by the assessee and had not been exercised till date and thus, they did not constitute income chargeable to tax in the hands of the assessee as none of the contingencies specified in section 17(2)(vi) of the Act had occurred. Moreover, the compensation was a voluntary payment and not transfer by way of any obligation. The present was not a case where the option holder had exercised his right. Rather, the facts suggested that the assessee had not exercised his options under the plan till date. Due to the disinvestment of the business from the Singapore company, the board of directors of that company had decided to provide a one-time voluntary payment to all the option holders pursuant to employees stock option plan. The management proceeded by noting that there was no legal or contractual right under the plan to provide compensation for loss in current value or any potential losses on account of future accretion to the stock option holders. The payment in question was not linked to the employment or business of the assessee, rather it was a one-time voluntary payment to all the option holders of stock options, pursuant to the disinvestment of the business from the Singapore company. Even though the right to exercise an option was available to the assessee, the amount received by him did not arise out of any transfer of stock options by the employer. Rather, it was a one-time voluntary payment not arising out of any statutory or contractual obligation. The rejection of application was not valid. [Since the transaction already took place on July 31, 2023, liberty was accorded to the assessee to file an application for refund of the tax deducted at source before the Department. The Department was further directed to consider the application of the assessee.]”

BCAJ Admin

Offences and prosecution — Deduction of tax at source — Delay in payment of tax deducted at source — Delayed payment of tax deducted at source to Department with interest without objection by Department — Delay explained by assessee as due to crisis in company — No malafide intention of evasion on part of assessee — Prosecution after a lapse of more than three years quashed:

15. SVSVS Projects Pvt. Ltd. vs. State of Telangana:

[2025] 474 ITR 306 (Telangana):

A.Ys. 2011-12: Date of order 30^th January, 2024:

S. 276B of ITA 1961:

Offences and prosecution — Deduction of tax at source — Delay in payment of tax deducted at source — Delayed payment of tax deducted at source to Department with interest without objection by Department — Delay explained by assessee as due to crisis in company — No malafide intention of evasion on part of assessee — Prosecution after a lapse of more than three years quashed:

There was an allegation against the Assessee that for the AY 2011-12, TDS was deducted by the Assessee but not deposited with the Central Government in time. As per the data available online, there was a delay on 39 occasions and on the basis of several such delays, it was alleged that the Assessee deliberately did not deposit tax to the credit of Central Government which was a punishable offence u/s. 276B. The Assessing Officer issued a letter dated 16/01/2013 stating that the tax deducted at source payable was ₹77,37,097 which was delayed and the interest for such delay was ₹13,36,278. However, the Assessee had paid interest of ₹12,37,164 and therefore balance interest of ₹99,114 was payable u/s. 201(1A) of the Act. The said balance interest was paid on 19^th March, 2013.

Subsequently, on 14th March, 2014, a letter was issued by the Commissioner proposing to launch prosecution for not depositing the TDS with the Central Government within the stipulated time and an opportunity of hearing was given to the Assessee on 7^th April, 2014. On 25/07/2014, the Assessee responded by stating that the entire amount of TDS along with interest was paid and that the delay was not wilful or negligent but due to financial crisis in the company. On 2^nd December, 2016, the Commissioner granted sanction for prosecution and complaint was filed by the Assessing Officer on 3^rd February, 2017.

The Telangana High Court allowed the writ petition filed by the Assessee and held as follows:

“i) The payment of the entire tax deducted at source for the A. Y. 2011-12 with interest was paid by the assessee even prior to the letter addressed by the Income-tax Officer. Having received the notice, the balance of tax deducted at source interest was also paid. The Department had accepted both the tax deducted at source amounts and the interest component without any objection. Having accepted the entire amount nearly one year thereafter, the proposal for launching prosecution was made and two years and nine months thereafter sanction was accorded by the Commissioner for prosecution. No doubt, the tax deducted at source was credited to the Central Government account, though with a delay. However, the penal interest that was attracted was totally paid without raising any objection. The delay had occurred on 39 occasions and since the payments were delayed, the interest component was collected.

ii) The assessee had clarified that the delay in crediting the tax deducted at source to the Central Government account was on account of crisis in the company. In such circumstances, it could not be said that the company entertained any fraudulent intention to avoid payment of the tax deducted at source. No useful purpose would be served at this length of time by prosecuting the assessee. When the entire amount of tax deducted at source with interest had been paid even prior to the first communication from the Department and the balance interest amount had been paid after notice, it would be appropriate to quash the proceedings against the assessee. Accordingly, the criminal proceedings against the assessee before the Special Judge for Economic Offences were quashed.”

BCAJ Admin

A. Offences and Prosecution — Sanction for prosecution — Deduction of tax at source — Delay in depositing with revenue — Assessee depositing tax deducted with Revenue for A.Ys. 2012-13 to 2018-19 with interest though belatedly — Effect of circulars issued by CBDT — Interpretation of provisions of s. 276B to include delay in deposit of tax deducted at source manifestly arbitrary — Prosecution quashed: B. Offences and prosecution — Sanction for prosecution — Principal Officer — Directors of Assessee company prosecuted for delay in payment of tax deducted at source with Revenue — Non-issue of notice and order to treat any of them as principal officer of the assessee — No order imposing penalty as “deemed to be an assessee in default” on assessee or its directors — Criminal complaints against directors of assessee not stating consent, connivance or negligence on their part as required u/s. 278B(2) — Directors of assessee cannot be prosecuted: C. Offences and prosecution — Deduction of tax at source — Scope of s. 278B(2) — Conduct of business of company must have nexus with the offence committed — Amendment in law from year 1997 — Use of the phrase “as required by or under the provisions of Chapter VII-B” — Linked only with and explains manner of deduction of tax and payment thereof — Assessee deposited entire tax deducted at source with Revenue for A.Ys. 2012-13 to 2018-19 with interest belatedly — Prosecution quashed:

14. Hemant Mahipatray Shah vs. Anand Upadhyay:

[2025] 482 ITR 1 (Bom.):

A.Ys. 2012-13 to 2018-19: Date of order 12^th August, 2024:

Ss. 2(35)(b), 201, 221, 276B, 278B and 279(1) of ITA 1961

A. Offences and Prosecution — Sanction for prosecution — Deduction of tax at source — Delay in depositing with revenue — Assessee depositing tax deducted with Revenue for A.Ys. 2012-13 to 2018-19 with interest though belatedly — Effect of circulars issued by CBDT — Interpretation of provisions of s. 276B to include delay in deposit of tax deducted at source manifestly arbitrary — Prosecution quashed:

B. Offences and prosecution — Sanction for prosecution — Principal Officer — Directors of Assessee company prosecuted for delay in payment of tax deducted at source with Revenue — Non-issue of notice and order to treat any of them as principal officer of the assessee — No order imposing penalty as “deemed to be an assessee in default” on assessee or its directors — Criminal complaints against directors of assessee not stating consent, connivance or negligence on their part as required u/s. 278B(2) — Directors of assessee cannot be prosecuted:

C. Offences and prosecution — Deduction of tax at source — Scope of s. 278B(2) — Conduct of business of company must have nexus with the offence committed — Amendment in law from year 1997 — Use of the phrase “as required by or under the provisions of Chapter VII-B” — Linked only with and explains manner of deduction of tax and payment thereof — Assessee deposited entire tax deducted at source with Revenue for A.Ys. 2012-13 to 2018-19 with interest belatedly — Prosecution quashed:

The petitioner is a Director of a company M/s. Hubtown Ltd (‘the Assessee Company’). During the previous years relevant to A.Ys. 2012-13 to 2018-19. The Assessee Company deducted tax at source but delayed paying the same to the Government.

Show cause notices were issued to the Assessee Company and its Directors which were replied and the explanations provided. However, the Assessing Officer arrived at a conclusion that the Assessee and its Directors were responsible for paying tax as per section 204 and had, therefore, committed default u/s. 200 read with rule 30 of the Income-tax Rules without reasonable cause to pay the tax so deducted under the various sections of the Act from payments made to various parties, which amounted to an offence punishable u/s. 276B read with section 278B.

The Commissioner of Income-tax (TDS) gave sanction u/s. 279(1) to prosecute the Assessee Company and its Directors u/s. 276B r.w.s. 278B as prima facie they were liable to be prosecuted under these sections. Accordingly, complaints were filed before the Magistrate Court. The Magistrate arrived at a conclusion and issued process against the Assessee Company and the Petitioner.

The order of the Magistrate was challenged before the Sessions Court by filing criminal revision application. However, the Sessions Court also rejected the revision application and confirmed the issuance of process directed by the Magistrate.

The Petitioner Director filed writ petition against the said order of the Sessions Court. The Bombay High Court allowed the petition and held as follows:

“i) The scope of section 276B of the Income-tax Act, 1961, as amended by the Finance Act, 1997 ([1997] 225 ITR (St.) 113), will have to be understood in its correct perspective. It covers cases of failure to pay and not mere delay in deposit of tax deducted at source. In the unamended provisions prior to the year 1997, the words “as required by or under the provisions of Chapter XVII-B” could be read along with the words “both”. Under the amended provisions from the year 1997, the criminal liability is attracted on failure to pay. The phrase “as required by or under the provisions of Chapter XVII-B” is separately mentioned in clause (a) of section 276B and hence, is linked only with and explains the manner in which tax is required to be deducted and not the manner of payment thereof. Therefore, under the amended provisions, if the tax deducted at source has been paid in full, even with some delay, section 276B would not be attracted.

ii) Prosecution u/s. 276B should not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government. No such situation will apply to levy of interest u/s. 201(1A). In this context CBDT bearing F. No. 255/339/79-IT(Inv.), dated May 28, 1980 may be referred to.

iii) The provisions of 278B(1) is for prosecuting an offender, the term “conduct of business of the company” must have a nexus with “the offence committed” and hence, in the context of such offence u/s. 276B ought to be interpreted (which is in relation to “failure to pay” the tax deducted at source) to be the “principal officer” who has been made responsible, u/s. 204(iii) , for paying the tax deducted at source to the Government. The proviso to section 278B(1) prescribes “absence of knowledge” as a valid defence for invoking the section. Where a person is declared a “principal officer” of a company by an “order” under section 201(1), it would, prima facie, fulfil the requirement of presumption of knowledge. The term “director” which has been separately defined u/s. 2(20) has not been used in section 278B(1). As such director is not covered thereunder. Sub-section (2) of section 278B which commences with a non obstante clause provides an action to prosecute a person which expressly applies to a director. Emphasis is on the words “with the consent”, “connivance” or “attributable to the neglect” of such director, manager, secretary or other officer of the company.

iv) Admittedly, tax deducted at source by the assessee had already been deposited with interest as provided u/s. 201(1A). No notice had been issued by the Assessing Officer to any of the petitioners u/s. 2(35)(b) to treat any of them as principal officer of the assessee. The complaints had been filed against the assessee and the petitioners who were its directors, for delay in depositing the tax deducted at source. The taxes deducted at source by the assessee had already been deposited with interest as provided for u/s. 201(1A). No order as contemplated u/s. 201(1) read with section 201(3) had been passed treating any of the petitioners as principal officer of the assessee and by which such principal officer was “deemed to be assessee-in-default”. No order imposing penalty, either initially or further penalty, as “deemed to be an assessee-in-default” u/s. 221 has been passed against the assessee or any of the petitioners for the A. Y. 2017-18. Though the petitioners were “directors” of the assessee, no contention had been made in the complaints regarding “consent”, “connivance” or “negligence” as required u/s. 278B(2)

v) A combined reading of circulars dated May 28, 1980 and April 24, 2008 contemplate that prosecution ought not to be launched where the tax has been deposited. The words “where the amount of default has been deposited in the meantime” in the circular dated May 28, 1980 signify such intent and the words “in addition to the recovery steps as may be necessary in such cases” in circular dated April 24, 2008 also signifies that there are pending arrears which need to be recovered. The ratio laid down in Madhumilan Syntex Ltd. vs. Union of India [2007] 290 ITR 199 (SC), would not be applicable in view of the circular dated April 24, 2008 and, therefore, it cannot be treated as a precedent for the period after April 24, 2008. The circular dated April 24, 2008 prescribes that the prosecution is to be launched within sixty days of detection of the default. Though the circular also prefixes the requirement with the words “preferably”, it also signifies that if not in sixty days the period cannot extend indefinitely for an unreasonable period. If section 276B is interpreted to include the delay in deposit of tax deducted at source it would make the provision manifestly arbitrary.

vi) The definition of “principal officer” as contemplated in section 2(35) , required the Assessing Officer to issue notice to any person connected with the management or administration of the assessee for his intention of treating him as the ”principal officer” thereof. The obligation did not end with mere issue of a notice. Section 201(1) , proviso to section 201(1) and 201(3) made it mandatory for the Assessing Officer to pass an order. The order was also appealable under section 246(1)(i). The order would determine which officer of the assessee was proposed to be dealt as “principal officer” and in view of the exclusion under the proviso to section 201(1), whether the assessee and its principal officer should be “deemed to be assessee-in-default”.

vii) Section 2(35)(b) postulates the Assessing Officer to issue notice of his “intention to treat” a person connected with the management and administration of an assessee as its “principal officer” that mere issuance of notice would not ipso facto become a final “determination” of classification and identification of a person as “principal officer”. Since treating a person as such would not only have civil but also penal consequences. As such, an order making such determination was necessary. Such “adjudication” was contemplated u/s. 201 when such person other than the assessee was held to be a principal officer and was also thereafter deemed to be an assessee-in-default. Any person aggrieved by such order would have remedies available under section 246(1)(i). The term “principal officer” has been used singular and not in plural and the word “officer” is further premised by the word “principal” which signifies “main” officer and not all the officers who may in some way be connected with the management or administration of the company.“Determination” could therefore, be done only while passing an order u/s. 201(1). Section 204(iii) also defines and fixes the responsibility for paying the tax deducted at source in relation to the company on its “principal officer”.

viii) The offences being offences u/s. 276B would imply that the failure to pay the tax deducted at source must have direct relation, namely, consent, connivance or neglect of such person.

ix) The Revenue had not invoked the provisions of section 221 read with section 201(1) to impose penalty against the assessee or the principal officer of the assessee for “failure to pay the whole or any part of tax, as required by or under this Act” and hence could not be permitted to prosecute the petitioners for the same substantive act which was also categorized as an “offence” u/s. 276B . As such, further trial of the petitioners by the criminal court was not permissible which would tantamount to abuse of process of the court. The orders of issuance of process by the Additional Chief Metropolitan Magistrates and the orders rejecting the criminal revision applications by the Additional Sessions Court were quashed and set aside.”

BCAJ Admin

Glimpses of Supreme Court Rulings

3. Vaibhav Goel and Ors. vs. Deputy Commissioner of Income Tax and Ors.

Civil Appeal No. 49 of 2022 Decided on: 20.03.2025

Insolvency and Bankruptcy Code – After the approval of the Resolution Plan on 21^st May 2019, the Income Tax Department issued demand notices dated 26^th December 2019 and 28^th December 2019 under the IT Act concerning assessment years 2012-13 and 2013-14, respectively to the Corporate Debtor undergoing Corporate Insolvency Resolution Process – Held – All the dues including the statutory dues owed to the Central Government, if not a part of the Resolution Plan, shall stand extinguished and no proceedings could be continued in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 of the Insolvency and Bankruptcy Code, 2016.

The Corporate Insolvency Resolution Process (CIRP) was initiated concerning the corporate debtor M/s. Tehri Iron and Steel Casting Ltd. (‘the CD’). The Joint Resolution Applicants submitted a Resolution Plan dated 21^st January 2019. The National Company Law Tribunal (‘the NCLT’), vide its order dated 21^st May 2019, approved the Resolution Plan submitted by the Appellants.

The Resolution Plan had referred to the liability of ₹16,85,79,469/- (Rupees Sixteen-crores, eighty-five lakhs, seventy-nine thousand, four-hundred and sixty- nine only) of the Income Tax Department for the assessment year 2014-15 based on the demand dated 18^th December 2017 which was rectified under Section 154 of the Income Tax Act, 1961 (for short, ‘the IT Act’). The liability was shown in the Resolution Plan under the heading “Contingent liabilities”.

After the approval of the Resolution Plan, the Income Tax Department issued demand notices dated 26^th December 2019 and 28^th December 2019 under the IT Act concerning assessment years 2012-13 and 2013-14, respectively, in respect of the CD. However, admittedly, no claim about the demands for the two assessment years was submitted before the Resolution Professional. The Monitoring Professional, addressed a letter to the Income Tax Department, contending that the demands for the two aforesaid assessment years were unsustainable in law.

As the Income Tax Department issued a letter dated 2^nd June 2020 asserting the said demands, the Monitoring Professional applied to the NCLT for declaring that the demands made by the Income Tax Department pertaining to assessment years 2012-13 and 2013-14 were invalid. It was urged that the said demands were invalid as no claim in respect thereof was made before the Resolution Professional until the Resolution Plan was approved by the order dated 21^st May 2019. By the order dated 17^th September 2020, the NCLT dismissed the application, holding it to be frivolous. The costs of ₹1 lakh were made payable by the Joint Resolution Applicants and the Monitoring Professional.

Being aggrieved by the said order, an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the IB Code’) was preferred before the National Company Law Appellate Tribunal (‘the NCLAT’). By the impugned judgment and order dated 25^th November, 2021, the NCLAT dismissed the said appeal.

An appeal under Section 62 of ‘the IB Code’ against the judgment and order dated 25^th November 2021 passed by the NCLAT was filed before the Supreme Court.

The Supreme Court held that in view of its decision in Ghanashyam Mishra and Sons Pvt. Ltd. 2021:INSC:250 : (2021) 9 SCC 657, all the dues including the statutory dues owed to the Central Government, if not a part of the Resolution Plan, shall stand extinguished and no proceedings could be continued in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 of the IB Code. In this case, the income tax dues of the CD for the assessment years 2012-13 and 2013-14 were not part of the approved Resolution Plan. Therefore, in view of Sub-section (1) of Section 31, as interpreted by the Supreme Court in the above decision, the dues of the Income Tax Department owed by the CD for the assessment years 2012-13 and 2013-14 stood extinguished.

The Supreme Court noted that its decision in the case of Ghanashyam Mishra and Sons Pvt. Ltd. 2021:INSC:250 : (2021) 9 SCC 657 was specifically relied upon before the NCLAT. This decision was brushed aside by the NCLAT, firstly on the ground that the said decision was not relied upon before NCLT and, secondly, on the ground that the Appellants had not challenged the Resolution Plan. According to the Supreme Court, the NCLAT unfortunately had ignored the binding precedent and the legal effect of the approval of the Resolution Plan as laid down in paragraphs 102.1 to 102.3 of the aforementioned decision. The reason given by NCLAT that the decision of this Court could not be considered as it was not cited before the NCLT was perverse.

The Supreme Court further noted that on the application made by the Monitoring Professional, the NCLT issued notice to the Income Tax Department by order dated 27^th August 2020. However, by the order dated 17^th September 2020, which was impugned before the NCLAT, without considering the merits and without recording reasons, the NCLT held that the application was frivolous as the Monitoring Professional was seeking relief, which the Bench did not consider at the time of the approval of the Resolution Plan. The NCLT also imposed costs of ₹1 lakh on the Joint Resolution Applicants and the Monitoring Professional. The Supreme Court did not approve NCLT’s approach of not considering the application on merits and dismissing the same without recording any reasons and also by imposing costs. According to the Supreme Court, the order of payment of costs was unwarranted.

In view of the above discussion, the Supreme Court held that the Resolution Plan approved on 21^st May 2019 was binding on the Income Tax Department. Therefore, the subsequent demand raised by the Income Tax Department for the assessment years 2012-13 and 2013-14 was invalid.

According to the Supreme Court, once the Resolution Plan is approved by the NCLT, no belated claim can be included therein that was not made earlier. If such demands are taken into consideration, the Joint Resolution Applicants will not be in a position to recommence the business of the CD on a clean slate. On this aspect, the Supreme Court noted that in paragraph 107 of its decision in the case of Committee of Creditors of Essar Steel India Ltd. 2019:INSC:1256 : (2020) 8 SCC 531 it was held as under:

“107. For the same reason, the impugned NCLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta,] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take overand run the business of the corporate debtor. This, the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. Forthese reasons, NCLAT judgment must also be set aside on this count.”

According to the Supreme Court, the additional demands made by the Income Tax Department in respect of the assessment years 2012-13 and 2013-14 would operate as roadblocks in implementing the approved Resolution Plan, and Joint Resolution Applicants would not be able to restart the operations of the CD on a clean slate.

The Supreme Court, therefore, held that the demands raised by the Income Tax Department against the CD in respect of assessment years 2012-13 and 2013-14 were invalid and could not be enforced. The Supreme Court set aside the impugned orders of NCLT and NCLAT and allowed the appeal accordingly.

BCAJ Admin

From The President

Sayonara Tokyo; Berlin in 1000 days!

Amongst an otherwise noisy geopolitical backdrop, according to NITI Aayog CEO B.V.R. Subrahmanyam, this month, the Indian economy tip-toed itself to the 4^th spot in the leaderboard of world’s largest economies in terms of GDP: Gross Domestic Product is calculated at market terms, surpassing that of Japan and close on the heels of Germany positioned at the 3^rd spot in these rankings.

Coincidentally, India has reclaimed the 4^th rank exactly 100 years after losing it to Germany in 1925. Further falling to the 6^th rank at the time of Independence in 1947 to reaching a low-point of 17^th rank in 1991, the Indian economy has since grown at an average rate of 6.5% per annum from 1991 to the present, progressively advancing and moving up the ranks on the global leaderboard.

Systemic intercession during the 1991 liberalisation, coupled with consistent growth-oriented policies by successive governments, a robust entrepreneurial spirit, and a largely cohesive national demeanour, has enabled India to leverage its population advantage to significantly improve its ranking among global economies.

As we commemorate and build on our overall size, our performance on Per Capita GDP remains a dismal laggard. Only a consistent performance in growth of 7.3% per annum for the next 25 years can help us reach a reasonable per capita GDP of ~$ 13,000. Such consistency of high growth will demand significant continuous interventions to enable growth as well as strategic restraints to side-step blunders over a fairly long period of time. The annals of history have yet to witness a transformation of this magnitude, and we are on the brink of a quarter-century that could redefine the future of the largest country on Earth.

As intellectuals, while we can readily enumerate numerous initiatives to achieve our full potential, a common element in all such lists would be the empowerment of our people through Education. It is only when equipped with the power of education that our workforce can advance effectively toward the dream of a developed nation. History demonstrates that civilisations prosper when they embrace inquiry, learning, and its application, the Industrial Revolution of the 1800s being the classic illustration.

As chartered accountants, we are privileged recipients of this gift of education, and we are observant witnesses to the social mobility that this course has provided to millions of us. At BCAS, the core purpose of the organisation is to facilitate the furtherance of education through various initiatives. It is at this opportune moment that with support from the family and well-wishers of our past president, Late Shri Pradyumna N. Shah, within BCAS Foundation, a new fund has been established as ‘Shri P. N. Shah CA Students’ Endowment Fund’. This fund has been established with a specific objective to provide continuous grants to deserving students pursuing the Chartered Accountancy course. We remain confident that this long-term fund with significant corpus will make a positive impact to the lives of hundreds of chartered accountancy students.

Whilst the Per Capita GDP ratio remains an absolute and real measure of our success, the route to enhanced per capita GDP travels through the GERD: Gross Expenditure on Research & Development ratio. GERD is expressed as a percentage of GDP, indicating a country’s investment in R&D relative to its overall economic output. It’s a key indicator of a country’s commitment to innovation and technological advancement, and the GERD ratio consistently precedes a higher Per Capita GDP ratio.

On a global basis over the last few decades, investment in R&D has grown sharply worldwide. Global R&D outlays nearly tripled in real terms from about $1 trillion in 2000 to $2.75 trillion by 2023. As economies have expanded, the share of R&D in world GDP has also risen from roughly 1.49% in 2000 to nearly 2.68% by 2023. This reflects a shift toward innovation-driven growth: major economies have kept or increased their R&D intensity in recent years. For example, the OECD area’s R&D intensity has held steady at about 2.7% of GDP since 2020, whereas the high R&D spenders like Israel, Korea and the US lead in both per-capita R&D and R&D/GDP by almost 2 to 3 times.

India’s R&D intensity remains among the lowest of the world’s large economies. Official data indicate that India’s gross R&D spending was 0.64% in 2020–21. In comparison, China and the European Union spend approximately 2–3%, the United States and Japan allocate around 3–4%, and Korea and Israel invest between 5–6%. Despite robust gross GDP growth, India’s low R&D investment limits its ability to reap the benefits of global innovation trends.

The lack of genuine, rigorous, evidence-supported deep research, with appropriate investments of time, effort, and funds into such projects, is a noticeable trend across various sectors in India, including areas impacting our profession. As our economy progresses and competes with strong global alternatives, it will be crucial to enhance our R&D initiatives, as “what brought us here will not take us there.”

At BCAS earlier this year, we embarked on our small journey of research-based thought leadership by collaborating with IIM-Mumbai on a multi-year research effort. Through this collaboration, this month, we are happy to announce the launch of the first Research Paper on Group Taxation: a strategic reform for simplified compliance, enhanced competitiveness, and economic growth. Through this Research Paper, BCAS aims to advocate a novel approach to the Indian Income Tax framework built on the promise of enhancing the competitiveness of Indian businesses. With the successful completion of the first research project, the IIM-Mumbai and BCAS teams have now green-flagged a second research project on ‘carry-back of tax losses – in light of the Indian context’.

Continuing the thrust on research, your Society has embarked on another Research track with NITI Aayog – India’s premier think-tank on policy and planning initiatives. The Consultative Group on Tax Policy of NITI Aayog, a specialised cohort dedicated to analysing and recommending reforms in tax policies and BCAS, have embarked on this journey to leverage the extensive technical expertise within BCAS to propose blue-sky enhancements to simplify India’s current tax and fiscal policies.

On a related note, your Society had an occasion to discuss its suggestions on the Income Tax Bill, 2025 with the Parliamentary Select Committee on Income Tax Bill, 2025. A detailed memorandum listing the suggestions on various facets of the Income Tax Bill, 2025 has been submitted to the Select Committee. We remain committed to continuing our thought-leadership initiatives around the important Income Tax Bill, 2025.

CA Anand Bathiya

President

BCAJ Admin

From Published Accounts

COMPILER’S NOTE

On first time adoption of Ind AS, for accounting for investment in subsidiaries and associates, Ind AS 27 gives an option to record the same at Cost (less impairment, if any). Most companies in India adopted this option when they adopted Ind AS. The normal accounting for the same as per Ind AS 109 is ‘Fair value through Other Comprehensive Income’.

Given below is a case where the company had though earlier adopted the option given under Ind AS 27 to account for its investments in subsidiaries at cost, has now, with retrospective effect, changed the same to ‘Fair value through Other Comprehensive Income’. Ind AS 108 permits such change Such change in policy can be done only in cases where the same can provide more reliable and relevant information about the effects of transactions, other events or conditions on the entity’s financial position and financial performance to the users of financial results/statements.

Tata Steel Ltd. (financial results for the quarter and year ended 31st March, 2025)

Extract from the communication by the company addressed to the Stock Exchanges

Change of Accounting Policy

During the quarter ended 31^st March, 2025, the Company has voluntarily changed its accounting policy in keeping with the provisions of Ind AS 8 on “Accounting Policies, Changes in Accounting Estimates and Errors” to measure its equity investments in subsidiaries in the standalone financial results/statements from cost less impairment as per Ind AS 27 on “Separate Financial Statements” to fair value through other comprehensive income as per Ind AS 109 on “Financial instruments” with retrospective effect.

In the standalone financial results / statements, investments in subsidiaries are now classified as “Fair Value through Other Comprehensive Income (FVTOCI)” with changes in fair value of such investments being recognised through “Other Comprehensive Income (OCI)” as on each reporting date.

The Company’s Management believes that this change in accounting policy provides reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position and financial performance to the users of financial results / statements.

Further details on the rationale and impact of change in accounting policy on the financial statements / results of the Company for quarter and year ended 31^st March, 2025 are provided in notes 6 and 7 forming part of the Financial Results for the quarter and year ended 31st March, 2025 enclosed as Annexure 1.

From Notes to Published financial results for the quarter and year ended 31^st March, 2025

Note 6

Tata Steel Europe Limited (‘TSE”), a wholly owned step-down subsidiary of the Company, is undertaking a transition towards de-carbonised operations and away from the current blast furnace-based production processes across both the UK and Netherlands businesses which would affect the estimates of its future cash flow projections. The technology transition and investments are dependent on financial and policy support of the local governments in the country of operation (refer Note 6c), as well as an overall regulatory regime which incentivises reduction of CO2 emissions in Europe. Management’s assessment is that generally, these potential carbon reduction-related costs would be compensated by a combination of higher steel prices or through public spending or subsidies.

a) On 15^th September, 2023, Tata Steel UK Limited (“TSUK”) which forms the main part of the UK business, announced a joint agreement with the UK Government on a proposal to invest in state-of-the-art electric arc furnace (‘EAF’) steelmaking at the Port Talbot site with a capital cost of £1.25 billion inclusive of a grant from the UK Government of up to £500 million. Consequent to the announcement, TSUK during FY24 had assessed and concluded that it had created a valid expectation among those affected and had accordingly recognised a provision of ₹2,492 crore towards restructuring and closure costs including redundancy and employee termination costs. TSUK had also recognised ₹2,601 crore towards impairment of heavy end assets which are not expected to be used for any significant period beyond 31^st March, 2024. These provisions were also accordingly recognised in the consolidated statement of profit and loss for the Group. During the quarter ended 31^st March, 2025, TSUK has re-assessed the estimate of restructuring provisions in connection with the closure of the heavy end assets, including termination and re-negotiation of certain contracts, and associated transformation activities and has reversed certain provisions not required of ₹260.14 crore (quarter ended 31^st December, 2024: Nil; quarter ended 31^st March, 2024: charge of ₹67.42 crore; twelve months ended 31^st March, 2025: reversal of ₹48.68 crore) which is included within Exceptional item 8(f) in the consolidated financial results. The Grant Funding Agreement (GFA) for the decarbonisation proposal was signed with the UK Government on September 11, 2024. With the UK Government funding available under the GFA and a commitment to infuse equity into TSUK through T Steel Global Holdings Pte. Ltd. (‘TSGH”), a wholly owned subsidiary of the Company, TSUK now has the certainty that funding is available for its decarbonisation proposal from both the UK Government and the Company, in addition to its own cash generation. Accordingly, during the quarter ended 30^th September, 2024 it was concluded that there does not exist any material uncertainty relating to going concern assessment of TSUK and that TSUK has access to adequate liquidity to fund its operations, that continues to hold good as on March 31, 2025.

b) With respect to Tata Steel Netherland (“TSN”) operations, intense discussions between the management and the Netherlands government are ongoing with relation to a “tailor-made approach” for support to address the reduction of carbon emissions and environmental concerns of the local community and authorities. The team from the Ministry of Climate and Green Growth has carried out a detailed diligence of TS N’s integrated plan for decarbonisation and environmental measures. On 20^th February, 2025, the Ministry of Climate and Green Growth submitted a letter to the Dutch parliament on the progress of negotiations including next steps towards a Joint Letter of Intent to be filed before the parliament and the submission of the proposed project to the European Commission. The Company expects to formalise an agreement with the Netherlands Government in the near term. TSN’s transition plan considers that the policy environment in the Netherlands and EU is supportive to the European steel industry including Dutch Policy developments towards energy costs, an effective European Carbon Border Adjustment mechanism, and convergence with other EU countries on climate costs besides the tailor-made support mechanism. In relation to the likely investments required for the decarbonisation, the scenarios consider that the Dutch Government will provide a certain level of financial support, which is the subject of discussions between the Company, TSN and the Dutch government. On 19^th December, 2024, the Environment Agency (EA) of the Netherlands imposed two orders under penalty (“Orders”) on Tata Steel ljmuiden (TSIJ), a wholly owned subsidiary of TSN, for a maximum amount of 239 crore stating alleged non-compliance of emission thresholds for operations of its Coke and Gas Plants (CGP 1 and CGP 2) with a period of 8 weeks for TSIJ to reduce the emissions to a level within the threshold limits. In addition, the EA had also sent a notice on alleged non-compliances regarding certain state of maintenance of its CGP2 plant for which the EA has given TSIJ a period of 12 months to remedy the alleged non- compliances, failing which, the permit for operating CGP 2 can get revoked. With relation to some of the immediate actions, TSIJ has sought and obtained injunctive relief from the court on the notice. At the same time, in constructive discussions with the local provincial authorities, TSN is preparing a future oriented plan including all improvements of the coke and gas plants’ environmental performance, and has also intensified discussions with the EA. The plan includes measures which are part of the discussions with the Netherlands government and will include solutions for outstanding orders or notices. It is also discussing appropriate measurement protocols for the future with the EA. Given the positive and solution-oriented approach being taken, the Company sees no material risk of premature license/permit revocation or possibility of suspension or closure of the coke and gas plants. Furthermore, based on the latest available cash flow and liquidity forecasts and other available measures, TSN is expected to have adequate liquidity to meet its future business requirements. On such basis, the financial statements of TSE have accordingly been prepared on a going concern basis. The Group has assessed its ability to meet any liquidity requirements at TSE, if required, and concluded that its cashflow and liquidity position remains adequate.

c) The fair value of investments held by the Company in T Steel Holdings Pte. Ltd. (‘TSH”), a wholly owned subsidiary of the Company is largely dependent on the operational and financial performance of TSE. This fair value has been primarily assessed based on fair value models for the TSUK and TSN businesses. The fair value computation uses cash flow forecasts based not only on the most recent financial budgets, but more importantly strategic forecasts and future projections taking the analysis on sustainable cash flow reflecting average steel industry conditions (between cyclical peaks and troughs of profitability) out into perpetuity based on a steady state. If any of the key assumptions change, the fair value of the relevant business would increase/decrease and that could lead to change in the carrying amount of investments in TSH.

Both TSUK and TSN are undertaking a broader strategic transformation, triggered by regulatory changes which are driving decarbonisation in Europe. This will necessarily involve gradual closure of legacy assets and replacement by a new production route centred around electric arc furnaces. Future cashflows will be heavily dependent on the impact of evolving regulations on Carbon Border Adjustment, availability/pricing of clean raw materials, energy and associated infrastructure, and assumptions around costs of and market premium for green steel. The Carbon Border Adjustment Mechanism is the European Union and UK’s tool to put a fair price on the carbon emitted during the production of carbon intensive goods and charge this fair price at the point of entry of such goods imported into the territory, so as to provide a level playing field to local producers of such goods who are also incurring equivalent carbon costs. This mechanism would also ordinarily imply an increase in prices of the finished steel relative to other geographies which have not adopted/ have lower CO2 pricing. In addition, there are market expectations of customers being willing to pay additional green steel premia for steel with lower embedded CO2. While both these factors will have significant impact on the future cashflows, the estimates of the extent of this impact are currently uncertain. Further, the businesses are also facing potential lasting changes in the market as a result of tariff and non-tariff barriers to trade, policy responses in Europe (including the EU Steel and Metals Action Plan) and the UK, and supply side changes from other geographies.

The long-term financial forecasts and valuation in both TSUK and TSN are therefore seeing fundamental underlying changes in terms of key business assumptions, significant changes in production methods and assets, raw material and production costs, regulatory impacts, critical policy enablers and future focus market sectors. These changes will play out over the following several years. Implicit in these changes are risks and opportunities facing both businesses which include potential upsides in profitability and value.

However, given these fundamental changes and fast evolving business landscape, and to provide more timely visibility into the performance of invested capital and reflect the true value of its subsidiaries, during the quarter and year ended 31^st March, 2025, the Company has voluntarily changed its accounting policy in keeping with the provisions of Ind AS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” to measure its equity investments in subsidiaries in the standalone financial results/statements from cost less impairment as per Ind AS 27 “Separate Financial Statements” to fair value through other comprehensive income as per Ind AS 109 “Financial instruments” with retrospective effect (refer Note 7 below).

As the investments in the European business are long-term in nature and strategic for the Company, therefore, the Company has opted under Ind AS 109, to reflect the changes in fair value through Other Comprehensive Income. This allows the Company to keep the changes in fair value of investments in these long-term strategic assets distinct from the underlying financial performance of the Company’s regular business activities in the relevant period.

The Company carried out a fair value assessment of its investments held in TSH, which in turn holds investments in TSE through a step-down subsidiary and recognised a fair value loss through Other Comprehensive Income of ₹25,626 crore and ₹24,870 crore during the quarter and year ended 31^st March, 2025 in the standalone financial results / statements.

The Company believes that key assumptions which have been used to undertake the valuation in its balance sheet as of 31^st March, 2025, represent the best view of the future economic landscape and operating model at this time. Going forward, the key assumptions would be kept under review and relevant changes, if any, will be reflected in the financial results/statements from time to time.

Note 7

The majority of investments in the Company’s balance sheet are comprised of investments made in Tata Steel Holdings (reflecting the overseas businesses, mainly in Europe). The Company had so far maintained an accounting policy of carrying investments in subsidiaries at cost less accumulated impairment losses. This has been suitable historically because of a stable landscape in terms of continuing legacy assets, end markets and regulatory framework.

As explained in Note 6 above, during the quarter and year ended 31^st March, 2025, the Company has voluntarily changed its accounting policy in keeping with the provisions of Ind AS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” to measure its equity investments in subsidiaries in the standalone financial results/statements from cost less impairment as per Ind AS 27 “Separate Financial Statements” to fair value through other comprehensive income as per Ind AS 109 “Financial instruments” with retrospective effect.

The Company’s management believes that this change in accounting policy provides reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position and financial performance to the users of financial results/statements. In the standalone financial results/statements, investments in subsidiaries are now classified as “Fair Value through Other Comprehensive Income (FVTOCI)” with changes in fair value of such investments being recognized through “Other Comprehensive Income (OCI)” as on each reporting date.

The impact of change in accounting policy is presented below:

(Notes 2, 3 and 4 not reproduced)

The impact of change in accounting policy is presented below (₹ crore):

Standalone Balance Sheet	March 31, 2024			April 1, 2023
Standalone Balance Sheet	After considering impact of mergers during FY 2024-25 Note (2,3 & 4)	Adjustment	Restated	After considering impact of mergers during FY 2024-25 Note (2,3 & 4)	Adjustment	Restated
Non – current Investment	64,639.30	1,600.70	66,240.00	39,117.49	1,170.95	40,288.44
Total assets	2,46,325.65	1,600.70	2,47,926.35	2,43,248.76	1,170.95	2,44,419.71
Other Equity	1,38,380.17	1,600.70	1,39,980.87	1,36,616.60	1,170.95	1,37,787.55
Total Equity	1,39.628.77	1,600.70	1,41,229.47	1,37,839.00	1,170.95	1,39,009.95
Total Equity and liabilities	2,46,325.65	1,600.70	2,47,926.35	2,43,248.76	1,170.95	2,44,419.71

Standalone Statement of Profit and Loss for the quarter/twelve months (₹ crore):

	Quarter ended on 31.12.2024			Quarter ended on 31.03.2024			Financial year ended on 31.03.2024
	After considering impact of mergers during FY 2024-25 (Note 2,3 & 4)	Adjustment*	Restated	After considering impact of mergers during FY 2024-25 (Note 2,3 & 4)	Adjustment*	Restated	After considering impact of mergers during FY 2024-25 (Note 2,3 & 4)	Adjustment*	Restated
Exceptional items – Provision for impairment of investments/doubtful loans and advances/ other financial assets (net)	(1.96)	–	(1.96)	(10.40)	–	(10.40)	(12,971.36)	10,147.66	(2,823.70)
Profit/(Loss) before tax	5,174.54	–	5,174.54	5,471.29	–	5,471.29	9,357.05	10,147.66	19,504.71
Net Profit/(Loss) for the period	3,878.57	–	3,878.57	4,091.23	–	4,091.23	5,514.19	10,147.66	15,661.85
Other comprehensive income – items that will not be reclassified to profit and loss	(481.13)	(2,376.41)	(2.857.54)	188.07	(347.24)	(159.17)	792.65	(9,717.91)	(8,925.26)
Total comprehensive income for the period	3,503.20	(2,376.41)	1,126.79	4,265.20	(347.24)	3,917.96	6,203.73	429.75	6,633.48
Earnings per equity share – Basic earnings per share (not annualised) in Rupees after exceptional items	3.11	–	3.11	3.28	–	3.28	4.42	8.13	12.55
Earnings per equity share – Diluted earnings per share (not annualised) in Rupees after exceptional items	3.11	–	3.11	3.28	–	3.28	4.42	8.12	12.54

BCAJ Admin

Financial Reporting Dossier

A. KEY GLOBAL UPDATES

1. IASB: UPDATE TO GOING CONCERN EDUCATIONAL MATERIAL

On 13^th May 2025, IFRS Foundation published an updated version of its educational material to support the consistent application of IFRS Accounting Standards related to going concern assessments. This educational material was first published in January 2021 to respond to questions raised by stakeholders during the covid-19 pandemic.

The revision is mainly related to following:

(1) include updated references to the going concern requirements in IFRS Accounting Standards. When the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements, the requirements about an entity’s assessment of its ability to continue as a going concern were moved unchanged from IAS 1 Presentation of Financial Statements to IAS 8 (which was retitled as Basis of Preparation of Financial Statements after the issuance of IFRS 18). IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027.

(2) to remove outdated references to the International Auditing and Assurance Standards Board (IAASB) and its project on Going Concern. In December 2024, the IAASB approved International Standard on Auditing (ISA) 570 (Revised 2024), Going Concern. The ISA is effective for audits of financial statements for periods beginning on or after 15 December 2026.

(3) to remove references to the covid-19 pandemic and the stressed economic environment associated with it.

The companies preparing financial statements using IFRS Accounting Standards are required to assess their ability to continue as a going concern. This educational material brings together the relevant requirements and explains how they might apply to a range of company situations. It is designed to support understanding and consistent application of the Standards but does not change or add to existing requirements.

2. IASB: UPDATE TO THE IFRS FOR SMES ACCOUNTING STANDARD

On 27^th February 2025, the International Accounting Standards Board (IASB) issued a major update to the IFRS for SMEs Accounting Standard, which is currently required or permitted in 85 jurisdictions.

The IFRS for SMEs Accounting Standard was issued in 2009 to address the global demand for a simplified Accounting Standard for SMEs.

This Standard aims to balance the information needs of lenders and other users of SMEs’ financial statements with the resources available to SMEs. The Standard defines SMEs as entities without public accountability that prepare general purpose financial statements.

The update of this Standard is the outcome of a periodic comprehensive review of the Standard. Highlights include:

a) a revised model for revenue recognition.

b) bringing together the requirements for fair value measurement in a single location; and

c) updating the requirements for business combinations, consolidations and financial instruments.

This update is effective for annual periods beginning on or after 1 January 2027, with early application permitted.

3. FASB: PROPOSAL TO IMPROVE ACCOUNTING FOR DEBT EXCHANGES

On 30^th April 2025, the Financial Accounting Standards Board (FASB) a proposed Accounting Standards Update (ASU) that would provide accounting guidance for debt exchange transactions involving multiple creditors.

Under current generally accepted accounting principles (GAAP), when an entity modifies an existing debt instrument or exchanges debt instruments, it is required to determine whether the transaction should be accounted for as:

(1) a modification of the existing debt obligation or

(2) the issuance of a new debt obligation and an extinguishment of the existing debt obligation (with certain exceptions).

The proposed ASU would specify that an exchange of debt instruments that meets certain requirements should be accounted for by the debtor as the issuance of a new debt obligation and an extinguishment of the existing debt obligation. The Board expects this would improve the decision usefulness of financial reporting information provided to investors by requiring that economically similar exchanges of debt instruments be accounted for similarly. It also would reduce diversity in practice in accounting for such debt instrument exchanges.

4. FASB: CLARIFICATION ON GUIDANCE ON THE PRESENTATION AND DISCLOSURE OF RETAINAGE FOR CONSTRUCTION CONTRACTORS

On 01^st April 2025, The Financial Accounting Standards Board (FASB) released an FASB Staff Educational Paper that addresses questions about how to apply revenue recognition guidance about presentation and disclosures to construction contracts that contain retainage (or retention) provisions.

The companies that operate in the construction industry often are subject to contracts that contain retainage provisions. Those provisions generally provide a form of security to the customer by allowing the customer to withhold a portion of the consideration billed by the company until certain project milestones are met or the project is completed.

The educational paper (a) explains the presentation and disclosure requirements in GAAP about retainage for construction contractors and (b) provides example voluntary disclosures of retainage that would provide more detailed information about contract asset and contract liability balances.

5. FASB: PROPOSAL TO IMPROVE FINANCIAL ACCOUNTING FOR AND DISCLOSURE OF ENVIRONMENTAL CREDITS AND ENVIRONMENTAL CREDIT OBLIGATIONS.

On 17^th December 2024, The Financial Accounting Standards Board (FASB) published a proposed Accounting Standards Update (ASU) intended to improve the financial accounting for and disclosure of financial activities related to environmental credits and environmental credit obligations.

The changes are expected to provide investors with additional decision-useful information by improving the:

a) understandability of financial accounting and reporting information about environmental credits and environmental credit obligations and

b) comparability of that information by reducing diversity in practice.

During the FASB’s 2021 agenda consultation project and other outreach, stakeholders noted that entities are increasingly subject to additional government mandates and regulatory compliance programs related to emissions, which often result in obligations that are settled with environmental credits. Additionally, some entities voluntarily purchase environmental credits from third parties. Stakeholders also emphasised that generally accepted accounting principles (GAAP) does not provide specific authoritative guidance on how to recognise and measure this financial activity, resulting in diversity in practice.

The proposed ASU provides recognition, measurement, presentation, and disclosure requirements for all entities that purchase or hold environmental credits or have a regulatory compliance obligation that may be settled with environmental credits.

6. IAASB: STRENGTHENING OF AUDITOR RESPONSIBILITIES FOR GOING CONCERN THROUGH REVISED STANDARD

On 9^th April, 2025, The International Auditing and Assurance Standards Board (IAASB) released its revised International Standard on Auditing 570 (Revised 2024) – Going Concern.

The revised standard responds to corporate failures that raised questions regarding auditors’ responsibilities by significantly enhancing the auditor’s work in evaluating management’s assessment of an entity’s ability to continue as a going concern.

The standard will also increase consistency in auditing practices and strengthen transparency through communications and auditor reporting on matters related to going concern in a consistent manner.

The key changes in ISA 570 (Revised 2024) are as follows:

⇒Robust risk assessment- Auditors must conduct, in a more timely manner, thorough risk assessments to determine whether events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern.

⇒Evaluating Management’s Assessment- Auditors must evaluate management’s assessment of going concern irrespective of whether events or conditions are identified. In doing so, auditors must consider the potential for management bias and evaluate the underlying method, significant assumptions, and data used when management formed its assessment. Additionally, auditors must evaluate whether management’s judgements and decisions indicate potential bias.

⇒Extended date of evaluation period- The auditor’s evaluation period for going concern now extends at least twelve months from the date of approval of the financial statements, contributing to an assessment of more relevant, decision-useful information.

⇒Enhanced transparency- The standard requires clearer communication in the auditor’s report about the auditor’s responsibilities and work related to going concern and strengthened communications with those charged with governance and external parties.

The revised standard is effective for audits of financial statements for periods beginning on or after 15^th December, 2026.

7. FRC: INSPECTION FINDINGS FOR THE TIER 2 AND 3 AUDIT FIRMS

On 16^th December, 2024, the Financial Reporting Council (FRC) has today published its annual inspection findings for Tier 2 and Tier 3 audit firms, which emphasises the importance of delivering consistent levels of audit quality.

The report highlights areas where firms have made progress but also identifies challenges that exist across this part of the market in achieving consistent audit quality, particularly in the Public Interest Entity (PIE) sector.

As noted in the report, while some inspection results demonstrated audits assessed as good or limited improvements required, there remains a disparity across some of the firms. This reflects the ongoing need for firms to embed effective systems of quality management and strengthen their commitment to continuous audit quality improvement.

Summary of findings are as follows:

Sr.No.	Audit Area	Examples of key findings
1.	ECL provisions	Weaknesses in the audit procedures performed to test the methodology, assumptions and data inputs used in ECL calculations, including procedures over significant increases in credit risk criteria, macro-economic scenarios and post model adjustments. In several cases, findings were compounded by shortcomings in audit teams’ oversight of the work of third-party specialists / experts.
2.	Impairment	Weaknesses in the audit procedures performed to corroborate and challenge cash flow forecasts used in management’s impairment assessments of property, plant and equipment, goodwill and other intangible assets.
3.	Journal entry testing	No testing performed over journal entries or any evidence of the audit team’s response to the risk of management override of controls. Inadequate or no corroboration performed to substantiate journals identified as meeting fraud risk criteria.
4.	Revenue	Insufficient procedures to test the effective interest rate calculations on banking audits, including assessment of management’s accounting policy and key inputs and assumptions. For a revenue stream relating to activity performed jointly with third parties, insufficient evidence of the audit team’s understanding of contractual arrangements and the completeness and accuracy of revenue allocations. Weaknesses in the testing of revenue completeness and cut-off, where these areas had been identified as significant risks by audit teams.
5.	Going concern	The audit teams had not sufficiently corroborated and challenged the cash flow forecasts used in management’s forecast assumptions or adequately assessed the impact of related sensitivities on the going concern model.
6.	Partner and staff appraisals	A lack of a clear linkage between audit quality and reward for partners and / or staff, and weaknesses in the consideration of audit quality in individual appraisals.
7.	Partner portfolio management:	Insufficient monitoring of partner and / or staff portfolios to ensure that partners have manageable workloads, engagements are appropriately resourced and that portfolios are aligned to skills and experience and contain an appropriate balance of risk.

B. GLOBAL REGULATORS- ENFORCEMENT ACTIONS AND INSPECTION REPORTS

I. THE FINANCIAL REPORTING COUNCIL, UK

a) Sanctions against Ernst & Young LLP and Richard Wilson (10^th April, 2025)

The Executive Counsel of the Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions on Ernst & Young LLP (EY) and Richard Wilson (Mr Wilson), audit engagement partner, in relation to the audits of Thomas Cook Group plc (the Company/Thomas Cook) for the financial years ended 30 September 2017 and 30 September 2018.

The sanctions imposed take account of a number of factors, including the seriousness of the breaches and the financial strength of the auditor, as indicated by the turnover of the firm. It is not suggested that the breaches were intentional, dishonest, deliberate or reckless. Further, both EY and Mr Wilson cooperated with Executive Counsel’s investigation.

Thomas Cook’s Goodwill balance was significant as it comprised £2.6 billion across the whole group (approximately 40% of total assets). In both audit years, EY and Mr Wilson failed to approach this audit area with sufficient professional scepticism in order to properly corroborate management’s assumptions and estimates supporting the Goodwill impairment model. The failings for the audit of Goodwill in 2018 were particularly serious given Thomas Cook’s deteriorating trading performance, which heightened the risk that the Goodwill balance could be impaired.

In relation to Going Concern, where there are breaches in the 2018 audit only, EY and Mr Wilson failed to adequately challenge management with regards to sensitivity testing, liquidity and financial covenant headroom, and as such were not in a position to properly conclude on whether a material uncertainty existed that might cast significant doubt upon Thomas Cook’s ability to continue as a Going Concern. This was a key responsibility that EY and Mr Wilson did not fulfil adequately under the relevant auditing standards and was an important matter to users of the financial statements.

The breaches of auditing standards accepted by EY and Mr Wilson relating to the Goodwill impairment and Going Concern work included areas such as risk assessment, the performance of procedures to obtain and evaluate audit evidence, communication with those charged with governance as well as disclosures in the accounts. The breaches include auditing standards dealing with the exercise of professional scepticism, partner supervision and audit documentation which are central to the performance of an audit.

b) Sanctions against Price Waterhouse Coopers LLP and Jonathan Hinchliffe (25^th March, 2025)

The Executive Counsel of the Financial Reporting Council (“FRC”) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against Price water house Coopers (“PwC”) and Jonathan Hinchliffe (“Mr Hinchliffe”) in relation to the statutory audit of the financial statements of Wyelands Bank plc (“the Bank”) for the financial year ended 30 April 2019 (“the FY2019 Audit”).

PwC and Mr Hinchliffe admitted breaches of Relevant Requirements in relation to six areas of the FY2019 Audit: risk assessment, auditing of the Bank’s compliance with laws and regulations, auditing of the Bank’s related party transactions, auditing of the Bank’s assessment of going concern, auditing of the Bank’s loans and advances, and auditing of the bank’s provision for expected credit loss.

The breaches primarily stemmed from a single common cause: the failure of the audit team to properly understand the Bank’s lending and adequately consider the risks posed by its actual and potential exposure to related parties in the GFG Alliance. The audit team also failed to properly examine concerns raised by the Bank’s regulator, the Prudential Regulation Authority (“PRA”) in that regard. In addition, they failed to exercise appropriate professional scepticism in relation to a number of aspects of the audit.

The FY19 audit opinion was signed in July 2019. Subsequent to the Audit, in September 2019 the PRA required the Bank to limit its exposures to related parties due to concerns that the Bank had an unacceptable concentration of risk. By March 2020 the Bank had stopped entering into new credit transactions and commenced a wind down of its business. In March 2021 the PRA required the Bank to repay its depositors, which it has done.

II. THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB)

a) PCAOB Sanctions Former Deloitte Colombia Partner for Issuing Audit Report Before Completing All Necessary Audit Procedures

On 12^th February, 2025, the Public Company Accounting Oversight Board (PCAOB) announced a settled disciplinary order sanctioning Gabriel Jaime López Díez (“López”), a former partner of Colombia-based Deloitte & Touche S.A.S. (the “Firm”), for violations of PCAOB rules and auditing standards in connection with the Firm’s 2016 integrated audit of Bancolombia S.A. (“Bancolombia”). The PCAOB found that López failed to perform necessary audit procedures and failed to obtain sufficient appropriate audit evidence before authorising the issuance of the Firm’s unqualified audit opinions on Bancolombia’s financial statements and internal control over financial reporting.

As described in the order, López and the engagement team improperly altered audit documentation, and, in several instances, obtained supporting audit evidence and performed audit procedures after issuance of the audit opinions, in violation of PCAOB standards. These procedures related to revenue, interest expenses, internal controls, and the fair value of Bancolombia’s loan portfolio and its derivatives.

López also violated PCAOB standards by failing to include in the audit documentation or causing the engagement team not to include information sufficient to comply with audit documentation standards.

Without admitting or denying the Board’s findings, López consented to the PCAOB’s order, which censured him and imposed a $75,000 civil money penalty.

b) PCAOB Sanctions James Pai CPA PLLC and Partner for Audit Failures

On 25^th March, 2025, the Public Company Accounting Oversight Board (PCAOB) announced a settled disciplinary order sanctioning:

James Pai CPA PLLC (the “Firm”) and Yu-Ching James Pai, CPA (“Pai”), the sole owner and partner of the Firm, for violations of multiple PCAOB rules and standards in connection with two audits of one issuer client.
the Firm for violations of PCAOB quality control standards, and
Pai for directly and substantially contributing to the Firm’s violations.

The PCAOB found that, in the audits, the Firm and Pai failed to perform appropriate risk assessments and obtain sufficient appropriate audit evidence in multiple areas, including revenue and related party transactions.

The PCAOB also found that, in the audits, the Firm failed to:

Have engagement quality reviews performed;
Obtain written representations from management;
Comply with requirements concerning critical audit matters, audit committee communications, and audit documentation; and
Establish and implement a system of quality control to provide it with reasonable assurance that the work performed by engagement personnel met applicable professional standards and regulatory requirements.

In settlement with PCAOB, the Firm and partner commit to $40,000 fine, revocation of the Firm’s registration, and partner bar following failure to perform appropriate risk assessments and obtain sufficient appropriate audit evidence in multiple areas.

a) Deficiencies in Firm Inspection Reports:

Bansal & Co LLP. (27^th February, 2025)

Deficiency: In an inspection conducted by PCAOB it has identified deficiencies in the financial statement audit related to Revenue, Goodwill and Intangible Assets, Journal Entries and Equity-Related Transactions.

The firm’s internal inspection program had inspected this audit and reviewed these areas but did not identify the deficiencies below:

» With respect to Revenue for which the firm identified a fraud risk: The firm did not perform any substantive procedures to evaluate whether the issuer met the revenue recognition criteria prior to recognising revenue.

» With respect to Goodwill and Intangible Assets: The firm did not evaluate whether the issuer’s accounting for and disclosures related to goodwill and certain intangible assets were in conformity with GAAP.

» With respect to Journal Entries, for which the firm identified a fraud risk: The firm did not perform any procedures to identify and select journal entries and other adjustments for testing to address the potential for material misstatement due to fraud.

» With respect to Equity-Related Transactions: The firm did not perform procedures to evaluate whether the issuer had a reasonable basis for the significant assumptions used to estimate the fair value of the issuer’s common stock issued in various share-based transactions, beyond obtaining and reading certain issuer-prepared documents

Brown Armstrong Accountancy Corporation. (27^th February, 2025)

Deficiency: In our review, we identified deficiencies in the financial statement audit related to Revenue and Related Accounts, Income Taxes, and Journal Entries.

» With respect to Revenue and Related Accounts, for which the firm identified a significant risk: The firm designed a substantive procedure for testing four types of revenue as a dual-purpose test. The firm performed its substantive procedure using the sample size it determined for its control testing. This sample size was too small to provide sufficient appropriate audit evidence for the substantive procedure because the firm did not use the larger of the sample sizes that would otherwise have been designed for the two separate purposes. In addition, for the selected revenue transactions, the firm did not perform procedures to test whether the issuer satisfied its performance obligations prior to the recognition of revenue, beyond obtaining certain issuer-produced reports and testing the timing of cash receipts. The firm did not perform substantive procedures to test the deferred revenue at year end.

» With respect to Income Taxes, for which the firm identified a significant risk: The firm did not perform procedures to test certain permanent and temporary differences used in calculating the income tax provision, beyond vouching these amounts to issuer-prepared schedules.

» With respect to Journal Entries, for which the firm identified a fraud risk: The firm identified fraud criteria for purposes of identifying and selecting journal entries for testing. The firm did not perform procedures to determine whether any journal entries met one of its fraud criteria. In addition, the firm obtained a listing of journal entries that met certain of the criteria. The firm did not perform sufficient procedures to test the journal entries in this listing, because it limited its procedures to certain entries, without having an appropriate rationale for limiting its testing to those journal entries.

III. THE SECURITIES EXCHANGE COMMISSION (SEC)

a) Charges Three Texans with Defrauding Investors in $91 Million Ponzi Scheme (29^th April 2025)

The Securities and Exchange Commission announced charges against Dallas-Fort Worth residents Kenneth W. Alexander II, Robert D. Welsh, and Caedrynn E. Conner for operating a Ponzi scheme that raised at least $91 million from more than 200 investors.

According to the SEC’s complaint, between approximately May 2021 and February 2024, Alexander and Welsh operated the scheme through a trust controlled by Alexander called Vanguard Holdings Group Irrevocable Trust (VHG). They falsely represented that investors would receive 12 guaranteed monthly payments of between 3% and 6% per month, with the principal investment to be returned after 14 months. The SEC alleges that Alexander and Welsh held VHG out as a highly profitable international bond trading business with billions in assets, and told investors that the monthly returns were generated from international bond trading and related activities.

As alleged, Conner funnelled more than $46 million in investor money to VHG through a related investment program that he operated using Benchmark Capital Holdings Irrevocable Trust (Benchmark), which he controlled. According to the complaint, Alexander, Welsh, and Conner also offered investors the option to protect their investments from risk of loss through the purchase of a purported financial instrument they called a “pay order.”

In reality, VHG had no material source of revenue, the purported monthly returns were actually Ponzi payments, and the protection offered by the “pay orders” was illusory. Alexander and Conner misappropriated millions in investor funds for personal use, such as Conner’s purchase of a $5 million home, according to the complaint.

b) Charges Investment Adviser and Two Officers for Misuse of Fund and Portfolio Company Assets (7^th March, 2025)

The Securities and Exchange Commission filed settled charges against registered investment adviser Momentum Advisors LLC, its former managing partner Allan J. Boomer, and its former chief operating officer and partner Tiffany L. Hawkins, for breaches by Boomer and Hawkins of their fiduciary duties when they misused fund and portfolio company assets.

According to the SEC’s orders, from at least August 2021 through February 2024, Hawkins misappropriated approximately $223,000 from portfolio companies of a private fund she managed with Boomer and that was advised by Momentum Advisors. Specifically, Hawkins misused portfolio company debit cards in more than 100 transactions to pay for vacations, clothing, and other personal expenses, and caused herself to be paid compensation in excess of her authorized salary.

As set forth in the orders, Hawkins concealed her misconduct from Momentum Advisors, from the portfolio companies’ bookkeeper, and from SEC staff, and Boomer failed to reasonably supervise Hawkins despite red flags of her misappropriation. The order against Boomer also finds that he caused the fund to pay a business debt that should have been paid by an entity he and Hawkins controlled, resulting in an unearned benefit to the entity of $346,904, and that Momentum Advisors failed to adopt and implement adequate policies and procedures and to have the fund audited as required.

The orders find that Hawkins and Boomer violated the antifraud provisions of the Investment Advisers Act of 1940, and that Momentum Advisors violated the compliance and custody rule provisions of the Advisers Act. Without admitting or denying the SEC’s findings, Hawkins, Boomer, and Momentum Advisors consented to the entry of cease-and-desist orders. Additionally, Hawkins agreed to pay a $200,000 civil penalty and to be subject to an associational bar; Boomer agreed to pay an $80,000 civil penalty and to be subject to a 12-month supervisory suspension; and Momentum Advisors agreed to a censure and to pay a $235,000 civil penalty.

BCAJ Admin

Associate? Beware!

Arjun : (Chanting)

Hare Krishna, Hari Krishna, Krishna Krishna Hare Hare!

Shrikrishna : (after listening to the chanting)

O, Parth! Cool down. People remember me only when in difficulty.

When they are happy, they never think of me!

Arjun : Bhagwan, that may be true for other people. But I am your most loyal Bhakta’. I remember you constantly in my every breath!

Shrikrishna : Yes, dear! I know that. That is why I also keep you in my heart as my most favourite Bhakta and friend! Your innocence is enchanting!

Arjun : My friend is in deep trouble.

Shrikrishna : What happened?

Arjun : His senior was doing an audit of a company for many years. Now, because of rotation, the senior had to discontinue.

Shrikrishna : Ok. Then?

Arjun : The Senior was possessive about the assignment. So, he offered to my friend the audit, just for name’s sake.

Shrikrishna : Meaning?

Arjun : Meaning, the senior’s firm only will continue to do the entire audit. He said they have been very familiar with it for many years.

Shrikrishna : And your friend will sign it blindly for a small portion of the fees. Right?

Arjun : Yes, Bhagwan. But unfortunately, the fraud being committed by the CEO of the company over the past few years was exposed only this year!

Shrikrishna : This is very common, Arjun. But these things are continuously going on for years!

Arjun : Yes. The human nature is like that. You don’t want to give up an assignment. You want to ensure that it should remain with you for ever!

Shrikrishna : And the junior (your friend) has blind faith in the senior’s ability! He may sign even without visiting the client’s place even once!

Arjun : And also without even seeing the contents of what he is signing!

Shrikrishna : Ha! Ha!! Ha!!!

Arjun : Sometimes, CAs are helpless.

Shrikrishna : Why?

Arjun : They cannot displease the senior, especially where they have undergone articleship training. They cannot show distrust in the senior firm.

Shrikrishna : But Arjun, the clause of Part II of the Second Schedule clearly says that if a CA signs any document which is not verified by him or his employee or his partner, it is a misconduct. Here, you have not verified anything.

Arjun : And when there was an investigation, the senior only had to attend the interrogation! Apart from this, when we cannot cope with some work, we often engage an outsider – some friend or associate or ex-article or ex-employee! We don’t have time to supervise their work.

Shrikrishna : This is problematic. That person is not your employee or partner. He is a stranger. Then, it amounts to disclosing of the information of the client to an outsider without the consent of a client!

Arjun : OMG!! So that’s a separate misconduct!

Shrikrishna : Yes, see clause (1) of Part I of the Second Schedule.

Arjun : Then how to tackle this problem?

Shrikrishna : Simple! Don’t accept the work which you cannot execute with your own staff!

Arjun : Lord, saying this is very simple. But in practice………

Shrikrishna : Then be ready to face the consequences! You cannot eat the cake and have it at the same time.

Arjun : And we cannot call anybody as our employee unless we have corroborative evidence in terms of documents! But Bhagwan, clause (2) permits us to rely upon the examination done by another Chartered Accountant.

Shrikrishna : I agree. But in the case you narrated, the other CA was not officially in the picture. He was never appointed by the client nor by your friend! He did not carry out the examination independently, but he acted on Your behalf without any locus standi!

Arjun : That’s a point. You mean, if he had independently examined some part and certified it in some other context, then we could rely on the work done by him?

Shrikrishna : That’s right. For example, if another CA verifies sales or stocks who has certified them to be correct, then you may rely on his work.

Arjun : Understood. So, no Associate business! Remain within your capacity and within your means! Don’t be possessive. Don’t invite big risk for a small portion of fees! Do justice to your responsibility.

Shrikrishna : You said it!

Arjun : Thank you, Bhagwan.

(This dialogue is based on the common practice of engaging a stranger under the guise of ‘associate’ and signing the audit based on his work). Clause (1) and (2) of Part I of the Second Schedule.

BCAJ Admin

Prowess of the Indian Army, Indian Economy and CAs

Last Editorial, I wrote with tears in my eyes due to the brutal terrorist attack on tourists at Pahalgam. This Editorial, I am writing with praise in my heart and a smile on my face. Praise for the Indian Army for its prowess and smile on my face for the prowess of the Indian Economy.

On the night of 6^th and 7^th May 2025, India launched “Operation Sindoor” to punish perpetrators and planners of terror and aimed to destroy terror infrastructure across the border. Under this Operation, India launched well-planned, precise and skillfully executed missile attacks and destroyed nine major terror launchpads in Pakistan, and Pakistan occupied Jammu and Kashmir (PoJK) in just 25 minutes. India redefined the rules of engagement by striking deep into Pakistan’s heartland, including Punjab province and Bahawalpur. India made it clear that the attacks were only to neutralise terrorists and their bases and did not want to escalate the matter. However, Pakistan retaliated with drone and missile attacks on India and in response, India made precision attacks on the 11 military installations (airbases) of Pakistan in a matter of just three hours, inflicting colossal damage. Almost 20% of Pakistan’s air force assets, including many fighter jets, were destroyed on the night of 9^th and 10^th. Acceding to Pakistan’s request, India agreed to pause Operation Sindoor for the time being. India created history by becoming the first country to strike a nuclear-armed nation. All three arms of the Indian Military, namely, the Army, Navy and Air Force, worked in full coordination, demonstrating India’s growing joint military prowess.

Truly, “Operation SINDOOR has reshaped both the geopolitical and strategic landscape of South Asia. It was not merely a military campaign, but a multidimensional assertion of India’s sovereignty, resolve, and global standing.”¹

¹ https://www.pib.gov.in/PressReleasePage.aspx?PRID=2128748

India has sent all-party delegations to various countries to inform the world about Operation Sindoor and to expose fake narratives by our hostile neighbour. It is heartening to see leaders from the opposition parties forcefully putting across India’s stand in one voice.

PROWESS OF THE INDIAN ECONOMY

The onset of early monsoon pan India may be good news for the Indian economy, but irritant weather conditions have once again raised questions about Climate change. We are witnessing untimely incessant rains, hailstorms, lightning/thunder and cyclones. This has put Indian skies in permanent turbulent mode.

The silver lining amidst the turbulent weather depression is the shining Indian Economy. India is close to becoming the 4th largest economy, ahead of Japan, by the end of 2025. The International Monetary Fund (IMF) has projected India’s GDP for 2025 at $4.19 trillion, slightly surpassing Japan’s estimated $4.186 trillion.² Indeed, the Indian economy is one of the fastest growing economies in the world, with a projected growth of 6.2 per cent for 2025³ and 6.3 per cent above from 2026 to 2030. This was, perhaps, the prominent reason why India chose to exercise restraint and not to indulge in a full-fledged war with Pakistan.

² https://economictimes.indiatimes.com/ 
³ https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD/IND

Let us look at some other interesting figures depicting the prowess of the Indian Economy:

The Reserve Bank of India announced record dividends of ₹2.69 lakh crore for the FY 2024- 2025, marking a 27.4% increase from the ₹2.11 lakh crore transferred in FY 2023-2024.⁴ According to the SBI report, as quoted by PTI, the bumper payout was fuelled by “robust gross Dollar sales, higher foreign exchange gains, and steady increase in interest income.”
India recorded an all-time high of foreign exchange reserves at USD 704.89 billion in September 2024. RBI actively intervenes in the currency market to stabilise the rupee. However, despite RBI interventions, the Forex reserves of India has remained robust at USD 692.72 billion as of 23^rd May, 2025.
India is the world’s fourth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP) .⁵
From 2000 to today, in real terms, the economy has grown nearly four-fold, and GDP per capita has almost tripled. Because India grew faster than the rest of the world, its share in the global economy has doubled from 1.6 per cent in 2000 to 3.4 per cent in 2023, and India has become the world’s fifth-largest economy. The World Bank reported these important facts in the India–Country Economic Memorandum published in May 2025.⁶
GST collections surged by 12.6 per cent, an all-time high of ₹2.37 lakh crore during April 2025, as reported by the ET on 1^st May 2025.⁷
FDI in India in FY 2024-25 has risen by 14 per cent to $ 81.04 billion (provisional) from $71.28 billion in FY 2023-2024.⁸

⁴ https://timesofindia.indiatimes.com/business/india-business/rbis -rs-2-7-lakh-crore-bumper-dividend
⁵ https://en.wikipedia.org/wiki/Economy_of_India
⁶ http://documents.worldbank.org/curated/en/099022725232041885
⁷  https://economictimes
⁸https://www.pib.gov.in/PressReleasePage.aspx?PRID=2131716

It is heartening to note that the Indian economy is progressing as never before, as it has resulted in a steep decline in extreme poverty and massive expansion of essential infrastructure and service delivery. Towards India’s goal of Viksit Bharat by 2047, the World Bank report quotes that “however, for India to become a high-income economy by 2047, its GNI per capita will have to increase by nearly 8 times over the current levels; growth would have to accelerate further and remain high over the next two decades, a feat that few countries have achieved. Given the less conducive external environment, India would need to maintain ongoing initiatives and expand and intensify reforms to meet this target.” The report further outlines what it would take to realise the vision of High-Income India.

PROWESS OF CA PROFESSION IN CERTIFICATION OF FDI/ODI TRANSACTIONS

Total FDI in India rose to $81.04 billion in FY 2024-2025, whereas repatriation/disinvestment by those who made direct investments in India increased to $51.5 billion in FY 2024-25. Overseas investments made by Indian companies (outward FDI) increased to $ 29.2 billion in FY 2024-2025.

Chartered Accountant’s certification is required for outward remittances on account of ODI and Repatriation or Divestment of FDI, besides various types of payments on the current account. The above figures of capital repatriations show that CAs would have certified billions of dollars of outward remittances and valuations in the case of FDI in India. Besides, these various remittances abroad on the current account, such as fees for technical services, royalties, interest, dividends, etc., require a CA certificate in form 15CB. Thus, the CA profession is actively assisting the government in collecting taxes and contributing to the growth of the Indian economy. In a way, CAs’ role is very crucial as CAs guard the financial borders/interests of India. Thus, our professions shoulder huge responsibility and duty towards our Nation.

OPERATION SINDOOR CONTINUES….

Well, Operation Sindoor started with Sainya Bal, par abhi Jan Bal se aage badhega. Every Indian has to come forward and contribute his might to make India a Viksit Bharat by 2047.

Some of the important lessons to be learnt from the Operation Sindoor are as follows:

Think through and prepare well before any action. Strike exactly where necessary. Understand consequences and be prepared for future actions/retaliations. Communicate to the adversary. Be clear about who is the adversary, not people but elements of people/state. Know your strength and capitalise on it. Take advantage of the weaknesses of the adversary. Act responsibly, measured, and precisely. Do not exaggerate matters, and do not escalate beyond what is necessary.

The above lessons can be practised by every individual in their professional as well as personal life.

Let’s salute the Indian Army, Indian Leadership, RBI and other Ministries and Institutions contributing to India’s economic progress, the CA fraternity and the entire population of India for showing their prowess in discharging their duties.

Wish you all happy and healthy times ahead,

Best Regards,

Dr CA Mayur Nayak,

Editor

BCAJ Admin

Doctrine of Mutuality under GST

Doctrine of Mutuality – Young Men’s Case & Constitutional Amendment

Indirect taxes, in general, are transactional taxes. This necessarily means that a tax can be levied only when two people exist in a transaction, since a person cannot transact with himself. The Constitution Bench upheld this legal position in the case of Jt. Commercial Tax Officer vs. Young Men’s Indian Association [(1970) 1 SCC 462]. The issue before the Court was the applicability of sales tax on supplies made to member clubs. In this case, the Court concluded that:

In the case of member clubs, the members are the joint owners. The agency theory would apply in such cases, and the club shall be treated as acting as an agent. It cannot be said that a transfer of property in goods takes place from the club to the members and hence, no sales tax can be levied on the recoveries made by the club from its’ members.
This principle will not apply in the case of proprietary clubs, where not all the members are the shareholders, and vice versa, all the shareholders are not members. In such cases, the members are not the owners or interested in the club’s property.

Subsequently, Article 366 (29A) was inserted to the Constitution in 1983 (46th Constitutional Amendment) to provide that the tax on the sale or purchase of goods shall include a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration deeming such supply to be a sale of goods.

CALCUTTA CLUB’S CASE

Even after the 46th Constitutional amendment, whether the doctrine of mutuality would apply to sales tax was not settled and the matter was again litigated in the context of both, sales tax & service tax and ultimately, settled by the Hon’ble Supreme Court in State of West Bengal vs. Calcutta Club Ltd. [2019 (29) G.S.T.L. 545 (S.C.)]. It was the Revenue’s argument that the 46th Constitutional Amendment permitted the States to levy sales tax on supplies made by an unincorporated association or body of persons to their members. It was also argued that incorporated members’ clubs were always liable to sales tax and were not covered by the decision in Young Men’s.

The Supreme Court, rejecting the above arguments, held that:

a) The principle of mutuality continued to apply even after the 46th Constitutional Amendment. A transaction which is not covered by Article 366 (29A) would have to qualify as sales within the meaning of the Sale of Goods Act, 1930 for the levy of sales tax.

b) The decision in Young Men’s applied to unincorporated members’ clubs as well as incorporated members’ clubs.

c) In the context of incorporated members’ club, the court held that mutuality would continue to apply when the incorporated bodies do not have shareholders, do not declare dividends, or distribute profits, and such clubs cannot be treated as separate in law from their members.

d) The court further held that clause 29A would not apply to incorporated bodies. The court also rejected the argument that incorporated clubs would be classifiable as a “body of persons”. It held that the term “person” as defined under the General Clauses Act, 1857, specifically included within its scope, a company, or an association, or a body of individuals. If clause 29A was intended to be applied to incorporated bodies, the amendment would have referred to “person” and not “body of persons”.

e) The Court further held that clause 29A would not apply even to unincorporated clubs since no consideration was involved. It was held that the term “consideration” requires money changing hands from one person to another. Since two people are not involved, there is no consideration. The Court also relied on the decisions rendered in the context of Income Tax to support its conclusion (ITO vs. Venkatesh Premises Co-op. Society Limited [(2018) 15 SCC 37].

The Court also dealt with the levy of service tax on incorporated members’ clubs, either incorporated u/s 25 of the Companies Act, 1956, or registered co-operative societies under various State Acts. The Court held that during the period up to 30.06.2012, no service tax was leviable on the incorporated member’s club since the definition of “club or association” u/s 65 (25a) specifically excluded anybody established or constituted by or under any law for the time being in force. The Court also held that the doctrine of mutuality shall apply to service tax. Hence, explanation 3 to the definition of persons deeming an unincorporated association or body of persons and their members as distinct persons would not apply to incorporated member clubs.

GST SCENARIO

The 101^st Constitutional Amendment overhauled the Indian indirect tax landscape in 2017. This amendment provided special provisions for the levy of Goods & Service Tax. The term ‘goods and service tax was defined as any tax on the supply of goods, services, or both, except taxes on the supply of alcoholic liquor for human consumption. The term “services” was defined to mean anything other than goods. It must be noted that the Constitutional framework, post insertion of article 246A, did not, in any way, deal with the applicability or otherwise of the doctrine of mutuality. Hence, even after the introduction of GST, the specific challenges to the levy, as applicable under the sales tax/ service tax regime on the grounds of the doctrine of mutuality, continued to exist.

The legislation enacted for the levy & collection of GST (i.e., CGST Act, 2017, SGST Act, 2017, and IGST Act, 2017) provided for the levy of GST on the supply of goods or services or both for consideration in the course or furtherance of business. The term “person” was defined similarly to the definitions under service tax / sales tax. In other words, there was no special provision for the levy of GST on members’ clubs under GST. Therefore, to overcome the Calcutta Club decision, section 7(1) of the CGST Act, 2017 was retrospectively amended & clause (aa) was inserted to include the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration within the scope of supply.

CHALLENGE TO THE RETROSPECTIVE AMENDMENT

It was felt that the amendment was not sufficient to overcome the Constitutional impediment on taxing such transactions for the following reasons:

a) Young Men’s case held that the Constitution did not contain powers for the levy of sales tax on a transaction between a members’ club and its members.

b) Calcutta Club held that the doctrine of mutuality shall apply even after the 46th amendment and no sales tax/ service tax could be levied on members’ clubs. The Court further held that there was no consideration involved in the transaction between a members’ club and its members and therefore, even the 46th amendment would not apply.

c) A mere amendment to the Act was not sufficient to overcome the decision in the case of Young Men and Calcutta Club. The amendment did not deem a member’s club and its members to be distinct. It merely deemed activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, as a supply. A mere amendment to section 7 is not sufficient for the levy provision to trigger. In other words, unless the definition of service is amended to do away with the requirement for duality of person in a service and the Constitution is correspondingly amended, the activities carried out by the members’ clubs cannot be construed as “supply”.

INDIAN MEDICAL ASSOCIATION’S CASE (IMA CASE)

Given the above, the retrospective amendment to section 7 inserting the deeming fiction (clause aa) was challenged before the Kerala High Court. The Single Member Bench of the High Court, in Indian Medical Association vs. Union of India [(2024) 20 Centax 525 (Ker.)], dismissed the writ petition and held that the amendment was neither beyond legislative competence nor offended any fundamental rights guaranteed under Part III of the Constitution.
An intra-court appeal was filed against this decision. The Division Bench in [(2025) 29 Centax 232 (Ker.)] held that when the Constitution has understood a taxable transaction as necessarily involving two persons, the legislature cannot deem a transaction that does not involve two persons as a taxable transaction and to this extent, disagreed with the views of the learned Single Judge who rejected the argument that the amendments had to be invalidated for the reason that it was ultra vires the Constitutional provisions. The Court also drew analogy from the 46th Constitutional amendment to levy tax on deemed sales and concluded that to levy tax on the activities of a members’ club, the constitutional amendment was necessary, and mere amendment to section 7 was not sufficient.

THE WAY FORWARD – LEGISLATIVE PERSPECTIVE

It may be noted that in State of Madras vs. Gannon Dunkerley [2015 (330) E.L.T. 11 (S.C.)], the Supreme Court held that prior to the 46th amendment, the State Governments lacked competency to levy sales tax on works contract since the transactions were not regular sales. This necessitated the parliament to amend the Constitution and insert article 366(29A) to introduce the concept of deemed sales for such transactions, and similar other transactions wherein it was held that the State Legislature lacked constitutional powers to levy sales tax.

Once again, the taxpayers find themselves at the same crossroads. The Supreme Court, in a series of decisions, has held that the doctrine of mutuality shall apply to service tax and sales tax matters. The Kerala High Court, in the IMA case, further extended it to GST. It also struck down the retrospective amendment to be unconstitutional. While it is likely that the Government may file an appeal before the Hon’ble Supreme Court, the other option available to the Government is an amendment. However, unlike the recent attempt of legislative override through a retrospective amendment to Section 17(5) to overcome the Supreme Court decision in the case of Safari Retreats, it may be important to note that in the current case, a mere retrospective amendment to the Act will not remedy the defect. The Government will have to move an amendment to the Constitution.

It may not be out of place to refer to the observations in Calcutta Club wherein the Court made the following observations relating to the 61st Law Commission preceding the 46th amendment:

10. It will be seen from the above that the Law Commission was of the view that the Constitution ought not to be amended so as to bring within the tax net members’ clubs. It gave three reasons for so doing. First, it stated that the number of such clubs and associations would not be very large; second, taxation of such transactions might discourage the cooperative movement; and third, no serious question of evasion of tax arises as a member of such clubs really takes his own goods.

Even if a constitutional amendment takes place, the next question that needs consideration is whether such an amendment would be prospective or retrospective? The GST law, since its introduction, has seen a barrage of retrospective amendments. The Division Bench of the Supreme Court in NHPC Ltd. vs. State of Himachal Pradesh [2023 SCC Online SC 1137] dealt with the law around the adoption of the legislative device of abrogation to remove the basis of a judgement of a court. The Court referred to Tirath Ram Rajendra Nath vs. State of U.P., [(1973) 3 SCC 585], wherein it was held that there is a distinction between encroachment on the judicial power and nullification of the effect of a judicial decision by changing the law retrospectively. While the former is outside the competence of the legislature, the latter is within its permissible limits. The Court also cited Indian Aluminium Co. vs. State of Kerala [(1996) 7 SCC 637] and other catena of judgments wherein the principles regarding the abrogation of a judgment of a Court of law by a subsequent legislation were culled out. In Cheviti Venkanna Yadav vs. State of Telangana [(2017) 1 SCC 283], it was held that the legislature has the power to legislate, including the power to retrospectively amend laws, thereby removing causes of ineffectiveness or invalidity of laws. Further, when such correction is made, the purpose behind the same is not to overrule the decision of the court or encroach upon the judicial turf, but simply enact a fresh law with retrospective effect to alter the foundation and meaning of the legislation and to remove the base on which the judgement is founded….

The Court further held that it cannot interfere with the power to legislate prospectively or retrospectively, provided it is as per the Constitution. Similarly, the legislature can remove the defects pointed out by the Courts, either retrospectively or prospectively. However, if the legislature merely seeks to validate the acts that are struck down or rendered inoperative by a Court by a subsequent legislation without curing the defects in such legislation, the subsequent litigation would be ultra vires. Therefore, it is clear that any retrospective amendment to the legislature to overcome a decision is within the competence of the Government.

The question that needs analysis is whether the constitution can be amended retrospectively. Article 368 deals with the provisions relating to the amendment of the Constitution. Clause (5) thereof provides that there shall be no limitation whatever on the constituent power of Parliament to amend by way of addition, variation, or repeal the provisions of this Constitution under this article. Further, clause (4) provides that a constitutional amendment cannot be questioned in any Court on any ground. It therefore appears that the Parliament has unfettered powers to amend the Constitution, which includes the power to retrospectively amend the Constitution. In fact, there are instances of retrospective amendment of the Constitution, for example, the parts of 1st & 15th amendments & 85th amendment (in toto) were given a retrospective effect. Therefore, a retrospective constitutional amendment cannot be ruled out.

Whether such retrospective Constitutional Amendment can retrospectively validate an amendment to the legislature invalidated by a Court decision? One may refer to the decision in the case of Jayam & Co vs. Asst. Commissioner [(2016) 15SCC 125] wherein it was held that legislatures have the power to pass retrospective laws, but the same cannot be unreasonable or arbitrary. More importantly, if such retrospective amendment has the effect of imposition of a levy, the same is generally frowned upon by the judiciary.

THE WAY FORWARD – TAXPAYER PERSPECTIVE

The doctrine of mutuality is an underlying doctrine applicable to a wide spectrum of associations. Being an indirect tax, any interpretation of non-applicability of GST presents two significant challenges. The first challenge is the loss of input tax credit (both at the association level as well as at the member level). Many business or professional associations procure inputs and input services from third parties, which bear GST. Similarly, members of such business or professional bodies are duly registered and charge GST on the supplies made by them to their clients or customers. Clearly, if such business or professional association wishes to take a position of non-applicability of GST, the input tax credit chain breaks resulting in cascading of taxes.

The second challenge emanates out of the uncertainty and time frame for the resolution of this uncertainty. The Calcutta Club decision took more than two decades to resolve conclusively. In the meantime, an association which takes the position of non-applicability has to bear in mind that it can no longer collect the tax from the member and litigate. As such, the association ends up bearing a risk, the benefit of which risk is derived by the members, rather than the association itself.

However, associations having members who are not covered under the GST law may not see the first challenge and may want to examine the implications of the Kerala High Court decision more closely. For example, the IMA, the litigant in the case of Kerala High Court decision is an association of healthcare professionals who are exempted from payment of GST.

Similarly, take the case of co-operative housing societies. Such societies may wish to examine the grounds of mutuality in addition to the benevolent exemption notification granting a threshold of ₹7,500/- per member per month and may wish to wriggle out of the maze of day-to-day compliances under the GST Law. In fact, in addition to the principle of mutuality, a housing society has a strong case to argue that its activities are not covered within the scope of business. Let us first understand the concept of how a co-operative housing society model functions. A builder develops land by constructing the building and other amenities, sells it to potential buyers who, after the completion of construction and handover of possession, form a society to manage, maintain, and administer the property. The society incurs expenses of two kinds, one being directly incurred for the member (such as property tax, water bill, etc.) and, second being common expenses for all the members (such as lighting of common area, lift operation and maintenance, security, etc.) which are recovered from the members. However, what is of utmost importance is that, unlike an association, a member does not come to society to enjoy the said facilities, but to stay there, which continues to be his right by way of ownership. The same cannot be denied to him. Even if there is a case where a member stops contributing to the expenses, other members of the society cannot deny access to the member to his unit, though the facilities extended may be discontinued.

The term “business” is defined u/s 2 (17) as follows:

(17) “business” includes—

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

[(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and]

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

So far as the applicability of clauses (a) to (c) to an association/society is concerned, the issue was examined recently in the case of Goa University vs. Jt. Commissioner [(2025) 29 Centax 281 (Bom.)] wherein the Court referred to the decision in the case of Laxmi Engg. Works vs. P.S.G. Industrial Institute [(1995) 3 SCC 583] wherein it is held that the term “commercial activity” means something about commerce or connected with or engaged in commerce; mercantile; having profit as the main aim.

Therefore, the ratio laid down in Laxmi Engg Works and followed in Goa University could apply to such societies, over and above the argument of mutuality and they may continue to be outside the purview of GST since their activities are not in the course or furtherance of business.

CONCLUSION

The doctrine of mutuality lays down an important principle, i.e., a person cannot transact with himself, and the Courts have repeatedly upheld it. However, it appears to be the clear intention of the legislature to bring such transactions within the tax net. It therefore becomes necessary for such clubs/associations/society to take a conscious call on the applicability of GST on their transactions.

BCAJ Admin

Part A | Company Law

6. M/s Hankook Latex Private Limited

Registrar of Companies, Kerala & Lakshadweep

Adjudication Order: ROCK/Adj/S.90/Hankook Latex/ 752/2025

Date of Order: 21^st April, 2025

Adjudication order for violation of section 90 of the Companies Act 2013 (CA 2013):

FACTS

Notices were issued to the company seeking details of action taken by the company to identify significant beneficial owner in terms of Section 90 of CA 2013. The company in response, admitted to the default.
Subsequently, company filed Form BEN 2 on 14th March, 2024 enclosing BEN 1 dated 8^th March, 2024.
It was observed that Mr. K and Mr. D were holding Significant Beneficial Ownership w.e.f. 10^th June, 1997.
Thus, ROC noticed delays in submission of BEN 1 as tabulated below:

Note: As per Rule 3 of the Companies (Significant Beneficial Owners) Rules, 2018, every individual who is a significant owner in a reporting company, was required to file a declaration within 90 days from the commencement of Companies (Significant Beneficial Owners) Amendment Rules, 2019. As the date of commencement of the said rules was 8th February, 2019, the declaration should have been filed on or before 8^th May, 2019.

An Adjudication Notice was issued to the company and in response company admitted the delay in filing BEN-1 by SBOs.
Notice of hearing was issued and the adjudicating officer informed that the penalty will be imposed as per the relevant provisions of CA 2013.

FINDINGS AND ORDER:

The company has not filed GNL-3 designating an officer for compliance of the provisions of CA 2013 and as such all the directors of the company during the period of default were considered as “officers in default”.
Having considered the facts, the penalty was imposed as detailed below u/s 90(1) read with Section 90(10) of CA 2013:

7. M/s BE BOLD & CONFIDENT CAREERS PRIVATE LIMITED

Registrar of Companies, Punjab and Chandigarh

Adjudication Order No –ROC CHD/Adj/1019 to 1023 Date of Order – 13^th January, 2025

Adjudication order issued against the Company and its Director for contravention of provisions of Section 134 of the Companies Act, 2013 with respect to not mentioning the correct number of Board Meetings of Board of Directors held in a Financial Year.

FACTS

An Inquiry order was issued by the Ministry of Corporate Affairs (MCA) vide letter no. CL-II-07/442/2021-O/o DGCoA-MCA dated 5^th April, 2022 to conduct an inquiry under Section 206(4) of the Companies Act, 2013 based on complaint of Mr. AA. Mr. AA in his complaint dated 9^th October, 2022 alleged that the company M/s BBCCPL and its directors indulged in financial malpractices.

As per the MGT-7A filed in MCA for FY 2021-22, there were six Board Meetings of the board of directors, however, in the board report only five Board Meetings were mentioned for the FY 2021-22. This is a violation of section 134 of The Companies Act, 2013 as wrong information was furnished in the Board Report.

MCA issued a Show Cause Notice (SCN) dated 30^th October, 2024 to M/s BBCCPL and its officers in default for the violation of section 134 of The Companies Act, 2013. M/s BBCCPL replied on 5^th December, 2024 that there was an unintentional oversight in filing the Board Report. MCA found this reply unsatisfactory as M/s BBCCPL had violated the provisions of Section 134 of the Companies Act, 2013 that cannot be disregarded and that the reply was not acceptable.

PROVISION: –

Section 134 (Financial Statement, Board’s Report, etc)

“(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two Directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.

(2) The auditors’ report shall be attached to every financial statement.

(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include—

(a) the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed

(b) number of meetings of the Board;

(c) Directors’ Responsibility Statement;

(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government;

(d) a statement on declaration given by independent Directors under sub-section (6) of section 149;

(e) in case of a company covered under sub-section (1) of section 178, company’s policy on Directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a Director and other matters provided under sub-section (3) of section 178];

(f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report;

(g) particulars of loans, guarantees or investments under section 186;

(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form;

(i) the state of the company’s affairs;

(j) the amounts, if any, which it proposes to carry to any reserves;

(k) the amount, if any, which it recommends should be paid by way of dividend;

(l) material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;

(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;

(n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

(p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which form 8 [annual evaluation of the performance of the Board, its Committees and of individual Directors has been made;

(q) such other matters as may be prescribed.

Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board’s report.

Provided further that where the policy referred to in clause (e) or clause (o) is made available on company’s website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board’s report and the web-address is indicated therein at which the complete policy is available]

(3A) The Central Government may prescribe an abridged Board’s report, for the purpose of compliance with this section by One Person Company or Small Company

(4) The report of the Board of Directors to be attached to the financial statement under this section shall, in case of a One Person Company, mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.

(5) The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that—
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the Directors had prepared the annual accounts on a going concern basis; and

(e) the Directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

Explanation. —For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;

(f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

(6) The Board’s report and any annexures thereto under sub-section (3) shall be signed by its chairperson of the company if he is authorised by the Board and where he is not so authorised, shall be signed by at least two Directors, one of whom shall be a managing director, or by the director where there is one director.

(7) A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy each of —

(a) any notes annexed to or forming part of such financial statement;

(b) the auditor’s report; and

(c) the Board’s report referred to in sub-section (3).

(8) If a company is in default in complying with the provisions of this section, 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.”

SECTION 446B.

“Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.
Explanation.—For the purposes of this section-

(a) “Producer Company” means a company as defined in clause (l) of section 378A;

(b) “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.”

ORDER:

Adjudicating Officer (AO), after considering the facts and circumstances of the case, concluded that M/s BBCCPL and its directors had failed to comply with the provisions of Section 134 of the Companies Act, 2013, thereby attracting the penal provisions mentioned under Section 134(8) of the Act.

AO therefore imposed a penalty of ₹1,50,000/- on M/s BBCCPL and ₹25,000/- on each of its officers in default.

Thus, a total penalty of ₹2,25,000/- was imposed on M/s BBCCPL and its Directors in default

BCAJ Admin

Consideration for Issue of Shares by a Company

ISSUE FOR CONSIDERATION

Receipt of consideration for issue of shares by a company, not being a company in which the public are substantially interested, in excess of the face value of such shares, is taxable in the year of receipt, to the extent of the amount that exceeds the fair market value of the shares, as per the provisions of clause (viib) of sub-section (2) of s.56 of the Income-tax Act, 1961.

This provision does not apply to the receipts by a venture capital undertaking from a venture capital company or a fund or a specified firm besides the receipts by a company from a class of notified persons, for example a start-up company.

Rules 11U and 11UA provide for the method of determining the fair market value of the shares by following the Net Asset Value method or the Discounted Cash Flow method. In the alternative, the fair market value shall be such value as is substantiated by the company to the satisfaction of the AO based on the value of its assets.

An interesting issue has arisen in respect of applicability of S.56(2)(viib) of the Act, where shares are issued by a closely held company at a premium on conversion of loans into share capital.

The Chandigarh Bench of the Income Tax Appellate Tribunal held that such a conversion of a loan into share capital does not attract the provisions of S.56(2)(viib). In contrast, the Ahmedabad Bench of the Tribunal recently held that the provisions do apply following the decisions of the Kolkata and Mumbai Benches of the Tribunal.

I. A. HYDRO ENERGY’S CASE

The issue arose in the case of CIT vs. I.A Hydro Energy (T) Ltd., before the Chandigarh Bench of the Tribunal in ITA No. 548/CHD/2022 dt. 11.10.2023 for assessment year 2018-19. In that case, the assessee, an Indian company, engaged in the business of generation and distribution of electricity, owned a Hydro Electric Project in Chanju, Himachal Pradesh. For the relevant year, the assessee filed the return of income on 18.10.2018 under section 139(1) of the Act declaring a loss of ₹67,15,30,280. The assessment in the case of the assessee was completed vide order dated 12.04.2021 passed under section 143(3) read with sections 143(3A) & 143(3B) assessing the total income of the assessee at ₹135,36,85,457/- after making addition of ₹202,50,00,000/- u/s 56(2)(viib) of the Act. The AO noted that the assessee company had issued equity shares at a premium, which was in excess of the fair market value of the shares issued. On appeal, the CIT(A) deleted the addition made by the assessing officer. Aggrieved, the Income-tax Department filed an appeal before the Tribunal.

In appeal, it was pointed out by the Revenue that the assessee company was incorporated on 23.03.2017 and prior to that, business was carried out in the status of a partnership firm, namely M/s. I A Energy, which was constituted on 18.06.2010. On conversion of the partnership firm into a company, all the partners of the firm became shareholders. Later on, unsecured loans given by the erstwhile partners were converted into equity shares, which were issued at a premium. The assessee had, during the year, allotted 2,25,00,000 shares of face value ₹10 each at a premium of ₹90 each while the market value of the shares as per the Net Asset Value (NAV) method and Rule 11UA of the Income Tax Rules was far less than the value at which the shares had been allotted. The assessee had submitted that the value of the shares had been determined at ₹106 per share by the Discounted Cash Flow (DCF) method and had submitted the CA certificate in support of the same. The CA certificate mentioned that all the values of variables in the DCF method had been taken as per figures provided by the management of assessee company. The assessee failed to produce any valid justification in respect of projection of financial statements, which were baseless, unsubstantiated and far removed from the actual business and financial realities of the assessee company.

The Revenue, on the above facts, requested the Tribunal to consider the following grounds :

1. The Ld CIT (A) erred in deleting the addition of ₹202.50 Crores under the Head “Income from Other Sources” u/s 56(2)(viib) of the Act on account of excess amount per share paid as premium.

2. The Ld CIT (A) erred in holding that there is no case of application of Section 56(2)(viib) to the facts of appellant’s case where pre-existing unsecured loans of partners / shareholders were converted into equity shares at premium and the facts of the assessment order do not indicate any case of tax abuse involved in such share conversion.

3. The Ld CIT (A) erred in deleting the addition as the DCF (Discounted Cash Flow) valuation used by the assessee was done with fictitious figures having no correlation with actual affairs of the assessee company.

The Revenue challenging the impugned order, contended that the CIT (A) erred in deleting the addition of ₹202.50 Crores made by the AO u/s 56(2)(viib) of the Act under the head “Income from Other Sources” on account of excess of fair market value per share paid as premium; that the CIT (A) erred in holding that there was no case for application of Section 56(2)( viib) to the facts of appellant’s case, where pre-existing unsecured loans of partners / shareholders were converted into equity shares at a premium and the facts of the assessment order did not indicate any case of tax abuse involved in such share conversion; that the CIT (A) erred in deleting the addition based on DCF (Discounted Cash Flow) valuation used by the assessee which was done with fictitious figures having no correlation with actual affairs of the assessee company;

In response, on behalf of the assessee company, it was contended that no money/consideration was actually received by the assessee on conversion of loans to shares, after a conversion of the partnership firm to the assessee company, and that thereby, the provisions of Section 56(2)(viib) of the Act were not applicable. It was further submitted that Section 56(2)(viib) of the Act provided for taxation, where the company received any consideration in excess of fair market value of shares; that the assessee had not received any money/ consideration on issuance of shares; the shares had been issued in lieu of already outstanding loans received from existing shareholders itself.

It was reiterated that the assessee company came into existence on 23.03.2017 by conversion of the Firm. All the partners of the Firm became shareholders of the company. The Firm was also enjoying substantial amount of loan facility from its partners, who granted loans from time to time vide loan agreement(s) of 2010. It was upon conversion of the firm to a Company that the existing loans were converted into equity shares, and thereby the assessee issued 2,25,00,000 equity shares of ₹10 each at a premium of ₹90 in lieu of outstanding loans. It was submitted that the aforesaid unsecured loans received from the partners, starting from the year 2010, had always been accepted as genuine in the hands of the Firm in as much as no doubt/addition/ disallowance in respect of such loans had been made in completed scrutiny assessment(s) for AYs 2013-14, 2014-15, 2016-17 and 2017-18.

It was submitted that it was apparently clear that no fresh consideration/ money had flown to the assessee company on issue of shares during the relevant year. In effect, the loans were received in preceding years and were outstanding and had merely changed form during the relevant year, i.e., from ‘loan’ to ‘equity share capital’; there was no consideration received by the assessee company during the year in lieu of shares allotted, warranting application of section 56(2)(viib) of the Act.

It was mentioned that clause (viib) of sub section (2) of section 56 was inserted vide Finance Act, 2012 with a view to curb the practice of closely held companies introducing undisclosed money of promoters / directors by issuing shares at high premium, over and above the book value of shares of the company, to escape the rigours of section 68 of the Act.

Attention had been drawn to the Budget Speech, 2012 wherein the object behind the introduction of Section 56(2)(viib) in the Act besides the Circular No. 1 /2011 dated 6th April, 2011 issued by the Board.

The decision of the CIT(A) was reproduced in para 12 of its order by the Chandigarh bench to support the case for no addition. The relevant parts of the said decision were:

In view of the aforesaid, considering that section 56(2)(viib) of the Act is aimed at curbing practice of routing unaccounted/ black money, the said provisions would not, in our respectful submission, apply in case of bona-fide transaction of conversion of existing loans, accepted as genuine in the year of receipt, to share capital, that, too, related to existing shareholders refer PCIT vs. Cinestaan Entertainment Pvt Ltd. : ITA No. 1007/2019 (Del HQ; C/earview Healthcare (P.) Ltd. vs. ITO: 181 ITD 141 (Del Trib.); Vaani Estates (P.) Ltd. vs. ITO: 172 ITD 629 (Chennai Trib.).

28. Further, Circular No.1/201I dated 6 April, 2011 issued by the CBDT explaining the provision of section 56(2)(vii) of the Act specifically states that the section was inserted as a counter evasion mechanism to prevent money laundering of unaccounted income. In paragraph 13.4 thereof, it is stated that “the intention was not to tax transactions carried out in the normal course of business or trade, the profit of which are taxable under the specific head of income”. The said circular, it is respectfully submitted, further fortifies the contention of the assessee that the provision of section 56(2)(viib) of the Act are not applicable to genuine business transaction without there being any evidence stating otherwise.

29. In view of the aforesaid, in absence of any money/ consideration flowing to the assessee company on issue of shares and keeping in mind the avowed objective behind introduction of section 56(2)(viib) of the Act, the said section has no application. In that view of the matter, addition made by the assessing officer under section 56(2)(viib) of the Act is liable to be deleted at the threshold, on the said ground itself.

30. It is further submitted that once the transaction is tested by the tax department and the assessing officer is satisfied that the transaction is a genuine business transaction, i.e., without any element of tax avoidance, then, there is no requirement to further test FMV of issue of shares at premium, applying provisions of section 56(2)(viib) of the Act.

The Tribunal reiterated that in pursuance of the aforesaid loan agreement(s), the pre-incorporation loan given by the erstwhile partners (now shareholders) were converted into shares of the assessee company, by issue of fresh equity shares of ₹10 each at premium of ₹90 per share (total ₹100 per shares) during the relevant year. A copy of the Valuation Report obtained by the assessee from its Chartered Accountant has been filed.

The Tribunal noted that the CIT(A), while deleting the addition made by the AO, had observed as follows :

(ii) The appellant has referred to the objective behind provision of Section 56(2)(viib) introduced by Finance Act, 2012 by relying on the Budget Speech 2012 and contended that section was introduced as an anti-abuse provision to arrest circulation of unaccounted y in the economy. Reference to Hon’ble Supreme Court decision in the case of K.P. Verghese Vs. lTO, 131 ITR 597 was also made wherein the Hon’ble Apex Court held that the h of Finance Minister while Introducing Finance Bill, carries considerable weightage to determine the intent behind the provisions inserted/amended. It was thus, contended that bonafide transaction of conversion of existing loans accepted as genuine in the year of receipt to share capital and that too for existing shareholders will not fall under the purview of Section 56(2)(viib) of the Act.

(iii) It was also contended that once the transaction is tested by the tax department and found genuine without any element of tax avoidance, there cannot be any requirement to test FMV of issue of shares at premium applying the provision of Section 56(2)(viib) of the Act. The appellant has relied on the decision in Clearview Healthcare Pvt. Ltd. Vs. ITQ 181 ITD 141 (Delhi bench). Cinestaan Entertainment Pvt. Ltd., 170 ITD 809 (Delhi bench) and similar other decisions to support this contention.

(iv) As regards the rejection of appellant’s valuation of DCF method, it is contended that the choice of valuation method is available to the assessee (NAV or DCF) as per provision of Rule 11UA of IT. Rules and the AO substituting the method of valuation by NAV is completely beyond jurisdiction and invalid. The appellant relied on the decision of Bombay High Court in the case of Vodafone M-Pera Ltd. Vs. DCIT, 164 ITR 257, wherein the Hon’ble Court held that the AO cannot change the method adopted by the assessee for share valuation by DFC method which was violation of Rule 11UA. The appellant has referred to similar decision of Mumbai ITAT, Bangalore, ITAT Delhi ITAT to emphasize that the AO could not have substituted the- assessee’s choice of method of valuation as mandated by Rule 11UA of IT. Rules.

v) The appellant has referred to the decision of CIT Vs. WA Hotels Pvt. Ltd., 276 Taxmann 330 (MAD) to support its contention that variation between projection and actual results cannot be the ground for rejection of DCF method to value shares. In the case of VVA Hotels, Hon’ble Madras High Court held that unless the AO is able to bring out any evidence of abuse of benevolent provision with an intention to defraud the revenue, the option given to the assessee shall be held to be absolute as regards DCF method of share valuation. The appellant also referred to similar other decisions to support this view point. In the case of Creditapha Alternative Investment Advisors Pvt. Ltd., 134 Taxmann.com 223, Hon’ble Mumbai ITAT held that the Assessing Officer has no authority to pick and choose the valuation method and make addition as it was the assessee who has option to choose the method of valuation.

vi) Appellant contended that the AO cannot on his “ipse dixit” reject the valuation report of an expert and supported this contention by referring to relevant decisions of various Courts / tribunals . The appellant relied on the decision in the case of Urmin marketing Pvt ltd 122 Taxmann.cm.40 (Aha; wherein it was held that the valuation report prepared by technical expert cannot be disturbed by the AO without taking opinion of the technical person. vii) The appellant contended that even the observations of the AO as regards variation in projected figures and actual figures were duly explained through detailed charts and reasonable assumptions made.

After considering the AO’s findings in the assessment order and appellant’ submission, following facts emerge

i) It is undisputed fact that the appellant did not receive any consideration for allotment of shares in the previous year relevant to current assessment year. The AO has not discussed this fact neither countered this contention of the appellant. It is a clear fact that the erstwhile partners of the erstwhile Firm (converted into appellant company) had given loans to the said firm which was converted into share capital of those partners becoming the shareholders. The AO has mentioned in the assessment order that the loans outstanding as on 01.04.2017 were converted into share capital. The shares were issued at Rs.10 per share face value and premium of Rs.90 per share. After plain reading of S.56(2)(viib), there is no doubt that this provisions is applicable to the considerations received in the previous year under consideration for taxing the excess premium charged over and above fair market value of shares determined as per prescribed method under Rule 11UA. In the current facts of the case, the appellant did not receive any consideration in the current assessment year and the outstanding loans of existing partners of erstwhile firm was converted into the shares of the appellant company. Thus, prima facie, there is no justification for the AO to apply Section 56(2)(viib) of the Act in the appellant’s case. The said consideration in the form of unsecured loans were received from the partner of the erstwhile firm in the year 2010 (as evidenced from loan agreement) and the AO could not bring out any material facts to show that such conversion of loans to equity shares was a ploy to defraud revenue of the tax on such transaction. In fact, the loans received in earlier years also got tested through scrutiny assessments completed for assessment year 2013-14, 2014-15, 2016-17 and 2017-18 in the case of the erstwhile firm. Thus, it can be concluded that the AO has not made out any case that the share conversion by the appellant led to defrauding revenue of its due taxes. Thus, firstly ,the amount is not received in the relevant previous year makes the applicability of S.56(2)(viib) invalid in the case of the appellant and secondly, the legislative intent to arrest abuse of tax laws to defraud revenue is also not available in the current facts of the case as the receipt of loans in the earlier years were from the existing partners of the erstwhile firm which got duly verified in the scrutiny of various assessment years after loans receipt”.

The Tribunal noted that the ld. CIT(A) had observed that it was an undisputed fact that the appellant did not receive any consideration for allotment of shares in the previous year relevant to the current assessment year; that the AO had not discussed that fact nor countered that contention of the appellant; it was a clear fact that the erstwhile partners of the erstwhile Firm (converted into appellant company) had given loans to the said firm, which were converted into share capital of those partners, who became the shareholders; the AO had mentioned in the assessment order that the loans outstanding as on 01.04.2017 were converted into share capital; the shares were issued at ₹10 per share face value and premium of ₹90 per share.

The Tribunal observed that on a plain reading of S.56(2)(viib), there was no doubt that the provision was applicable to the consideration received in the previous year under consideration for taxing the excess premium charged over and above fair market value of shares determined as per prescribed method under Rule 11UA. In the current facts of the case, the appellant did not receive any consideration in the current assessment year, and only the outstanding loans of existing partners of erstwhile firm was converted into the shares of the appellant company. Thus, prima facie, there was no justification for the AO to apply Section 56(2)(viib) of the Act in the appellant’s case. The said consideration in the form of unsecured loans was received from the partners of the erstwhile firm in the year 2010, as evidenced from loan agreements, and the AO could not bring out any material facts to show that such conversion of loans into equity shares was a ploy to defraud revenue of the tax on such transaction.

In fact, the loans received in earlier years also got tested through scrutiny assessments completed for assessment year 2013-14, 2014-15, 2016-17 and 2017-18 in the case of the erstwhile firm. Thus, it could be concluded that the AO had not made out any case that the share conversion by the appellant led to defrauding revenue of its due taxes. Thus, firstly, the fact that the amount is not received in the relevant previous year made the applicability of S.56(2)(viib) invalid in the case of the appellant and secondly, the legislative intent to arrest abuse of tax laws to defraud revenue was also not available in the current facts of the case, as the receipt of loans in the earlier years were from the existing partners of the erstwhile firm, which got duly verified in the scrutiny of various assessment years after receipt of the loans.

In PCIT vs. Cinestaan Entertainment Pvt. Ltd., 433 ITR 82 ( Del), it was contended on behalf of the Assessee-Respondent before the High Court, inter alia, that section 56(2)(viib) of the Act was not applicable to genuine business transactions; that the genuineness and creditworthiness of the strategic investors was not doubted by either the AO, or the CIT(A); that sub-clause (ii) of clause (a) of the Explanation to section 56(2)(viib) was not applicable to the case of the Respondent-Assessee and the Assessee was not required to satisfy the Assessing Officer about the valuation done; and that in accordance with sub-clause (i) of clause (a) of the Explanation to section 56(2)(viib). the Respondent-Assessee had an option to carry out a valuation and determine the fair market value of the shares only on the Discounted Cash Flow Method (the DCF Method), which was appropriately followed by the Respondent-Assessee.

In view of the above facts and discussion, it was apparent to the Chandigarh bench that there was no case of application of Section 56(2)(viib) to the facts of the appellant’s case where pre-existing unsecured loans of partners/shareholders were converted into equity shares at a premium, and the facts of the assessment order did not indicate any case of tax abuse involved in such share conversion. Even the AO’s decision to substitute DCF method of share valuation by NAV method was not in accordance with Rule 11UA of the IT Rules. Accordingly, the addition of ₹202,50,00,000 u/s. 56(2)(viib) of the Act was deleted.

PARASMANI GEMS’S CASE

The issue was again recently examined by the Ahmedabad Bench of the Tribunal in the case of Parasmani Gems (P) Ltd., vs. DCIT, 210 ITD 215, for assessment year 2013-14. In that case, the assessee company was engaged in the business of manufacturing and trading of gold and diamond jewellery. In assessing the total income for A.Y. 2013-14, the AO found that the assessee had issued shares of face value of ₹10 with a premium on two occasions during the financial year under consideration, first on 03.11.2012 at a premium of ₹90 per share, and again on 26.03.2013 at a premium of ₹31.67 per share only to three persons namely, Daxesh Manharlal Soni, Kunal Manharlal Soni & Nirav Manharlal Soni, against the loans received from such persons in the past.

It was explained to the AO that the shares allotted on 03.11.2012 were on the basis of fair market value of the shares as determined under Discounted Cash Flow method, supported by a report of the Accountant that was filed. The AO was not satisfied with the working of the FMV of the shares as per the DCF method of valuation adopted by the assessee and instead, he worked out the value of the shares as per Net Asset Value method, which worked out to ₹34.55 share only. Accordingly, the AO held that the premium charged to the extent of ₹55.45 (90-34.55) per share was excessive and accordingly a part of the share premium of ₹94,26,500 was added u/s.56(2)(viib) of the Act, which was, subsequently on rectification, reduced to ₹27,72,500 only.

Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which had been dismissed by the FAA. The assessee in the second appeal, before the Tribunal, raised the following relevant grounds of appeal, besides a few others:

(1) That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition of ₹27,72,500/- made u/s 56(2)(viib) of the Act.

(2) That on facts, evidence on record, and in law, the learned CIT (A) ought to have accepted the valuation done by appellant’s C.A. and ought to have held that the provisions of section 56(2)(viib) of the Act are not applicable and the entire addition ought to have been deleted, as prayed for.”

For the assessee, besides a few other contentions not considered here for the sake of brevity, it was submitted on the issue under consideration herein that there was no fresh introduction of capital during the year; that the assessee had taken loans from the three shareholders, which were converted into share capital during the year and thus, no fresh consideration towards issue of shares was received during the year. The assessee relied upon the decision of the Chandigarh bench of the Tribunal in the case of ACIT vs. I.A. Hydro Energy Pvt. Ltd. [IT Appeal No. 548 (Chd.) of 2022, dated 11-10-2023, and submitted that when no amount was received during the year towards share capital, the applicability of Section 56(2)(viib) of the Act was invalid. The Tribunal was further informed that the decision of the Chandigarh bench was confirmed by the High Court of Himachal Pradesh in ITA No.4 of 2024 dated 31.05.2024/Principal Commissioner of Income-tax vs. I.A. Hydro Energy (P.) Ltd., 299 Taxman 304 (HP).

On behalf of the Revenue, on the issue under consideration herein, besides a few other submissions not considered here, it was submitted that Section 56(2)(viib) of the Act prescribed “any consideration for issue of shares” and that the word “consideration” had a much wider implication. In this regard, reliance was placed on the decision of ITAT Mumbai in the case of Keep Learning Resources Pvt. Ltd. vs. ITO [IT Appeal No. 1692 (Mum.) of 2023, dated 31-8-2023, wherein an identical issue of conversion of loan advanced in the past into equity shares with share premium was involved, and the Mumbai bench had held that the transaction was covered by the provisions of Section 56(2)(viib) of the Act. Reliance was placed also upon the decision of the Kolkata bench of the Tribunal in the case of Milk Mantra Dairy (P.) Ltd. vs. Deputy Commissioner of Income-tax 196 ITD 333 (Kol.). It was also submitted that the assessee had issued shares on two occasions i.e. on 03.11.2012 and again on 26.03.2013, both during the same financial year. While shares on 03.11.2012 were issued at a premium of ₹90/- per share, the shares allotted next on 26.03.2013 were issued at a premium of ₹31.67 per share only. The assessee had not explained the huge difference in the fair market value of the shares in the two allotments made during the same financial year; the premium of ₹31.67 charged by the assessee in the second allotment on 26.03.2013 itself proved that the premium of ₹90 charged earlier in the first allotment was not as per the correct FMV.

The Tribunal examined the facts and the ratio of the decision of coordinate bench of ITAT, Chandigarh, in the case of I.A. Hydro Energy Pvt. Ltd. (supra) on the contention of the assessee that that there was no fresh inflow of funds in respect of allotment of shares, and that it was only an accounting entry for conversion of loans into share capital and therefore, the provisions of Section 56(2)(viib) of the Act were not at all attracted.

The Ahmedabad bench of the Tribunal noted that the coordinate bench of Chandigarh Tribunal, in that case, did hold that in the case of conversion of loan into share capital, no consideration was received; that such conversion of loan into share capital did not lead to defrauding the Revenue of its due taxes; that the said decision of Chandigarh Bench of Tribunal was upheld by the Himachal Pradesh High Court; that the Hon’ble High Court, on the basis of the finding recorded by the Tribunal held that no substantial question of law was involved in the appeal before the court, and that the issue of whether provision of section 56(2)(viib) of the Act was applicable in the case of conversion of loan into share capital, was not independently examined by the Court. The relevant part of the order of the High Court was reproduced by the Tribunal:

“18. We are of the opinion that the orders passed by the Income Tax Appellate Tribunal as well as the CIT(Appeals), are fairly comprehensive. Both of them have concurrently found that no consideration was received by the assessee-firm for allotment of the shares, therefore Section 56(2)(viib) of the Act would not apply, and that it would have applied only if consideration was received for such a transaction.

19. Also, both the Tribunal and the CIT(Appeals) have held that the Assessing Officer had no jurisdiction to substitute the NAV method of assessing the valuation of shares, once the assessee had exercised option of a DCF valuation method as per Rule 11UA(2) of the Income Tax Rules.

20. We agree with the reasoning adopted by the CIT(Appeals) confirmed by the ITAT on all aspects and find that no substantial questions of law arise in this appeal for consideration by this Court.

21. Accordingly, the appeal fails and is dismissed.”

The Tribunal disagreed with the contention of the assessee that the decision of the Himachal Pradesh High Court in the case of I.A. Hydro Energy Pvt. Ltd. (supra) should be followed to maintain the judicial discipline and that the views expressed by even a non-jurisdictional High Court deserved utmost respect and reverence, that had the unquestionable binding force of law. The Tribunal instead held that a mere declaration by the court that no substantial question of law was involved, on the basis of findings of the lower authorities, could not be considered as a binding precedent. The Tribunal incidentally observed that in the case before the Himachal Pradesh High Court, the AO had no jurisdiction to substitute NAV method of valuation of shares when the assessee had opted DCF method of valuation. In contrast, noted the Tribunal, in the case before them, the assessee had not explained as to why the first allotment of shares was at a premium of ₹90 per share, whereas the second subsequent allotment, after a gap of 5 months, was made at a premium of ₹31.80 per share only. Thus, the facts of the case were found to be totally different and, therefore, the ratio of the decision of Himachal Pradesh High Court was not followed in view of the peculiar facts of the case before them. Further, the Tribunal observed that the judgement of the non-jurisdictional High Court, in any event, did not constitute unquestionably binding judicial precedent.

The provision of the Act as well as the Memorandum for introduction of this provision, the Tribunal noted, made it explicit that if the consideration was received for issue of shares that exceeded the fair value of such shares, then the consideration received for such shares, as exceeding the fair market value of the shares, shall be chargeable to tax under the head income from other sources. It noted that there was no stipulation in section 56(2)(viib) that it would be applicable only in the case of receipt of any ‘amount’ or ‘money’ on account of share application money. Rather the words used in the section were ‘any consideration for issue of shares’ which had a very wide implication. The Ahmedabad bench noted with approval the decision of the co-ordinate bench of Kolkata in the case of Milk Mantra Dairy (P.) Ltd. (supra).

The Ahmedabad bench again noted that the co-ordinate bench of Mumbai in the case of Keep Learning Resources Pvt. Ltd. (supra) had categorically held that the conversion of loan amount into equity shares would not exonerate the assessee from application of provisions of section 56(2)(viib) of the Act.

Keeping in view the language of the section, which used the term ‘consideration’, which was of wider import when compared with the word ‘amounts’, the Tribunal was inclined to agree with the decisions of Mumbai and Kolkata benches on the issue. As a result, the contention of the assessee that provisions of section 56(2)(viib) of the Act were not attracted in the case of conversion of loan amount into share capital was rejected. In the considered opinion of the Ahmedabad bench, the provisions of Section 56(2)(viib) of the Act did apply in the case of conversion of loan into share capital. It observed that the view adopted by the Chandigarh Bench would make the provisions of section 56(2)(viib) otiose for all such transactions of conversion of securities, which was not desirable. It therefore, upheld the order passed by the CIT(A), and the appeal filed by the assessee was dismissed.

OBSERVATIONS

The relevant part of s.56(2)(viib),introduced by Finance Act, 2012 reads as under;

where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person, any consideration for issue of shares that exceeds the Face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for

issue of shares is received—

(i) by a venture capital undertaking from a venture capital company or a venture capital fund [or a specified fund]; or

(ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf:

The legislative intent behind the introduction of the deeming fiction was explained by the Finance Minister in the Budget Speech and in the Explanatory Memorandum.

On a composite reading of the provision and the background documents the following emerge;

The provision represents a deeming fiction,
It seeks to tax a receipt of consideration on issue of shares in given circumstances,
The charge of the tax is in the year of receipt of consideration,
The provision is an anti-avoidance measure that seeks to bring to book such cases which are intended to avoid tax by adopting such measures that are undesirable.

It is said that bad facts make for bad law, and the decision of the Ahmedabad bench, with respect, is a case that goes on to prove the same. In that case, the company, during the same year, had issued shares on two occasions, first at a premium of ₹90 per share and then later on at a paltry value of premium of ₹31.57 per share, providing a serious suspicion about the intentions of the company, more so when no material change had happened in the financials of the company between the two issues. This fact itself perhaps led the bench to overlook or keep aside the other relevant consideration of the need for actual receipt during the year and the motive behind the transaction, and also the fact that the valuation based on DCF supported the valuation.

The overwhelming urge to bring to book an errant company might have led the bench to disregard the fact that there was no apparent intention to avoid taxes and further led the bench to disregard the ratio of the decision of the High Court, which had, in clear terms with specific findings, approved the decisions of the CIT(A) and the Tribunal. To hold that the said decision of the High Court was delivered only on the lack of substantial question of law with respect to the case was not correct. Also, not correct was to hold that the decision of non-jurisdictional High Court was not binding on the bench more, so where there was no contrary decision of the Court on the subject nor was any such decision cited by the bench. The Himachal Pradesh High Court, in the decision, had considered the important facts, and on due consideration, had held that the appeal of the Revenue did not involve the substantial question of law. The decision of the Court therefore was delivered on the due consideration of the facts and the law, as was clear from the relevant part of the order reproduced by the bench itself in the body of the order.

The CIT(A) and the Tribunal, in the case of I.A. Hydro Energy Ltd., gave due consideration and the weightage demanded of the case before them to the Budget speech and the Explanatory Memorandum and a few other decisions of the Delhi High court, to hold that the deeming fiction of s.56(2)(viib) had no application in cases where there was no intention to avoid tax and that there was no proof of such intention.

The decision of the Chandigarh Bench in I.A.Hydro Energy’s case has been recently confirmed on the ground that no substantial question of law arose out of the decision of the Tribunal. This decision of the Court is reported in 339 CTR (HP) at page 375. This decision of the Court was cited before the Ahmedabad Bench but was not followed by the Bench in as much as the Bench found the case to be distinguishable on the reasonings discussed above.

The provision was first introduced by the Finance Act, 2012 w.e.f. 01.04.2013 and was originally restricted in its scope to receipts by a company from a resident. The scope, however, was enlarged by the Finance Act, 2023 to encompass receipts from any person, resident or non-resident, w.e.f 01.04.2024. At the time of introduction, specific methodology was not provided for computation of the fair market value but later on, rules were prescribed for valuation. The rules for valuation have been notified w.e.f 29.11.2012. This provision has ceased to apply w.e.f. 01.04.2025 as per the amendment by the Finance (No.2) Act, 2024.

The important issue that remains to be examined is whether a conversion of a loan into share capital could be considered as a “receipt” for attracting the provision. Alternatively, can a receipt of an amount classified as a loan in a different year be construed as a “receipt” on passing of an accounting entry, in a subsequent year for recording the conversion or treatment of a loan into a share capital. Can it be contended that there was no receipt of any amount in the year of issue of share capital?

For attracting a charge of taxation under the relevant provision, twin conditions, besides a few more conditions, are required to be satisfied; one such condition is a receipt in a previous year, and the other condition is that the receipt must represent a consideration for issue of shares. Apparently, the year of receipt of the amount is different than the year of issue of shares and, in any case, these two events are different, even if they fall in the same year, unless the receipt in the first place itself was for issue of shares. In the circumstances, unless the act of passing an accounting entry is considered or classified as an act of receipt representing the consideration for issue of shares, the charge of tax in the year of conversion may fail, as no express provision to that effect is ingrained in the law. Even on the count that the provision in question is a deeming provision and seeks to bring to tax an ordinary transaction of the issue of share capital, which is otherwise on capital account, as an income, it therefore requires a strict interpretation.

Obviously, the loan, when received was refundable, and such a receipt cannot be classified as a receipt of consideration for issue of shares and surely not a receipt that could be taxed in the absence of the applicability of provisions of s. 68 of the Act. This section too would seek to tax the receipt in the year of actual receipt of loan, and not in the year of passing the accounting entry. A small, related issue, not inconsequential, could also be about the year of determination of the fair market value of the shares; should the valuation be in the year of receipt of loan or the year of passing an accounting entry.

The relevant part of the order of the CIT(A), passed in the appeal by I.A.Hydro Energy Ltd. and confirmed by the Chandigarh bench succinctly explains the reason behind not attracting the deeming fiction;

“It is undisputed fact that the appellant did not receive any consideration for allotment of shares in the previous year relevant to current assessment year. The AO has not discussed this fact neither countered this contention of the appellant. It is a clear fact that the erstwhile partners of the erstwhile Firm (converted into appellant company) had given loans to the said firm which was converted into share capital of those partners becoming the shareholders. The AO has mentioned in the assessment order that the loans outstanding as on 01.04.2017 were converted into share capital. The shares were issued at ₹10 per share face value and premium of ₹90 per share. After plain reading of S.56(2)(viib), there is no doubt that this provisions is applicable to the considerations received in the previous year under consideration for taxing the excess premium charged over and above fair market value of shares determined as per prescribed method under Rule 11UA. In the current facts of the case, the appellant did not receive any consideration in the current assessment year and the outstanding loans of existing partners of erstwhile firm was converted into the shares of the appellant company. Thus, prima facie, there is no justification for the AO to apply Section 56(2)(viib) of the Act in the appellant’s case. The said consideration in the form of unsecured loans were received from the partner of the erstwhile firm in the year 2010 (as evidenced from loan agreement) and the AO could not bring out any material facts to show that such conversion of loans to equity shares was a ploy to defraud revenue of the tax on such transaction. In fact, the loans received in earlier years also got tested through scrutiny assessments completed for assessment year 2013-14 2014-15, 2016-17 and 2017-18 in the case of the erstwhile firm. Thus, it can be concluded that the AO has not made out any case that the share conversion by the appellant led to defrauding revenue of its due taxes. Thus, firstly, the amount is not received in the relevant previous year makes the applicability of S.56(2)(viib) invalid in the case of the appellant and secondly, the legislative intent to arrest abuse of tax laws to defraud revenue is also not available in the current facts of the case as the receipt of loans in the earlier years were from the existing partners of the erstwhile firm which got duly verified in the scrutiny of various assessment years after loans receipt”.

Circular No.1/2011 dated 6^th April, 2011 issued by the CBDT explaining the provisions of section 56(2)(vii) of the Act specifically states that the section was inserted as a counter evasion mechanism to prevent money laundering of unaccounted income. In paragraph 13.4 thereof, it is stated that “the intention was not to tax transactions carried out in the normal course of business or trade, the profits of which are taxable under the specific head of income”. The said circular, it is respectfully submitted, further fortifies the contention of the assessee that the provisions of section 56(2)(viib) of the Act are not applicable to genuine business transactions without there being any evidence to the contrary.

The better view, supported by the decisions of the High Courts, is that unless a case is made out for tax evasion, the deeming fiction should not be activated.

BCAJ Admin

Book Review

(LEARNINGS FOR NGOs/NPOs INCLUDING BCAS)

Name of the Book: THE MAVERICK EFFECT BY HARISH MEHTA

Author: MR HARISH MEHTA

On 8^th February, 2025, I attended the Managing Committee meeting of BCAS as there was an interesting item on the agenda. That was to hear from two people about how “not for profit” organisations can be run and, what are the challenges in doing so and how the same can be overcome.

The two guest speakers who were invited to speak on this topic were Mr. Harish Mehta and Mr. Rajiv Vaishnav.

At the end of the meeting, all those present were handed over a copy of the book “The Maverick Effect” authored by Mr. Harish Mehta. This is an “Inside Story of India’s IT Revolution”. The name of the book intrigued me, and for some reason that I still can’t figure out, I mentioned to Mr. Mehta there and then that I would read this book and then write a book review about it in the BCAJ and send him a copy of that edition of the BCAJ. He was glad to hear this. The editor of the BCAJ was also present at that time, and he agreed to publish the book review. However, it took me much longer to finish the book than I had anticipated. At one social event where I met Mr. Mehta sometime in April, 2025, I reminded him about our meeting at the BCAS managing committee, and he reminded me that he had not yet received the book review. That really prompted me to quickly finish reading the entire book and then start writing this piece.

This is not merely a “book review” but also a note to myself (as one of the active members of the BCAS) and to other leaders (past, present and future) of the BCAS on the lessons that one can learn from the life of Mr. Mehta and his various experiences that he has vividly narrated in the book. In this article, I have tried to highlight various important lessons of life as well as important ways in which nation-building needs to be kept uppermost in one’s mind and actions while creating an organisation like NASSCOM & BCAS.

To begin, let me talk about Mr. Mehta himself. He is one of the founders of NASSCOM. No Indian can afford not to know what NASSCOM is. This body has played a stellar role in creating and sustaining Brand India on the global stage in many ways. He moved from the USA to India at a young age despite having a cushy job there. He began a small business which has, today, grown into a large organisation which is also listed on the stock exchanges. And, of course, he helped build NASSCOM. In this book, he has shared various incidents that give an insight into India’s bureaucracy, politicians, businessmen and, more importantly, leaders who shape the fortunes of millions all over the world.

The first lesson that I learnt from this book is about the importance of collaboration amongst competitors. In the initial days of NASSCOM, there was a crying need for this amongst the software companies of the country. Had they not collaborated in those years, who knows whether NASSCOM would have ever survived and thrived. Here, I would like to quote from the book itself:

The comparison is drawn between the formation of the European Union and NASSCOM:

In both cases, going against their grain, competing entities collaborated for the greater good. NASSCOM’s member companies put India ahead of individual interests. And the people involved were passionate about the causes they stood for.

The next lesson that is very important for me in the context of BCAS is the relevance and importance of core organisational values. The BCAS has always stood out because of the selfless work done by the core group consisting of volunteers and for its values. Many of the volunteers have been associated with the BCAS for several decades. And they have worked for the good of the BCAS without any expectations. Mr. Mehta writes in this book as under:

While each value is important, for me, the three that stand out are: (a) have ‘no personal agenda’, (b) ‘collaborate and compete’, and (c) practice a ‘growth mindset’.

The last value mentioned by him – “practice a growth mindset”, is something that is extremely relevant today for all professionals. For far too long, we have remained docile and meek. For a vast majority of the CA fraternity, “growth” is not something that comes naturally in day-to-day practice. I could be wrong in this judgment. But it is my perception based on interaction with lots of small and midsized CA firms. Apart from the mindset of growth, in today’s times, there is also a crying need for CA firms to “collaborate and compete”. Unfortunately, for several decades, CA firms have only been competing with each other. The time to collaborate is NOW.

Another interesting and relevant aspect of this book is how Mr. Mehta has graciously acknowledged the efforts of various people who passionately contributed to the building of the NASSCOM brand. Mr. Rajiv Vaishnav and the late Mr. Dewang Mehta are two such persons to whom Mr. Mehta has referred to multiple times in the book for their contribution to NASSCOM. This reminds me of the famous words of the former US President Mr. Harry Truman:

It is amazing what you can accomplish if you do not care who gets the credit.

The next important lesson that I could draw from the book and which applies to BCAS with equal force is putting the organisation above the individual. Mr Mehta writes:

NASSCOM was built by a few entrepreneurs, who were driven by the needs of an industry in its infancy. Today, the institution is indeed bigger than any one person or organisation. When we started NASSCOM, we dreamt of making tenfold leaps. We imagined an impossible billion-dollar industry when we were at a mere $120 million. Even when we were at $5 billion, we imagined another unimaginable $50 billion in the next ten years. The actual achievement has far surpassed our wildest imagination.

Neither at BCAS nor at the ICAI level, we have set definite goals in terms of growth of the profession. Unlike the commercial world of software, in the case of the CA profession, no organisation at the national level has set any targets for the profession. Our leaders need to ponder about this. Is there a need to set such targets? Would such an action be in the larger interest of the nation as a whole? Just as the software industry has served multiple purposes for the country, can growth in terms of revenues for our profession as a whole achieve any such altruistic goals at a national level? Obviously, at a firm level, several firms would be setting revenue or profit targets. But at a larger level, there is certainly no such move. Maybe the current and future leaders of the BCAS or the ICAI can think along these lines.

Another very important parallel that I could draw between NASSCOM & BCAS is about the role of each of these wonderful organisations. In the words of Mr Mehta, the role of an organisation like NASSCOM is:

If I could pick one term to describe NASSCOM, I’d say we are trusted catalyst for the IT industry and other stakeholders. We are and will remain independent. We will ensure that there is no vested interest in any outcomes, except the growth of the industry. We thus constantly intervene on myriad issues – from policy to guidelines to skilling, and more. Yet, we stay at arm’s length when it comes to ownership and creating new institutions.

BCAS has always prided itself in being independent and in being a catalyst for the CA profession. It has to its credit several pathbreaking and innovative initiatives that have, later on, been replicated by several other organisations. We have also been at the forefront of advocacy and have been trying to make a difference in the quality of legislations for many decades. The quality of our events and publications has always been appreciated by our members. So, in this respect, we are very similar to NASSCOM. The major difference is that of scale. Maybe, it’s time now to scale up the BCAS and take it to the next level. I am hopeful that the new-age leaders of the BCAS will rise to the occasion.

The next important learning from the book is about dealing with failures. Mr. Mehta has made a very pertinent and moving observation about failure:

The world celebrates success with accolades and trophies, but failure often has no friends. We could change this by encouraging more conversations about how failure is a necessary ingredient for success.

The BCAS, every year, felicitates new entrants to the CA profession by inviting successful students. BCAS has also, in the past, invited those students who have not succeeded in the exams and guided them in how to deal with failure and how failure is part and parcel of life, and, maybe, as mentioned by Mr Mehta, even necessary for success.

The last important point that stood out for me in the book is about the importance of family and relationships. While discussing about whether he has been able to create a “big” company, Mr Mehta dwells on the importance of family and relationships and sums up beautifully by: Finally, to me, the larger metric of success is my family, and the relationships I have nurtured and developed over my life. And with those, I am probably the Biggest 1.

All in all, I found “The Maverick Effect” by Mr. Harish Mehta very interesting, inspiring and useful. I do hope many members of the BCAS – particularly the core group members – will also read this book as we have a lot to learn from NASSCOM and people like Mr. Mehta about how to run a not-for-profit organisation and ensure that the organisation not only thrives but also makes a massive difference for our country which itself is standing on the cusp of a glorious future as we move towards “Viksit Bharat”.

BCAJ Admin

Allied Laws

11. The Correspondence, RBANMS Educational Institution vs. B. Gunashekar and Anr.

Special Leave Petition (Civil) No. 13679 of 2022 / 2025 INSC 490 16^th April, 2025

Suit for Injunction – To restrain the owner from disposing of the property – Agreement to sell – Does not confer right, title, or interest in the property – Suit without cause of action – Suit dismissed.

Directions were also issued to registration authorities to report any cash transactions in the purchase of properties which was in upwards of ₹2,00,000/-. [Order VII, Rule 11(a) and (d), Code for Civil Procedure, 1908; S. 269ST, Income-tax Act, 1961].

FACTS

The Respondents (original Plaintiff) had filed a suit seeking a permanent injunction restraining the Appellant (Original Defendant) from creating any third-party interest over the suit property. The Appellant is an educational institution, established in 1873. Thereafter, in 1929, the Appellant purchased the suit property and has been in continuous possession since. The Respondents had alleged that they had entered into an agreement to sell with one third party (vendor) for the purchase of the suit property. Further, as per the agreement to sell, the Respondents had already paid ₹75,00,000/- to the vendor in cash. Therefore, the Appellant must refrain from manipulating the title deeds of the suit property and further restrained from disposing of the said suit property to any other person. The Appellant filed an application under Order VII, Rule 11(a) and (d) of the Code for Civil Procedure, 1908 (CPC) for seeking rejection of the suit filed by the Respondent on the ground that the Respondents are merely agreement holders and not the owners of the suit property and as such, an agreement to sell does not confer any right, title, interest on the prospective buyer. It was further contended by the Respondent that if the alleged agreement to sell exists, then the remedy would lie against the vendor with whom the agreement has been entered into. The Appellant also contended that the Respondent had a pattern of filing such suits in respect of valuable properties by producing alleged agreement to sell. The learned Trial Court, however, dismissed the application filed by the Appellant for dismissing the suit under Order VII, Rule 11(a) and (d) of the CPC. The learned Trial Court had opined that under Order VII, Rule 11(a) and (d) of the CPC, it must confine only to the averments made in the plaint without examining the defence of the Appellant. Further, the Respondent had cause of action against the Appellant. Aggrieved, a revision application was filed before the Hon’ble Karnataka High Court. The Hon’ble High Court concurred with the views of the learned Trial Court and rejected to dismiss the suit under Order VII of the CPC.

Aggrieved, a special leave petition was filed by the Appellant before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court, at the outset, observed the consistent pattern of filing suits by the Respondent in high-value properties. Further, it also noted that the vendors had not been made parties to the suit and the addresses were absent from the plaint. The Hon’ble Supreme Court held that as per section 54 of the Transfer of Property Act, 1882, an agreement to sell, cannot by itself create any right, title interest in the suit property. Thus, the Respondent did not have any cause of action against the Appellant. Therefore, the Hon’ble Court held that the suit ought to have been rejected for want of a cause of action.

Before parting, the Hon’ble Court raised doubts as to how the Respondent allegedly pay ₹75,00,000/- to the vendor in cash despite provisions of Section 269ST in the Income-tax Act, 1961 which debars any person from paying in cash above ₹2,00,000/-. Accordingly, the Hon’ble Court directed the Income-tax Department to take cognisance of the said matter. Further, directions were also issued to registration authorities to report any cash transactions in the purchase of properties which was in upwards of ₹2,00,000/-.

The appeal was accordingly allowed.

12. Angadi Chandranna vs. Shankar and Ors.

Civil Appeal No. 5401 of 2025 (SC) / 2025 INSC 532 22^nd April, 2025

Joint Hindu Family – Suit Property – Self-acquired or Joint property – Partition of Joint Hindu Family – Partitioned suit property becomes the self-acquired property of that person. [S. 100, Code for Civil Procedure, 1908].

FACTS

A suit was instituted by Respondents No. 1 to 4 (Original Plaintiff/children of Defendant No. 2) for seeking partition and separate possession in the suit property. Briefly, Defendant No. 2 (along with his two brothers) had divided the joint family properties vide a registered partition deed after the death of their father. The suit property was partitioned in favour of one of the brothers. Thereafter, Defendant No. 2 acquired the said suit property (from his brother) via a purchase agreement deed and thereafter, sold it to one Angadi Chandrana (Defendant No. 1 / Appellant). It was contended by the Respondent No. 1 to 4 that the said suit property belonged to the Joint Hindu Family and was not an independent / self-acquired property of the Defendant No. 2. The learned Trial Court allowed the suit and held that the property was in fact belonging to the Joint Hindu Family and thus the property must be divided. An appeal was preferred by Defendant No. 1, wherein the first Appellate Authority allowed the appeal and reversed the finding of the learned Trial Court. Challenging the order, a second appeal was preferred by the Respondent No. 1 to 4 before the Hon’ble Karnataka High Court. The Hon’ble allowed the appeal and restored the order was of the learned Trial Court.

Aggrieved, an appeal was preferred before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court observed that all the properties of the Joint Hindu family were partitioned via a registered partition deed. Therefore, after partition, the properties which were so divided become the self-acquired property of that person. Further, the suit property was purchased by Defendant No. 2 (from his brother) by using his own funds and loans. The Hon’ble Court also noted that the mere existence of children in a Joint Hindu family cannot by itself make the father’s (Defendant No. 2) self-acquired property as joint property. The character of the property must be taken into consideration before determining the nature of the property. Thus, the appeal was allowed, and the original order of the learned Trial Court was set aside.

13. Logabai vs. Nil

AIR 2025 (NOC) 198 (MAD)

17^th December, 2024

Guardian ship – Mentally retarded child – Father died in car accident – Mother also dead – Only Grandmother alive – Mentally fit to take care of the child – Grandmother appointed as the guardian and manager of the property. [A. 226, Constitution of India; S. 7, Guardian and Wards Act, 1890].

FACTS

A petition was filed for the appointment of the Petitioner as the legal guardian and manager of the properties of her granddaughter, Ms. Amudha Narmada. It was contended by the Petitioner that her granddaughter was a duly certified mentally retarded child by the Institute of Mental Health. As per the certificate, Ms. Amudha Narmada suffers from 70 per cent mental disability. It was the claim of the Petitioner that her granddaughter is under her care and custody. Further, the Petitioner is a 70-year-old woman who is unable to meet the expenses to maintain herself. Further, it was submitted that the father of the child had died in a car accident, and the learned Trial Court had allowed compensation to the child. However, the same cannot be withdrawn unless the court has appointed a legal guardian. It was further submitted that the mother of the child had also passed away and that there was no family member other than the Petitioner.

HELD

The Hon’ble Madras High Court, after going through all the claims, was satisfied that the child was indeed suffering from mental disability. Further, the child had no family member other than her grandmother (Petitioner), who is a mentally fit person to take care of the child. Therefore, the Hon’ble accepted the plea and appointed the Petitioner as the legal guardian and manager of the properties of the child.

The Petition was thus allowed.

14. Muhammed Kutty vs. Sub Registrar, Office of the Sub Registrar, Palakkad and Anr.

AIR 2025 Kerala 44 / W.P. (C) No. 35494 of 2024 27^th November, 2024

Registration – Property – Settlement Deed – Registrar cannot make enquiry into the prior title deeds – Bound to register the deed [S. 34, 69(2), Registration Act, 1908; R. 67, Registration Rules (Kerala)].

FACTS

The Petitioner is one of the sons and legal heirs of one Mr. Abubacker Haji. After the death of the Petitioner’s father, the Petitioner and the remaining legal heirs decided to settle the property in favour of the wife of Mr. Haji (i.e. mother of the Petitioner). Accordingly, the legal heirs prepared a settlement deed and submitted the same for registration before the office of the registrar (Respondents). However, the Respondent refused to register the settlement deed and insisted that the Petitioner to provide a copy of the prior deed of the property i.e. to prove that the father of the Petitioner was in fact the owner of the property before he died.

Aggrieved, a petition was filed before the Hon’ble Kerala High Court (Ernakulam).

HELD

The Hon’ble Kerala High Court observed that as per S. 34 of the Registration Act, 1908 (Act), the powers of the Respondent are limited only to make an enquiry as to whether the document was in fact executed by the persons who purport to have executed the document. Further, the Hon’ble Court observed that as per Rule 67 of the Registration Rules, Kerala, the Respondent have no right to enquire into the validity of a document or to question the right of executant to execute a document or insist on the production of title deeds or prior document of the property except in the case of marriage document. Thus, the Respondent was directed to register the settlement deed.

The petition was therefore allowed.

15. Muruganandam vs. Muniyandi (died) through legal heirs.

2025 Live Law (SC) 549 / Civil Appeal No. 6543 of 2025 8^th May, 2025

Suit for specific Performance – Sale Deed – Unregistered and unstamped – Admission of the sale deed – An Unregistered document can be taken into evidence in cases of specific performance or any other collateral proceedings. [S. 17, 49, Registration Act, 1908; S. 35, Indian Stamps Act, 1989].

FACTS

The Appellant (Original Plaintiff/buyer) and the Respondent (Original Defendant/seller) had entered into a sale agreement. As per the sale deed, certain payments were made by the buyer and in exchange, the seller had put the buyer in possession of the property. Thereafter, the entire payment consideration was paid by the buyer. It was the contention of the Appellant (buyer) that the Respondent (seller) was not taking any steps for the execution of the sale deed despite multiple requests. Thus, a suit for specific performance was instituted by the Appellant (buyer) for the execution of the sale deed. During the pendency of the suit, an interim application was filed by the buyer for admission of the original copy of the agreement for sale. It was contended by the buyer that the photocopy of the document was already attached along with the plaint; however, for genuine reasons, the original copy remained to be submitted before the Court. The learned Trial Court, however, rejected the said application on the ground that the document was unregistered and unstamped, and therefore the admission of the same was barred by section 17 of the Registration Act, 1908 (Act) and section 35 of the Indian Stamps Act 1989. Thereafter, a revision petition was filed by the buyer (Original Plaintiff/buyer) before the Hon’ble Madras High Court. However, the Hon’ble High Court held that the decision of the learned Trial Court does not need any interference.

Aggrieved, an appeal was preferred before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court held that although an unregistered document cannot be taken into admission as evidence, the provision to section 49 of the Act specifically allows the Courts to take into account an unregistered document in a suit for specific performance or any other collateral proceedings. Therefore, the decision of the Hon’ble High Court was set aside, and the learned Trial Court was directed to admit the unregistered document into evidence in the suit for specific performance.

The appeal was therefore allowed.

BCAJ Admin

Agricultural Income Revisited

Agricultural income has always been the subject matter of discussion among professionals. It has enjoyed an uninterrupted exemption for more than a century. The same is sought to be continued in the Income Tax Bill 2025. The bill makes some cosmetic changes in the concept of agricultural income as envisaged.

The objective of this article is to explore the idea of Agricultural Income and examine all the relevant provisions, key judgments, and Constitutional mandates. In the course of the article, the author has taken the liberty of sowing the seeds of his views.

CONSTITUTIONAL MANDATE AND DEFINITIONS

The story begins with Entry 82 of the Union List of the 7^th Schedule of the Constitution of India, which empowers the Union to levy tax on Income other than Agricultural Income. Entry 46 of the State List makes tax on Agricultural income a State subject. In fact, many states (like Bihar, Odisha, Tamil Nadu, West Bengal, and Maharashtra) have passed legislation to this effect, making Agricultural Income taxable in those States, though the implementation or enforcement of those statutes could be a matter of debate.

Under Article 366(1) of the Constitution, Agricultural Income means “agricultural income as defined for the purpose of enactments relating to Indian Income Tax”. The Income Tax Act 1961 defines “Agricultural Income” but doesn’t define “Agriculture”. The meaning we ascribe to the term “Agricultural” is at the core of how we construe the expressions “agricultural purpose” or “agricultural income”.

Black’s Law Dictionary defines Agriculture as the art or science of cultivating the ground, including harvesting of crops, and in a broad sense, the science or art of production of plants and animals useful to man, including in a variable degree, the preparation of these products for man’s use. In the broad sense, it includes farming, horticulture, and forestry, together with such subjects as butter, cheese, making sugar, etc.

Merriam-Webster dictionary defines Agriculture as the science, art, or practice of cultivating the soil, producing crops, and raising livestock, and in varying degrees, the preparation and marketing of the resulting products.

If we go by the above definitions, a broader connotation emerges suggesting that it is not always necessary that some labour and effort are employed to plough the soil and sow the seeds for an activity to be called Agriculture. Even dairy farming or poultry farming can be considered as Agriculture within its expanded meaning.

If we further dig into the etymology of the word “Agriculture,” it is derived from the Latin word “agricultura”, which is a combination of the word “ager”, meaning “field”, and “cultura”, meaning “cultivation”. Therefore, the word “agriculture” literally means “cultivation in the field”. The word “cultivation” implies an active and intentional process of fostering growth and development. Land can be cultivated to foster any form of life, whether plants or animals. So, where there is an intentional plantation of a certain type of grass to feed the cattle and facilitate their healthy growth, it must fall within the literal meaning of the word “agriculture”.

AGRICULTURE UNDER EXISTING TAX LAW

However, such a wide interpretation of the term also gave rise to many disputes. One of them was with respect to scenarios where income was generated out of land without directly performing any labour or toil on the land, like ploughing, sowing, etc. For example, a question often arose whether the phenomenon of plants and fruits growing spontaneously and naturally in the forest, without the intervention of human agency, should be considered as Agriculture. This, in particular, and other disputes in general, were put to rest by the landmark judgment of the Supreme Court in the case of Benoy Kumar Sahas¹. In the judgement penned by Bhagwati J, for the first time, a structure to interpret the term agriculture was laid down. In essence, the following principles emerged:

1. Basic Operations are Essential:

Human Skill and Labour: Agriculture must involve basic operations on the land itself that utilise human skills and labour. This includes tilling, sowing, planting and similar efforts before germination.
Not Just Subsequent Operations: Activities after germination, such as weeding, pruning, and harvesting, are not enough on their own to be considered agriculture. They must be carried out as an extension of the basic operation. It is only then that the whole of the integrated activity is considered as Agriculture.

2. Agriculture Includes all Kinds of Products Raised on Land:

Regardless of the nature of the product – whether for humans or for the consumption of the beast.

3. Activities Must be Related to the Land

Not Just Land-Related: The mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term. For instance, breeding and rearing of livestock, dairy farming, butter and cheese making, and poultry farming would not by themselves be agricultural purposes².

¹  (Raja Benoy Kumar Sahas (1957) 32 ITR 466 (SC))
²  (The Law and Practice of Income Tax, by Arvind P Datar, Eleventh Edition, Vol -1, p. 85)

However, this must be understood holistically along with this disclaimer from the judgement- “The question still remains whether there is any warrant for the further extension of the term “agriculture” to all activities in relation to the land or having a connection with the land including breeding and rearing of livestock, dairy-farming, butter and cheese-making, poultry-farming, etc.”.

Dairy Farming

While the general principle as emerged in Benoy Kumar Sahas is that Dairy Farming may not be considered as Agriculture for want of a direct connection with the land, however, this idea needs to be analysed in the light of judgement by the Rangoon HC in case of Kokine Dairy³.

Roberts, C.J., who delivered the opinion of the Court, observed:

“Where cattle are wholly stall-fed and not pastured upon the land at all, doubtless it is a trade, and no agricultural operation is being carried on: where cattle are being exclusively or mainly pastured and are nonetheless fed with small amounts of oil-cake or the like, it may well be that the income derived from the sale of their milk is agricultural income.”

This, however, is not in consonance with the ruling of the Supreme Court in Benoy Kumar Sahas (supra), where it was held that dairy farming by itself would not constitute agriculture.

³ (Commissioner of Income-tax, Burma v. Kokine Dairy, 6 ITR 502, 509, 1938)

Poultry Farming

While the central issue before the High Court of Andhra Pradesh High Court in the case of Mulakaluru Co-operative Rural Bank⁴ was not the classification of Poultry Farming as Agriculture, it formed a key component of the ratio decidendi. This judgement underscores the varied and variegated interpretation of the term agriculture and illustrates a potential departure from the established framework in Benoy Kumar. The court held that “No doubt, poultry farming being an extended form of agriculture, certainly qualified eggs to be treated as ‘agricultural produce’ for the purpose of section 80P(2)(iii ).”

⁴ (CIT v Mulakaluru Cooperative Rural Bank Ltd 173 ITR 629, 1988)

Slaughter Tapping of Rubber

Kerala HC, in the case of KC Jacob,⁵ held that income generated by the owner from the slaughter tapping on rubber trees was an agricultural income:

“Here, the slaughter-tapping was by the owner himself. The rubber obtained by him, in whatever manner he tapped his trees, is his, and the receipts by him from the sale of rubber obtained by such tapping is “income derived from land which is used for agricultural purposes”, within the meaning of Section 2(a) of the Kerala Agricultural Income Tax Act 1950.”

This takes us to an important question, whether income derived passively from standing trees, like that of rubber, mango, coconut etc., after their initial planting can be regarded as agricultural income.

As established, supra in the case of KC Jacob, income derived by the owner from the slaughter-tapping of a “standing” rubber tree is agriculture income. Thus, there is no requirement to perform the basic operation of tilling, sowing, etc. on land every year. This inference can be extended to mango, coconut and other such standing trees as well. But what would be the scenario where the existing owner did not originally plant the trees? E.g., if a ready mango farm were purchased by the assessee –would the income arising out of the sale of mangoes every year still be regarded as agricultural income? While the answer can vary depending on the facts of the case, but in general, where the sine qua non of agricultural operation, i.e. tilling of the land, sowing of the seeds, planting, and similar operations on the land are missing, courts may be more inclined to deem the same as originating from a commercial activity rather than an agricultural pursuit and treat the income as non-agricultural income. Figuratively – the person reaping the fruits may not be the same as the person who sowed the seeds, but the world appreciates only when the person reaping the fruits had himself sown the seeds.

⁵ (K.C. Jacob vs Agricultural Income-Tax Officer. 110 ITR 402, 1977)

SECTION 2(1A) OF THE INCOME TAX ACT 1961

With the above background, let us dissect the clauses. Broadly, Section 2(1A) splits the agricultural income into two parts – 1. Depending on the Source, It would either be from Land or Building 2. Depending on the type of Operations- it could be out of agriculture or operations necessary to render the produce fit for market.

Clause 2(1A)(a): This clause focuses on Land being the source of income. It has three mutually inclusive requirements:

(i) Rent or Revenue Derived from Land: The word ‘rent’ means payment of money in cash or kind by any person to the owner in respect of a grant of right to use land. The expression ‘revenue’ is, however, used in the broad sense of return, yield or income and not in the sense of land revenue only⁶. The Apex court’s decision in the case of Bacha Guzdar established the principle that the expression “revenue derived from land” envisages a direct association with the land. Thus, it was held that “Dividend received from a company earning agricultural income is not agricultural income in the shareholder’s hands⁷. One should bear in mind that to bring a certain income within the ambit of this clause, it is not necessary that such income should arise by the performance of any agricultural activity – e.g. the compensation received from the government for the requisitioned agricultural land was deemed to possess the character of rent or revenue derived from agricultural land, thus qualifying as agricultural income exempt from tax.⁸

⁶ (Raza Buland Sugar Co. Ltd. v. CIT, 1980, 3 Taxman 266 (Allah. HC))
⁷ (Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC))
⁸ (Commissioner of Income Tax v. M/S. All India Tea And Trading Co. Ltd. (1996) 8 SCC 478)

Land Situated in India: Thus, any revenue or rent from agricultural land situated outside India will be out of the purview. The point to note here is that there is no distinction made between urban and rural land. Similarly, the classification of the land in Govt records is also immaterial. This essentially means, e.g., even if the land is classified as Non-Agricultural (NA) it still qualifies for the exemption so long as the third condition is also fulfilled. By virtue of these conditions, income from Fishing in natural waters should ideally be out of the scope of agricultural income.

(ii) Land Used for Agricultural Purposes: We have already explored in detail the scope of meaning of Agriculture. It is the use to which the land is put that is to be seen and not the nature of the land. Very often, we come across parcels of land on the outskirts of big cities that were lush green fields just a few years ago, but now, on those lands, commercial shops have come up, and the owners are earning rent out of it. Though the land may still be agricultural lands in the revenue records, they are no longer used for agricultural purposes. Such rents cannot be treated as agricultural income. Mushroom farming is typically done in a controlled environment and not directly on land. Instead, the soil is placed on racks vertically, and the mushroom is cultured. The question before the ITAT Hyderabad was whether it is an agricultural activity. The gist of the decision is that while soil is an integral component of land, and land itself is a part of the earth, the act of cultivating soil in trays while retaining its fundamental characteristic as ‘land’ does not diminish the agricultural nature of activities conducted upon it. The essence of agriculture remains, even when the soil is separated from its broader terrestrial context⁹.

⁹ (Dcit, Circle-2(1), Hyderabad vs Inventaa Chemicals Ltd., 2018)

Clause 2(1A)(b): This clause focuses on the performance of the actual activity of agriculture. Only such income that arises from activities mentioned in the clause will be considered as agricultural income. Further, such activities must be performed on the land as mentioned in clause (b). It provides for three categories of activities:

(i) Agriculture: It is important to note the wording of sub-clause (b)(i)- it says any income derived “by Agriculture” and not “by sale of Agricultural Produce”. It clarifies the intention of the legislature to include even “produce” held by a farmer for self-consumption or produce lying in stock to be considered as “agricultural income”. The Madras HC judgement in the case of Vaidyanatha Mudaliar reinforces this understanding. The judgement was with respect to the issue raised under the Madras Agricultural Income Tax Act, 1955.

(ii) Performance of any process to make the produce fit to be taken to the market: Like in sub-clause (b)(i) above, here too, “sale” of the produce is not required to bring it into the ambit of “agricultural income”. It is the enhancement in the value of the produce after performing the said process that is considered as agricultural income. The process should be one as is ordinarily performed by other cultivators in the locality. The expression “ordinarily performed” is contextual to the locality/region. So, where in the concerned region in the case of Brihan Maharashtra Sugar¹⁰, sugarcane was generally sold as such without subjecting it to the process of converting it into gur (jaggery) or sugar, the same when applied in the given case, the income arising from such process was held to be non-agricultural. It is the cultivator or the receiver of rent in kind who alone should have performed such process, e.g., if the standing crop of tobacco is purchased by a trader and he performs “curing” (a process which is ordinarily employed by a cultivator of tobacco to render it fit for sale in the market) on the tobacco after harvesting the income so derived by curing cannot be considered as agricultural income because a trader in this example is neither a “cultivator” nor an owner who is “receiver of rent in kind”.

¹⁰ (brihan maharashtra sugar syndicate ltd v CIT(1946) 14 ITR 611 (BOM))

(iii) Sale of Agricultural Produce: In Clause 2(1A)(b), this is the only sub-clause that envisages the “Sale” of Agricultural Produce. However, the stage at which the produce is sold is restricted to the stage the produce is at after applying the process applied to make it fit for the market. e.g., a farmer is involved in preparing and selling ready to cook chapatis in packages. He performs all the agricultural processes for wheat cultivation, from tilling to harvest to threshing, cleaning and packaging chapatis. The sub-clause covers the stage only till threshing and cleaning, as at this stage, the wheat is fit to be sold in the market.

After studying clause 2(1A)(b), an obvious question emerges. Why is there a need to provide for the treatment of income at different stages? The answer to this is that there can be more than one stakeholder in the entire journey of produce, from tilling to making it fit for market. And often, every stakeholder may add value to the value chain. However, the intention of the legislature appears to be to give exemption only to defined contributors till a defined stage.

Clause 2(1A)(c ): The source of income here is the annual value of the House Property. It should meet the four criteria to be considered as Agricultural Income:

i) Used As: dwelling house, or as a store-house, or other out-building.

ii) Occupied By: receiver of rent/revenue or cultivator.

iii) Reason for Occupation: connection of occupier with the land used for agricultural purposes.

iv) Situation of Building: Immediate vicinity of the said Land, and it’s not located within the area specified limits with specified population.

It should be noted here that many buildings in or within the specified limits of municipalities or cantonments will not get the benefit of clause(c ) even if the other criteria are met. The limits are provided in the proviso to clause (c ) of sec 2(1A). The intention of the legislature seems to include only such buildings that are located in rural areas. And the legislature is mindful of the fact that the influence of urbanisation on the use of land is not restricted to the political limits of municipalities or cantonments but is extended even beyond. So, in order to arrest tax evasion by disguising the use of buildings for given agricultural purposes, the law provided for an extended limit of the urban area.

Explanation 1 to Section – 2(1A): Section 2(14), excludes, in general, Agricultural Land from the definition of Capital Asset. Thus, there cannot be Capital Gains on the transfer of such agricultural land. However, it provides for certain exceptions that cover land situated within defined municipal and cantonment limits. Thus, gains on the transfer of such land will be taxed as Capital Gains. A situation might arise where a person describes/discloses such gains are “revenue derived from land” under clause (a) of S. 2(1A) and claims the exemption as agricultural income. To pre-empt such situations, Explanation 1 makes it abundantly clear that such income will not be considered as “income derived from land”.

But this leaves us with an interesting question- while there will not be any Capital gains from the transfer of agricultural land (section – 2(14)), what about the potential of taxing it as non-agricultural income? Some cogent arguments against it can be:

It is Agricultural Income and hence exempt: Explanation 1 to section 2(1A) binds only the exceptions mentioned under section 2(14)(iii); thus, where agricultural land other than that falling within the ambit of clauses (a) and (b) of section 2(14)(iii) (a) and (b) is transferred, the gains could be “revenue derived from the land” and hence is agricultural Income.

It is a Capital Receipt: As a general principle, a receipt that doesn’t partake in the nature of Income cannot be brought to tax under the Income Tax Act. The latter view seems to be the better view.

EXPANDING SCOPE OF AGRICULTURAL INCOME

Explanation 3 to Section – 2(1A): The explanation provides that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. However, a question arises whether income from the sale of flower bouquets by a person who owns and manages the nursery will also be agricultural income. The answer might depend on the extent and form of processing involved beyond the basic agricultural operations. So, where the bouquets are simple assemblages of flowers and foliage grown in the nursery, it could be argued that the income remains closely tied to agricultural activity. However, if the process involves significant value addition, such as elaborate flower arrangement, the value addition could be considered as non-agricultural in nature.

SEGREGATING AGRICULTURAL INCOME AND BUSINESS INCOME

How do we disintegrate a composite income which is partially agricultural and partially non-agricultural?

Under the authority of section 295, the Board may make rules for, inter alia, the manner in which and the procedure by which the income shall be arrived at in the case of income derived in part from agriculture and in part from business.

Rule 7 provides the portion that is taxable as business income is calculated by deducting the market value of the agricultural produce used as raw material in the business. No further deductions are allowed for expenses incurred by the assessee as a cultivator or receiver of rent-in-kind.

Market value is the average value at which the produce is sold in its raw form or after basic processing to make it marketable. And where the produce is not marketable, it will be a sum of,

i) Expenses incurred in cultivating the produce.
ii) Land revenue or rent paid.
iii) A reasonable profit as assessed by AO.

Rule 7 is a general rule that applies to all situations with composite income. However, there are specific rules with respect to certain businesses where, perhaps, determining the market value of the raw material is not feasible owing to some practical complications like heavy fluctuations in the rates, etc. Rules 7A, 7B and 8 provide for a fixed proportion of the total composite income to be considered as non-agricultural income and subjected to tax, removing any ambiguity.

Rule 7A- Income from Manufacture of Rubber

The rule outlines how to calculate income from selling certain rubber products (centrifuged latex, cenex, latex-based crepes, brown crepes, or technically specified block rubbers). If these products are made or processed from field latex or coagulum obtained from rubber plants grown by the seller in India, the income from their sale is treated as business income. Out of this business income, 35% is considered taxable.

Rule 7B- Income from Manufacture of Coffee

(1) If one grows and cures coffee in India and then sells it, the income from this sale is considered business income, and 25% of it will be taxed.

(1A) If one grows, cures, roasts, and grinds coffee in India and then sells it (even if one adds chicory or other flavourings), the income is also considered business income, but in this case, 40% of it will be taxed.

Rule 8- Income from Manufacture of Tea

If one grows and manufactures tea in India and then sells it, the income from this sale is considered business income, and 40% of it will be taxed.

EVIDENCES TO SUPPORT THE CLAIM OF AGRICULTURAL INCOME

Where agricultural Income is declared in the return of income, the assessee must maintain robust records to substantiate the claim if scrutiny arises. Ordinarily, these evidences includes,

Proof of Ownership of Land
Proof of Cultivation Rights: These could be a Lease Agreement.
Proof of Actual Agricultural Operations: Bills of seeds and fertilisers,
Proof of Sale
Commission Agent’s Receipt etc.
Banks Statements

CONCLUSION

Though the concept of agricultural income was first introduced in the Indian Income Tax Act 1886 the same has evolved with time. And even today, determining its scope requires significant caution. While the interpretation is heavily influenced by the Benoy Kumar Sahas case, which insists on basic operations, in today’s fast-changing technological landscape, the very idea of “basic operations” can be challenged. For example, “Hydroponics” is the technique of growing plants using a water-based nutrient solution rather than soil¹¹. It completely bypasses the need for tilling or sowing the land. Classifying the income generated through such a process would, perhaps, call for an amendment in the definition in the Act, which currently hinges on land.

Also, the assessee must be wary: merely deriving income from land or performing any process on land isn’t enough. Overlooking specific criteria for land use, building occupancy, or nature of processing can lead to reclassification of income and an unexpected tax burden.

¹¹ (https://www.nal.usda.gov/farms-and-agricultural-production-systems/hydroponics, n.d.)

BCAJ Admin

Rights of the Accused under PMLA for Obtaining Copies of the Records / Documents

This article deals with the Judgement of the Supreme Court in Sarla Gupta & Onr. vs. Directorate of Enforcement and the right of an accused to obtain copies of the Records / Documents collected by the Investigative Agencies under the PMLA.

INTRODUCTION

The saying that “Information is power” is age-old. Investigating agencies, while investigating a certain offence, tend to collect a large amount of data and information in the quest for justice. An investigation, as well as the resulting prosecution (if any), is supposed to be fair and unbiased. An officer administering certain provisions of an act also conducts inquiries from time to time. This also leads to the collection and compilation of a large amount of data. This data is relevant not only because it could be used to establish that a certain accused is involved in the offence of money laundering but also to give rise to reasonable doubt as to his complicity. The burden of proof to convict an accused in a criminal trial is “beyond reasonable doubt”. If the prosecution cannot prove its case beyond a reasonable doubt, the accused has to be acquitted. Just as the information conducted during an inquiry or an investigation forms the basis of the prosecution case, the same can also be pressed into service for defence. For a criminal trial to be fair to the accused, it is essential that the defence has access to all the material that is at the command of the prosecution. This is particularly relevant for the material that is relied on by the prosecution. The fundamental principle of criminal law is that an accused has the right to confront their accuser and also confront the evidence produced against them.

SECTION 207 & 208 OF CRPC AND PMLA PROCEEDINGS AND SUPPLY OF ‘RELIED UPON DOCUMENTS’

The three-Judge division bench judgement of the Supreme Court in Sarla Gupta & onr. vs. Directorate of Enforcement 2025 SCC OnLine SC 1063 strikes a win for fairness in prosecutions under the Prevention of Money Laundering Act, 2002 (better known as the PMLA).

In modern-day criminal law jurisprudence, due weightage needs to be given to fairness. After all, justice must not only be done but must also be seen to be done. Just like it would not be fair for a person to be made to participate in a fist-fight with one of his hands tied behind him, it would hardly be fair if an accused was not granted copies of the material relied on against him. There are two important provisions under the Code of Criminal Procedure (CrPC) which deal with the supply of documents – Sections 207 and 208. The corresponding Sections of the Bharatiya Nagrik Suraksha Sanhita (BNSS) are Sections 230 and 231 respectively. Section 207 of the CrPC applies when the proceedings have been instituted on a police report and are triable by the magistrate. Section 208 applies to a case that is instituted otherwise than on a police report, and the Magistrate is of the view that the case is exclusively triable by the Court of Session.

The complaint based on which the Special Court for the PMLA takes cognisance of an offence has documents annexed to it in order to support its contents. These are the documents ‘relied upon’ in this context to make its case. In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court held that “Both Sections 207 and 208, on the face of it, do not specifically apply to a complaint under Section 44(1)(b) of the PMLA. But, there is no reason why the principles laid down under Sections 207 and 208 should not be applied to a complaint under Section 44(1)(b) of the PMLA”. Relying upon the concept of fair play and Article 21 of the Constitution of India, the Supreme Court made sections 207 & 208 of CrPC applicable to cases under the PMLA. The Court went on to read in the protections that are afforded by sections 207 & 208 of the CrPC into the PMLA in the form of these Directions:

“Therefore, once cognizance is taken on the basis of a complaint under Section 44(1)(b) of the PMLA, the learned Special Judge must direct that along with the process, a copy of the complaint and the following documents must be provided to the accused:

a. Statements recorded by the learned Special Judge of the complainant and the witnesses, if any, before taking cognizance;

b. The documents, including the copies of the Statements under Section 50 of the PMLA produced before the Special Court, along with the complaint, and the documents produced subsequently by the ED till the date of taking cognizance; and

c. Copies of the supplementary complaints and the documents, if any, produced with supplementary complaints.

After cognizance is taken on the basis of the complaint, the ED cannot be heard to say that a document has been produced with the complaint or in the proceedings of the complaint, but it is not a relied-upon document. The copies of documents must be supplied along with a copy of the complaint as required by subsection (3) of Section 204 of the CrPC (sub-section (3) of Section 227 of the BNSS).”

Thus, the directions of the Supreme Court to the Special Court for the trial of PMLA offences is quite clear – documents, as mentioned in the directions reproduced above, must be made available to the Accused once the Special Court take cognizance of an offence under the PMLA. This would equip the accused to take an informed decision on the defence that they wish to take up during trial. But this by itself is not enough. The Judgement of the Court also makes it mandatory that copies of the document produced with the complaint or the proceedings of the complaint must be supplied to the Accused and that the Directorate of Enforcement cannot refuse to furnish any such document by stating that it is not a ‘relied upon document’ in the complaint. This act of the Supreme Court in bringing in these safeguards based on sections 207 & 208 of CrPC is a significant development in PMLA jurisprudence.

SUPPLY OF DOCUMENTS IN THE POSSESSION OF THE DIRECTORATE, NOT RELIED UPON

The ED does not need to rely upon all the documents that it collects during its investigation. There is no obligation on the investigating agency to rely upon all the data that it so collects. However, some of this data could be beneficial to the Accused in preparing their defence. Just like statutes, the interpretation or inferences drawn from data can be different by a different set of eyes. Our system of law administration is fundamentally adversarial in nature unlike in some of the countries that follow ‘civil law’ or the ‘continental system of law’. This gives rise to the danger of the prosecution withholding exculpatory documents from the accused while only relying upon the incriminating documents. The danger of this situation actually arising cannot be ruled out, and the consequences can be severe.

In the year 2021, another three-judge Division bench of the Supreme Court in Criminal Trials Guidelines Regarding Inadequacies and Deficiencies, In re, (2021) 10 SCC 598 observed, “The Amici Curiae pointed out that at the commencement of trial, accused are only furnished with list of documents and statements which the prosecution relies on and are kept in the dark about other material, which the police or the prosecution may have in their possession, which may be exculpatory in nature, or absolve or help the accused. This Court is of the opinion that while furnishing the list of statements, documents and material objects under sections 207/208 CrPC, the Magistrate should also ensure that a list of other materials (such as statements or objects/documents seized, but not relied on) should be furnished to the accused. This is to ensure that in case the accused is of the view that such materials are necessary to be produced for a proper and just trial, she or he may seek appropriate orders under CrPC”. This right was also reiterated in the case of Manoj vs. State of M.P., (2023) 2 SCC 353 where the Supreme Court reiterated its stand that “this Court holds that the prosecution, in the interests of fairness, should as a matter of rule, in all criminal trials, comply with the above rule, and furnish the list of statements, documents, material objects and exhibits which are not relied upon by the investigating officer. The presiding officers of courts in criminal trials shall ensure compliance with such rules”.

In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court observed these prior Judgements and agreed that these documents had to be furnished to the Accused. However, the Court proceeded to analyse at what stage the Accused is entitled to seek copies of the Documents not relied on by the prosecution. The Supreme Court observed that “at the time of hearing for framing of charge, reliance can be placed only on the documents forming part of the charge sheet. In case of the PMLA, at the time of framing charge, reliance can be placed only on those documents which are produced along with the complaint or supplementary complaint. Though the accused will be entitled to the list of documents, objects, exhibits etc. that are not relied upon by the ED at the stage of framing of charge, in ordinary course, the accused is not entitled to seek copies of the said documents at the stage of framing of charge.”

It is, therefore, rare that copies of all the documents are given to the Accused before the framing of the charge. To give or not to give would still be the discretion of the court. However, after the charge is framed, under Section 233 of the CrPC (Section 256 of the BNSS), there is less latitude given to the Courts to refuse the production of documents.

In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court observed, “On plain reading of sub-section (1) of Section 91, the power of the court is discretionary. The word ‘may’ appears in sub-section (1) of Section 91. However, if we peruse sub-section (3) of Section 233 and sub-section (2) of Section 243, the word ‘shall’ has been used. The reason is that these two provisions apply at the stage of the accused leading defence evidence. Therefore, it is provided that if the accused applies for the issue of any process for compelling the attendance of any witness or the production of any document or thing, the court must issue such process. The prayer for issue of such process cannot be denied unless the court, for reasons to be recorded, holds that the application is made for the purposes of vexation or delay or for defeating the ends of justice.”

The Court, therefore, went on to hold that “After carefully perusing the provisions of the PMLA, we did not find any provision of the PMLA which is inconsistent with Section 91 of the CrPC. The power under sub-section (1) of Section 91 can be exercised by a Court when the production of any document or any other thing is necessary or desirable for the purposes of any investigation, inquiry, trial or other proceedings under the CrPC. The consistent line of judgments of this Court hold that at the stage of framing of charge, the accused is ordinarily not entitled to apply under Section 91 of the CrPC for producing the documents which are not relied upon by the complainant. For the purposes of his defence, the accused has a right to seek production of a document or a thing at the stage of leading defence evidence as Section 233 of CrPC will apply to the trial of an offence under the PMLA, due to the fact that Chapter XVIII of the CrPC is made applicable to such trial in view of clause (d) of Section 44(1) of the PMLA.” It also observed that in the light of the negative burden of proof that is placed by Section 24 of the PMLA on the accused, Section 233(3) of the CrPC should be liberally construed in favour of the Accused. This is also because the constitutional validity of Section 24 of the PMLA has been upheld on the ground that the accused has full opportunity to show that he has not violated the provisions of the PMLA and rebut the presumption. If the Special Court refuses the prayer for documents u/s 233 of the CrPC, the accused will not be able to discharge the burden, and the Supreme Court, therefore, held that this right of the Accused must be protected.

CAN DOCUMENTS BE SOUGHT BY THE ACCUSED DURING BAIL PROCEEDINGS UNDER THE PMLA?

The primary reason why PMLA is so feared is the difficulty that an arrested accused faces in order to obtain bail. Getting bail under the PMLA is infamously difficult and is the primary reason that the PMLA is considered draconian. The offence of money laundering is non-bailable, i.e. bail cannot be obtained as a matter of right but is subject to judicial discretion. There are various factors that weigh in with a Court while deciding whether or not to release an accused on bail. The PMLA, through Section 45(1)(ii), adds the ‘twin conditions’ that must be fulfilled over and above this in order for the accused to secure bail. Therefore, if an accused makes an application for bail u/s 45 of the PMLA and the prosecutor opposes the grant of bail, the Court cannot grant bail to the Accused unless “the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail”.

The first of the twin conditions requires that the accused demonstrate to the court that there are ‘reasonable grounds’ for believing that he is not guilty of such offence. This can be very difficult to do if the Accused does not have access to the documents and data that can help him discharge the burden. The Supreme Court in Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, held that “If a narrow view is taken, by denying this opportunity to the accused, he will not be in a position to discharge the burden on him, and therefore, it will affect his right to liberty as he may be denied bail. This denial will amount to a violation of his rights guaranteed under Article 21. Therefore, at the stage of hearing of a bail application to which stringent provisions of Section 45(1)(ii) of the PMLA are applicable, the accused must be allowed to invoke the provision of Section 91 of the CrPC for seeking production of the documents not relied upon by the ED. But, when the investigation is pending while permitting the accused to seek production of documents that are not relied upon by invoking Section 91 of the CrPC, care has to be taken to ensure that the investigation is not prejudiced. Therefore, when such an application is made, the ED is entitled to resist the production of documents that are not relied upon on the ground that if the said documents are disclosed at that stage to the accused, it may prejudice the investigation. Though the ED is entitled to raise the said plea, it will have to show the documents to the Court. The Court can, for reasons recorded, deny production of documents only if it is satisfied that the disclosure of the documents may prejudice the ongoing investigation. Needless to add that the ED cannot raise such an objection after the investigation is complete.” It is important to note that the Court considered Article 21 of the Constitution of India as the fountain from which the right to receive the documents springs. This Judgement, therefore, is a big step in defending the fundamental rights that have been guaranteed under the Constitution of India. The Court specifically observed that “ When the Legislature has felt a need to bring out a legislation like the PMLA, it is the duty of the Court to interpret Article 21 in such a way that the right of a fair trial available to the accused is not affected. The object of the provisions of Section 24 or 45(1)(ii) is not to take away the fundamental right of fair trial conferred on the accused. These provisions are different in the sense that they put a burden on the accused. When such a burden is put on the accused, it is all the more necessary that the right of fair trial guaranteed under Article 21 to the accused is protected by permitting the accused to lead defence evidence by seeking the production of witnesses and documents not relied upon by the prosecution. Similarly, for discharging the burden under Section 45(1)(ii), the accused has the right to invoke Section 91 of CrPC (Section 94 of the BNSS) for seeking production of documents at the stage of hearing of bail application.”

THE RIGHTS OF THE ACCUSED TO GET COPIES OF RECORDS / DOCUMENTS SEIZED AS PER SECTION 17 & 18 OF THE PMLA

The Supreme Court in Sarla Gupta was also concerned with the rights of the Accused under the PMLA to get copies of Records and Documents that have been seized u/s 17 (Search & Seizure) or Section 18 (Search of Persons). Section 21(2) of the PMLA, that deals with the retention of records, specifically mentions that the person from whom the records are seized or frozen shall be entitled to obtain a copy of the records. Section 2(b) of the PMLA includes deeds and instruments evidencing title or interest in property or asset.

The Supreme Court held that the order of retention under section 20 of the PMLA does not refer to the forfeiture of the property and that the seized property does not vest with the ED. The Supreme Court went on to hold that “There is no prohibition on providing copies of the deeds or instruments evidencing title to the person from whom or from whose premises the deeds or instruments are seized. If the provision is interpreted to mean that the person from whom such deeds or instruments are seized is not entitled to receive even copies of the same, the provision will be rendered arbitrary and violative of Article 14 of the Constitution. Therefore, as far as the seized documents and records are concerned, the person from whom or from whose premises the seizure has been made is entitled to get the true copies thereof. As far as the other property seized is concerned, the person from whom the property is seized is entitled to a copy of the seizure memo and the list of the properties seized.” It held that if the documents are bulky, then soft copies can be furnished and that even if seized records or documents are not relied upon in the Complaint, copies must be supplied, though the accused will not be entitled to rely upon them at the time of framing of charge.

CONCLUSION

In an adversarial system like ours, the ED has often resisted the furnishing of certain documents to the Accused, an example being the non-furnishing of grounds of arrest to the accused in writing, as remedied by the Supreme Court in the case of Pankaj Bansal vs Union of India, (2024) 7 SCC 576 where the Court held that “There is no valid reason as to why a copy of such written grounds of arrest should not be furnished to the arrested person as a matter of course and without exception. There are two primary reasons as to why this would be the advisable course of action to be followed as a matter of principle. Firstly, in the event such grounds of arrest are orally read out to the arrested person or read by such person with nothing further and this fact is disputed in a given case, it may boil down to the word of the arrested person against the word of the authorised officer as to whether or not there is due and proper compliance in this regard. In the case on hand, that is the situation in so far as Basant Bansal is concerned. Though ED claims that witnesses were present and certified that the grounds of arrest were read out and explained to him in Hindi, that is neither here nor there as he did not sign the document. Non-compliance in this regard would entail the release of the arrested person straightaway, as held in V. Senthil Balaji vs. State, (2024) 3 SCC 51. Such a precarious situation is easily avoided, and the consequence thereof can be obviated very simply by furnishing the written grounds of arrest, as recorded by the authorised officer in terms of Section 19(1) PMLA, to the arrested person under due acknowledgement, instead of leaving it to the debatable ipse dixit of the authorised officer.”

In fact, in the case of Arvind Kejriwal vs. Enforcement Directorate, (2025) 2 SCC 248, the Supreme Court specifically held that it is not only the grounds of arrest that need to be given to the Accused but also the ‘reasons to believe’ that have been recorded. The Court held that this is because “it would be incongruous, if not wrong, to hold that the accused can be denied and not furnished a copy of the reasons to believe. In reality, this would effectively prevent the accused from challenging their arrest, questioning the “reasons to believe”.. .. “It follows that the “reasons to believe” should be furnished to the arrestee to enable him to exercise his right to challenge the validity of arrest.”

The phrase ‘Information is power’ is especially relevant in the realm of criminal defence law in general and in special laws like the PMLA in particular. While economic offences are to be considered a class apart, it cannot be denied that the process of prosecution of one accused of a crime must be fair. Jurisprudence with regard to the PMLA has grown by leaps and bounds over the last few years. The Supreme Court has, from time to time, sought to balance the fairness of proceedings under the PMLA, which otherwise can be considered quite draconian. The Judgement in the case of Sarla Gupta shall undoubtedly be useful for those caught in the clutches of this law to get a fair trial.

BCAJ Admin

GST Implications on Educational Institutions

INTRODUCTION

Education has long been hailed as the great equaliser—the ladder that lets ambitious minds climb to success. But in India, that ladder is getting steeper and pricier. With education costs skyrocketing, quality education has become less accessible for many. Recently, the CEO of a large asset management company shared that the academic expenditure of one child could amount to ₹10 crores in 16 years from now.

Does Goods and Services Tax (GST) on educational services add fuel to the fire? In this article, we break down the impact of GST on educational services, explore its implications for students and institutions alike, and ask the burning question: Should education really be taxed?

Educational activities by schools or colleges have been generally exempted from indirect tax. The term “education” is not defined under the CGST Act 2017 or even under the Constitution of India. But the flyer by the GST Council also refers to the Apex Court decision in Loka Shikshana Trust vs. CIT,¹ wherein it was noted that education is a process of training and developing knowledge, skills and character of students by normal schooling.

1 CIT [1976] 1 SCC 25

But before delving into the interpretation nuances of the exemption, it is imperative to understand whether educational activity can be termed as “supply” per se. It is a settled principle that if an activity is outside the scope of the levy, then the discussion on “exemption” is of no relevance.

Whether the education service is covered under the scope of supply for GST purposes?

The GST levy is governed by Section 9 of the CGST Act 2017 and is a tax on the “supply” of goods or services. The definition of “supply” is given under Section 7 of the CGST Act 2017 and has the following attributes:

a. There should be a supply of goods or services.

b. There should be a consideration.

c. The supply is made by a person.

d. The activity should be in the course or furtherance of business.

While all other attributes may be satisfied, the phrase “in the course or furtherance of business” needs some discussion in the context of educational institutions [EI]. If the activity is not in the course or furtherance of business, then it would be outside the scope of “supply”.

In India, EIs generally operate in a “Trust/ Society” model. The objective of setting up such trusts/ societies is to render charitable activities by imparting education. For centuries, learning has been considered a charitable act, a noble pursuit meant to uplift society rather than generate profit. Gurukuls, temples, and community-run schools thrived on donations and goodwill, fostering an ethos that knowledge should be shared, not sold. Providing education from ages six to fourteen was made a Fundamental Right by the insertion of Article 21A in the Constitution of India by the 86th Constitutional Amendment Act, 2002. The National Policy for Education, 1986 and Programme of Action, 1992, envisaged free and compulsory education for all children up to the age of fourteen years.

Keeping aside the civil argument of modern-day EIs being overly commercialised, we should place emphasis on the letter and spirit of the law. The term business is defined under Section 2(17) of the CGST Act 2017 as under (relevant extract):

“business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
………
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

The term business is defined in an inclusive manner. Sub-clauses (b) and (c) are interdependent on sub-clause (a). Hence, it is important to analyse sub-clause (a), which states that business includes any trade, commerce, manufacture, profession, vocation, adventure or wager. Except for the term “manufacture”, none of the other terms are defined under the CGST Act 2017. To understand the meaning of these terms, reference is made to definitions from Black’s Law Dictionary as under:

Term	Meaning	Applicability for EI
Trade	The act or the business of buying and selling for money.	In general parlance, the activity of buying and selling is undertaken with the intention to earn markup or profit from the activity. EI is not primarily engaged in buying and selling.
Commerce	The exchange of goods, productions, or property of any kind; the buying, selling, and exchanging of articles.	The definition of this term means that the activity should be of buying and selling of things, i.e. goods. EI do not principally deal in the buying and selling of goods.
Profession	A vocation or occupation requiring special, usually advanced, education, knowledge, and skill; e.g. law or medical professions.	Both these terms relate to activity done by an individual or group of individuals. These terms do not relate to an organisation. The profession and vocation of a person depend upon the educational background, attributes and skill of the person, which cannot be equated with the activities of an organisation. EI is not engaged in any profession and vocation but in fact, imparts education to students who can choose a profession or a vocation based on their own individual calling, attributes and skill.
Vocation	A person’s regular calling or business; one’s occupation or profession.
Adventure	A commercial undertaking that has an element of risk	These two terms mean a chance-based transaction for a reward. It is not at all related to the activities of EI.
Wager	Money or other consideration is risked on an uncertain event; a bet, or a gamble.

Thus, it can be argued that educational activity does not fit under the term “business”. In the case of the State of Tamil Nadu and another vs. Board of Trustee of the Port of Madras [1999-VIL-27-SC], it was observed that “The word ‘business’ is wider than the words ‘trade, commerce or manufacture, etc’. The word ‘business’ though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession–which occupies time, attention and labour of a person, normally with a profit-motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive and not for sport or pleasure.”

The Hon’ble Bombay High Court, recently, in the case of Goa University,² had the opportunity to refer to a catena of decisions explaining that education is fundamental to human existence. We refer to some of those decisions herein. In the Indian Medical Association vs. Union of India³, it was observed that education is one of the principal human activities to establish a humanised order in our country. In the T.M.A. Pai Foundation’s case⁴, the Hon’ble Court noted that it is the duty of the State to do all it can to educate every section of citizens who need a helping hand in marching ahead along with others.

² 2025 (29) Centax 281 (Bom.)
³  2011 (7) SCC 179
⁴ 2002 (8) SCC 481

The Hon’ble High Court of Rajasthan, in the case of Banasthali Vidyapith,⁵ highlighted that education is essential for intellectual growth, progressive thinking, and personal development. Furthermore, the Court recognised education as a societal responsibility, crucial for developing mental capacity and fostering humanity. The High Court was deciding on the issue of whether EIs are “dealers” under the erstwhile Rajasthan Value Added Tax Act, 2003 and the definition of “business” thereto included “whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit”. Considering this aspect, the Hon’ble High Court of Rajasthan held that “imparting education” cannot be considered as a business.

⁵  2015 (55) taxmann.com 462 (Rajasthan)

Similarly, in some other cases, it has been held that education cannot be treated as a commercial activity:

a. Education is, per se, an activity that is charitable in nature⁶.

b. Imparting education cannot be allowed to become commerce. Making it one is opposed to the ethos, tradition and sensibilities of this nation. Imparting of education has never been treated as a trade or business in this country since time immemorial. It has been treated as a religious duty.⁷

c. Though the fees can be fixed by the educational institutions, and it may vary from institution to institution depending upon the quality of education provided by each of such institutions, commercialisation is not permissible.⁸

⁶  State of Bombay v. R.M.D. Chamar Baghwala (AIR 1957 SC 699)
⁷  Unni Krishnan v. State of Andhra Pradesh (AIR 1993 SC 2178)
⁸  Modern Dental College and Research Centre and Others [Civil 
Appeals No. 4060 of 2009 before Supreme Court of India]

Although the definition of the term “business” states that activities, “whether or not it is for a pecuniary benefit”, are included, fundamentally, it can be argued that profit-motive is very integral to “business”. The observations from the above judgments lead to a view that education is considered sacred in India. Education is regarded as a necessity for human existence. The very thought of
commercialising education appears to be against the spirit of the nation.

Hence, there is a case to argue that educational activity is outside the scope of “supply” as not being in the course or furtherance of business, and therefore, no GST is payable. It may however, be noted that the said line of argument may not be available in case of entities which are ‘for profit’ (for example, private limited company, LLP or partnership firm).

WHETHER THE EDUCATIONAL SERVICES ARE EXEMPT?

For the sake of further discussion, let us proceed with the notion that educational activity is a supply under GST. In this context, we can jump to Entry No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts educational services. While the entry per se provides for a “person” oriented exemption, the nature of “educational services” is embedded in the definition of “educational institution” given in the exemption notification itself.

Entry 66: Services provided –

(a) by an educational institution to its students, faculty and staff;

(aa) by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee;

(b) to an educational institution, by way of,

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals schemes sponsored by the Central Government, State Government or Union territory;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution;

[The above exemption is available for pre-school education and up to HSC or equivalent]

(v) supply of online educational journals or periodicals:

[The above exemption is not for pre-school education and up to HSC or approved vocational course]

“educational institution” means an institution providing services by way of, –

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course;

Further, “approved vocational education course” is also defined in the same notification as under:

(i) a course run by an industrial training institute, or an industrial training centre affiliated to the National Council for Vocational Education and Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or

(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Education and Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship;

On a plain reading of the definition, it is understandable that the scope of “educational institution” is based on the curriculum and courses offered. The opening line contains the phrase “by way of” which restricts the scope to institutions that impart education. The institutions that give training to students for getting the education from schools/colleges will not get covered. In other words, while education imparted by schools and colleges themselves is covered, education by private coaching classes, tuitions, etc., is not covered.

The exemption is given to:

Educational services for pre-school and up to higher secondary. This means that schools and colleges up to higher secondary are exempt under this limb.
Educational services for obtaining a qualification only if the said qualification is recognised by any law in force. This means that only recognised courses are exempt. Most of the universities are created under a Central Act or a State Act. The courses offered by such Universities would get an exemption. It should be noted that section 22(1) of the University Grants Commission Act, 1956, provides for the right of conferring or granting degrees only by a ‘university’ or a ‘deemed university’.
Educational services as a part of an approved vocational education course. The scope of the exemption is restricted to vocational courses that are specifically affiliated or notified.

The services provided by EI to students/ faculty/ staff are exempt. By the very fact that the exemption is given not only for services provided to students, but also to faculty/ staff, it is evident that the scope of this exemption is intended to be wider. Further, as explained earlier, the exemption is “person-driven”, and therefore, all services provided by EI should be exempt, even if some of the services are not direct in the nature of imparting education. Some of the clarifications issued by the Govt. place emphasis on this aspect:

Circular No.

The crux of the clarification

85/04/2019-GST
dated 01.01.2019

Supply of food and beverages by an educational institution to its students, faculty and staff is exempt.

177/09/2022-TRU

dated 03.08.2022

The amount or fee charged from prospective students for entrance or admission, or for issuance of eligibility certificate to them in the process of their entrance/admission, as well as the fee charged for issuance of migration certificates by educational institutions to the leaving or ex-students, is covered by the exemption.

The above Circulars make it clear that the ambit of exemption should be construed having regard to the purpose and object it seeks to achieve. The Circular dated 03.08.2022 even extends the exemption to ex-students or prospective students. The schools or colleges generally have a variety of different charge heads for fee recovery. The scope of exemption would not only include admission / tuition fees but also charges like computer fees, extra-curricular fees, duplicate identity card fees, hostel fees, bus fees, library fees, workshop/ conference fees, etc. The purpose is to give GST exemption for the entire gamut of educational services.

WHETHER THE AFFILIATION SERVICES ARE COVERED?

The question arises whether the exemption is available only to “schools and colleges” or whether it can be extended to “Govt. Education Boards” and “Universities”. This doubt arises because the act of imparting education and training is undertaken by “schools and colleges”. The “Govt. Education Boards / Universities” give recognition to the curriculum/ course / institution, and then recover affiliation fees from the “schools and colleges”. It is also important to note that the purpose of providing affiliation by “Govt. Education Boards/Universities” is to monitor and ensure whether the institution possesses the required infrastructure in terms of space, technical prowess, financial liquidity, faculty strength, etc.

The Govt. issued a clarification vide Circular No. 151/07/2021-GST dated 17.06.2021 and stated that GST at 18% is payable for accreditation services provided by Education Boards. However, the GST Council exempted affiliation services provided by a Central or State Educational Board to “Government schools” and w.e.f. 10.10.2024 Entry No. 66A was introduced in the exemption Notification no. 12/2017. However, the exemption was very restrictive and only applicable for affiliation services to Government schools. The Govt. clarified vide Circular No. 234/28/2024-GST dated 11.10.2024 that affiliation services (other than to Govt. schools) provided by universities and educational boards to their constituent schools/ colleges are not covered within the ambit of exemptions because affiliation services are not related to the admission of students to such schools or the conduct of examinations by such schools.

The Hon’ble Karnataka High Court gave a decision on this subject under the service tax regime, in the case of Rajiv Gandhi University of Health Sciences⁹. It was held that Universities are established by the State for furthering the advancement of learning and pursuing higher education and research. The High Court noted that Universities regulate the manner in which education is imparted in the Colleges and also conduct examinations. Thus, it was concluded that services provided by the University by collecting affiliation fees should be considered as services by way of education as a part of a curriculum for obtaining a qualification recognised by any law.

However, the Hon’ble Telangana High Court, in the case of Care College of Nursing vs Kaloji Narayana Rao University of Health Sciences,¹⁰ stated that the exemption is not available to the Universities because the inspection of an institution is conducted and the affiliation is thereafter granted. The High Court held that the admission and the services rendered by the EIs to the students, the faculty and the staff are all services rendered subsequent to the affiliation. The Hon’ble High Court, in its determination, placed reliance on Circular No. 151/07/2021-GST dated 17.06.2021. However, the Court did not undertake an analysis regarding the status of Education Boards/Universities as statutory bodies, nor did it examine whether such entities are engaged in any business activities in the strict sense of the term. It should also be noted that this case was between the college and the university. The tax department was not a part of this case, and the Hon’ble Court also relied on the fact that the University did not object to the payment of tax.

⁹ 2022 (64) G.S.T.L. 465 (Kar.)
¹⁰  2023 (12) Centax 216 (Telangana)

This judicial tug-of-war sent mixed signals, leaving everyone scratching their heads. This issue recently came before the Hon’ble Bombay High Court in the case of Goa University¹¹. The Hon’ble High Court observed:

The fees collected by the University are not a consideration as contemplated in section 7 of the CGST Act 2017. The fees are collected in the nature of statutory fees or regulatory fees in terms of the statutory provisions and are not contractual in nature. The same cannot be given a colour of commercial receipts, as there is no element of commercial activity involved in the subject transaction.
The University is actively involved in imparting education to students, and it acts as a regulator of education. The Circular dated 11.10.2024 is erroneous. Affiliation is essentially an activity relating to the admission and examination of students.
The university is also an educational institution and students of the university include students studying through affiliated colleges. Affiliation services by universities are exempt under clause (a) of entry no. 66.

Interestingly, the Hon’ble Court held that the university and colleges, both provide educational services to the same student. The Court also emphasised that affiliation enables the institution to secure qualifications. Moreover, it was also held that the affiliation fee is a statutory levy and, therefore, not a consideration.

The decision of the Hon’ble Bombay High Court appears to be a better proposition and more aligned with the overall object of exempting educational services.

¹¹ 2025 (29) Centax 281 (Bom.)

WHAT IS THE TAXABILITY ON FEES PAID FOR ENTRANCE EXAMINATIONS?

The second limb of the exemption is specifically applicable to the entrance examination. Some institutions only conduct examinations and do not impart education per se. Under the service tax regime, an exemption similar to clause (aa) did not exist, and there was a view that the entrance examination services would fall under clause (a) itself. Arguably, examination is integral to education as it is one of the major means to assess and evaluate the skills and knowledge of a candidate. However, it appears that the government intended to avoid such interpretational issues, and a specific exemption is given under the GST regime.

The Government also sets up certain boards or authorities (like the National Board of Examination or National Testing Agency) for the conduct of examinations. There were doubts about the applicability of GST for the fees collected by such boards/ agencies. In fact, the National Board of Examination even collected GST from the students. The Govt. then issued a clarification vide Circular No. 151/07/2021-GST dated 17.06.2021 that the National Board of Examination is a central educational board, and thereafter, an Explanation (iva) was introduced in the Exemption Notification on 28.02.2023 to clarify that any authority, board or body set up by the Central Government or State Government for conduct of entrance examination shall be treated as EI. In the case of the National Board of Examination, the Hon’ble Delhi High Court¹² instructed to refund GST to all the students.

¹² 2024 (14) Centax 201 (Del.)

WHETHER THE EXEMPTION IS PERSON-DRIVEN OR ACTIVITY-DRIVEN?

It is apparent from entry no. 66 that GST exemption is available to the “institution” for services to students, faculty and staff. The exemption entry is not based on the nature of services. The nature of “educational services” is implanted in the definition of “educational institution”. This could mean that if an institution primarily satisfies the definition of “educational institution”, then all its activities are exempt. This interpretation was taken by the Hon’ble High Court in the case of Madurai Kamaraj University,¹³ wherein it was held that allied services like renting of immovable property for purposes of bank, post office, canteen, etc., are included in the purview of educational services. Though the said decision was under the service tax regime but, the exemption entry under the GST regime is similarly worded. It should also be noted that the Hon’ble Court placed more emphasis on the “educational institution” instead of the “service recipient”. The first part of the exemption says that services provided to “students, faculty or staff”. In renting of immovable property for purposes of bank, post office, canteen, etc., the service recipient is not a student/ faculty/ staff. However, a purposive interpretation was made by the Court, and the argument of the petitioner was accepted that within the campus of the university, there are a number of students, teaching and non-teaching faculties and in order to provide the basic services, the bank, post office and canteen and those services in view of the expanded meaning provided under exemption notification.

However, in the context of income tax, the Hon’ble Apex Court has observed in the case of New Noble Education Society¹⁴ that where institutions provide their premises or infrastructure to other entities for conducting workshops, seminars or even educational courses (which the institution concerned is not actually imparting) and outsiders are permitted to enrol, then the income derived from such activity cannot be characterised as part of education or incidental to imparting education.

Based on the above decision (though in a different context), it appears that the allied or incidental activity should have a nexus with the educational activity of the concerned institution.

¹³ 2021 (54) G.S.T.L. 385 (Mad.)
¹⁴ 2023 (6) SCC 649

WHAT IS THE SCOPE OF EXEMPTION FOR SERVICES RECEIVED BY THE EDUCATIONAL INSTITUTION?

We now proceed to discuss the second basket of exemption which is from the perspective of inward supplies of EI. The purpose is to ensure that EI is not burdened with ineligible input tax credits on account of outward supplies being exempt.

This exemption is again bifurcated into two categories: a) services procured for pre-school education and up to HSC or equivalent, b) services procured for education for obtaining a qualification [not for pre-school education/ up to HSC/ approved vocational course].

The first category exemption is for the following services provided to EI:

transportation of students, faculty and staff;
catering, including any mid-day meals schemes sponsored by the Government;
security or cleaning or house-keeping services;
services relating to admission to or conduct of examination

The above exemptions are specific and only available when such services are provided to EI for pre-school education and up to HSC or equivalent. The exemption is not available if the service providers directly provide services to students, faculty or staff. In the case of Batcha Noorjahan¹⁵, the Advance Ruling Authority [AAR] categorically highlighted that exemption would not be available when consideration towards transportation activity was received by the applicant from students, and no consideration was received from school administration (even though the lease agreement was entered with school administration).

¹⁵ 2025 (174) taxmann.com 130 (AAR – Tamil Nadu)

The services of catering, security, cleaning and house-keeping are apparently exempt. With respect to catering and mid-day meal scheme, the Govt. has clarified vide Circular No. 149/05/2021-GST dated 17^th June, 2021 that “Anganwadi” provide pre-school non-formal education and serving of food to “Anganwadi” shall also be covered by above exemption, whether sponsored by the Government or through donation from corporates.

For “admission to or conduct of examination”, the phrase “in relation to” has been used, thereby expanding the scope of exemption entry. This means that in addition to admission / examination services, the exemption is available for services that are “connected” with admission/ examination services. This would include (i) pre-examination items such as printing of registration certificates, examination enrolment forms, and admit cards, ii) printing of exam papers, answer booklets, developing/ managing web applications for conduct of online examinations, iii) post-examination services of processing of examination results, generation and printing of mark sheets/ pass certificates. This position is also clarified vide Circular No. 151/07/2021-GST dated 17.06.2021.

The last limb of exemption for the supply of online educational journals/periodicals to EIs who provide recognised degree courses. The said exemption is not for services procured by pre-school education/ up to HSC/ approved vocational course.

It should be noted that online journals/ periodicals are generally accessed from websites / web-based applications by paying a subscription fee. An annual subscription fee is paid for access to the entire online database of journals/ periodicals. The CBIC press release dated 18.01.2018 also stated that the intention is to exempt the subscription of online educational journals/periodicals. Despite such clarity, the AARs have given contrasting rulings on this subject. In Manupatra Information Solutions Pvt. Ltd.¹⁶, AAR has held that exemption is not available for the subscription fee charged from EI to gain access to data available in the database and to download articles or information. In Informatics Publishing Ltd.¹⁷, Appellate AAR has held that a subscription by EI for access to a website providing access to millions of journals published across the world on various areas of study is exempt.

¹⁶ 2023 (3) Centax 244 (A.A.R. - GST - U.P.)
¹⁷ 2020 (40) G.S.T.L. 281 (App. A.A.R. - GST - Kar.)

CONCLUSION

Education in India has always been more than just a service — it’s a revered institution, a sacred tradition deeply woven into the country’s cultural and philosophical fabric. It is necessary that suitable clarifications are issued to avoid unwarranted toll on the pursuit of knowledge.

BCAJ Admin

Article 13 of India-Ireland DTAA –Right entitlement to equity shares cannot be equated with shares – Under Article 13(6) of India-Ireland DTAA, taxing right in respect thereof vests with Resident State.

2. [2025] 172 taxmann.com 515 (Mumbai – Trib.)

Vanguard Emerging Markets Stock Index Fund vs. ACIT (IT) ITA No: 4657 (MUM) of 2023

A.Y.: 2021-22 Dated: 18^th March, 2025

Article 13 of India-Ireland DTAA –Right entitlement to equity shares cannot be equated with shares – Under Article 13(6) of India-Ireland DTAA, taxing right in respect thereof vests with Resident State.

FACTS

The Assessee, a tax resident of Ireland, was registered with SEBI as a Foreign Portfolio Investor (FPI). During the relevant AY, the Assessee had earned short-term capital gain of ₹6.53 Crores from transfer of Rights Entitlement (RE). In respect thereof, the Assessee claimed benefit under Article 13(6) of India-Ireland DTAA without setting-off the same against other short-term loss of ₹42.95 Crores.

The AO held that RE was taxable and the total income was to be computed under the Act before claiming any relief under Section 90(2). Accordingly, the AO set off short-term capital gains against capital losses and denied exemption under DTAA.

The DRP held that RE and shares are related assets and the same are granted only to the existing shareholders to subscribe to shares at a discounted price. Hence, Article 13(5) has to be broadly interpreted to include any rights in respect of shares, alienation of which grants source taxation right to India.

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

HELD

As per Section 62 of the Companies Act, 2013, RE are not to be equated with shares. RE is an offer to subscribe to the shares of the Company that is granted to shareholders.

The SEBI Circular on process of rights issue provides that REs would be credited to demat account and a separate ISIN will be allotted. Trading of RE in demat form is made subject to Securities Transaction Tax at a rate different from shares.

Reliance was placed on the Supreme Court decision in Navin Jindal vs. ACIT [2010] 187 Taxman 283, where it was held that a right to subscribe to additional shares or debentures is a separate and independent right from shares. In terms of Section 55(2)(aa) of the Act, read with Section 2(42A)(d), cost of acquisition of renounced REs is deemed to be Nil.

The OECD Model Convention on Income and Capital, 2017 states that in terms of residual provision of capital gains Article, gains from alienation of capital assets not expressly covered under specific paragraphs ofArticle 13 are to be taxable only in resident state. The UN Model Convention, 2017 also provided the same. In 2017, UN Model Convention was amended to include the concept of other comparable interests, such as interest in partnership or trust in para 13(4) (which deals with share of company that derives value directly or indirectly from immovable property) and 13(5) (which deals with alienation of share of a company) of capital gains article.

The pre-MLI Article 13(4) dealt with alienation of shares of a company that derives significant value directly or indirectly from immovable property. Article 13(5) deals with alienation of shares of a company. In effect, Articles 13(4) and 13(5) of the India-Ireland DTAA do not include ‘other comparable interests’ to shares of a company. However, in 2019, Multilateral Instruments (MLI) amended the scope of Article 13(4) to include ‘comparable interest’ only in relation to partnership or trust. The MLI did not amend the scope of shares of a company to include comparable interest in Article 13(5).

The Tribunal applied Article 3(2) of India-Ireland DTAA, Section 90(3) of the Act and definition of shares as per Section 2(84) of Companies Act. It noted that shares mean a share in company’s capital and includes stock. Therefore, an asset that derives value or comes into existence from another asset cannot be equated with original asset.

In light of the foregoing, the Tribunal held that in terms of Article 13(6), transfer of REs was taxable only in Ireland. The Tribunal further held that capital losses computed under provisions of the Act r.w. Article 13(5) cannot be set-off against gains from Article 13(6) as India does not have taxing rights in respect of such gains.

BCAJ Admin

Ss. 269SS, 271D– Where the loan sanctioned to the assessee was directly disbursed to its vendor by NBFC and the assesseerecognised the liability as a loan through journal entry, such transaction does not contravene section 269SS since the provision does not extend to cases where a debt or liability arises merely due to book entries.

12. (2025) 172 taxmann.com 739 (MumTrib)

Jeevangani Films vs. JCIT

ITA No.: 382 (Mum) of 2025

A.Y.: 2015-16 Dated: 6^th March, 2025

Ss. 269SS, 271D– Where the loan sanctioned to the assessee was directly disbursed to its vendor by NBFC and the assessee recognised the liability as a loan through journal entry, such transaction does not contravene section 269SS since the provision does not extend to cases where a debt or liability arises merely due to book entries.

FACTS

The assessee was a partnership firm engaged in the business of film production, distribution, and related activities. It regularly dealt with a vendor M/s. “R” for distribution of film and other work related to promotion, etc. During financial year 2014-15, the assessee was sanctioned a loan of ₹15 lakhs from a Non-Banking Financial Company (NBFC). The said NBFC disbursed the loan amount directly to M/s. “R” through banking channels. The assessee also made a payment of ₹10 lakhs to the same party from its own funds. Consequently, the assessee recorded the loan from the NBFC in its books of accounts by way of a journal entry recognizing the liability amounting to ₹15 lakhs.

The assessment was completed under section 143(3). Subsequently, penalty proceedings were initiated under Section 271D. During these proceedings, the AO treated the journal entry reflecting the loan as contravening section 269SS and imposed a penalty of ₹15 lakhs under section 271D.

The assessee preferred an appeal before the CIT(A) against the penalty order, who dismissed the appeal.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) There was no dispute that the amount of ₹15 lakh was paid through banking channels and was duly confirmed by both the NBFC and M/s. “R”. The loan amount of ₹15 lakh was disbursed directly to the said party. Furthermore, the balance amount of ₹10 lakh was paid by the assessee to the same party towards film promotion and other incidental charges. In its books of accounts, the assessee recorded the said transaction through a journal entry, recognizing the liability as a loan. Since the assessee was responsible for repaying the said amount, the loan was duly reflected in its books of accounts.

(b) A plain reading of section 269SS reveals that the provision applies to transactions where a deposit or loan is accepted by an assessee otherwise than by an account payee cheque, an account payee draft, or other prescribed banking modes. The scope of this provision is restricted to transactions involving the acceptance of money and does not extend to cases where a debt or liability arises merely due to book entries. The legislative intent behind section 269SS is to prevent cash transactions, as is evident from clause (iii) of the Explanation to the section, which defines a “loan or deposit” as a “loan or deposit of money.” Consequently, a liability recorded in the books of accounts through journal entries—such as crediting the account of a party to whom money is payable or debiting the account of a party from whom money is receivable—falls outside the purview of section 269SS, as such entries do not involve the actual acceptance of a loan or deposit in monetary form. This is also supported by CIT vs. Triumph International Finance (I) Ltd. [2012] 22 taxmann.com 138 (Bom.), CIT vs. Noida Toll Bridge Co. Ltd. [2004] 139 Taxman 115 (Delhi) and CIT vs. Worldwide Township Projects Ltd. [2014] 48 taxmann.com 118 (Delhi).

Thus, the Tribunal held that the transaction entered into by the assessee was outside the ambit of section 269SS. Accordingly, the appeal of the assessee was allowed.

BCAJ Admin

S. 56–Gift received by step-brother from his step-sister is exempt under section 56(2) since the term “relative” includes brother and sister by way of affinity.

11. (2025) 172 taxmann.com 855(Mum Trib)

Rabin Arup Mukerjea vs. ITO

ITA No.: 5884 (Mum) of 202

A.Y.: 2016-17 Dated: 21^st March, 2025

S. 56–Gift received by step-brother from his step-sister is exempt under section 56(2) since the term “relative” includes brother and sister by way of affinity.

FACTS

The assessee, Mr. “R”, is an individual and non-resident Indian. He received a property located at Worli, Mumbai in 2016 as gift from Ms. “V”, his step-sister, by way of a registered gift deed wherein Ms. “V” had been referred to as “donor” and “sister”, and Mr. “R” had been referred as “donee” and “brother”.

Subsequently, Mr. “R” decided to sell the property and applied for certificate under section 197for lower rate of TDS. On the basis of this information, the AO issued notice under section 148 for AY 2016-17 on the ground that step-brother and step-sister cannot be treated as “brother and sister of the individual” under clause (e) of Explanation to section 56(2)(vii). Accordingly, he added ₹7.50 crores (being stamp value of the property) in the hands of Mr. “R” as income from other sources.

CIT(A) upheld the action of the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the question of whether the gift given by step-sister to step-brother falls within definition of “relative” under section 56(2)(vii), after noting the background of relationship between the assessee and Ms. “V” and the family tree, etc., the Tribunal observed that-

(a) To understand whether step-brother and step-sister can be treated as “relative” for the purpose of Income-tax Act, some inference can be drawn from the provisions of different Acts such as section 45S of the Reserve Bank of India Act, 1934 and section 2(77) of the Companies Act, 2013.

(b) According to the Black’s Law Dictionary, “relative” includes persons connected by ties of affinity as well as consanguinity and when used with a restrictive meaning refers to those only who are connected by blood. Individual related by affinity also include individual in a step or adoptive relationship. Thus, the term “relative” would also include “step brother and step sister”.

(c) Although Indian Succession Act is applicable for the right of inheritance where step child has no legal right to inherit the property of his or his step parent, but it does not lead to inference that step brother and step sister who are related by affinity because of marriage of the respective parents cannot be reckoned as brother and sister within the term “relative”.

(d) What is to be seen is whether the step brother and step sister can be said to be relative by way of affinity. Different dictionaries suggest that step sister and step brother are part of the family by affinity and in common sense they are related to each other as brother and sister.

(e) As per the Dictionary meaning of the term “relative”, it includes a person related by affinity, which means the connection existing in consequence of marriage between each of the married persons and the kindred of the other. If the Dictionary meanings are to be referred and relied upon, then the term “relative” would include step brother and step sister by affinity.

(f) If the term “brother and sister of the individual” has not been defined under the Income-tax Act, then, the meaning defined in common law has to be adopted and in absence of any other negative covenant under the Act, brother and sister should also include step brother and step sister who by virtue of marriage of their parents have become brother and sister.

Accordingly, the Tribunal held that gift given by step sister, that is, Ms. “V” to her step brother, that is, Mr. “R”, is to be treated as gift from sister to brother and therefore, falls within the definition of “relative” undersection 56(2)(vii) and consequently, property received by brother from sister cannot be taxed under section 56(2).

Accordingly, the appeal of the assessee was allowed on merits.

BCAJ Admin

S.56–Where the assessee received a new flat in lieu of old flat surrendered under a redevelopment agreement, the transaction would not be regarded as receipt of immovable property for inadequate consideration for the purpose of section 56(2)(x).

10. (2025) 173 taxmann.com 51 (MumTrib)

Anil DattaramPitale vs. ITO

ITA No.: 465 (Mum) of 2025

A.Y.: 2018-19

Dated: 17^th March, 2025

S.56–Where the assessee received a new flat in lieu of old flat surrendered under a redevelopment agreement, the transaction would not be regarded as receipt of immovable property for inadequate consideration for the purpose of section 56(2)(x).

FACTS

The assessee purchased a flat in financial year 1997-98 in “M” Co-op Housing Society. The Society underwent redevelopment as per the agreement entered with the developer. As per the terms and conditions of the agreement, the assessee got a new flat vide registered agreement dated 26.12.2017 in lieu of the old flat surrendered by him. The stamp duty value of the new flat was ₹25,17,700 and the indexed cost of the old flat was ₹5,43,040. The AO assessed the difference of ₹19,74,660 as income of the assessee under section 56(2)(x), which was confirmed by CIT(A).

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) The facts show that this was a case of extinguishment of old flat and in lieu thereof, the assessee got new flat as per the agreement entered with the developer for redevelopment of the Society. It was not a case of receipt of immovable property for inadequate consideration that would fall within the purview of section 56(2)(x).

(b) At the most, the transaction could attract the provisions relating to capital gains, in which case, the assessee was entitled to exemption under section 54 and thus, there would be no tax liability on the assessee on this count as well.

Accordingly, the appeal of the assessee was allowed.

BCAJ Admin

Sec 69A r.w.s. 115BBE: Assessing Officer was not correct in invoking provisions of section 69A and section 115BBE, since assessee had recorded cash deposits of ₹10.75 lakhs during demonetization period in his books of account and source of cash deposits was also maintained by assessee.

9. [2024] 115 ITR(T) 624 (Ahmedabad – Trib.)

Dipak Balubhai Patel (HUF) vs. ITO

ITA NO.: 942 (AHD.) OF 2023

A.Y.: 2017-18 DATE: 22^nd August 2024

Sec 69A r.w.s. 115BBE: Assessing Officer was not correct in invoking provisions of section 69A and section 115BBE, since assessee had recorded cash deposits of ₹10.75 lakhs during demonetization period in his books of account and source of cash deposits was also maintained by assessee.

FACTS

The assessee filed his return of income for the AY 2017-18 declaring total income of ₹5.73 lakhs. The return was taken up for scrutiny assessment. The Assessing Officer found that the assessee in his account with Bank of Baroda deposited a sum of ₹10.75 lakhs during demonetization period and issued show cause notice to explain the above source of cash deposit.

The assessee explained the source of cash deposit was withdrawal from four other banks accounts. The cash deposits were duly reflected in the return of income filed in ITR-2. The assessee was not having any business income but rental income and other sources income only, therefore he had not filed the profit and loss account and balance sheet along with return of income.

The Assessing Officer rejected the books of account by stating that on the verification of the return of income filed for the assessment year 2016-17, assessee had shown closing cash on hand as Nil and in the cash book of financial year 2016-17 i.e. assessment year 2017-18, assessee had shown opening balance to the tune of ₹10.10 lakhs which was not justifiable. Therefore addition was made as unexplained money under section 69A and the same was taxed under section 115BBE.

On appeal, the Commissioner (Appeals) confirmed the additions.

HELD

The ITAT observed that during the assessment proceedings, the Assessing Officer had rejected the explanation offered by the assessee. In the return of income, the assessee had shown closing cash on hand as Nil but in the cash book shown the opening balance for assessment year 2017-18 to the tune of ₹10.09 lakhs.

The ITAT observed that the assessee before Appellate Commissioner filed copies of previous three years Form 26AS, ITR, Statement of Income, Profit and Loss account and Balance Sheet and further explained the rental income with appropriate TDS under section 194I which was clearly reflected in Form 26AS.

The ITAT observed that after declaration of the demonetisation period, the assessee deposited the withdrawal amounts from his bank account which had been offered for tax by filing return of income as well as subject to deduction under section 194I.

The ITAT observed that in the present case, the assessee had recorded the above cash deposits in his books of account and source of cash deposits during demonetisation period were also maintained by the assessee. Therefore, the Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE. Thus, ITAT held that the addition made by the Assessing Officer was to be deleted.

BCAJ Admin

Sec 115JB r.w.s. 2(26): Banks constituted as ‘corresponding new banks’ and not registered under Companies Act, 2013 would not fall under the provisions of section 115JB and, therefore, tax on book profits (MAT) would not be applicable to such banks.

8. [2024] 115ITR(T) 481 (Mumbai – Trib.)

Union Bank of India vs. DCIT

ITA NO.: 3740 (MUM.) OF 2018 &424 (MUM.) OF 2020

A.Y.: 2013-14 & 2015-16 DATE: 6^th September, 2024

Sec 115JB r.w.s. 2(26): Banks constituted as ‘corresponding new banks’ and not registered under Companies Act, 2013 would not fall under the provisions of section 115JB and, therefore, tax on book profits (MAT) would not be applicable to such banks.

FACTS

For the A.Y. 2015-16, the AO asked the assessee to furnish the computation of book profit and also required theassessee as to why provisions and contingency, debited to the profit and loss account, should not be added back for the computation of book profit u/s115JB. In response, assessee submitted that even though in computation assessee had worked out MAT on book profit, the provision of Section 115JB was itself not applicable to the assessee bank.

However, the AO rejected the assessee’s plea on the ground that the amended provision of Section 115JB w.e.f. 01/04/2013 (by insertion of clause (b) to sub-section (2) to section 115JB), brings within its ambit even the banking companies. Thus, the AO concluded that now the amended provision provides that not only the companies governed by the Companies Act, but also other companies governed by other regulating act including Banking Regulation Act, 1949 are also covered by the provision of Section 115JB.

On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

HELD

The ITAT observed that according to clause (a) of amended section 115JB, the company has to prepare its profit and loss account in accordance with the Companies Act, 2013 and the first proviso to sub-section (2) requires that while preparing the accounts including the profit and loss account, the same should be in accordance with the provisions of section 129 of the Companies Act, 2013. Since the assessee bank has to prepare its accounts in accordance with the provisions contained in the Banking Regulation Act, Schedule III of the Companies Act is not applicable. Thus, clause (a) of section 115JB(2), will not apply.

The ITAT observed that for clause (b), following conditions need to be satisfied for applying section 115JB in the case of a company:-(i) the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 should be applicable; (ii) once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company.

The ITAT observed that for an entity to qualify as a company, it must be a company formed and registered under the Companies Act. The assessee was not formed and registered under the Companies Act, and came into existence by a separate Act of Parliament, i.e., ‘Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970’. Hence, it does not fall in the first part of the said section.

The assessee bank was not formed or registered under the Companies Act. Once it is not a company under the Companies Act, then the first condition referred to in clause (b) of section 115JB(2) is not fulfilled, and consequently second proviso below section 129(1) of the Companies Act was also not applicable.

The ITAT observed that section 11 of the Acquisition Act specifies that the corresponding new bank is to be treated as an Indian company for the purpose of income-tax. However, clause (b) in sub-section 2 to section 115JB did not permit treatment of such bank as a company for the purpose of the said clause, because it should be a company to which the second proviso to sub-section (1) to section 129 of the Companies Act was applicable. The said proviso had no application to the corresponding new bank as it was not a banking company for the purpose of the said provision. The expression ‘company’ used in section 115JB(2)(b) was to be inferred to be company under the Companies Act and not to an entity which is deemed by a fiction to be a company for the purpose of the Income-tax Act.

Thus, ITAT held that clause (b) to sub-section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 with effect from 1-4-2013 (from assessment year 2013-14 onwards), is not applicable to the banks constituted as ‘corresponding new bank’ in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Therefore, the provisions of section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks.

BCAJ Admin

Important Amendments by The Finance Act, 2025- 3.0 TDS/TCS, Transfer Pricing and Other Important Amendments (The Budget That Whispered Instead Of Roared)

At a time when dinner table debates revolve around Trump Tariffs 2.0 and WhatsApp forwards are more obsessed with global geopolitics than GST, the Union Budget 2025 feels like last season’s fashion—forgotten, folded away, and faintly nostalgic. But leave it to a tax consultant to bring the spotlight back. Through this article, we proudly wave the India-first (and Budget-first) flag, reviving what should still be the nation’s favourite fiscal performance.

And what a curious performance it was. No frantic tinkering. No budgetary plot twists. No midnight notifications capable of inducing mild heart attacks in CFOs. Instead, we got a whisper of a Budget – a minimalist, polite fiscal note that gives rather than grabs. A ₹1 lakh crore tax cut that, depending on whom you ask, is either a bold growth push or a national stimulus for iPhone sales and premium coffee chains.

What we’ve done, true to tradition, is dive deep into the fine print—dissecting every explanation memo and every comma like it was Shakespeare. Because, in taxation, what is left unsaid often carries the heaviest implications.

Beneath this seemingly serene surface lies a quiet shake-up: tweaks in transfer pricing, restrictions on carrying forward losses in business reorganisations and—you guessed it—our beloved TDS and TCS amendments.

So, pour yourself a tax-free chai (while it lasts) and join us on this annual pilgrimage. The Budget may not have roared, but we’re here to make sure its whispers are heard loud and clear.

THE NEW 3-YEAR BLOCK TRANSFER PRICING SCHEME: CERTAINTY WITH A TWIST

Transfer pricing feels like an endless cricket series — you pad up every year, play the same shots, the department appeals every ball, and the final verdict rests with the third umpire at the appellate stage. Enter the Finance Act 2025’s new Block Assessment Scheme for transfer pricing, a provision that promises to break this cycle. Think of it as an “APA-lite” for the masses: a chance to lock in your TP dealings for three years without the Advanced Pricing Agreement (APA) saga typically reserved for large multinationals. As the Finance Minister noted, this aligns with global best practices in easing TP compliance.

KEY FEATURES OF THE BLOCK TP ASSESSMENT SCHEME

Three-Year Block Option: Taxpayers can opt to have certain international transactions (and specified domestic transactions) assessed on a multi-year basis. If the Transfer Pricing Officer (TPO) determines an ALP for a particular year (the “lead year”), that same ALP can apply to the two subsequent years for similar transactions, as long as conditions are met. In effect, one TPO review can cover three assessment years in a row.
Optional and Taxpayer-Initiated: The scheme isn’t automatic; taxpayers must elect to use it. An application has to be made to the TPO in the prescribed form and within a prescribed time limit (to be specified by CBDT).
Simultaneous ALP Determination: Once the taxpayer opts in and the TPO accepts the request (the TPO has a month to decide if the option is valid), the TPO will determine the ALP for the two subsequent years, together with the lead year’s assessment. Essentially, the TPO conducts a multi-year analysis: the same pricing methodology (and potentially the same comparables/ benchmark) is applied across the three-year span. This means the ALP for year 1 is “rolled forward” for years 2 and 3, providing continuity (but notably, there’s no backwards-looking benefit – it’s a roll-forward, not a rollback like in some APA cases).
Fast-Tracked Litigation and Certainty: Perhaps one of the biggest draws is the promise of certainty and quicker dispute resolution. If there’s a dispute over the ALP, it effectively covers all three years, which means any appeal can address the block in one go. For instance, the Income Tax Appellate Tribunal (ITAT) could hear multiple years together, consolidating proceedings.
Section References: The legal architecture for this scheme is set out via new provisions: Section 92CA(3B) (allowing the multi-year option and TPO’s validation of it); Section 92CA(4A) (requiring the TPO to determine ALPs for the subsequent years once the option is accepted); amendments to Section 92CA(1) (to prevent duplicate references to TPO); and Section 155(21) (enabling the AO to adjust/recompute income for the later years based on the block ALP). Additionally, the scheme is effective from Assessment Year 2026-27 (i.e., FY 2025-26) onwards as per the Finance Act 2025, and it won’t apply in search cases.

The block assessment scheme has been greeted as a positive development, almost a mini-revolution in Indian transfer pricing. Of course, as tax professionals, we know every silver lining may have a cloud – so next, we turn to the fine print and potential challenges lurking behind the optimism.

THE FINE PRINT: TECHNICAL ISSUES AND POTENTIAL CHALLENGES

As exciting as the new framework is, it comes with its share of technical complexities and unanswered questions. Seasoned practitioners will want to consider the following issues before jumping on the block assessment bandwagon:

1. Roll-Forward Only – No Retro Relief

The block scheme only works prospectively for future years. It’s explicitly a roll-forward, not a rollback. So, if you had disputes or open issues in prior years, this scheme won’t magically resolve those – you’re still on your own for past years. If issues are recurring, this mechanism is speed forward to consolidate litigation and get yourself heard together at the appellate level.

2. Timing of Exercising the Option

A critical practical question is when and how to opt in for the block assessment. The law says the assessee can exercise the option after the TPO has determined an ALP for an assessment year via an application in the prescribed form. But does this mean one must apply after the TPO’s order for year 1 or even earlier? Initial interpretations (and even a CBDT FAQ – Question 5) have caused confusion – suggesting the option might need to be exercised before the TPO determines the ALP for the first year. That would be counter-intuitive since taxpayers would be unlikely to commit to a three-year deal without knowing year one’s result. A fair position should be that the option should be available after the finalisation of the first year’s TP assessment. In such a case, the TPO will have to again start the proceeding for the next two years. The rules should clarify – when to pull the trigger. This clarification will, in turn, decide the success of the novel initiative.

3.Withdrawal and Flexibility (All-or-Nothing?)

Once you opt in, are you locked in for the full three-year block? The law, as written, doesn’t spell out any withdrawal mechanism or mid-course exit. It’s unclear if a taxpayer, having been elected for the block, can later change its mind (say, if year 2’s business circumstances change drastically). There is also an open question of whether the taxpayer must continue the option for both subsequent years or could selectively opt for just one additional year if conditions in the third year diverge. Until guidelines clarify this, opting in is a bit of a leap of faith – taxpayers should be confident that the next couple of years will broadly resemble the first. And if economic conditions or TP dynamics do shift, we may find ourselves testing uncharted waters (with possibly no easy way to unwind the block choice).

4. Defining “Similar Transactions”

The scheme hinges on the concept of “similar” transactions across the years. But how similar is similar enough? The Finance Act memorandum hints at criteria like the same associated enterprise (party), proportional volume, and geographic alignment (location of the AE) over the years. In essence, the transactions should be of the same nature with comparable functional profiles each year (think Rule 10B(2) comparability factors). For example, if you’re providing software development services to your US subsidiary at cost plus 10% in year 1, doing essentially the same in years 2 and 3 with the same subsidiary would qualify. However, this area is ripe for interpretation issues. What if, say, the volume doubles in year 2 – is that still “similar”, or does a scale change knock you out? What if the pricing model is the same, but the contract terms have minor tweaks? The law doesn’t define it, so we anticipate CBDT rules to lay down clear benchmarks for similarity. Ambiguities here could allow the TPO to reject the option if they believe transactions aren’t sufficiently alike. Bottom line: ensure your year 2 and 3 transactions truly mirror year 1 in nature – and watch for a formal definition of “similar” in the upcoming rules.

5. Impact on Comparables and TP Analysis Updates

A multi-year scheme raises the question of how to handle comparable data and analysis for the later years. One interpretation (and arguably the intent) is that the same ALP result or range determined for year 1 would simply carry over to years 2 and 3, giving the taxpayer certainty even if market benchmarks shift. For instance, if, in year 1, the TPO settles that an operating margin of 10-12% is arm’s length for your transaction, then as long as you’re in that range in years 2 and 3, you’d be fine – even if fresh comparables for those years might suggest a different range. This “lock-in” would indeed ease burdens. However, the TPO might choose to only lock in the methodology and comparable set, but still update the comparable companies’ financials for each year. In that case, year 2 and 3 ALPs could be adjusted if the comparables’ performance changes. The safer assumption is that the ALP (price or margin) is intended to be fixed for the block, because anything less wouldn’t truly reduce disputes. But consider practical hitches: databases get updated over time – what if one of your comparables from year 1 drops out in year 3 because it ceased operations or no longer qualifies? Or new comparables emerge? These scenarios could create confusion in applying the year-1 benchmark to later years. Similarly, financial metrics can fluctuate; for example, your working capital or receivables cycle might lengthen in year 2, affecting profitability. Would the TPO allow adjustments or stick to the original benchmark? All these issues underscore the importance of forthcoming guidance. Until then, taxpayers should do their own sanity check: if you are locked in year 1’s analysis for the next two years, would it still be reasonable? If your business is stable, likely yes. If not, tread carefully.

The real challenge lies not in the scheme, but in the very foundation of transfer pricing — a system built on constant external comparisons. As the Bhagavad Gita teaches, true measure lies not in competing with others, but in surpassing your own past self. Perhaps it’s time for transfer pricing too, to reflect inward rather than outward.

6. Handling Multi-Year Transactions (Loans, Guarantees, etc.)

Some related-party dealings naturally span multiple years – inter-company loans, credit lines, intellectual property licenses, long-term service contracts, and corporate guarantees for debt, to name a few. The block scheme seems tailor-made for such continuous transactions, but there are quirks. Take an inter-company loan: you may draw additional amounts in year 2 under the same loan agreement (increasing the outstanding principal). Or a corporate guarantee originally given for a $5 million loan might be upsized to $10 million next year. Are these considered the “same” transactions? Intuitively, yes (same loan or guarantee, just higher quantum), so they should fall under the block’s umbrella of similar transactions. The ALP principle (interest rate or guarantee fee) would remain the same even though the absolute interest or exposure grows. The key point is that such variations in volume under an ongoing arrangement shouldn’t invalidate the option, provided the nature of the service/asset (loan, guarantee) is unchanged. However, taxpayers should be ready to demonstrate that these are continuations of the original deal, not new transactions altogether. If conditions like credit rating or market interest rates shift materially, the TPO might scrutinise whether the pricing still holds arm’s length for later years. Again, clear guidance from CBDT would help confirm that normal ups and downs in volume don’t derail the block agreement for these financing transactions.

7. New or Additional Transactions in the Block Period

A practical challenge arises if a new type of related-party transaction crops up in year 2 or 3 that was not present in year 1. The law allows the block option to be exercised for “all or any” of the transactions in those years, implying you could cover some and exclude others. So, if you introduce, say, a brand new transaction (e.g., start selling machinery to your foreign affiliate in year 2 while year 1 only had service fees), that new transaction is obviously not “similar” to the ones covered by the block. In such cases, that new transaction would fall outside the block scheme and be subject to regular TP assessment for that year. But this bifurcation can get messy. Normally, if any international transaction exists, the AO can refer the case to TPO. Under the block scheme, the AO is barred from referring matters covered by a valid block option. Does the AO then refer only the new transaction to the TPO for that year? The legislation isn’t crystal clear, but presumably, yes – the AO could still trigger a limited scope TPO audit for the uncovered transaction. Moreover, what if the taxpayer simply didn’t report a transaction in year 1, but it comes to light in year 2? The TPO’s block order might have omitted it, and the AO, due to the block, might be handcuffed from referring it. These are procedural grey areas.

8. Adjustment of Income via Section 155(21)

Once a block option is approved and the TPO determines the ALPs for the subsequent two years, how exactly do those later-year assessments get finalised? The answer lies in Section 155(21) (newly inserted), which allows the AO to amend the assessment orders of the subsequent years to align with the TPO’s multi-year order. In practice, the TPO might issue a consolidated TP order covering years 1, 2, and 3 (or separate orders simultaneously). The AO will then recompute the total income for the years 2 and 3 on the basis of that order by passing amendment orders for those years. This mechanism is akin to how APAs are given effect (though APAs use section 92CD). It ensures the block ALP is implemented without needing fresh scrutiny in those years. However, this process raises a few sub-questions: Will the recomputation under 155(21) account for all consequential impacts like interest on shortfall (Sections 234B/C) or MAT calculations for each year? It should, as the law mandates the AO to consider all aspects while recomputing. Also, if those years were originally assessed and closed (say, in case the block option is exercised after assessments are done), the 155(21) route will reopen and amend them – one hopes in a timely manner to avoid any statute limitations issues.

9. Appeal Process and DRP vs Block Adjustments

The introduction of Section 155(21) brings an interesting twist to the appeals procedure. Normally, when a TPO proposes an adjustment, the AO issues a draft assessment order under Section 144C, and the taxpayer can go to the DRP for a quicker resolution before finalising the assessment. But an order under Section 155(21) – which is essentially a rectification/amendment order for the block years – does not have a draft stage; it’s a final order when issued. So, if the taxpayer disagrees with the ALP applied for the year 2 or 3, do they get to approach the DRP for those years? It appears not, since DRP is only for variations proposed in a draft order. The likely scenario is that any dispute on the block ALP will be funnelled through the year 1 draft order’s appeal. In other words, you contest year one’s draft order at the DRP (covering the proposed TP adjustment that will also govern years 2 and 3). The DRP’s directions would then have to be applied to all three years when the AO passes final orders. If one goes to the ITAT, the appeals for all three years could be clubbed (as noted earlier). What if the taxpayer misses the DRP route and goes to the Commissioner (Appeals) for year 1? Then, years 2 and 3, which were amended without draft orders, might each need separate appeals (likely directly to the Commissioner (Appeals) since there is no draft/DRP there). This is somewhat uncharted territory – procedural gaps exist. Additionally, if a TPO rejects the block option (says the transactions aren’t similar or conditions are not met), there’s no immediate way to appeal that decision alone– it would presumably become part of challenging the eventual assessment order.

10. Other Procedural and Administrative Gaps

Beyond the major points above, there are some miscellaneous uncertainties. For one, the law doesn’t specify the timeframe for the TPO to complete the assessments for the two subsequent years once an option is validated – will it be within the same timeline as the lead year’s assessment or some extension? Clarification on this is needed to ensure the benefit isn’t lost to delays. Another subtle point: the block scheme streamlines TP assessments, but regular corporate tax assessments for each year will still occur separately. There’s no mechanism to sync those up, meaning a company could still face scrutiny on other tax issues on an annual basis. So, it’s not a full consolidation of all tax matters, only the TP piece. This could lead to parallel proceedings in a given year – one dealing with block TP adjustment via amendment and another dealing with, say, domestic tax disallowances – which the tax authorities should coordinate to avoid confusion. Finally, consider the strategic angle: how the appeal mechanism will work as each year may have corporate and TP issues. Forms have a special place in appeal proceedings – which form to file, especially when an appeal is governed by a statutory limitation period.

Given the many moving parts in this scheme, the role of the Central Board of Direct Taxes (CBDT) in issuing detailed rules and guidelines cannot be overstated. Guidelines will determine the fate of the scheme.

SECTION 72A – LOSSES AREN’T IMMORTAL

A cat might boast nine lives, but under the new Finance Act 2025 amendment, tax losses barely get eight. Under the Income-tax Act, Section 72A traditionally lets a successor company “inherit” the accumulated losses and unabsorbed depreciation of a predecessor (in amalgamations, demergers, etc.) as if they were its own. In practice, this meant that when two companies merged, the merged (amalgamated) company treated the past losses as losses of the year of amalgamation – essentially giving the business a fresh eight-year run to utilise those losses.

Old Law: “Fresh” Eight-Year Clock

Before the Finance Act 2025, Section 72A worked in tandem with Section 72: no business loss could be carried forward for more than eight years from the year it arose. But an amalgamation effectively reset that eight-year clock. All accumulated losses of the merging entities became losses of the amalgamated entity in the year of amalgamation, allowing the merged company a brand-new eight-year window to set them off. In other words, legacy losses got a second lease of life every time there was a qualifying reorganisation.

Finance Act 2025 – New Section 72A(6B)

The Finance Act 2025 inserts a new sub-section 72A(6B), drastically curtailing this evergreen carry forward. From April 1, 2025 (effectively AY 2026 27) onward, losses must be carried only within the original eight-year span from the year they first arose. The provision states that for any amalgamation or other reorganisation on/after 1-Apr-2025, a loss that is carried to the successor company can only be used in the remaining assessment years of the original eight-year period. Put simply, amalgamation no longer resets the loss-clock: it merely transfers the remaining life of the loss to the new entity. The Finance Bill even introduces the concept of the “original predecessor entity” – the very first company in the chain of amalgamations – to anchor the clock. This prevents successive mergers from indefinitely extending the loss of life (“evergreening” of losses).

Scope and Effective Date

The new rule applies prospectively. By law, the amendment applies only to any amalgamation or reorganisation effected on or after 1^st April, 2025. (In turn, the amendment itself takes effect from 1^st April, 2026.) Thus, any merger where the appointed date is before 1-Apr-2025 is governed by the old Section 72A. For deals on/after that date, however, the loss must be traced back to its original computation year.

ILLUSTRATIVE EXAMPLES

To crystallise the change, consider:

1. Example 1 – Pre-Amendment Amalgamation: If Company X had losses and merged into Y on 1-Mar-2025 (before the 1-Apr-2025 cutoff), the pre-amendment rules apply. The losses (say, incurred in AY 2018-19) would be deemed Y’s losses in AY 2024-25, and Y would then have a fresh eight-year window (through AY 2031-32) to set them off. In effect, the merger “rebooted” the clock.

2. Example 2 – Post-Amendment Amalgamation: Suppose Company A incurred a loss in FY 2018-19 (AY 2019-20), and it amalgamates into B on 1-Apr-2026. Under the new rule, B treats that loss as its own, but can carry it forward only within eight years from AY 2019-20. That means the loss must be absorbed by AY 2027-28 (eight years after AY 2019-20). No new eight-year term is granted by the 2026 merger. B can only use whatever remaining years were left on A’s original timeline.

3. Example 3 – Chain Amalgamations: Consider a chain: A Ltd (with losses incurred in 2019-20) merges into B Ltd on 1-Apr-2026, and then B merges into C Ltd on 1-Apr-2028. Under 72A(6B), the “original predecessor entity” for C’s losses is still A Ltd. All of A’s losses must be set off within eight years of 2019-20 (i.e. by AY 2027-28). Neither merger (2026 or 2028) extends beyond that horizon. In practice, C inherits only the residual carry forward years from A’s original loss – the clock keeps ticking from the date of the first loss.

Only Losses (Not Depreciation) Affected

It is crucial to note that Section 72A(6B) speaks only of “loss forming part of the accumulated loss”. Unabsorbed depreciation allowances (also carried under Section 72A) are not curtailed by the new sub-section. It can be continued for an infinite period.

Other Conditions still apply.

All the existing safeguards in Section 72A(2)–(6A) remain intact. In particular, the successor company must still meet continuity conditions (e.g. carrying on the business, achieving the threshold of installed manufacturing capacity. maintaining requisite shareholding by the transferors, etc.) for the inherited losses to be allowable. The amendment simply shortens how long a loss can live; it does not relax the usual reorganisation conditions.

TDS/TCS PROVISIONS

The latest finance proposals have modestly raised a bunch of TDS/TCS thresholds, aiming to reduce compliance pain for small payments. For example, the annual rent threshold under Section 194-I jumps from ₹2.4 lakh annually to ₹50,000 per month (i.e. ₹6 lakh annually), and other sections saw smaller increment (e.g. commission and professional-fee limits rose from ₹15K–30K to ₹20K–50K). Threshold increase should be seen in the light of the overall increase in slab rates, and no tax till you earn ₹12 lakh. It puts more money in the hands of people.

FAREWELL TO SECTION 206AB (NON-FILER SURCHARGE)

Starting 1 April 2025, Section 206AB – which forced higher TDS on “non-filers” – will be repealed. In plain English, if the recipient didn’t file a tax return, payers no longer have to immediately apply a higher TDS rate on payments to him. This change was explicitly made to cut compliance headaches: under the old law, deductors had to check their filing status on the spot and withhold tax. Instances were seen where demands were raised on deductors for non-withholding at 20%. This, in effect, penalised payers for the fault of the recipient. The law has omitted this provision with effect from 1 April 2025. This is significant as the legal effect of the omission is that the provision never existed in law. Thus, the entire demand cannot be enforced. Consider the following observations of the Supreme Court in Kolhapur Cane Sugar Works Ltd. vs. Union of India AIR 2000 SC 811

“The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute –book as completely as if it had never been passed, and the statute must be considered as a law that never existed.”

194Q VS 206C(1H): ENDING DOUBLE TAXING OF LARGE PURCHASES

There’s often confusion when buying and selling large value of goods: should the buyer deduct TDS under Section 194Q, or should the seller collect TCS under Section 206C(1H)? Under prior rules, 206C(1H) already said no TCS if the buyer had to do some TDS. But in practice, sellers found it hard to know if buyers had actually done their TDS, so sometimes both got applied. To clear this up, the budget proposes that from 1^st April, 2025, Section 206C(1H) simply “will no longer be applicable”. In effect, the onus shifts entirely to buyers (via 194Q), and sellers can drop the TCS on those ₹50 lakh+ transactions. This should end the TDS-versus-TCS tug-of-war and make compliance far simpler.

UPDATED RETURNS: MORE TIME, BUT WATCH THE CLOCK

The window to file an updated return (ITR-U) is being doubled. Under the old law, you had 24 months (2 years) from the end of the assessment year to fix omissions; now, it’s 48 months (4 years). That means, for example, an ITR for FY 2023–24 (AY 2024–25) can be updated up until March 31, 2029. This extension is meant to “nudge” voluntary compliance – essentially giving taxpayers more time to spot and report missed income.

However, the law also tacks on strict conditions. You cannot file an updated return after 36 months if reassessment has kicked in. In practice, if an officer has already issued a notice under Section 148A (essentially the show-cause for reassessment) after 36 months, your window closes unless that notice is later quashed. (If a 148A(3) order explicitly finds “no fit case to reopen,” then the 48-month door reopens.) In short, you get extra time only if the tax department hasn’t already started formal reassessment proceedings late in the game.

PENALTIES ON LATE ITR-U

Filing late just got pricier. Section 140B of the Act imposes an additional tax (a bit like a penalty) on updated returns, calculated as a percentage of the extra tax and interest due. Originally, it was 25% of the tax plus interest if you filed within 12 months of year-end and 50% if filed within 24 months. The amendments introduce two new tiers: now it’s 60% if you file after 24 up to 36 months, and a whopping 70% if you wait out to 36–48 months. In plain terms, the longer you stall, the stiffer the surcharge – so procrastinators face heavier hits.

CONCLUSION: A BUDGET THAT UNDERSTOOD THE BEAUTY OF RESTRAINT

If there’s a timeless lesson in tax policy, it is this: sometimes, the best amendment is no amendment at all. This year’s Budget seems to have embraced that wisdom — preferring fine-tuning over frenzy and choosing to strengthen the framework rather than constantly reshaping it. A “less is fair” philosophy quietly runs through the Finance Act 2025: thoughtful corrections, calibrated expansions, and a deliberate effort to simplify rather than complicate.

In that sense, this Budget has stood the test of time. Amidst the noise of global uncertainty, Trump Tariff and economic recalibrations, the Indian tax system was offered something rare — stability.

And as we write this, perhaps there’s a quiet sense of history too. This Budget series in the BCAJ may well become a nostalgic bookmark — the last commentary on the Income-tax Act, 1961. With the new Income-tax Act, 2025 on the horizon, we stand at the threshold of a new chapter — one that promises modernisation, new hope for a new India and, more importantly, admission of the ultimate truth – even law is not permanent.

For now, we raise a modest toast to a Budget that whispered instead of shouted — and to a law that, for one final time, chose elegance over excess.

BCAJ Admin

Tech Mantra

Some new interesting apps to make our daily lives easier:

MyMind

This is an app which is an extension of your mind – it is called MyMind. It is one beautiful, private place for all your bookmarks, inspirations, notes, articles, images, videos and screenshots. You can share anything with MyMind and save it.

You can find it later with a simple search. No need to organize anything yourself, the app does it for you automatically! The in-built AI engine understands the stuff you have saved and retrieves it based on simple English keywords without the need for your tagging it. There are no folders, no collections, no wasted time in organizing. Just think of it as a search engine for your brain. Of course, if you like to tag stuff for any project or topic, you are welcome to do so!

Sharing to MyMind is simple on the phone – just tap on Share and select MyMind – that’s it! There is also a Chrome extension to clip stuff from the web and store it in MyMind. The more you use it, the more efficient it gets! Similar notes with images or videos or text will all be automatically linked to each other.

Just one place to save everything you care about and just one place to find it! Amazing – a game changer!

mymind is the extension for your mind.

Quick Compare

This simple app helps you to check prices and delivery time on Instamart, Zepto, Minutes, DMart, Blinkit, JioMart and Big Basket. With real-time price comparison and delivery estimates, you can make smarter shopping decisions.

Quick Compare thus helps you save on your grocery bills and find the fastest delivery option across multiple platforms instantly. Instead of opening multiple apps and manually comparing stuff, this app allows you to do this in one single app.

The comparison is also available on their website – quickcompare.in – just enter your delivery area and the product and it will get you full details of the price and the estimated delivery commitments.

Once you choose where you wish to purchase from, you can just tap on it and purchase through the app as usual!

Android :https://tinyurl.com/quickcompare

Website :https://quickcompare.in/

TapScanner

This is an AI-enabled scanner which does much more than just scanning your documents. Of course, scanning is the primary function – you can scan anytime with your phone. But it is after scanning that the real magic starts!

You can edit and sign your pdf files after scanning and then share the files to your preferred platform. IDs and passports can be scanned in Digital Format. After scanning, you can convert the scans to multiple formats – .jpg, .txt, .doc or .pdf. An eraser is in-built to remove unwanted material from scanned documents. And then, AI kicks in – if you take a scan of multiple objects, AI can count the number of objects and display the results. And, if you scan a food item, it will even calculate the number of calories in that dish! Scan plants and get AI plant tips, along with recommendations!

A very interesting way to scan using AI – there is a free trial and if you like what you experience – go ahead and buy it!

Android :https://tinyurl.com/tpscn

YouTube Create

Convert your phone into a dashcam with Droid Dashcam!

Droid Dashcam is a great driving video recorder (dashboard camera, BlackBox) app for car / vehicle drivers that can continuously record videos in loop mode, add subtitles with needed information directly on those videos and record in the background, auto start recording, and much more.

You can overlay captions directly on the Recording Video file, including Timestamp (Date), Location Address, GPS Coordinates, Speed (based on GPS data), etc. You can continue recording in the background and use other apps that don’t use camera. You can also use the notification panel to start/stop recording while this app is running in the background. You can use any camera for recording (rear / front) but only some devices allow you to choose a camera with a wide-angle lens.

Overall, it is a great app if you will use your dashcam sparingly and do not need it daily.

Android : https://tinyurl.com/ytcrte

BCAJ Admin

Learning Events at BCAS

1. Indirect Tax Laws Study Circle Meeting on “Issues in the Hospitality Sector” held on Monday 14^th April 2025 @ Virtual.

The 1^st meeting of the Indirect tax study circle for 2025-26 was held on 14^th April, 2025 and attended by 90 participants. The Group Leader CA. Ronak Gandhi, prepared case studies covering the following contentious issues in GST pertaining to the hospitality sector:

a) Issues in determining the GST Rate for hotel accommodation services & restaurant services based on the room rate and the impact of additional services, such as extra beds, on such classification.
b) Eligibility of ITC on capital goods used for restaurants and already put to use, if the hotel decides to opt in as specified premises.
c) Classification conundrum (sale vs. services) for bakery and other ready to eat items supplied by eating joints, not operating as a traditional restaurant.
d) Taxability of packaged food items, water bottles & other beverages sold by Quick Service Restaurants
e) Tax implications of combo deals involving supply of food with alcohol for a lumpsum consideration
f) Valuation issues for goods supplied below the cost by a restaurant
g) Valuation issues for goods supplied to franchise-owned outlets vs company-owned outlets

A detailed deliberation was held on the case studies, and the members appreciated the efforts put in by the group leader & group mentor CA. Yash Parmar, Mumbai.

2. International Economics Study Group — Trump’s Tantrums: Shaping & Shaking Contemporary Geopolitics & Geo-Economics held on Tuesday 8^th April, 2025 @ Virtual.

In the meeting, CA Harshad Shah presented key global geopolitical & economic developments, prompting a lively exchange among the Group. The discussion addressed the ongoing tariff war and Trump’s territorial expansion agenda. Emerging trends such as de-dollarization, higher Bond yields, information warfare, and supply chain conflicts were explored alongside the escalating U.S.-China rivalry. Members argued that tariffs alone cannot fix the trade deficit, as they simply shift consumer spending rather than solve core problems. The Group highlighted negative outcomes of such policies, including higher consumer prices, reduced exports, and disruptions to global trade, all of which could weaken U.S. competitiveness and its financial leadership. With U.S.-China trade declining, India was seen as well-positioned to gain from new export opportunities. The meeting concluded with concerns about the risk of a U.S. recession or worse amid these turbulent dynamics.

3. Indirect Tax Laws Study Circle Meeting on “Issue In GST Refund” held on Thursday, 27^th March, 2025 @ Virtual

Group leader CA. Nihar Dharod, prepared case studies covering various contentious issues around refunds under GST in consultation with Group Mentor AdvKeval Shah, Mumbai.

The material covered the following aspects for detailed discussion:

1. Implication of section 16 (5) on refund rejection orders that are not challenged
2. Is the claim for refund of tax paid on SEZ supplies subject to limitation?
3. Refund claims arising due to negative tax liability on account of credit notes
4. Interest on refunds delayed due to litigation.
5. Refund of tax paid on contracts cancelled after the time limit prescribed u/s 34.
6. Whether retention clauses in export contracts result in non-compliance with realization provisions?
7. Implications of amendments relating to rules 89 (4A), 89 (4B) and 96 (10).

Around 50 participants from all over India benefitted while taking an active part in the discussion. Participants appreciated the efforts of the group leader & group mentor.

4. International Women’s Day 2025 “EMPOWERED WOMEN = EMPOWERED LIVES” held on Monday, 24^th March 2025 @ BCAS

The Women’s Day event for 2025 was held on 24^th March 2025 at the BCAS Hall at Jolly Bhavan. The SMPR Committee and the HRD Committee jointly conducted the event. The theme for the event was Empowerment, and to celebrate this theme, three ladies who are themselves empowered in various capacities, addressed the gathering.

CA Shradhha Joshi Barde, who is an entrepreneur in the field of sustainable and slow fashion, shared her journey from numbers to fashion. She explained the concept of slow fashion and also elaborated on mindful consumption which can have a great ecological impact.

When we talk of empowerment, there are various enablers to this aspect, the key ones being a healthy mind and a healthy body. Ms Neha Pandit Tembe, who is a qualified nutritionist very well elaborated on the various aspects of health from the point of view of nutrition. She included the concepts of a healthy plate, healthy inventory shopping as also reading food labels, which was very insightful. Ms Prajakta Gupte conducted an interactive session where she made the audience do some exercises which they could do at their workplaces and avoid aches and pains. She also conducted breathing exercises and meditation.

The event was well received by the audience, whose feedback made it clear that they had great takeaways from the session.

Youtube Link: https://www.youtube.com/watch?v=LOH4XqgM2mw

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5. BCAS Nxt Learning and Development Bootcamp on Bank Branch Audit from Article’s Perspective held on Saturday, 22^nd March, 2025 @ Virtual

The Human Resource Development Committee of BCAS organized a BCAS NXT Learning & Development Bootcamp on “Bank Branch Audit from Article student’s perspective” on Saturday, 22^nd March, 2025. The session was led by Mr Atharva Joshi & Ms Sanskruti Nalegaonkar, CA Final students, who delivered a comprehensive presentation on the planning & preparation for bank branch audit. The presentation covered a wide range of topics, including Key concepts & Essential Terms, LFAR & compliance reporting, Core audit areas and Audit finalization & closure. They also shared practical experiences to help beginner article students navigate the complexities of Bank Branch Audits.

CA Rishikesh Joshi, the mentor for the session, provided valuable insights and guidance throughout, offering expert interventions as needed. The boot camp was held in person at the office of Kirtane&Pandit LLP, Chartered Accountants and streamed online, with active participation from students across India.

Youtube Link: https://www.youtube.com/ watch?v=Wdh075aF1O8

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6. XIIIth Residential Study Course on IND AS held from Thursday 20^th March, 2025 to Saturday 22^nd March, 2025@ The Rhythm Lonavala.

BCAS has always been a pioneer in equipping its members in particular and other stakeholders at large, with the knowledge of Ind AS. BCAS had started the subject specific Residential Study Course (RSC) for achieving the stated objective.

The Accounting & Auditing Committee organised its XIIIthInd AS Residential Study Course to address the practical challenges in IND AS and also share the experiences of experts in dealing with and addressing such challenges. This year, the format of the RSC included 3 papers for Group Discussion (GD) covering a very wide range of interesting issues, 2 papers for presentation, followed by the Panel discussion by eminent panellists. The RSC was held for 2 nights and 3 days from 20^th March 2025 to 22^nd March, 2025 at Rhythm Hotel, Lonavala.

The main objective of the RSC was to provide a platform to the Members in Industry and Practice to come together and get the opportunity to get deep insights into the practical challenges which they face while implementing the complex standards. The individual sessions were designed to give practical and case study-based insights to the participants on various topics.

RSC Programme Schedule included the following topics and speakers:

The RSC was inaugurated with the opening remarks from the President of BCAS, CA Anand Bathiya, followed by the Chairman of the Accounting and Auditing Committee – CA. Abhay Mehta, both of them underline the importance of knowledge sharing and the role of the BCAS in conducting such a Residential Study Course. To make the RSC interesting and engaging, domain expert speakers with relevant experience were invited to give participants practical insights and wholesome experiences.

The course started with the presentation session of CA Himanshu Kishnadwala, where he updated the participants on various NFRA orders, practical examples and issues and Learnings from the same. He also highlighted the NFRA Educational series which would be relevant for the Audit Committee to discuss the issues in Audit with the Auditors.

The first Group Discussion on Ind AS 116 on Lease &Ind AS 103 on Business Combination under common control was followed by the Session of the paper writer – CA Alok Garg who dealt with both the IND AS and critical case studies covering detailed concepts of both the standards besides sharing his practical experience of the industry with the participants.

The second Group Discussion on Ind AS 115 on Revenue from Contracts with Customers was followed by the Session of the paper writer – CA Archana Bhutani, covering the issues in Revenue Recognition and also covering concepts and issues in E-Commerce and Fintech platforms. The paper writer also made the presentation on Updates on Important Amendments in Ind AS Applicable to the March 2025 closure and also highlighted amendments in relevant IFRS.

The third Group Discussion on Case Studies on Intricacies in Financial Instruments (Ind AS 32 &Ind AS 109) was followed by the Session of the paper writer – CA R. Venkat Subramani, covering the issues in ECL and Hedge Accounting.

The Panel Discussion on Connectivity between Financial Statements and Sustainability was moderated by the Chairman of the Committee – CA Abhay Mehta, covering the relevant Issues and Questions for the eminent Panelists CA Himanshu Kishnadwala who shared his experience as a Member in Practice on the professional opportunities available to the members in the areas of ESG and CA Raj Mullick as Member in Industry sharing his experience and challenges in implementing ESG and sharing his views on Carbon Credits.
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The RSC provided excellent opportunity to gain valuable knowledge and practical insights on the topics covered and gave the chance to interact with the speakers and participants through informal chats. 70 participants from across India attended the course, and was well received, and the overall feedback from the participants was very encouraging.

7. Finance, Corporate and Allied Law Study Circle Meeting on “How to read and analyse Annual Report” held on Friday, 7^th March 2025 @ Virtual.

The session was intended to highlight the need for a paradigm shift from financial literacy to financial intelligence, i.e. not only to be able to read the annual report but to attempt to understand and analyse the same and connect the dots to unlock the secrets of the annual report.

CA Pankaj Tiwari’s approach from concept to case studies made the session very enriching.

He took the participants through the regulatory framework contents of the annual report, including critical areas, identification of red-flags, key points for investors, ICAI’s AI tools for analysis, important aspects in analysis, and recent developments in India and globally in financial reporting. He emphasised to connect the dots between financial as well as equally important non-financial information.

He was joined by CA Meet Gandhi for certain case studies.

To summarise, the learned speaker, through his vast knowledge and experience, enlighted the participants about the intelligent analysis of the annual report.

Youtube Link: https://www.youtube.com/watch?v=WLxs8_S_BoA

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8. आDaan-Daan– BCAS Mentoring Circle – Season 4

The fourth season of ‘आDaan-Daan – BCAS Mentoring Circle’, an initiative of the Seminar, Membership and Public Relations Committee of BCAS, unfolded between January and March 2025, with 19 mentors and 20 mentees coming together for one-on-one online sessions.

This year, the program welcomed participants without any age restrictions, acknowledging the evolving nature of mentorship, including a few reverse mentoring requests received in the previous season.

Open to both members and non-members, the series continued its aim of fostering meaningful professional conversations.

Rather than a fixed format, mentees set the direction—sharing their background, aspirations, and challenges in advance—giving mentors the opportunity to prepare and personalise the interaction.

The strength of the series lay in its simplicity: guided conversations that encouraged reflection, direction, and clarity. Care was taken to pair each mentee with a mentor whose experience aligned with their goals.

Feedback from both sides pointed to the value of a safe space for exchange, where curiosity met experience. Mentors appreciated the platform to contribute meaningfully, while mentees walked away with new insights and confidence.

The Committee thanks all participants and looks forward to building on this growing community of shared learning.

9. Online Panel Discussion on Recent Developments in Taxation of Charitable Trusts held on Thursday, 20^th February, 2025 @ Zoom

The webinar on the recent developments in the taxation of charitable trusts got more than 100 plus registrations.

Dr. Manoj Fogla discussed the background and implications of the two landmark Supreme Court decisions (New Noble Education Society and Ahmedabad Urban Development Society) that unsettled many settled legal positions regarding charitable trusts. He explained how charitable trusts traditionally generate income and the challenges posed by recent amendments and court rulings on the taxability of various types of income, including incidental business activities. He also provided insights into the spirit of the law concerning the application of income by trustees and the evolving interpretation under section 11 of the Income Tax Act.

CS Suresh Kumar Kejriwal took the lead in explaining the amendments proposed in the Finance Bill and the Income Tax Bill 2025, focusing on key concepts such as “substantial contributor,” “specified persons,” and the new rules affecting the exemption and business income of charitable trusts. He elaborated on how these amendments impact the compliance and tax planning for trusts, especially in light of the unsettled legal landscape after the Supreme Court decisions.

Mr Gautam Nayak moderated the session, introduced the panellists, and contextualized the discussion by highlighting the significance of the topic for the nonprofit sector. He emphasized the role of IMC and BCA in supporting professionals and organizations through knowledge dissemination and advocacy on taxation issues affecting charitable trusts.

This structured presentation helped clarify the complex and evolving tax framework for charitable trusts in India, addressing recent Supreme Court rulings, legislative amendments in 2023 and 2024, and the implications of the newly introduced Direct Tax Bill. The experts provided practical guidance on compliance challenges and strategic considerations for charitable trusts under the current tax regime.

Youtube Link: https://www.youtube.com/watch?v=l00dA2jYgf0

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10. Webinar on New Income Tax Bill, 2025 held on Tuesday 18^th February, 2025 @ Zoom

The webinar on the new Income Tax Bill 2025 featured esteemed Chartered Accountants discussing the bill’s implications, structure, and expected impact. It got more than 600 plus registrations.

CA GautamNayak addressed some of the important points as enumerated below:

Outlined the bill’s structural changes: reduction in sections (from 819 to 536), chapters (from 47 to 23), and word count (from about 512,000 to 260,000), with schedules increased from 11 to 16.
Highlighted the removal of complex provisos and explanations, replaced by clearer subsections and clauses, and elimination of confusing alphanumeric section numbers.
Warned that frequent amendments may continue to complicate the law over time, potentially undermining the simplification effort.
Noted the government’s provision of FAQs and a navigator tool to help users transition from the old to the new law.
Stressed that the bill has been referred to a parliamentary Select Committee for further review, and its ultimate impact will depend on future amendments and implementation.

Some of the key points addressed by CA Bhadresh Doshi:

Budget Speech Expectations: Despite the Finance Minister’s indication that the new Income Tax Bill would carry forward the “spirit of Naya” (newness), similar to the changes in the Indian Penal Code, there were no significant decriminalization or dilution of penal provisions for offences like TDS/TCS defaults.

Commendable Effort with Side Effects: CA Doshi acknowledged the commendable effort of 150 officers who spent approximately 60,000 man-hours simplifying the six-decade-old law but pointed out potential “side effects” resulting in new complications.

Missing Punctuation and Language Issues: He highlighted instances where simplification led to issues due to changes in language.

Inconsistencies in Referring to Old Provisions: He pointed out inconsistencies in how the new bill refers to the Income Tax Act, 1961, and the Indian Income Tax Act, 1922, across different sections.

Income from Salaries: CA Doshi noted no changes in provisions related to income from salaries, except for government employees, where the entertainment allowance deduction under Section 16 has been omitted in the new bill (Section 19).

Income from House Property: CA Doshi discussed several changes in provisions related to income from house property:

Intentional vs. Unintended Changes: CA Doshi clarified that it is unclear whether the identified changes were intentional or unintended errors, and only time will reveal their true nature.

In summary, CA Doshi’s key points revolved around unintended complications arising from the simplification process, inconsistencies in referencing older laws, and specific changes in provisions related to house property and salaries. He emphasized the need for careful interpretation and potential rectifications in the future.

The webinar was very well received by the participants.

II. OTHER EVENTS

1. Session On Eye Health Care for the BCAS Staff held on Tuesday 8^th April, 2025 @ BCAS

The Bombay Chartered Accountants’ Society (BCAS) organised a session on eye health care on 8th April, 2025. The session was conducted by Dr. Viram Agrawal, a renowned expert in eye care. It was held at BCAS premises from 5:30 p.m. onwards. The session aimed to educate staff members on maintaining good eye health and preventing eye-related problems.

Dr Agrawal shared practical tips on reducing eye strain, such as blinking regularly and palming. Staff members learned about best practices for protecting their eyes from potential hazards.

Staff members actively participated in the session, asking questions and engaging in discussions. Dr. Agrawal’s expertise and guidance were highly appreciated by the attendees. Staff members left with practical knowledge and awareness about maintaining good eye health.

The eye health care session reflects BCAS’s commitment to prioritizing staff well-being and promoting holistic growth and development. By organizing such initiatives, BCAS demonstrates its concern for staff’s overall health and well-being.

2. Session on Yoga for the BCAS Staff held on Monday 17^th February, 2025 @ BCAS

As part of our ongoing staff development program, the Bombay Chartered Accountants’ Society (BCAS), CA Raman Jokhakar, Past President of the BCAS, conducted an informal session on Yoga and how it is beneficial for the staff working in BCAS, on 17 February 2025, at Churchgate Chambers from 5:30 p.m. onwards.

He informed about the yoga techniques and breathing exercises to reduce stress and improve productivity. He also highlighted the benefits of yoga for overall health. He suggested to invite a yoga expert who can show the yoga techniques to the staff. The session was informative, engaging, and well-received, boosting staff morale and productivity. BCAS continues to prioritise staff well-being and development, reflecting its commitment to holistic growth.

CA Raman Jokhakar also suggested a future session on eye health care with Dr Viram Agrawal, further demonstrating BCAS’s dedication to staff’s overall health and well-being. The session was a success, and the feedback was positive.

III. BCAS QUOTED IN NEWS & MEDIA

BCAS has been quoted in 113 esteemed news and media platforms, reflecting our thought leadership and commitment to the profession. For details

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

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BCAJ Admin

High Value Debt Listed Entities – Corporate Governance Reforms

BACKGROUND

The Securities and Exchange Board of India (“SEBI”), in exercise of its powers under the SEBI Act, 1992 has introduced the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 (“LODR Amendments, 2025”) which has made a pivotal reform in corporate governance norms applicable to High Value Debt Listed Entities (“HVDLEs”)

SEBI has introduced a new governance regime under Chapter VA of the SEBI (LODR) Regulations, effective from 1^st April, 2025, exclusively applicable to High Value Debt Listed Entities (HVDLEs)—defined as listed entities having outstanding listed non-convertible debt securities of ₹1,000 crore or more and does not have any listed specified securities. Notably, this chapter ceases to apply automatically if the outstanding listed debt falls below the ₹1,000 crore threshold for three consecutive financial years. In case outstanding debt equals or exceeds ₹1,000 crore during the financial year, the company shall ensure compliance with such provisions within six months from the date of such trigger.

This sunset clause introduces a dynamic compliance parameter, requiring ongoing monitoring of eligibility thresholds and continuity of governance obligations based on capital structure and market presence. This implies that secretarial, legal, and compliance teams must periodically reassess regulatory status and plan transition frameworks accordingly.

These reforms institutionalise greater transparency, board and committee efficacy, and stakeholder accountability, while introducing uniform compliance timelines and enhanced audit oversight. SEBI has reaffirmed its commitment to a resilient and investor-centric capital market framework that upholds market integrity and governance discipline.

BOARD COMPOSITION REQUIREMENTS

Chapter V-A mandates that the board of HVDLEs comprise of at least 50% non-executive directors and include at least one-woman director. Furthermore, directorship ceilings have been formalised—capping overall listed entity directorships at seven, and for whole-time directors acting as independent directors, the limit is set at three.

Where the Chairperson of Board of Directors is Non-Executive Director, at least one third of Board of Directors shall comprise of Independent Directors and where the listed entity does not have regular non-executive chairperson, at least half of Board of Directors shall comprise of Independent Directors. This structural alignment with entities having listed equity, promotes governance diversity, and encourages focused board participation.

For professionals advising on board constitution or holding multiple governance roles, this entails an essential review of existing mandates and directorship portfolios to ensure continued eligibility. Company Secretaries and Nomination and Remuneration Committees (‘NRC’) will be expected to institutionalise these checks through robust board database management and real-time compliance tracking tools.

MANDATORY CONSTITUTION OF BOARD COMMITTEES

The amended framework further strengthens mechanism by oversight by mandating the constitution of four key committees—Audit Committee, NRC, Stakeholders Relationship Committee, and Risk Management Committee.

The Audit committee shall have minimum of three directors as members out of which at least two-thirds of the members shall be independent directors. This brings HVDLEs in closer alignment with governance practices as applicable to entities having listed equity, but more importantly, it necessitates substantive engagement at the committee level.

Committee charters must be carefully formulated to reflect both statutory responsibilities and entity-specific risk environments. Professionals involved in board advisory, internal audit, and governance roles must support the formalisation of these committees through functional delineation, performance evaluation mechanisms, and governance reporting metrics.

RELATED PARTY TRANSACTION (RPT) POLICY AND APPROVALS

In a significant enhancement, the amendment mandates that HVDLEs formulate a policy on materiality of RPTs, to be reviewed at least once every three years. Notably, royalty or brand usage payments exceeding 5% of annual turnover are deemed material. All material RPTs as defined by the audit committee under sub-regulation (3) of regulation 62K, shall require prior approval from the audit committee and a No Objection Certificate from the debenture trustee.

Transactions entered with a related party individually or together with previous transactions during a financial year exceeding Rupees one thousand crore or ten percent of the annual consolidated turnover shall be considered material. While omnibus approvals are permitted, they are capped at a validity of one year.

This layered approval structure significantly strengthens the governance lens applied to inter-group or related party dealings. Professionals engaged in transaction advisory or guiding on setting up group governance frameworks must be mindful of procedural rigour, especially where prior approvals are required across stakeholders with differing interests. The compliance function must also be equipped to track omnibus approvals with adequate audit trails and expiry thresholds.

PERIODIC RPT DISCLOSURES

Entities are now required to submit half-yearly disclosures of all RPTs in a prescribed format alongside standalone financial statements to the stock exchanges. This increased disclosure frequency enhances transparency and reinforces market discipline around related party dealings.
It necessitates the integration of finance and secretarial functions to align reporting cycles, automate data extraction from accounting systems and ensure that all disclosures are reconciled with board approvals and audit committee records.

GOVERNANCE OF MATERIAL UNLISTED SUBSIDIARIES

To prevent governance arbitrage via unlisted arms, the amendment prescribes that material unlisted subsidiaries incorporated in India must have at least one independent director from the HVDLE on their board. Additionally, financials of such subsidiaries must be reviewed by the audit committee, and significant transactions must be disclosed by the holding company at the board level.

The Minutes of the meeting of the Board of Directors of the unlisted material subsidiary shall be placed at the meeting of Board of Directors of the HVDLE. Any disposal of shares or relinquishment of control in these subsidiaries requires a special resolution from shareholders.

This aligns group-wide governance structures and ensures that key strategic actions in subsidiaries receive full parent board visibility and shareholder scrutiny. From a legal perspective, this underscores the need for pre-transaction governance checks and documentation alignment between subsidiary and parent company.

OBLIGATIONS WITH RESPECT TO EMPLOYEES INCLUDING SENIOR MANAGEMENT, KEY MANAGERIAL PERSONNEL, DIRECTORS AND PROMOTER

A director cannot serve on board of more than ten committees or act as a chairperson on more than five committees across all listed entities which shall be determined as follows: –

a) For calculating the limit of the committees on which a director may serve, all public limited companies, whether listed or not, including HVDLEs and all other companies including private limited companies, foreign companies and companies under Section 8 of the Companies Act, 2013 shall be excluded

b) For the purpose of determination of limit, chairpersonship and membership of the audit committee and the stakeholders’ relationship committee alone shall be considered.

Directors must inform HVDLEs about their committee roles and updates. All board members and senior management must annually affirm adherence to the code of conduct. Senior management must disclose any financial or commercial transactions with potential conflicts of interest. Additionally, no employee, director, or promoter can enter into compensation or profit-sharing agreements related to securities dealings without prior board and shareholder approval. Such agreements, including those from the past three years, must be disclosed to stock exchanges and approved in upcoming board and general meetings, with all interested parties abstaining from voting.

SECRETARIAL AUDIT AND COMPLIANCE REPORTING

This regulatory amendment mandates secretarial audit not only for the HVDLEs but also for their Indian-incorporated material unlisted subsidiaries. Additionally, a secretarial compliance report must be submitted to the stock exchanges within 60 days from the end of each financial year. For practicing professionals in this space, this introduces an expanded scope of responsibility across the group and demands elevated diligence in maintaining verifiable documentation and audit evidence. Advisory teams must ensure that the governance processes implemented at the subsidiary level are harmonised with the parent’s frameworks and withstand regulatory scrutiny.

OTHER CORPORATE GOVERNANCE REQUIREMENTS

HVDLE must submit a periodic corporate governance compliance report, in a format prescribed by the SEBI, to recognized stock exchanges within 21 days of the end of the reporting period. This report should include disclosures of material related party transactions, any cyber security incidents or data breaches, and must be signed by either the compliance officer or the CEO.

Additionally, HVDLEs may include a Business Responsibility and Sustainability Report in their annual report, covering environmental, social, and governance (ESG) disclosures, as specified.

WAY FORWARD

These amendments, demand deeper engagement in board and committee processes, necessitate refined documentation and disclosure systems, and requires cross-functional alignment amongst legal, secretarial, finance, and strategy teams.

Implicitly, it raises the expectation of professionals, to act not just as compliance certifiers, but as enablers of robust governance architecture, particularly in a high-value debt context where stakeholder expectation and responsibilities are distinct from equity markets.

The following changes may be required way forward for effective implementation of the amendments:

Shift From Reactive to Proactive Compliance

Listed entities must transition from reactive compliance to a proactive, technology-enabled governance framework, incorporating real-time dashboards and cross-functional coordination to ensure continuous regulatory alignment.

Empowered and Data-Driven Board Committees

Board committees must be empowered with data-driven insights, independent expert access, and enhanced oversight capabilities to fulfil their fiduciary and statutory responsibilities with greater diligence and accountability.

Elevating the Compliance Function

The compliance function must be redefined as a strategic pillar, with compliance officers, legal counsels, and corporate secretaries acting as proactive advisors on governance, ethics, and reputational risk.

Reinforcing Transparency in KPIs and RPTs

Entities must implement robust protocols for KPI disclosures and related party transactions, ensuring materiality, auditability, and arm’s-length standards in line with both domestic and global benchmarks.

BCAJ Admin

Regulatory Referencer

DIRECT TAX : SPOTLIGHT

1. Order under section 119 of the Income-tax Act, 1961 for waiver regarding levy of interest under section 201(1A)(ii)/ 206C(7) of the Act, in specific cases – Circular No. 5/2025 dated 28^th March, 2025

While making payments of TDS and TCS to the credit of the Central Government as per section 200 and 206C of the Act, the taxpayers have encountered technical glitches. Due to such glitches, the amount is credited to the Central Government after the due date. The CCIT, DGIP or PrCCIT may reduce or waive interest charged under section 201(1A)(ii) / 206C(7) of the Act in the class of cases where-

1) the payment is initiated by the taxpayers / deductors /collectors and the amounts are debited from their bank accounts on or before the due date, and

2) the tax could not be credited to the Central Government, before due date because of technical problems, beyond the control of the taxpayer / deductor / collector.

2. Income-tax (Sixth Amendment) Rules – Notification No. 21/2025 dated 25^th March, 2025

a) Amendment to Rule 10TD(3B) – Safe Harbour Rules to apply to Assessment year 2026-27

b) Amendment to Rule 10TE(2) – specific safe harbour benefits apply to one assessment year only

c) Safe harbour margins for multiple international transactions have been revised

3. Amendment to clauses of Form 3CD – Income-tax (Eighth Amendment) Rules – Notification No. 23/2025 dated 28^th March, 2025

4. Rule 114 is amended to provide that every person who has been allotted permanent account number on the basis of Enrolment ID of Aadhaar application form filed prior to the 1^st day of October, 2024, shall intimate his Aadhaar number to prescribed tax authorities on or before the 31^st day of December, 2025 or such date as may be specified by the Central Board of Direct Taxes in this behalf. –

Income tax (ninth Amendment) Rules, 2025 – Notification No. 25/2025 and No. 26/2025 dated 3^rd April, 2025

5. No TDS is required to be deducted under section 194EE on withdrawals made by an individual from NSS accounts on or after 4^th April 2025. – Notification No. 27/2025 dated 4^th April, 2025

6. Insertion of Rule 12AE and Form ITR B – Income-tax (Tenth Amendment) Rules – Notification No. 30/2025 dated 7^th April, 2025

The return of income required to be furnished by any person under section 158BC(1)(a) relating to any search initiated under section 132 or requisition made under section 132A on or after the 1^st September, 2024 shall be in Form ITR-B.

7. 30^th April, 2025 shall be the last date, to file declaration under Vivad se Vishwas Scheme, 2024 Notification No. 32/2025 dated 8^th April, 2025

FEMA

1. RBI issues new Master Direction on “Compounding of FEMA contraventions”, updates it again in a couple of days

RBI had revamped the framework for compounding of contraventions in September 2024. A Master Direction on Compounding has now been issued on 22^nd April 2025. While the Master Direction compiles the Instructions and underlying Notifications / Circulars, there have been important amendments made too on 22^nd April 2025. The provision of linking of compounding amount to earlier compounding applications has now been removed. Further, while intimating the online payment of compounding application fees, certain additional details are now required to be mentioned in the email. These are – mobile number; Office of RBI to which payment is made; and the Mode of submission of application – Physical or through PRAVAAH Portal.

There has been a further amendment made to the Compounding Matrix on 24^th April 2025. A cap of ₹12 lakhs per contravention of each rule/ regulation has been prescribed for compounding penalty considering the nature of contravention, exceptional circumstances and in wider public interest – as per the satisfaction of the Compounding Authority. An important point to note here is that this cap is applicable only to residual cases in Row 5 of the compounding matrix and not the other contraventions specified in Rows 1 to 4 of the matrix.

[A.P. (DIR Series) Circular. No 02/2025-26 dated 22^nd April, 2025]

[A.P. (DIR Series) Circular. No 04/2025-26 dated 24^th April, 2025]

2. RBI keeps FPI investment limits in G-Secs, SGSs, and corporate bonds unchanged for FY 2025-26.

The limits for Foreign Portfolio Investment remain unchanged for 2025-26 at six per cent for Government Securities (G-Secs), two per cent for State Government Securities (SGSs) and fifteen per cent for corporate bonds. All investments by eligible investors in the ‘specified securities’ shall be reckoned under Fully Accessible Route (FAR). The aggregate limit of the notional amount of Credit Default Swaps sold by FPIs shall be five per cent of the outstanding stock of corporate bonds.

[A.P. (DIR Series 2025-26) Circular No. 1, dated 3^rd April 2025]

3. Bonus shares can be issued in FDI-prohibited sectors if pre-existing foreign shareholding doesn’t change: Government clarifies.

A clarification is inserted under Para 1 of Annexure 3 to the FDI Policy. It states that an Indian Company engaged in a sector/activity prohibited for FDI, is permitted to issue bonus shares to its pre-existing non-resident shareholder(s) if the shareholding pattern of the pre-existing non-resident shareholder(s) does not change on account of the issuance of bonus shares. This clarification will be effective from the date of amendment in the applicable FEMA Notification which is pending.

[Press Note No. 2 (2025 SERIES)]
[DPIIT F.NO. P-15022/1/2025-FDI POLICY], dated 7^th April 2025]

4. IFSCA amends ‘Framework for Ship Leasing’; permits lessors to open SNRR accounts with authorised dealers outside IFSC.

“Currency for conduct of business” provisions of the “Framework for Ship Leasing” have been amended. Lessors are now permitted to raise invoice in any foreign currency specified in IFSCA (Banking Regulations), 2020. The lessor can open an SNRR account with an authorised dealer, even outside IFSC.

Further Clause 2 of circular on “Additional requirements for carrying out the permissible activities by Finance Company as a lessor under ‘Framework for Ship leasing’” is also amended. The restricted activities – transfer of ownership or leasehold right of a ship or ocean vessel, from a resident to an entity set up in IFSC, for the purpose of providing services solely to resident – shall not be undertaken in any single financial year. Further, this restriction shall not apply when a new ship or ocean vessel is acquired from a shipyard in India.

[Circular F. No. 496/IFSCA/FC/SLF/2025-26/01, dated 7^th April 2025]

5. Requirement for meetings of Governing body of IFSC Banking Units relaxed: IFSCA.

The IFSCA has relaxed the requirement for meetings of the governing body of IFSC Banking Units (IBUs). The governing body must now meet at least once in each quarter of a financial year, and there is flexibility to hold additional meetings as needed. This replaces the earlier mandate of meeting at least once each quarter as well as six times in a financial year.

[Circular F. No. IFSCA-FMPP0BR/8/2025-Banking/001, dated 8^th April 2025]

6. RBI issues draft unified export-import norms, seeks public input by 30^th April 2025.

RBI had earlier released draft regulations and directions on Export and Import of Goods in Services in July 2024 and invited public feedback and comments on the same. Based on the feedback received, the RBI has made further changes. These drafts are open for public comments till 30^th April 2025.

[Press Release No. 2025-26/41, dated 4^th April 2025]

7. IFSCA notifies ‘Capital Market Intermediaries Regulations’ outlining framework for registration of intermediaries operating in IFSCs.

The IFSC Authority has replaced the IFSCA (Capital Market Intermediaries) Regulations, 2021 with IFSCA (Capital Market Intermediaries) Regulations, 2025. These regulations lay down the regulatory framework for registration, regulation, and supervision of capital market intermediaries operating in IFSCs in India. Further, the regulations cover norms relating to registration of capital market intermediaries, application procedures, net worth requirements, and the appointment of principal officer, compliance officer, and other human resources.

[Notification No. IFSCA/GN/2025/003, dated 17^th April 2025]

8. IFSC Authority notifies KYC Registration Agency Regulations, 2025

IFSCA has notified the IFSC (KYC Registration Agency) Regulations, 2025. These regulations cover provisions related to the application for the grant of a certificate of registration, the legal form of the applicant, net worth requirements, and the appointment of a Principal Officer, Compliance Officer, and other human resources. Further, regulations cover norms related to registration requirements, code of conduct, maintenance of books of account, and functions of KRA & Regulated Entity.

[Notification No. IFSCA/GN/2025/004, dated 17^th April 2025]

BCAJ Admin

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.11/2025-Central Tax dated 27^th March, 2025

By above notification, Rule 164 of CGST Rules, which is regarding waiver scheme granted u/s.128A, is amended to bring more clarity to the scheme.

ii) The Finance Act, 2025 (Act No.7 of 2025) dt. 29^th March, 2025 has been enacted. Various amendments proposed in the Budget 2025 are incorporated in this Act.

B. CIRCULARS

(i) Clarifications on GST Amnesty Scheme u/s. 128A of CGST Act – Circular no.248/05/2025-GST dated 27^th March, 2025.

By above circular, clarifications about GST amnesty scheme u/s.128A of the CGST Act, 2017 are provided.

C. ADVISORY

i) Vide GSTN dated 16^th March, 2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Uttar Pradesh is provided.

ii) Vide GSTN dated 3^rd March, 2025, the information regarding Enhancements in Biometric Functionality for allowing Directors to opt for Biometric Authentication in Their Home State is provided.

iii) Vide GSTN dated 21^st March, 2025, an advisory has been issued in relation to filing of application (SPL01/SPL02) under waiver scheme and to clarify that if the payment details are not auto-populated in Table 4 of SPL 02, it is advisable to verify the same in electronic liability ledger on the portal.

iv) Vide GSTN dated 2^nd April, 2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Assam is provided.

v) Vide GSTN dated 4^th April, 2025, the information about the change in Invoice Reporting Portal (IRP) vis-à-vis generation of Invoice Reference Number (IRN) is provided..

D. ADVANCE RULINGS

CBIC, vide Instruction No. 03/2025-GST, dated 17^th April, 2025, issued Instructions regarding processing of applications for GST registration. Thus, comprehensive instructions have been issued now to take care of the latest developments and to provide clarity to the officers for processing of registration application.

E. ADVANCE RULINGS

Composite Supply – Renting charges with separate electricity charges. Duet India Hotels (Hyderabad) Pvt. Ltd. (AAAR Order No. AAAR/02/2025 Dated: 20^th February, 2025) (Telangana).

The facts are that Duet India Hotels (Hyderabad) Private Limited (Lessor) (Appellant) are engaged in the business of running hotels. M/s. The Curry House Food’s Private Limited (“Lessee”) is engaged in the business of operation of restaurants. A Leave and License Agreement (“Agreement”) has been entered between the Lessor and Lessee whereby, the Lessor has granted licence to the Lessee to use the specified area (“Licensed Premises”) of the hotel for operating a restaurant at an agreed consideration called as licence fees.
In addition to the license fees, the Lessor is collecting other charges separately from the Lessee like security charges as well as electricity and water charges. Lessor charged GST on all such collections but lessee objected to pay the GST on electricity and water charges on the ground that electricity and water charges are reimbursement of expenses by the Lessee to the Lessor and these do not qualify as a supply under GST and that even if they qualify as supply, they are exempt from payment of GST.

To resolve issue, appellant had filed application for AR. The AR was decided by ld. AAR bearing Order No: 48/2022 dt: 14^th July, 2022 – 2022-VIL-265-AAR.

The members of the ld. AAR differed in their opinion and gave following ruling.

Since the Members of Advance Ruling Authority have expressed differing views as above, the matter was referred to the Appellate Authority (AAAR), in terms of Section 98(5) of CGST/SGST Act, 2017.

The ld. AAAR referred to various clauses in agreement. It was noted that in addition to licence fees there are clauses for bearing of electricity and water charges as per actual by the lessee. The ld. AAAR observed that the provision of facilities like electricity and water etc. are on account of lessor and are for effective and hassle-free enjoyment of the premises. It is observed that the Lessee cannot fully and realistically enjoy the rented / leased premises unless electricity and water are provided. Therefore, supply of electricity and water form part of a composite supply of renting services by the Lessor to the Lessee, held the ld. AAAR.

In this respect the ld. AAAR relied upon CBIC Circular no. 206/18/2023-GST dt: 31^st October, 2023 and particularly on Para 3.2.

In this respect, the ld. AAAR also rejected the argument of the appellant that it is acting as ‘pure agent’ as it does not fulfil conditions of Rule 33 of the CGST Rules, 2017.

As per Rule 33 there must be an authorisation by Lessee on Lessor when he makes payment to Electricity Department. However, in the present case, there is no sub-meter in the name of Lessee. Accordingly, the question of Lessee authorising the Lessor to pay the charges does not arise and the prescribed conditions are not fulfilled for lessor (appellant) to be treated as a pure agent, observed the Ld. AAAR.

The further contention of exempt supply of electricity under entry at Sl. No.25 of Notification No.12/2017-CT(R) was also rejected, as appellant is not Transmission or Distribution Licensee under
the Electricity Act, 2003. The ld. AAAR further held that it being a case of composite supply, where ‘renting of immovable property’ is the principal supply, the supply in the present case has to be treated as a supply of service of ‘renting of immovable property’, as per section 8(a) of CGST Act and shall be leviable to tax accordingly and cannot be claimed exempt. Thus the ld. AAAR upheld view of Member-Central and disposed of appeal.

Classification – Aluminium Composite Panels (ACP)/Sheets – HSN 7606 Aludecor Lamination Pvt. Ltd. (AAAR Order No. AAAR/04/2025 Dated: 20^th February, 2025) (Telangana).

Regarding issue of classification of above item, the ld. Members of AAR differed in their views while giving AR (Order no.05/2023 dt.12^th April, 2023- 2023-VIL-83-AAR).

Therefore, an appeal proceeding was initiated as per section 98(5). The ld. respective members of AAR had passed following order:

In appeal, the ld. AAAR found that though the State Member opined that the said commodity is neither plastic nor aluminium wholly and as such cannot be classified either as plastic or aluminium (hence do not fall under any of the Tariff Headings 3920 or 7604 or 7610), he is silent on correct classification.

The ld. AAAR observed that, on the other hand, the Central Member has examined the matter in detail, in line with rules for interpretation of tariff and various case laws. It is further observed that the ld. Member has followed classification as per “tariff item”, “sub-heading”, “heading”, and “chapter” mentioned in the schedules to the relevant notifications, with further reference to the First Schedule to the Customs Tariff Act, 1975. The ld. AAAR favoured with findings of Central Member and also found that the reasoning of Central Member for holding of product as falling in 7606 is based on various decisions of CESTAT.

The ld. AAAR, accordingly, concurred with Central Member and ruled that the ACP falls in heading 7606.

Classification – Fish Finders vis-à-vis ‘Part’ of Fishing vessel Kunthunath Trading & Investments Pvt. Ltd. (AAR Order No. ARA-23-24/24-25/B-100 Dated: 28^th February, 2025) (Mah)

The applicant M/s. Kunthunath Trading & Investments Pvt. Ltd. sought advance ruling in respect of the following question:

“Whether fish finders merit classification as ‘Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907’ falling Entry 252 of Schedule I to Notification No. 1/2017 – Central Tax (Rate) dated 28^th June, 2017 (as amended from time to time) and taxable at 5%?”

The applicant is engaged in the business of sale and distribution of fish finders.

The fish finder is a device boatmen use to locate fish in the water. They work on the Sound Navigation and Ranging (SONAR) technology. It works by sending sound waves in water. These waves then strike an object and return to the device and relay important information like shape and size of the fish and so on.

The applicant was of opinion that Fish finders form an important part of fishing vessels and
hence merits classification under entry 252 of Schedule-I to Notification no.1/2017- CT (R) dt.28^th June, 2017.

In support of its view that product is covered by entry 252, applicant has tried to prove that it is part of given vessel.

The judgments and dictionary meanings were relied upon.

It was emphasised that Fish finders are fitted on fishing vessels for the convenience of finding fishes in deep sea and hence, fish finders should be considered as an essential part of the fishing vessel which is classifiable under Entry 252 of Schedule I of rate notification.

The department objected to the above
submission on ground that a Fish Finder is not typically considered as a necessary part for the manufacturing of fishing vessel but rather an optional accessory or auxiliary equipment. The department supported its view with further explanation.

The ld. AAAR reproduced relevant entry as under:

The fishing vessels are covered by heading 8902.

The ld. AAR first dealt with meaning of ‘part’ as per dictionary.

The ld. AAR observed about nature of product that a Fish finder is a sonar instrument used on boats to identify aquatic animals, underwater topography and other objects by detecting reflected pulses of sound energy, usually during fishing activities. A modern Fish finder displays measurements of reflected sound on a graphical display, allowing an operator to interpret information to locate schools of fish, underwater debris and snags, and the bottom of a body of water.

The ld. AAR observed that Anchor, Bow, Bowsprit, Fore and Aft, Hull, Keel, Mast, Rigging, Rudder, Sails, Shrouds, Engines, gearbox, Propeller, Bridge, etc. are very essential parts of a ship or vessel and are quite clearly parts of a vessel/ship and a ship/vessel cannot be imagined to be in existence without these parts, but there can be additional equipments in a vessel. However, all such addition items cannot be considered to be part.

The ld. AAR further observed that ‘part’ is a separate piece of something or a piece that combines with other pieces to form the whole of something and even the second definition of ‘part’ also defines ‘part’ as one of the pieces that together form a machine or some type of equipment. Considering above scope of ‘part’, the ld. AAR held that Fish finder is not covered by scope of entry 252 and hence cannot be covered by tax rate of 5%.

Classification – “Transformers, Wind Operated Electricity Generators (WOEG),”

Suzlon Energy Ltd. (AAR Order No. GUJ/GAAAR/APPEAL/2024/08 (in application no. Advance Ruling/SGST & CGST/2022/AR/05) DT.30^th December, 2024 (Guj)

The present appeal was filed by M/s. Suzlon Energy Ltd. (appellant). The brief facts are as under:

“- The appellant is engaged in supply of goods required for setting, up of power projects enabling generation of power through renewable sources of energy on its own & through its subsidiary companies;

– Appellant manufactures Wind Operated Electricity Generators [WOEG] falling under chapter 85023100; parts like Nacelle, Blades & Towers falling under chapter heading 8503; transformers falling under chapter heading 8504.
– Transformers for WOEG is installed on the ground adjoining WOEG & is a device to link the electricity generated by the WOEG to the distribution grid and make it usable for distribution / consumption;
– The appellant feels that the transformers are specially/specifically designed to be used along with WOEGs & is therefore to be treated as part of WOEG.”

Based on above facts, the appellant had sought Advance Ruling about classification of its product as falling under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28^th June, 2017 liable to GST at the rate of 5% up to 30^th September, 2021 and 12% from 1^st October, 2021 under Entry No. 201A to Notification No. 01/2017-Central Tax (Rate) dated 28^th June, 2017.

The ld. AAR, vide the impugned ruling dated 18.10.2021, held that Transformers are not part of WOEG and are leviable to CGST @ 18% vide Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017.

Aggrieved by the aforesaid AR, the appellant has filed this appeal. Before the ld. AAAR, appellant put various contentions including citing of circulars and judgments.

The ld. AAAR observed that a clarification has already been issued on 20.10.2015 vide Circular No.1008/18/2015-CX by the Board, wherein details of parts on which exemption is available is specified.

The ld. AAAR concurred with AAR that transformers have not been included as parts of WOEG by the Ministry of New and Renewable Energy and hence, the contention of the appellant that they are parts of WOEG is not a legally tenable argument.

The ld. AAAR also held that the appellant has not produced any material before them which could lead them to a conclusion that transformer, in terms of their popular meaning /common parlance principle, is part of WOEG.

The ld. AAAR also held that exemption Notification should be read strictly and ambiguity, if any, should be resolved in favour of revenue.

Accordingly, the ld. AAAR held that the specially designed transformer for WOEG, which perform dual function of step down and step up, supplied by the appellant is not a part of WOEG and hence it would not be eligible for the benefit at Sr. No. 234 and Sr. No. 201A of exemption notification No. 1/2017-CT (Rate), as amended. The ld. AAAR confirmed AR and dismissed the appeal.

Time of Supply – Mobilization Advance

S. P. Singh Constructions P. Ltd. (AAR Order No. GUJ/GAAAR/APPEAL/2024/07 (in application no. Advance Ruling/SGST & CGST/2021/AR/04) DT.30^th December, 2024 (Guj)

The facts of case are as under:

“- the appellant undertakes EPC [Engineering, Procurement, Construction] contract for construction of bridges & other projects for Government of India/State Government;

– as a sample, EPC contract dated 15^th January, 2018, relating to construction of 4 lane Signature bridge between Okha and BeytDwarka on NH-51 is submitted, which has been entrusted by Ministry of Road Transport and Highways New Delhi [‘authority’/MORT&H] to the appellant.

– in terms of the EPC contract, the authority gives an interest-bearing advance equal to 10% of contract price for mobilization expenses, to extent financial assistance to mobilize resources for timely & smooth take off of the project;- this mobilisation advance, is in lieu of counter bank guarantee [BG] of 110% of the advance which would remain effective till completion and full repayment of the advance;

– the payment for construction work is done by the authority on completion of payment stage, as defined in the EPC contract & post this the appellant raises the invoice; a part of the mobilisation advance is reduced in proportion to the value of the work completed, as shown in the invoice; BG is also reduced in proportion to the mobilization advance adjusted in the invoices;
– the appellant, in his books, shows mobilization advance as a non-current liability, which is thereafter provisionally transferred to sale/consideration for service as and when proportionate amount is deducted from the invoices raised on the customers.”

With above facts, the appellant sought Advance Ruling on the question as to what is the time of supply for the purpose of discharge of GST in respect of mobilization advance received by it for construction services.

The GAAR vide Advance Ruling No. GUJ/GAAR/R/2022/06 dt.7th March, 2022- 2022-VIL-91-AAR held as follows:

“We note that SPSC does not contest the taxability on said Advance, but is before us for its deferment from date of its receipt to date of issue of invoice. We pass the Ruling based on Section 13(2) CGST Act read with its explanation (i).

Time of Supply, on said Advances received by SPSC for Supply of its Service, is the date of receipt of said advance.”

In appeal, the appellant made various submission and contentions.

The ld. AAAR noted various clauses about advance payment in EPC contract.

The ld. AAAR also referred to definition of ‘works contract’ in section 2(119) and observed that the EPC agreement between the appellant and MORT & H for construction of new 4-lane signature bridge connecting missing link between Okha and BeytDwarka, is a supply of service.

The ld. AAAR also referred to meaning of ‘consideration’ given in section 2(31), and section 13, which specifies Time of Supply of Services.

Reading sections 2(31) and 13, conjointly the ld. AAAR observed as under:

“liability to pay tax on services shall arise at the time of supply, which will be the earliest of the date of issue of invoice by the supplier, if it is issued within the prescribed period or the date or receipt of payment, whichever is earlier. The explanation to section 13(2) through a deeming, provision states that the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment & that “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. Further, the proviso to section 2(31) goes on to add that a deposit in respect of the supply of services shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.”

The ld. AAAR referring to clause 19.2.7 of agreement also held that the mobilisation advance/advance payment, is adjusted as a consideration towards the said supply and the proviso to section 2(31) stands satisfied & hence, the mobilisation advance/advance payment is a consideration as defined under section 2(31) of the CGST Act, 2017. Accordingly, the ld. AAAR held that the time of supply in respect of the mobilization advance/advance payment received by the appellant in respect of supply of service, is the date of receipt of such advance.

The benefit sought to be availed by appellant of notification No.66/2017 dated 15^th November, 2017, exempting payment of GST on advance paid on goods, also rejected by ld. AAAR, as transaction is of service and not goods.

The ld. AAAR dismissed appeal, confirming ruling of AAR.

BCAJ Admin

Goods And Services Tax

I. SUPREME COURT

6. [2025] 29 Centax 10 (SC) Central Board Of Indirect Taxes And Customs Vs. Aberdare Technologies Pvt. Ltd.

Dated 21^st March, 2025.

Right to amend GST returns for rectifying bonafide errors of tax payer beyond the statutory time limit of 30^th November cannot be denied where there was no loss to Revenue.

FACTS

Respondent, taxpayer had timely filed its GST returns for the periods July 2021, November 2021 and January 2022. However, certain errors in the returns were noticed in December 2023 and request was made to GST Authorities for rectifying such errors. However, petitioner rejected the request made by respondent stating that deadline of 30th November to allow rectification had already lapsed. Respondent filed a Writ Petition before Hon’ble High Court where rectification of returns was allowed. Being aggrieved, petitioner i.e. the revenue preferred this Special Leave Petition.

HELD

The Hon’ble Supreme Court without interfering with the decision of Bombay High Court held that the respondent has right to correct clerical or arithmetical error when there was no loss to revenue and without proper justification. Software limitations cannot justify denial of corrections as the same can be configured for ease of compliance. Accordingly, Special Leave Petition was disposed of in favour of respondent.

II HIGH COURT:

7. M/s. ShrinivasaRealcon Private Ltd. vs. Deputy Commissioner AE Branch CGST & CE Nagpur & Others Bombay High Court –

Nagpur Bench in Writ Petition 7135/2024 order dated April 08, 2025.

Transfer of Land Development Right : Not covered by Entry 5B of amended Notification 13/2017 –C.T. (Rate) dated 28^th June, 2017.

FACTS

a) Petitioner, a builder / developer entered into a development agreement in April, 2022 with landowner in terms of which, the petitioner was granted right to develop a plot of land in question by utilizing its present FSI or any increases thereof. In the execution of the said agreement, the petitioner pleaded that no TDR or FSI was purchased by the landowner or the petitioner from any person or entity. However, the petitioner was first issued a show cause notice dated 24/07/2024 whereby the petitioner was asked to pay GST considering the said transaction as transfer of TDR. The said show cause notice was followed by another show cause notice dated 14/08/2024 by which GST was claimed under Reverse Charge Mechanism on the above transaction by invoking entry 5B of Notification No.13/2017-Central Tax (Rate) dated 28/06/2017 as it stood amended by Notification No.5/2019-C.T, (Rate) dated 29/03/2019. The said Notification provides to impose service tax levy under Reverse Charge Mechanism when services are supplied by any person by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI) for construction of project by a promoter.

b) Petitioner contended that the agreement entered into by them with the landowner did not involve any transfer of development right as defined in Regulation 11.2 of Unified Development Control and Promotional Regulations for the State. It is to be noted importantly that GST Act does not define the “Transfer of Development Right” (TDR). At the other end, revenue contended that the agreement and more particularly, a specific clause thereof would contemplate that the transaction with the petitioner was one of transfer by the land owner and hence entry 5B of Notification 13/2017-C.T. (Rate) was attracted.

HELD

The Court observed that in terms of language of the said entry 5B, it relates to services which can be said to be supplied by any person by way of Transfer of Development Rights (TDR) or FSI for construction of a project by a promoter. The expression ‘TDR’ as contemplated by clause 11.2.2 under the regulations for grant of TDR in the Unified Development Control and Promotion Regulations for the State of Maharashtra and clause 11.2.1 of which defines transferable development right to mean compensation in the form of FSI or development rights which shall entitle the owner for construction of built-up area subject to the provisions in the said regulations. It thus follows that TDR/FSI as contemplated by entry 5B cannot be related to the rights which the developer derives from the owner under the agreement of development for constructing the building. This is because the specific clause relied upon by the revenue merely indicates that the owners shall sign and execute a deed of declaration under section 2 of the Maharashtra Apartment Ownership Act, 1970 submitting the entire scheme to the provisions of the said Act and execution of the apartments deeds in favour of individual buyers by the nominees of the developers. Hence the transaction in terms of the agreement does not get covered by entry 5B of duly amended Notification 13/2017-C.T. (Rate) dated 28/06/2017. Accordingly, both the show cause notices as well as the consequent order dated 10/12/2024 cannot sustain and are hereby quashed and set aside. The petition thus is allowed.

8. [2025] 28 Centax 287 (Guj.) Alfa Tools Pvt. Ltd. vs. Union of India dated 06.03.2025.

Assignment of leasehold rights over land is a benefit arising out of immovable property not liable to GST.

FACTS

Petitioner was engaged in manufacturing of cutting tools. In 1978, the petitioner had acquired leasehold rights over an industrial plot from GIDC for 99 years. In 2018, the petitioner transferred such leasehold rights over land for a consideration of ₹75 lacs. Subsequently, petitioner voluntarily applied for cancellation of its GST registration which was duly completed by a registration cancellation order. Subsequent to the cancellation of registration, respondent issued notice demanding GST on such consideration received towards such transfer of leasehold rights. Being aggrieved by such a notice demanding GST, petitioner filed a writ petition before this Hon’ble High Court.

HELD

The Hon’ble High Court after taking into consideration the facts and squarely relying on its decision in the case of Gujarat Chamber of Commerce and Industry vs. Union of India — 2025 SCC Online Guj 537, held that the assignment/transfer of leasehold rights over land represents a benefit arising from immovable property covered by Clause 5 of Schedule III of CGST Act, 2017 not liable to GST. Accordingly, petition was disposed of in favour of petitioner.

9. [2025] 28 Centax 215 (All.) Khaitan Foods India Pvt Ltd. vs. State of U.P. dated 19.02.2025.

Right to appeal cannot be deprived where payment was specifically made under protest for release of goods without accepting the demand.

FACTS

The vehicle carrying petitioner’s goods was intercepted on 29.08.2024 and due to a mismatch between goods and documents, petitioner’s goods were detained and SCN under section 129(1)(a) of the CGST Act was issued proposing a penalty of ₹22,37,220/-. Petitioner responded citing an inadvertent error and sought for release of perishable goods. On 05.10.2024, the petitioner deposited the penalty amount via DRC-03, stating that such payment was made “under protest and without prejudice to our legal right to appeal.” Order levying penalty was passed on 06.10.2024 and goods were released on 08.10.2024. After release of goods a suo-moto rectification order nullifying the demand and treating the payment as voluntary was passed by the respondent. Due to such an action, it hampered petitioner’s right of preferring an appeal option. Being aggrieved by such rectification order, petitioner preferred this writ petition before the Hon’ble High Court.

HELD

The Hon’ble High Court observed that petitioner’s “payment under protest” via DRC-03 preserved its statutory right to appeal against the original penalty order dated 06.10.2024. High Court further ruled that authorities improperly exercised rectification powers under section 161 of the CGST Act by treating the payment as voluntary and converting the demand as ‘Nil’, unlawfully depriving the petitioner of its statutory remedy of appeal. High Court restored the original penalty order dated 06.10.2024 and petitioner’s right to challenge the order imposing penalty.

10. [2025] 28 Centax 238 (Bom.) Xiaomi Technology India Pvt. Ltd. vs. Union of India dated 22.01.2025.

GST authorities from another state cannot raise demand leading to double taxation where stay was already granted by High Court on adjudication of earlier SCN for the same amount.

FACTS

Petitioner received an amount of ₹6,092 crores from its Hong Kong group company during F.Y. 2018-19 and F.Y. 2019-20. Respondent i.e. GST Authority located in Maharashtra State issued a SCN demanding tax of ₹75 crores on part of the same amount received by the petitioner. However, petitioner had already deposited ₹75 crores with the Karnataka GST authorities where the petitioner’s head office was located. Further, a stay had also been granted by the Karnataka High Court against those proceedings. Being aggrieved by demand raised on the portion of same amount under section 74 of the CGST Act, 2017 which was already in dispute, petitioner filed a writ petition under Article 226 of the Constitution of India before this Hon’ble High Court.

HELD

The Hon’ble High Court observed that Karnataka GST Authorities had already initiated proceedings for the entire ₹6,092 crore transaction where 75 Crores was deposited by petitioner and stay on earlier proceedings was granted by the Karnataka High Court. Accordingly, the Bombay High Court granted interim protection by staying further proceedings on the impugned show cause notice with a liberty to modify the order based on the outcome of the proceedings pending in the state of Karnataka.

11. [2025] 173 taxmann.com 562 (Bombay) Goa University vs. Joint Commissioner of Central Goods and Service Tax dated 15^th April, 2025.

The fees collected by the University are in terms of the statutory mandate to undertake the activities as set out in the Goa University Act towards regulating the activity of colleges affiliated to the university cannot be brought under the GST net.

FACTS

The petitioner, Goa University, is a University established under the Goa University Act, 1984. The petitioner received a show cause notice demanding service tax on affiliation fee from the Deputy Director, DGGI, Goa. demanding service tax on certain incomes, such as affiliation fees collected by them for various programmes are meant for students and treated as student-related activity such as sale of prospectus, sale of old newspaper, various fees received towards sports, eligibility certificate, migration certificate, admission fee etc. from students. The petitioner challenged the same along with Circular dated 17/06/2021 and Circular dated 11/10/2024, where it was clarified that affiliation services provided by universities to their constituent colleges are not covered within the ambit of exemptions provided to educational institutions. The impugned circulars are challenged on the ground that they assume that the activity of affiliation/accreditation would amount to supply without clarifying as to how the same would be a supply of service.

HELD

The Hon’ble Bombay High Court held as under:

(i) The petitioner University is creature of statute i.e., the Goa University Act, 1984. The petitioner was established with a purpose of ensuring proper and systematic instruction, teaching, training and research. The fees such as affiliation fees, prospectus fees and migration certificate fees, sports fee etc. received by the petitioner are per se not commercial in nature. The State has a duty to provide education to the people of India. This duty is being discharged through the University.

(ii) The affiliation is undertaken by the University in terms of the requirement of the statute and in discharge of public functions, the fee so collected for affiliation fails to qualify as ‘consideration’. The fees collected by the University i.e. Affiliation fees, PG registration fees and convocation fees are not amenable to GST inasmuch as the fees collected by the University is not a consideration as contemplated in section 7 of CGST Act/GGST Act, as the fees are collected in the nature of statutory fee or regulatory fee in terms of the statutory provisions and not contractual in nature.

(iii) So far as University is concerned, the clarifications issued by the above Circular are contrary to the statutory provisions of sections 7 and 9 of the GST Legislations inasmuch as the said Circular assumes that the said activity of affiliation service provided by the University to their constituent colleges would qualify as supply. Thus, the said clarifications restrict the scope of exemption notification and makes the fee collected by the Board from the educational institution for the purpose of accreditation to such Board, liable for GST. It’s therefore contrary to the plain language of the notification which exempts services by educational institution to its students, faculty and staff and also services provided to educational institution.

(iv) The Hon’ble Court relied upon the decision of Apex Court in the case of Commissioner of Sales Tax vs. Sai Publication Fund, (2002) 4 SCC 57 holding that where the main and dominant activity of the University is education, demand of GST on sale of prospectus, sale of old newspaper, various fees towards sports, eligibility certificate, migration certificate, admission fee etc. received from students cannot be termed as business activity to demand tax.

(v) In light of the above reasoning, the Court quashed the show cause notice for the absence of jurisdiction to issue the same.

12. [2024] 169 taxmann.com 1 (Allahabad) A.V. Pharma vs. State of U.P dated 12^th November, 2024.

The order passed under section 73(9) for F.Y. 2017-18 after 05-02-2020 (or as the case may be 07-02-2020) is invalid as the Notification dated 24-04-2023 with effect from 31-03-2023 (which is identical to Notification No. 9/2023-CT dated 31-03-2023) is effective from 31/03/2023 only and the period of limitation for F.Y. 2017-18 expired before 31/03/2023.

FACTS

The petitioner challenged the Order dated.05.10.2024 and the Order dated.02.12.2023 issued for F.Y. 2017-18 on the ground that as they have been passed beyond the time limit prescribed therein as calculated from the due date of filing annual returns prescribed in section 44 (1), which was extended to 05.02.2020, and the time limit of three years ended on 05.02.2023. Both the parties relied upon the Notification dated.24-04-2023, which was made effective from 31-03-2023, that extended the time limit for issuance of order under section 73(9) of the CGST/SGST Act to 31-12-2023.

HELD

The Hon’ble Court observed that the due date for filing the annual return for F.Y. 2017-18, ordinarily 31.12.2018, was extended by notification dated 03.02.2018 to 05.02.2020. The State of U.P. adopted this extension through a notification dated 05.02.2020. Consequently, the three-year limitation under section 73(10) expired on 05.02.2023, rendering any order under section 73(9) for F.Y. 2017-18 impermissible beyond this date. It was further observed that para no. 2 of the next notification dated.24-04-2023 says that the notification dated 24.04.2023 would be applicable retrospectively but only from 31.03.2023 meaning thereby that if the time limit of three years prescribed in sub-section 10 of section 73 read with sub-section 1 of section 44 expired prior to 31.03.2023 then the notification dated 24.04.2023 extending the time limit for passing of an order under sub-section 9 of section 73 would not be applicable.

Accordingly, the Hon’ble Court held that the impugned orders are beyond the time limit prescribed under section 73(10) as applicable for the financial year 2017-18 and hence are liable to be quashed.

Note: The above judgment is followed in Ambrish Chandra Arya vs. State of U.P [2025] 173 taxmann.com 232 (Allahabad) dated 25th March, 2025 & Anita Traders LKO. U.P. vs. State of U.P. [2025] 171 taxmann.com 853 (Allahabad).

13. [2025] 173 taxmann.com 296 (Jharkhand) TATA Steel Ltd vs. State of Jharkhand dated 3^rd April, 2025

High Court quashes order rejecting refund claim for export of goods and insistence by the officers on proof of export proceeds realisation in case of export of goods, rejection based on not exporting goods within three months, and unwarranted declarations asked by the officer held non-compliant with legal provisions and guidelines in the circular.

FACTS

The petitioner manufactures steel and sponge iron, for which it requires coal as a raw material. Refund application was filed by the petitioner-company for the period F.Y. 2021- 2022 along with all relevant documents. However, a show-cause notice was issued to the petitioner for rejection of the refund application. Thereafter, the petitioner immediately filed the reply to the show cause notice; however, the refund application of the petitioner was rejected on the ground of non-furnishing of documents/certificates. Thereafter, the petitioner also filed an appeal, but that was also rejected. The rejection was on the following grounds:

Non-furnishing of the receipt of payment within 180 days of export;
Non-furnishing of proof of export within 90 days of the invoice;
Non-furnishing of a declaration of non-prosecution;
Non-furnishing of undertaking under proviso to section 11(2) of the Cess Act;
Non-furnishing of statement as per Para 43(C) of the 2019 Circular

HELD

The Hon’ble Court observed that for export of goods, only a reconciliation statement of the Shipping Bill and Export Invoices is required, which was annexed by the petitioner to its application. It was further observed that as per Para 48 of the circular of 2019, it was clarified that insistence on proof of realization of export proceeds for processing of refund claims related to export of goods has not been envisaged in the law and should not be insisted upon. It further observed as per Para 45 of the circular of 2019, it has been clarified that as long as goods have actually been exported even after a period of three months, payment of Integrated tax first and claiming refund at a subsequent date should not be insisted upon. Further Para 4.6 of the 2023 circular provides that “as long as goods are actually exported… even if it is beyond the time frames as prescribed in sub-rule (1) of Rule 96A… the said exporters would be entitled to refund of unutilized input tax credit.” The Court also observed that EGM (Export General Manifest) details are given and it is evident that export is within 90 days of invoice. As regards to the non-furnishing of a declaration of non-prosecution, the Hon’ble Court noted that no such requirement is prescribed under the Act, still the petitioner gave such declaration in response to the SCN. The Hon’ble Court pointed out that as per Para 46 of 2019 circular, asking for self-declaration with every refund claim where the exports have been made under LUT, is not warranted. The Court further observed that as per Para 42 of 2019 circular, stipulation under the proviso to section 11(2) of the Cess Act would only apply where the registered persons make zero-rated supplies on payment of Integrated tax. As regards to non-furnishing of statement as per Para 43(C) of the 2019 circular, the Court held that it only applies when there has been a reversal of credit, which is absent in the present case. The Court also observed that the petitioner had submitted CA Certificate stating that the incidence of Compensation of Cess has not been passed on to any person. In light of the above, the Hon’ble Court held that rejection order and appellate order has no legs to stand and is liable to be quashed.

Note: The decision gives very important references to Circular No. 125/44/2019-GST dated 18-11-2019 and Circular No. 197/09/2023-GST dated 17-07-2023.

14. [2025] 173 taxmann.com 418 (Allahabad)Vinayak Motors vs. State of UP dated 24-03-2025.

The service of notice electronically on portal after the suspension of the GST registration is against principles of natural justice as no physical notice was served.

FACTS

The petitioner’s registration was suspended on 03-01-2024 and was not revived and subsequently, the notice was issued on electronic portal and ex-parte order was passed.

HELD

The Hon’ble Court observed that the petitioner was not obligated to access the GST portal to receive electronic show cause notices for F.Y. 2017-18 prior to the adjudication order dated August 20, 2024. No physical notice was issued or served. Consequently, the Hon’ble Court set aside the order due to the lack of adherence to principles of natural justice, and the petitioner was directed to treat the said order as notice and submit its final reply within four weeks.

15. [2025] 173 taxmann.com 25 (Allahabad) Solvi Enterprises vs. Additional Commissioner Grade 2 dated 24-03-25.

Adverse inference against the petitioner unwarranted as both parties held valid GST registrations at the time of transaction and registration of supplier is cancelled from a date subsequent to the date on which transaction took place between petitioner and his supplier.

FACTS

The petitioner purchased the goods from a registered dealer which was generated by the seller from the GST portal. The date of transaction in question is of 6^th December, 2018 and whereas the registration of the selling dealer was cancelled with effect from the GST Act, 2017 as the registration of the seller dealer was cancelled at subsequent date i.e. with effect from 29.01.2020 and order was issued under section 74 of the CGST Act disallowing the ITC.

HELD

The Hon’ble Court held that the GST authorities, while empowered to cancel registrations from the initiation date of proceedings, cancelled the seller’s registration at a later date. The Court noted that at the time of the transaction, both the purchaser and seller held valid GST registrations, and the seller’s registration was not retrospectively cancelled. The supplier’s filing of GSTR-01 and GSTR-3B, auto-populating GSTR-2A, was undisputed, yet authorities failed to verify this and incorrectly held that the petitioner was liable for proving the seller’s tax deposit, contrary to the Act. Hence, adverse inferences against the petitioner were held unwarranted.

BCAJ Admin

बुद्धिनाशात् प्रणश्यति !

This is one of the most important and popular messages from the Shrimad Bhagavad Gita. There is a pair of shlokas from the second chapter of Gita – called ‘saankhyayog’.

The text is as follows:-

ध्यायतो विषयान् पुंस : The man dwelling on sense objects

प्रकोपाय न शान्तये results in his anger. (resistance) and not in peace.

संगस्तेषूपजायतें Develops attachment for them.

संगात्संजायते काम: From attachment, springs up desire.

कामात् क्रोधोSभिजायतें !!62!! And from desire, (if unfulfilled) ensue anger.

क्रोधाद्भवति सम्मोह: From anger, arises delusion.

सम्मोहात् स्मृतिविभ्रम:! From delusion, confusion of memory.

स्मृतिभ्रंशाद् बुद्धिनाशो Loss of reason

बुद्धिनाशात् प्रणश्यति !!63!! And from loss of reason, one goes to complete ruin.

Readers may be aware that in our Indian philosophy, there are six biggest enemies of human beings [Known as “shadripu” (षड्रिपु)].

काम – Desire, क्रोध – Anger, लोभ – Greed, मोह – Delusion, मद – Ego or Arrogance, मत्सर – Jealousy.

The two stanzas describe this vicious circle as to how one ‘enemy’ gives rise to another. Sense objects means each of our five senses has its object. The Eyes have a vision and many objects to see; the Ears have many things to hear; the Nose has many things to smell; the Tongue has many items to taste; and The Skin has many things to touch.

If one constantly keeps on thinking of a particular object – e.g., bad and obscene images, spicy and intoxicating eats, sensual or luscious touch, one develops an ‘indulgence’ in those things. This indulgence or obsession (attachment) breeds ‘desire’ or ‘greed’. If this desire is not fulfilled, one loses one’s temper and gets angry.

Once you are angry, you lose control of your mind; you cannot discern between good and bad. The lust and anger drive your mind, and your intellect is side-lined. You forget who you are, what you are, what you are doing, who you are talking to. In short, you lose your memory and balance of mind.

This situation destroys your intellect. Ultimately, it ruins your life! Anger is considered as the most dangerous enemy. Therefore, there are courses on anger management. One should never lose one’s temper. Cool-headedness is a big strength. Ravana and Duryodhana, respectively, from Ramayana and Mahabharata, are the best examples of how the shadripu destroyed them. We find these examples even in movies, plays and serials.

Quite often, anger prompts you to take some suicidal steps. Every day crimes committed in the spate of anger are reported in the news. After one is pacified, one repents. But that is of no use.

That is why our spiritual idols like Gautam Buddha and Mahavir are always ‘cool’. They never got perturbed by anything. Shri Ram was to be coroneted the next morning, and the previous night, he was sent to exile! He accepted it willingly and coolly – free from attachment, anger and so on! He never lost his peace and balance of mind.

We in our profession, often have strong feelings against the perverse and adamant ‘actions of bureaucrats, politicians and even judges’. On the other hand, corrupt officials have temptations and lust for money. We need to keep our cool in tackling them. There lies our success and their failure!

BCAJ Admin

Letter to The Editor

Dear Editor,

We have been reading articles from Dr. Anup Shah for last over 2 decades. The breadth of and canvas of large number of issues dealt with, in an expertly manner and dealing with large number of topics of interest for practicing chartered accountants has been useful and complementary in doing practice. The selection of subjects have been contemporary and meaningful. The dealing with subjects with its judicial background gives more credence and reliability to the subjects dealt with by him. His reference and dealing with any topic with accounting and auditing aspects touching the subjects make the articles meaningful even for accounting and auditing points of view. His depth of knowledge of large number of applicable laws has been exemplary and outstanding. We congratulate him and BCAS for bringing out the 6^th edition of his new book.

With regards

Mukesh Shah

Mumbai

BCAJ Admin

Miscellanea

1. SPORTS

# AI Only Just Beginning to Revolutionise the NBA Game

It’s not a scene out of the future, but a reality on the hard courts of today.

Using artificial intelligence, a top basketball team found the right defensive strategy that made the difference to win the NBA championship.

Data specialist Rajiv Maheswaran declines to name the outfit that leveraged AI analysis to victory, saying in a corporate video only that it happened several years ago.

That was “the moment that sealed it,” added the co-founder of tech startup Second Spectrum, which provides the league with swathes of player positioning data gathered during crucial games.

Analytics have transformed the NBA over the past decade, with AI and other breakthroughs still ramping up.

Embryonic in the early 2000s, the revolution truly took hold with motion-capture cameras installed in every venue in 2013.

Ten years later, new tech upgraded renderings of the court from 2D to 3D, unlocking even more precious data.

Each player wears 29 markers “so you know not just where they are, but you know where their elbow is, and you know where their knee is,” said Ben Alamar, a sports analytics writer and consultant.

“You’re actually able to see, yes, that was a high quality (defensive) closeout,” said Tom Ryan, head of Basketball Research and Development at the NBA, describing an often-used manouvre.

“It’s adding more context to that metric.”

“Now all 30 teams are doing significant analysis with varying levels of success,” said Alamar.

Houston, Golden State and Oklahoma City were often cited among early adopters at the turn of the 2010s.

This season, Oklahoma City is on top of regular season standings, “and they play different,” said ESPN Analytics Group founder Dean Oliver.

“They force turnovers, and they have very few turnovers themselves. So there are definitely advantages to be gained.”

“It’s not going to turn a 25-win team into a 70-win team during the season, but it can turn a 50-win team into a 55, 56-win team,” according to Alamar.

AI allows for “strategic insights” like “understanding matchups, finding the situations where players perform well, what combinations of players,” he added.

None of the dozen teams contacted by AFP agreed to discuss their work on analytics.

“Teams are (understandably) secretive,” Oliver confirmed.

Even before 3D, motion capture data was already shifting the game, taking basketball from a more controlled pace to something looser and faster, he added.

The data showed that faster play secures more open looks and a higher percentage of shots — a development that some criticise.

On average, three-point shot attempts have doubled over the last 15 years.

“As a league now, we look deep into analytics,” Milwaukee point guard Damian Lillard noted at February’s All-Star Game.

While it perhaps “takes away the originality of the game… you’ve got to get in line with what’s working to win.”

The league is taking the issue seriously enough that Commissioner Adam Silver recently mentioned that “some adjustments” could be made to address it.

Even now, AI has “plenty of upside” yet to emerge, said Oliver.

“The data is massive, but converting that into information, into knowledge that can be conveyed to players, that they can absorb, all of those steps are yet to be done.”

The league itself is pursuing several analytics and AI projects, including for real-time refereeing.

“The ROI (return on investment) is very clear,” said Ryan. “It’s about getting more calls right, faster and in a transparent way to our fans.”

“We would love a world where if a ball goes out of bounds and you’re not sure who it went off of, rather than going to replay you look at high frame rate video in real time with 99.9 percent accuracy… That’s really our North Star.”

Spatial data can also extend the fan experience, shown off during the recent “Dunk the Halls” Christmas game between San Antonio and New York.

An alternative telecast rendered the game in video game-style real-time display, with avatars replacing live action images.

“We want to experiment with all different types of immersive media,” says Ryan. “We just want to be able to sell our game and present it in compelling ways.”

(Source: International Business Times – By Thomas Urbain – 10^th April, 2025)

2. TECHNOLOGY

# How Atlas is using AI to turn accounts receivable into a strategic advantage

Despite the rapid advancements in financial technology, accounts receivable (AR) remains a starkly inefficient workflow, with many companies still relying on manual, error-prone processes to manage their contract-to-invoice and invoice-to-cash cycles.

As a result, finance teams struggle with data entry mistakes, delayed invoice reconciliation, and slow payment cycles, leading to unnecessary cash flow bottlenecks. They also lack sufficient real-time insights, which forces them to take a reactive rather than proactive approach to financial management — consequently making it difficult to anticipate late payments or assess a client’s ability to pay on time.

Recognizing these gaps in the market, Joe Zhou saw an opportunity to modernize AR using artificial intelligence. He’s the co-founder and CTO of Atlas, a proprietary automation system that’s redefining AR through agentic solutions and automation of contract-to-cash cycles. In doing so, Atlas is empowering businesses to save valuable finance time for finance leaders and increase cash-on-hand, fuelling business growth.

JOE ZHOU: A BACKGROUND OF EXCELLENCE

After graduating from the University of Pennsylvania with degrees in computer science, data science, and mathematics, Zhou started his career at industry-leading companies like Google and Snap. There, he led high-impact projects that improved user engagement and product performance for billions of users globally.

One of his biggest projects was with Snap, where he introduced an augmented reality engagement funnel designed to improve the user feedback loop and increase the adoption of Snapchat’s viral augmented reality (AR) lenses. Zhou’s team managed to achieve a 25% global increase in AR usage — the brand’s largest jump in six years.

Zhou also spent time at Intuit, working on QuickBooks and Mint transaction categorization. There, he saw how a lack of real-time insights into payment risks forced businesses into reactive financial management. Simultaneously, they had to handle a vast amount of financial data from diverse sources without robust systems of categorization and classification in place.

He realised that traditional AR systems, while accepted as the industry standard, didn’t measure up to the demands of modern business. It was this realization that formed the basis of Atlas.

AI-POWERED AUTOMATION: A SMARTER APPROACH TO ACCOUNTS RECEIVABLE

Atlas is an AI-powered AR automation platform that eliminates manual data entry errors, enables faster invoicing and reconciliation, gives finance leaders a source of truth for revenue, and increases cash on hand. The end goal is simple: Atlas is designed to get businesses paid.

It works by seamlessly integrating emerging tech like natural language processing, machine learning, various frontier models and predictive analytics to automate every stage of the AR workflow and save finance teams time, resources, and stress. For example, it can scan a contract and automatically generate a detailed, accurate invoice that you can quickly review and send.

Key to this approach is Atlas’ continuous learning model: The more invoices and contract data the system processes, the smarter it becomes.

One of its strongest benefits is that it plugs and plays with existing enterprise resource planning (ERP) systems like NetSuite, SAP, and Microsoft Dynamics. It also connects to Slack, email, and your CRM so that you can centralize customer communications and manage them easily. Atlas eliminates the need for manual invoice matching, accelerating cash flow and saving teams time and resources.

The result is a unified, AI-first approach that makes it easy to deploy and maintain highly configurable workflows for different industries.

THE IMPACT OF AI-DRIVEN AR ON FINANCE TEAMS

Businesses are already embracing Atlas and seeing powerful results, with customers leveraging it to eliminate manual invoice matching and free their teams to focus on other tasks. They’re also seeing accelerated cash flow, sometimes by days or even weeks.

“We are reshaping the $125 trillion B2B payments market and helping free up $3 trillion in annual locked cash flow that hinders global growth as a result of antiquated payment systems,” Zhou notes.

After implementing Atlas, one startup experienced a 43% reduction in days sales outstanding (meaning they were able to collect payments significantly faster) as their spreadsheet usage dropped by 71%.

“Atlas is about freeing teams from busywork so they can focus on real growth,” Zhou says.

“Innovating in AI isn’t about just increasing efficiency — it’s about enabling resource reallocations to focus on creative and strategic thinking.”

With Atlas, Joe Zhou has successfully found a way to consistently eliminate human errors and delays in payment cycles — allowing businesses trapped in outdated processes to finally reach their full potential.

(Source: International Business Times – By Chris Gallagher – 22^nd April, 2025)

3. OTHER – CRYPTO

# Bitcoin, Altcoins pump after Federal Reserve Board withdraws Crypto notification rules for banks

KEY POINTS

The board rescinded two supervisory letters and a third one jointly issued with the FDIC and Comptroller of the Currency
Bitcoin traded above $94,000 at one point in the night, and all other top altcoins were in the green
Some crypto users are concerned the move may result in short-term “uncertainty” among banks

Bitcoin and other major cryptocurrencies climbed Thursday night after the Federal Reserve Board (FRB) announced that guidance for banks related to crypto and stablecoin activities was being withdrawn.

The move comes just weeks after the Federal Deposit Insurance Corporation (FDIC) made a similar announcement, giving more leeway for banks across the country to engage with the crypto industry.

FBR opens a path for crypto and banking activities

The Federal Reserve Board said Thursday that it was rescinding three supervisory letters that played a major role in stunted adoption of crypto offerings among American banks and financial institutions.

“The Board is rescinding its 2022 supervisory letter establishing an expectation that state member banks provide advance notification of planned or current crypto-asset activities. As a result, the Board will no longer expect banks to provide notification and will instead monitor banks’ crypto-asset activities through the normal supervisory process,” the board said.

It also rescinded a 2023 supervisory letter “regarding the supervisory non objection process for state member bank engagement in dollar token activities.”

Finally, the FRB announced it was withdrawing two jointly issued statements with the FDIC and the Office of the Comptroller of the Currency that limited banks’ exposure to cryptocurrencies.

It also expressed commitment toward collaborating with other regulatory agencies to consider the possibility of providing further guidance that “support innovation, including crypto-asset activities.”

CRYPTO BOUNCES AMID THE FEDERAL RESERVE’S PIVOT

Following the announcement, crypto prices surged, signalling the market’s positive reaction to the news.

Bitcoin was up 1.2% in the day, climbing above $94,000 at one point before settling in at around $93,500.

Ethereum also saw a slight pump, increasing 0.4% in the day, and XRP was up 1.4% in the last 24 hours.

All other altcoins on Coin Gecko’s Top 10 largest crypto assets by market cap were in the green, with Cardano (ADA) leading the day’s rally (5.2% up).

QUESTIONS RISE OVER FRB’S MOVE

While many in the crypto community were ecstatic over the news, some crypto users raised questions on the short-term impact of the decision.

One user pointed out that the long-term effects may result in a more structured playbook under new legislation or unified regulation, but the short-term impact may produce “more uncertainty.”

The user argued that without formal guidance and only rescinded supervisory notices, “banks may be unsure what is or isn’t allowed.”

One user asked AI chatbot Grok on whether banks can now “just buy what they want,” to which the popular AI assistant responded that the announcement may have “relaxed” some crypto guidance but banks are still required to follow general regulations.

Uncertainty and a lack of clear rules of the road have hampered growth and adoption in crypto, but U.S. Securities and Exchange Commission Chair Paul Atkins has vowed it will be his administration’s priority.

(Source: International Business Times – By Marvie Basilan – 25^th April, 2025)

BCAJ Admin

Perception

Marathi Theatre has a rich tradition of more than 150 years.

It is very vibrant and progressive. In the good old days, purely ‘prose’ plays were very rare. There used to be 20 to 100 songs in a play – based on classical music. The shows often lasted overnight. It was known as ‘Sangeet Rang-Bhoomi’.

There were drama companies (Natak mandalis). Like we have in the circus today, the whole troop stayed and moved together like a family. Play wrights, actors, directors, musicians, singers, drapers, make-up men, helpers and so on. Many stayed with their families in the troops!

Weddings used to happen within the troops, and children also were born! It was a fascinating world, and many people are still having nostalgic memories of that era.

Shri Ram Ganesh Gadkari was the most prominent dramatist of his time. The square at Shivaji Park, Dadar, is named after him. He has written many short stories which are quite humorous.

As said earlier, a kid was born in a drama troop and did not have the occasion to see the outside world at all. The drama troop, travel and performances were the only experience that he had in life.

Once, the owner of the mandali was invited to attend a wedding. He was busy somewhere else. So, he sent this boy of 14 to attend the wedding on his behalf and give the present. The boy could view everything through his perception of’ drama’. On his return, he described the ceremony, treating it as a show of drama.

“I attended the show. It was called ‘Wedding of X with Y. The Theatre was full of a very well-dressed audience. No one was checking the tickets at the door. The show was performed in full light. The doors of the theatre were also kept open. Anybody could enter and leave anytime.

There was no curtain to the stage. Spectators were sitting around the stage, watching the drama. However, they were not attentive. They were chatting among themselves, moving here and there. They were also having drinks and snacks. Small kids were playing and enjoying while the drama was on!

Hero, heroine, their parents and sisters were the main cast. They did not have their dialogues by heart. The directors (priests) were interfering in between. They were also prompting the hero and heroine to speak their dialogues. Prompting was also done on Mike. He was also directing their actions like sitting, standing, bowing to God, moving around the fire, and so on.

The heroine was initially not on the stage. The director shouted and asked the heroin to come with her maternal uncle (mama). By mistake, the curtain was held between the hero and heroine. I think there was no villain in the drama.

Suddenly, some people came forward and sang something (mangalashtak). There was no musical accompaniment.

The musicians also did not know when to play music. The director shouted at them to play the instruments. Then they started.

There was total confusion. I could understand neither the story nor the dialogue. Songs also were strange…….. Hero and heroine did not sing any song!”

Likewise, the author has written it very beautifully. I wish to make it clear that while writing this feature, the text of that article is not in front of me. I have it in my memory. This is not a verbatim translation. The theme is interesting, and I am sure the readers can enjoy it and even add to what the boy would have perceived!

BCAJ Admin

Gift Or Will Or Settlement – What’s The Difference?

INTRODUCTION

Is a Gift Deed the same as an Instrument of Settlement, and are both of them the same as a Will? The answer is a resounding No!! However, what are the metrics used to distinguish one instrument from another? What tests would the Courts apply to decipher this question? The answers to all these questions and many others were given by the Supreme Court in its decision in the case of N. P. Saseendran vs.N. P. Ponnamma, CA No.4312/2025 Order dated 24^th March, 2025. This decision can be considered somewhat a landmark decision since it has laid down various tests and has threadbare analysed 21 other landmark Supreme Court judgements on this point. This Article seeks to analyse the salient points of this judgement.

FACTS OF THE CASE

In Saseendran’s case (Supra), a father executed an instrument of settlement transferring his immovable property in favour of his daughter but at the same time reserving life interest for himself. He reserved the right to income generated from the property and also during his wife’s lifetime. He also had the right to mortgage the property up to a certain amount. Possession was transferred to his daughter. The daughter donee got the registration of the instrument done. After a period of 7 years, the father unilaterally executed a Deed of Cancellation and claimed that this was only a Will and not a Gift / Settlement and hence, he reserved the right to deal with the property as he pleased. Thus, the legal issue before the Supreme Court was whether the document was a gift or a settlement or a Will? The Court proceeded to examine the requirements of each of these documents and then gave its verdict on the nature of the document.

GIFT DEED

The Court examined the requirements of a valid gift under the Transfer of Property Act, 1882.

A valid Gift refers to an instrument by which there is voluntary disposition of one’s existing property (movable or immovable) without consideration to another and the donee should accept the same during the lifetime of the donor, implying imminent vesting of the right upon acceptance. Insofar as an immovable property is concerned, registration is mandatory, whereas, it is not mandatory to register a gift of a movable property, it can be effected by delivery also. Unilateral revocation is not possible. The donor may impose any condition in the deed, which has to be accepted for the gift to take effect.

SETTLEMENT DEED

The Specific Relief Act, 1963, defines the same to be a non-testamentary instrument whereby, there is a disposition or an agreement to dispose of any movable or immovable property to a destination or devolution of successive interest. “Settlement” under the Indian Stamp Act, 1899 refers to a non-testamentary disposition of any movable or immovable property in writing, in consideration of marriage or for the purpose of distributing the property of the settlor among his family or to those to whom he desires to provide or for the purpose of providing for some person dependent on him or for any religious or charitable purpose and includes an agreement in writing to make such a disposition. For immovable properties, the registration of the deed is mandatory. A settlement means a disposition of one’s property to another directly or to vest in any such person after successive devolution of rights on other(s). Further, the circumstances and reasons that led to the execution of such a settlement deed are described as its consideration, which need not necessarily be of any monetary value. More often than not, it consists of love, care, affection, duty, moral obligation, or satisfaction, as such deed are typically executed in favour of a family member. Also, a settlor is entitled to reserve a life interest either upon himself or upon others and impose any condition.

WILL

A will is a testamentary document dealt under the Indian Succession Act, 1925 and is defined as a legal declaration of the intention of the testator to be given effect after his death. Such a declaration is with respect to his property and must be certain. A person may revoke or alter a will at any time while he is competent to dispose of his property by will. The will comes into effect only after the person’s lifetime and he is at full liberty to revoke or alter his earlier will any number of times as long as he is in sound state of mind. Chapter VI of Part VI of this Act deals with construction of wills. The provisions consider the various rules regarding the construction of wills to determine the true intention of the testator and to ensure that the object of such testament is achieved. The rules prescribe the remedy to deal with certain errors and circumstances like misdescription, misnomer and the need for casus omissus – if the law does not provide for a situation, then the caselaw will provide for the same. They also lay down that the meaning is to be discerned from the contents of the entire will and every attempt must be made to give effect to every clause. Later clauses would prevail in case of the two conflicting clauses of gifts in the will, if they are irreconcilable.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT AND SETTLEMENT

The primary difference between the Gift and the Settlement is the existence of consideration in the settlement. A gift is always without any element of consideration whereas in the case of a settlement, consideration is a must. The Court relied upon its earlier decision in Ramachandra Reddy vs.Ramulu Ammal, 2024 SCC Online SC 3304 and held that consideration need not always be in monetary terms. It can be in other forms also.

The Court observed that there were similarities also between a gift and a settlement. Both could not be unilaterally revoked. Creation of a life interest did not affect the nature of the document. Delivery of possession of immovable property was not mandatory, but registration was. It was sufficient if the donee had accepted the same during the lifetime of the executor. The Court analysed various earlier decisions on this point. In K. Balakrishnan vs. K. Kamalam, (2004) 1 SCC 581, the Court held that there was no prohibition in law that ownership in property cannot gifted without its possession and right of enjoyment. Once a gift has been duly accepted it becomes irrevocable in law. A donor cannot unilaterally cancel a completed gift. In Renikntal Rajamma vs. K. Sarwanamma (2014) 9 SCC 445, it was held that in order to constitute a valid gift, acceptance must be made during the donor’s lifetime and whilst he is still capable of giving. If the donee dies before acceptance, the gift is void. Gift of immovable property must be made by a registered instrument, but delivery of possession is not mandatory. In Daulat Singh vs. State of Rajasthan (2021) 3 SCC 459 / Asokan vs. Lakshmikutty (2007) 12 SCC 210, it was held that acceptance of a gift must be ascertained from the surrounding circumstances in each case. It can be inferred by the implied conduct of the donee. In Satya Pal Anand vs. State of MP, (2016) 10 SCC 767 it was held that even if fraud is pleaded, the Registrar cannot unilaterally cancel a document; that right is only with the jurisdictional Court.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT AND WILL

Every will has an element of gift since there is a bequest, but the bequest takes effect only once the testator dies. Till he is alive, he can revoke and revise his will an unlimited number of times.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT, SETTLEMENT AND WILL

The element of voluntary disposition is common to all the three deeds. The element of gift is traceable to both “settlement” and “will”. The nomenclature of an instrument is immaterial, and the nature of the document is to be derived from its contents. Reservation of life interest or any condition in the instrument, even if it postpones the physical delivery of possession to the donee/settlee, cannot be treated as a will, as the property had already been vested with the donee/settlee. The Court referred to Navneet Lal vs. Gokul, (1976) 1 SCC 630 wherein it was held that the Court while interpreting a will is entitled to put itself into the armchair of the testator. The true intention of the testator has to be gathered not by attaching importance to isolated expression but by reading the Will as a whole, with all its provisions and ignoring none of them. When apparently conflicting dispositions can be reconciled by giving full effect to every word used in a document, such a construction should be accepted instead of a construction which would have the effect of cutting down the clear meaning of the words used by the testator. The cardinal principle of construction of wills was that to the extent that it was legally possible effect should be given to every disposition contained in the will. In P.K. Mohan Ram vs. B.N. Ananthachary (2010) 4 SCC 161, the court referred to the broad tests or characteristics as to what constitutes a will and what constitutes a settlement? It held that the consistent view was that while interpreting an instrument to find out whether it was of a testamentary character, which took effect after the lifetime of the executant or was it an instrument creating a vested interest in præsenti in favour of a person, the Court had to very carefully examine the document as a whole, look into the substance thereof, the treatment of the subject by the settlor / executant, the intention appearing both by the expressed language employed in the instrument and by necessary implication. It held that a document which was not a will in form, may yet be a will in substance and effect. The line between a will and a conveyance reserving a life estate was a fine one. The main test to find out whether the document constituted a will, or a gift was to see whether the disposition of the interest in the property was in praesenti in favour of the settlees or whether the disposition was to take effect on the death of the executant.

If the disposition took effect on the death of the executant, it would be a will. But if the executant divested his interest in the property and vested his interest in praesenti in the settlee, the document would be a settlement. The general principle was that the document should be read as a whole, and it was the substance of the document that mattered and not the form or the nomenclature the parties had adopted. The various clauses in the document were only a guide to find out whether there was an immediate divestiture of the interest of the executant or whether the disposition was to take effect on the death of the executant. If the clause relating to the disposition was clear and unambiguous, most of the other clauses were ineffective and explainable and could not change the character of the disposition itself. The Court referred to an old English decision and held that “if I make my testament and last will irrevocable, yet I may revoke it, for my act or my words cannot alter the judgement of the law to make that irrevocable which is of its own nature revocable.” Thus, if an instrument is on the face of it a will, the mere fact that the testator called it irrevocable did not alter its quality. The principal test to be applied was, whether the disposition made took effect during the lifetime of the executant of the deed or whether it took effect after his death. If disposition was of the latter nature, then it was ambulatory and revocable during his life.

In Mathai Samuel vs. Eapen Eapen, (2012) 13 SCC 80, while examining a composite document, the Apex Court outlined the requirements for both a will and a gift. A will is, revocable because no interest is intended to pass during the lifetime of the owner of the property. In the case of gift, it comes into operation immediately. The nomenclature given by the parties to the transaction in question, is not decisive. The mere registration of “will” will not render the document a settlement. In other words, the real and the only reliable test for the purpose of finding out whether the document constitutes a will, or a gift is to find out as to what exactly is the disposition which the document has made. A composite document is severable and in part clearly testamentary, such part may take effect as a will and other part if it has the characteristics of a settlement, and that part takes effect in that way. A document which operates to dispose of property in praesenti in respect of few items of the properties is a settlement and in future in respect of few other items after the deaths of the executants, it is a will. In a composite document, which has the characteristics of a will as well as a gift, it may be necessary to have that document registered otherwise that part of the document which has the effect of a gift cannot be given effect to. Therefore, it is not unusual to register a composite document which has the characteristics of a gift as well as a will. Consequently, the mere registration of document cannot have any determining effect in arriving at a conclusion that it is not a will. A will need not necessarily be registered. But the fact of registration of a will would not render the document a settlement.

The Court held that the act and effect of registration depend upon the nature of the document, which was to be ascertained from a wholesome reading of the recitals. The nomenclature given to the document was irrelevant. In case of a gift, it is a gratuitous grant by the owner to another person; in case of a settlement, the consideration is the mutual love, care, affection and satisfaction. The document must be harmoniously read to not only understand the true intent and purport, but also to give effect to each and every word and direction.

INCONSISTENCIES IN DOCUMENTS

The Court laid down various principles to deal with inconsistencies in the same document. In Mauleshwar Mani vs. Jagdish Prasad (2002) 2 SCC 468, it was held that if there is a clear conflict between what is said in one part of the document and in another where in an earlier part of the document some property is given absolutely to one person but later on, other directions are given which are in conflict with and take away from the absolute title given in the earlier portion, then the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded. When it is not possible to give effect to all of them, then the rule of construction is well established that it is the earlier clause that must override the later clauses and not vice versa. Where under a will, a testator has bequeathed his absolute interest in the property in favour of his wife, any subsequent bequest which is repugnant to the first bequeath would be invalid. The object behind this principle is that once an absolute right is vested in the first beneficiary, the testator cannot change this line of succession. Where a testator confers an absolute right on anyone, the subsequent bequest for the same property in favour of other persons would be repugnant to the first bequest in the will and has to be held invalid.

In Sadaram Suryanarayana vs. Kalla Surya Kantham (2010) 12 SCC 147, it was held that if a clause was susceptible of two meanings, according to one of which it had some effect and according to the other it had none, the former was to be preferred. While interpreting a will, the courts would, as far as possible, place an interpretation that would avoid any part of a testament becoming redundant. Courts will interpret a will to give effect to the intention of the testator as far as the same is possible. The meaning of any clause in a will must be collected from the entire instrument and all parts shall be construed with reference to each other.

In Madhuri Ghosh vs. Debobroto Dutta (2016) 10 SCC 805 it was held that if a will contains one portion which is illegal and another which is legal, and the illegal portion can be severed, then the entire will need not be rejected, and the legal portion can be enforced. The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. The status and the training of the parties using the words have to be taken into consideration. It is well settled that in case of such a conflict the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded as unsuccessful attempts to restrict the title already given. An attempt should always be made to read the two parts of the document harmoniously, if possible. It is only when this is not possible e.g. where an absolute title is given is in clear and unambiguous terms and the later provisions trench on the same, that the later provisions have to be held to be void.

In Bharat Sher Singh Kalsia vs. State of Bihar (2024) 4 SCC 318, the Court observed that three Clauses of a will – 3, 11 and 15 were in apparent conflict. It perceived a conflict between Clauses 3 and 11, on the one hand, and Clause 15 on the other, and concluded that Clauses 3 and 11 would prevail over Clause 15 as when the same could not be reconciled, the earlier clause(s) would prevail over the latter clause(s), when construing a deed or a contract. It followed the settled principle:

“The principle of law to be applied may be stated in few words. If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later……….But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole”

VERDICT IN SASEENDRAN’S CASE (SUPRA)

In light of the above legal principles, the Court examined the instrument executed by the father in favour of his daughter. The opening phrase stated that the instrument was executed “In consideration of my love and affection towards you, the schedule below properties are herein conveyed to you ….. Till my lifetime, I shall be in possession of the schedule properties and shall take the yields from it and if necessary I shall have the right to pledge the schedule properties for a sum not exceeding `2000/- and to avail loan on that basis. After my lifetime, Janaki Amma, who is my wife and your mother, shall have the right to possess the property and take income from the property and utilize the same according to the will and wishes of the said Janaki Amma till the end of her lifetime and you have no right to restrain the said rights of Janaki Amma for any reasons. ”

The Court held that this demonstrated that there was consideration, conveyance, imposition of conditions and reservation of life interest by the father satisfying the requirements to classify the document as a “settlement”. The Court laid down that the postponement of delivery by creation of life interest was not an anathema to absolute conveyance in praesenti. Since life interest was reserved by the father and mother, he was holding only an ostensible possession while the true owner was the daughter. Reservation of life interest was permissible in a settlement but that did not affect the already vested rights. Hence, it concluded that the instrument was a settlement. It further held that delivery of possession is not mandatory to validate a gift or a settlement. All that is required to be proved is whether the gift has been acted upon during the lifetime of the donor. In the present case, the Apex Court found that the donee had unilaterally presented the deed for registration and this fact showed that the document was handed over by the father / donor to his daughter. Thus, the fact of acceptance could be derived from the conduct of the parties. The donee was in possession of the original title deed and had hence, accepted and acted upon the gift. Delivery of possession of the property was only one of the methods to prove acceptance but not the sole method. Receipt of original title deeds and registration of the instrument of settlement would amount to an acceptance of the gift and would satisfy all the requirements of the Transfer of Property Act. Once a gift has been completed, then the donor has no right to cancel the same in the absence of any reservation clauses in the deed. The Court thus held that the donor father had no rights to unilaterally cancel the transfer.

EPILOGUE

This is a very good decision which has examined three vital documents ~ gift, settlement and will. The decision has also brought out the interplay and differences amongst these. It also explains how to construct various documents and how to resolve inconsistencies. Anyone interested in a masterclass on construing documents would be advised to study this decision along with the various decisions that it has followed!!

BCAJ Admin

Indusind Bank – Strict Action Required To Eliminate Trust Deficit

Homo sapiens were neither the strongest species nor capable of flight, yet they outnumbered and outlasted many others. How, you ask? Consider chimpanzees—physically far stronger than humans—whose population remains below 300,000, while humans dominate the planet with 8.2 billion individuals. The key difference? Trust. Chimpanzee groups rarely exceed 200 members because, beyond that number, trust collapses and cooperation ends.

Humans, on the other hand, rely on trust in almost every aspect of life. We trust doctors with our health, auditors with financial integrity, management of the companies we are invested in, and banks, with our hard-earned money. But what happens when that trust is broken, and Jugaad becomes Jugaar? The impact can be catastrophic.

As Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it.” When crooks cheat with impunity, without fear of the law, their numbers only grow. If our laws remain weak and forgiving, they risk enabling more criminals to operate without consequences. Without strict action, trust in the system will be permanently eroded, threatening the very foundation on which businesses operate.

INDUSIND BANK – A CASE IN POINT

On 10^th March, 2025, the bank made the following disclosure:

“During internal review of processes relating to Other Asset and Other Liability accounts of the derivative portfolio, post implementation of RBI Master Direction – Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023 issued in September 2023, including accounting of Derivatives, applicable from 1^st April, 2024, Bank noted some discrepancies in these account balances. Bank’s detailed internal review has estimated an adverse impact of approximately 2.35 per cent of Bank’s Net worth as of December 2024. The Bank has also, in parallel, appointed a reputed external agency to independently review and validate the internal findings. A final report of the external agency is awaited and basis which the Bank will appropriately consider any resultant impact in its financial statements. The Bank’s profitability and capital adequacy remains healthy to absorb this one-time impact.”

IndusInd Bank’s share price crashed 27 per cent on March 11, hitting the new 52-week low mark, erasing ₹19,000 crore of market capitalisation. The stock hit three lower circuits, one after another, before 10 am on the National Stock Exchange. Imagine, how betrayed investors must have felt. Many questions emerged.

Is this just a tip of the iceberg? Are there more problems yet to be discovered?
What led to this discovery?
Who committed the crime?
Will the perpetrators of the crime, be allowed to continue running the bank?
Is the depositor’s money safe, and could the bank collapse?
Is this an aberration and limited only to IndusInd?

The investor call held by the Bank, clarified a few things:

The difference was accumulated over a period of time
The issue was identified by the Bank (Not clear, who in the Bank flagged it?).
The bank remains financially stable.
An Independent firm has been appointed to ascertain the full impact.
The CFO had resigned a couple of months ago.

Management’s response on the call with regard to the audit, was as follows: “So there are 4 types of audits which happened. So first of all, understand the structure of treasury. They have a front office, a mid-office and a back office and a concurrent audit, which continues to happen. Second, there is an internal audit, which happens. And also, they take support of external agencies before everything to do the audit. Then there is a statutory audit, which happens on these and then a compliance audit and then the RBI audit. All these audits continue to happen on treasury on a regular basis.”

Yet, a crucial question lingers: How was this discrepancy picked up only in the last three months despite multiple layers of audit over the years?

The Management’s response, “Those are questions which we will answer in detail once our review is complete by the external agency because it’s important. Based on this new circular, we did our own internal review. I would say that those questions, we are also, in process of finding out as to where was this missed from. So I’m sorry, I really can’t answer it right now. But once we have those answers, we’ll be absolutely transparent in getting back to you.”

The RBI quickly stepped in assuring depositors that their money is safe. RBI allowed the CEO to continue for another year (rather than 3 years, the board had sought), ensuring that the banks activity is not abruptly disrupted.

A CRISIS OF CONFIDENCE

This shocking revelation led to a flurry of analyst downgrades, exacerbating other concerns as well, such as stress in IndusInd Bank’s microfinance books. Curiously, one analyst still maintains
an outperform rating, which raises eyebrows and warrants an investigation—though that’s a story for another day.

There is significant regulatory overlap in this case. While the RBI is the primary banking regulator, SEBI governs market disclosures and insider trades, NFRA oversees auditors, and SFIO handles financial fraud investigations of a serious nature. They should all come together, though NFRA should spearhead this, as they have the appropriate accounting knowledge and investigative skills. Ultimately, each of these regulators will then have to consider stringent and punitive action, basis their jurisdiction, for e.g., NFRA can take action against the auditors, SEBI on the management for fraudulent practices as well as insider trading. SEBI should also look at the role of the independent directors and take stringent action on them. RBI too will need to coordinate with SEBI and NFRA.

It would be naive to dismiss this as a mere accounting error or attribute it to senior management succumbing to reporting pressures, especially when subsequent media reports highlighted substantial insider trades.

A CALL FOR ACTION

A full-scale and swift investigation is imperative. Not only should senior management be held accountable, but the role of auditors and independent directors must also be thoroughly scrutinized. If those responsible are not severely punished, it will embolden cheaters and criminals. As Mahatma Gandhi once said, “The moment there is suspicion about a person’s motives, everything he does becomes tainted.” The regulators must act decisively to restore faith in the financial system.

Trust is the bedrock of human connections and the very essence of our survival. When trust is violated—especially in financial integrity—it shakes the foundation of coexistence. Each breach is a perilous step toward the potential destruction of our shared economy and society. Upholding trust is not just a moral imperative; it’s a fundamental necessity for the well-being and continuity of our interconnected existence.

In conclusion, regulators must fire on all cylinders to make Indian stock markets safe for all. White-collar crimes should not be treated any differently than physical thefts. Some criminal who smuggles in a couple of gold biscuits, they are imprisoned, and life is made absolutely miserable for them. On the other hand, SEBI allows these white-collar crimes to go literally scot-free. At best there is disgorgement, some penalty, and some ban from the capital market. This is hardly any relief for investors who have lost tons of money, and the loss of trust in capital markets, which is a more serious thing. Moreover, for habitual wrong doers, the disgorgement and penalty is a cost of doing business!!

A system that fails to punish financial wrongdoers swiftly is a society destined for collapse, like the chimpanzees!! As Thomas Jefferson wisely said, “Honesty is the first chapter in the book of wisdom.” It’s time we enforce this principle in action, not just in words.

BCAJ Admin

Section 36(1)(vii): Advances written off – Allowable: Section 10B – Deduction – Site Transfer Income : Tribunal last fact-finding authority ought to have given independent finding while reversing decision of lower authorities :

Pr. Commissioner of Income Tax-11 vs. Watson Pharma Pvt. Ltd.,

[ITXA No. 1770 OF 2017, Dated: 26th March, 2025, (Bom) (HC)]

AY 2010-11.

Section 36(1)(vii): Advances written off – Allowable:

Section 10B – Deduction – Site Transfer Income : Tribunal last fact-finding authority ought to have given independent finding while reversing decision of lower authorities :

The Assessee is a wholly owned subsidiary of M/s. Watson Lab., USA and is engaged in the business of manufacturing and R & D facilities in India and also renders contract manufacturing services to its associate enterprises.

During the year under consideration, the assessee wrote-off various advances which were given in earlier years in the course of its business and same could not be recovered. The claim was made under Section 36(1)(vii) of the Act, and in the alternative under Section 28 of the Act. The assessee vide letter dated 4^th March, 2014 addressed to the Assessing Officer (AO) gave the details of such write off by way of enclosures. These details pertain to more than 50 parties on account of various transactions which were stated in the remarks column e.g., AMC lift maintenance, raw materials, professional fees etc.

The Dispute Resolution Panel (DRP) disallowed the claim under Section 28 on the ground of want of evidence. The Tribunal allowed the claim of the respondent-assessee. The Tribunal has given reason that the genuineness of the advances have not been doubted by the revenue and further books of account have been audited by the statutory auditors and, therefore, the write off should be allowed after setting off the credit balances. The net balance written off which were allowed by the Tribunal was ₹7,66,713/-.

The ld. counsel for the appellant-revenue relied upon the order of the DRP and submitted that the claim was not sustainable. Against this, the learned counsel for the respondent-assessee submitted that the respondent-assesseehad filed the details of these advances with the AO and DRP vide letter dated 4^th March, 2014 and the Tribunal after considering the said letter has allowed the claim.

The Hon. Court observed that on a perusal of the letter dated 4^th March, 2014 and its enclosures, these are advances to more than 50 parties against which either the advances are not recoverable or the respondent-assessee has not received any services. The amount ranges from ₹200 to ₹3 lakh, major amounts being in few thousands. The DRP has not considered this letter and, therefore, observations made by the DRP that the claim is without evidence is incorrect. The Tribunal has correctly considered the details filed along with letter dated 4 March 2014 and allowed the claim. Further, the total income declared by the respondent-assessee is more than ₹30 crore and the net balance written off is only ₹7,66,713/-. This comparison is only to show when the income offered is more than ₹30 crore, small amounts write off would constitute reasonableness and more so looking at the nature of the write off detailed in enclosure to letter dated 4^th March, 2014. Therefore, the Tribunal was justified in allowing the claim of the respondent-assessee.

Regarding the second issue i.e. deduction under section 10B of the Act, it was observed that the respondent-assessee was eligible for deduction under Section 10B of the Act with respect to its Goa unit and Ambarnath unit. The respondent-assessee has claimed deduction under Section 10B on “Site Transfer Income” of ₹19,61,98,000/- with respect to these two units. The DRP denied the deduction under section 10B on “Site Transfer Income” on the ground that same does not represent the income derived from the business of eligible unit. The Tribunal has allowed the claim.

The Ld. Counsel for the appellant-revenue submitted that the Tribunal has not given any reasons for allowing the claim of deduction under section 10B on “Site Transfer Income”. Accordingly, the relief given by the Tribunal without giving any reason would be contrary to the well-settled principle that the appellate authority has to give reasons which constitute the heart of the decision. The department relied upon the decision of the Supreme Court in the case of Santosh Hazari vs. Purushottam Tiwari (deceased) by Lrs. (2001) 3 SCC 179 and more particularly paragraphs 15 and 16 of the said order.

The Hon. Court noted the operative part of the Tribunal on this issue which reads as under :-

“We have heard the counsels for both the parties at length and we have also perused the orders passed by respective authorities, judgments relied by the parties and while taking into consideration the facts of the case, we are of the considered view that the Site Transfer Income is a part of business income earned by the assessee and is eligible for deduction while computing deduction u/s 10B of the Income Tax Act.”

The Hon. Court observed that the approach of the Tribunal is not appreciable. The Tribunal has merely stated that after hearing both the parties and perusing the orders and judgments, the Site Transfer Income is eligible for deduction under Section 10B of the Act.

According to Hon. Court the Tribunal ought to have given the reasons as to how “Site Transfer Income” constitutes the income derived from the business of the undertaking. The said reasoning is totally absent. The operative part is only the conclusion but before coming to the conclusion, the Tribunal ought to have given its reasons, especially since it is the case of reversal of the order passed by the AO and DRP and the Tribunal being the final fact finding authority and first appellate authority in this case was expected to give the reasons before coming to the conclusion which are absent in the present case. There is no discussion as to how the said decision is applicable to the Site Transfer Income before giving relief to the respondent-assessee. The Tribunal has given independent reasoning when it came for various other income being eligible but did not give any reasoning on “Site Transfer Income.”

It is well-settled that the duty to give reasons in support of adverse orders is a facet of the principles of natural justice and fair play. In several cases, the necessity of providing reasons by a body or authority to support its decision was considered before the Hon’ble Supreme Court. The Hon’ble Supreme Court held that on the face of an order passed by a quasi-judicial authority affecting the parties’ rights must speak for itself.

The Hon. Court referred and relied on the decision of the Supreme Court in case of Assistant Commissioner, Commercial Tax Department, Works Contract and Leasing, Kota vs. Shukla and Brothers (2010) 4 SCC 785 , wherein it has held that a litigant has a legitimate expectation of knowing reasons to reject his claim / prayer. Only then would a party be able to challenge the order on appropriate grounds. Recording of reasons would also benefit the appellate court. As arguments bring things hidden and obscure to the light of reasons, reasoned judgment, where the law and factual matrix of the case are discussed, provides lucidity and foundation for conclusions or exercise of judicial discretion by the courts. The reason is the very life of the law. When the reason for a law once ceases, the law itself generally ceases. Such is the significance of reasoning in any rule of law. Giving reasons furthers the cause of justice and avoids uncertainty.

The Hon. Court held that the absence of reasons essentially introduces an element of uncertainty and dissatisfaction and gives entirely different dimensions to the questions raised before the higher / appellate courts. The Court noted that there was hardly any statutory provision under the Income tax Act or the Constitution itself requiring the recording of reasons in the judgments. Still, it was no more res-integra and stands unequivocally settled by different decisions of the Court, holding that the courts and tribunals are required to pass reasoned judgments / orders.

In Union of India vs. Mohan Lal Capoor (1973) 2 SCC 836, the Hon’ble Supreme Court explained that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They should reveal a rational nexus between the facts considered and the conclusions reached.”

In view of the above observations, the Hon Court remanded the matter back to the Tribunal for deciding the ground of deduction under Section 10B qua “Site Transfer Income.”

BCAJ Admin

Section 143(3) : Notice and Assessment order – Non-existing entity – fact of merger was intimated to the officer, prior to the assessment order – Order bad in law:

3. Commissioner of Income Tax-LTU vs. Shell India Markets Pvt. Ltd. (Erstwhile Shell Technology India Pvt. Ltd.)

[ITXA No. 2381 OF 2018,

Dated: 27^th March, 2025 (Bom)

(HC)] AY 2007-08 :

Section 143(3) : Notice and Assessment order – Non-existing entity – fact of merger was intimated to the officer, prior to the assessment order – Order bad in law:

The Respondent-Assesseehad raised an additional ground before Tribunal that a notice and assessment order has been issued on a non-existing entity namely “Shell Technology India Private Limited” and therefore same is void. The Tribunal decided this ground in favour of the Respondent- Assessee and quashed the assessment order by accepting the submission of the Respondent-Assessee that the notice and order was issued in the name of a non-existing entity i.e. “Shell Technology India Pvt. Ltd.”, although the fact of the merger of this company into “Shell India Market Limited” was intimated to the officer, prior to the assessment order vide letter 21^st September, 2010.

The learned counsel for the Appellant- Revenue, submitted that the appeal can be disposed of by following various orders of the Hon. Court, wherein the decision of the Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC)and PCIT (Central)-2 vs. M/s. Mahagun Realtors (P) Ltd. [2022 443 ITR 194 (SC) have been considered. He specifically relied on the order and judgment passed by the bench in the case of Reliance Industries Limited vs. P. L. Roongta And Ors. WP No. 772 of 1992 along with ors (Bombay)

The assessee contended that the notice and order ought to have been issued in the name of the transferee company “Shell India Market Private Limited” and not against the transferor company “Shell Technology India Private Limited”.

The Hon. Court held that the notice and order should have been issued in the name of the transferee company “Shell India Market Private Limited” and not the transferor company “Shell Technology India Private Limited”. The decisions relied supports that if the Assessing Officer has been intimated about the fact of merger, then the notice should have been issued in the name of the transferee company and not the transferor company. Since in the instant case the notice and the assessment order is passed in the name of the transferor company “Shell Technology India Private Limited” and not the transferee company “Shell India Market Private Limited”, same are bad in law.

The Hon. Court clarified that the present Appeal was dismissed only on the ground that the notice and assessment order has been passed in the name of the transferor company. However, this order would not preclude the Appellant-Revenue from initiating fresh proceedings against the transferee company, in accordance with law for assessing the income in the hands of the transferee company. The Appeal was accordingly disposed of.

BCAJ Admin

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

13. Principal CIT vs. MiliaTracon Pvt. Ltd.:

[2025] 473 ITR 155 (Cal.):

Block period 01/04/1996 to 07/05/2002:

Date of order 3^rd July, 2024:

Ss.132 and 158BD of ITA 1961

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

A search conducted at the premises of UIC group led to the discovery of certain share certificates issued in the name of the assessee. The Assessing Officer of the assessee initiated proceedings u/s. 158BD of the Income-tax Act, 1961, without recording a satisfaction note as mandated and the assessee denied any undisclosed income. Subsequently, summons were issued to four individuals u/s. 131 but could not be served. The Assessing Officer of the assessee communicated the reasons for initiation of proceedings through a letter. The assessee submitted block returns of income and contested the proceedings, asserting that they were improperly initiated.

The Assessing Officer passed an assessment order. The satisfaction note reproduced in the assessment order was prepared by the Assessing Officer of the assessee and not by the Assessing Officer of the searched person, as required u/s. 158BD.

The Commissioner (Appeals) upheld the validity of the initiation of proceedings but granted relief on certain additions. The Tribunal reversed the findings of the Commissioner (Appeals), concluding that the initiation of proceedings was without jurisdiction since the mandatory requirements of recording satisfaction and transferring documents by the Assessing Officer of the searched person to the assessee’s Assessing Officer were not followed.

The Calcutta High Court dismissed the appeal filed by the Revenues and held as under:

“i) U/s. 158BD of the Income-tax Act, 1961, satisfaction note has to be recorded by the Assessing Officer of the searched person and send it to the Assessing Officer of such other person, the third party.

ii) The initiation of proceedings u/s. 158BD was unauthorised and lacked jurisdiction. The satisfaction note required u/s. 158BD must be recorded by the Assessing Officer of the searched person and sent to the Assessing Officer of the third person assessee. This requirement was not met in this case, as the note was prepared by the Assessing Officer of the assessee, contrary to statutory provisions. Additionally, the mandatory procedure for transferring seized documents to the assessee’s Assessing Officer was not followed. There was no illegality in the order of the Tribunal.”

BCAJ Admin

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

12. ESS Singapore Branch vs. DCIT:

[2025] 473 ITR 541 (Del.):

A. Y. 2014-15: Date of order 22^nd August, 2024:

Ss.199, 240 and 244 of ITA 1961

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

The Assessee filed return of income for AY 2014-15 and claimed a refund of ₹3,65,970. The case was selected for scrutiny wherein the Assessing Officer raised an issue as to whether the revenue earned by the assessee including the consideration for live feed, would constitute royalty and thus be taxable. The Assessing Officer framed the draft assessment order holding that the consideration received towards live feed was taxable as royalty under the Income-tax Act, 1961. The Dispute Resolution Panel (DRP), affirmed the view taken by the AO pursuant to which the final order was passed.

On appeal before the Tribunal, the Tribunal held that there was a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast was neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of royalty under Explanation 2 to Section 9(1)(vi) and decided the appeal in favour of the assessee. Further, the Tribunal gave directions to the Assessing Officer to verify and grant credit for tax deducted at source as claimed by the assessee. Pursuant to the direction of the Tribunal, the assessee filed application before the Assessing Officer. The Assessing Officer restricted the benefit of TDS to the amount which was claimed in the return of income on the ground that amount reflected in Form 26AS was not claimed by the assessee in the return of income. It was also held that for the purposes of refund, the assessee had to follow the procedure as laid out in section 239 of the Act.

The Delhi High Court allowed the petition filed by assessee and held as follows:

“i) The unquestionable mandate of section 240 of the Income-tax Act, 1961 , as would be manifest from a reading of that provision, is that in cases where a refund becomes due and payable consequent to an order passed in an appeal or other proceedings, the Assessing Officer is obliged to refund the amount to the assessee without it having to make any claim in that behalf.

ii) Tax deducted at source duly deposited becomes liable to be treated as tax duly paid in terms of section 199 and interest thereon would consequently flow from the first day of April of the relevant assessment year to the date on which the refund is ultimately granted by virtue of section 244A(1)(a) of the Act.

iii) The undisputed position was that the Assessing Officer was called upon to give effect to a direction framed by the Tribunal. Viewed in that light, the stand taken by the Assessing Officer was unsustainable in so far as it restricted the claim of the assessee to the disclosures made in the return of income. It was wholly illegal and inequitable for the Department to give short credit to the tax duly deducted and deposited based on the claim that may be made in a return of income.

iv) Direction issued to respondents to acknowledge the credit of tax deducted at source as reflected in form 26AS of the assessee amounting to ₹2,27,83,28,430 and to recompute the total refund at ₹2,03,40,32,090.”

BCAJ Admin

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified

11. Associated Chambers of Commerce and Industry of India vs. DCIT:

[2025] 473 ITR 696 (Del.):

A. Y. 2016-17: Date of order 5^th August, 2024:

Ss.11(2), 147, and 148A of ITA 1961

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified:

The Assessee is a company registered u/s. 8 of the Companies Act and holds registration u/s. 12AA of the Act. Re-assessment proceedings were initiated against the assessee for the A. Y. 2016-17 on account of failure to digitally file and upload Form 10 on or before the due date of filing return of income u/s. 139(1) of the Act. While the assessee filed Forms 10A and 10B after the due date of return of income, however, the same were submitted before the Assessing Officer prior to the completion of the assessment proceedings. Assessment order was framed on 1^st December, 2018 and the accumulation u/s. 11(2) was accepted.

The re-opening of assessment was challenged in a writ petition filed before the High Court. The Delhi High Court allowed the Petition of the assessee and held as follows:

“i) Section 11(2) of the Income-tax Act, 1961, speaks of a statement in the prescribed form (form 10) being “furnished” to the Assessing Officer. The change in the “prescribed manner” u/s. 11(2)(a) for the submission of form 10 and which moved to a digital filing was introduced for the first time by virtue of the Finance Act, 2015 ([2015] 373 ITR (St.) 25) and the Income-tax (First Amendment) Rules, 2016 ([2016] 380 ITR (St.) 66). Prior to those amendments, all that section 11(2)(a) required was for the assessee to apprise the Assessing Officer, by a notice in writing, of the purposes for which the income was sought to be accumulated and the mode of its investment or deposit in accordance with section 11(5). The requirement of form 10 being furnished electronically was undisputedly introduced for the first time by way of the 2016 Amendment Rules. The electronic submission of form 10 is essentially a matter of procedure as opposed to being a mandatory condition which may be recognised to form part of substantive law. An action for reassessment would have to be based on the formation of an opinion that income chargeable to tax has escaped assessment. That primordial condition would clearly not be satisfied on the mere allegation of a delayed digital filing of form 10.

ii) The action for reassessment was not founded on income liable to tax having escaped assessment. The Department also did not question the acceptance of the accumulations in terms of section 11(2) in the assessment order dated 1^st December, 2018. The entire action for reassessment was founded solely on form 10 having been submitted after 17^th October, 2016 which was the due date in terms of section 139(1). The order u/s. 148A(d) dated 31^st March, 2023 and the consequent initiation of reassessment proceedings through notice u/s. 148 of the Act of even date were not valid and were liable to be quashed.”

BCAJ Admin

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed: Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

10. ATS Infrastructure Ltd. vs. ACIT:

[2025] 473 ITR 595 (Del.):

A. Ys. 2014-15 to 2016-17: Date of order 18^th July, 2024:

Ss.147, 148, 148A(b) and 148A(d) of ITA 1961:

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed:

Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

Notice u/s. 148A(b) was issued on the ground that the assessee had received loan from its 100% subsidiary. In response to the notice, the assessee submitted that the assessee had not received any loan from its subsidiary but on the contrary it had repaid the loan. The Assessing Officer, vide order dated 23^rd July, 2022 passed u/s. 148A(d) of the Act accepted the explanation of the assessee. However, he alleged that the assessee had not been able to completely explain the source of the money which was used to repay a part of the loan and therefore the amount towards loan of ₹25,53,42,435 was treated as income chargeable to tax which had escaped assessment.

The Assessee challenged the aforesaid order in a writ petition before the High Court mainly contending that the Department had changed their stand and sought to re-open the assessment on a ground which did not form part of the original notice.

The Delhi High Court allowed the petition, quashed the proceedings and held as follows:

“i) The validity of the reassessment proceedings initiated u/s. 147 of the Income-tax Act, 1961, upon issue of a notice u/s. 148, would have to be adjudged from the stand point of the reasons which formed the basis for the formation of opinion with respect to escapement of income. That opinion cannot be one of changing or fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. The court would be primarily concerned with whether the reasons which formed the basis for formation of the requisite opinion are tenable and sufficient to warrant invocation of section 147.

ii) The enunciation with respect to the indelible connection between section 148A(b) and section 148A(d) are clearly not impacted by Explanation 3. U/ss. 147 and 148 the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the Assessing Officer and which could be invoked once an assessment has been validly reopened. Explanation 3 which forms part of section 147, would apply only when it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in the light of the principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the Assessing Officer in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated and the assessment has been validly reopened. Explanation 3, cannot consequently be read as enabling the Assessing Officer to attempt to either deviate from the reasons originally recorded for initiating action u/s. 147 or section 148 nor can the Explanations be read as empowering the Assessing Officer to improve upon, supplement or supplant the reasons which formed the basis for initiation of action under these provisions.

iii) The proviso to section 147 linked the initiation of reassessment to the existence of information which already existed or was in the possession of the Assessing Officer which was the basis for formation of the opinion that income liable to tax had escaped assessment. The provision fortified the view that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers u/s. 147 were justifiably invoked. Accordingly, the reassessment proceedings were unsustainable. Considering the import of Explanation 3 as well as the language in which section 147 stood couched, there was no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. vs. CIT [2011] 336 ITR 136 (Delhi); which had been affirmed and approved subsequently in CIT (Exemption) vs. Monarch Educational Society [2016] 387 ITR 416 (Delhi); and CIT vs. Software Consultants [2012] 341 ITR 240 (Delhi). Consequently, the order u/s. 148A(d) and the subsequent notice u/s. 148 were quashed. The Department was granted liberty to take such action as may otherwise be permissible in law.”

BCAJ Admin

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

9. Everest Kanto Cylinder Ltd. vs. Dy./ Asst. CIT:

[2025] 473 ITR 148 (Bom.):

A. Y. 2017-18: Date of order 4^th July, 2024:

Ss. 147, 148, 148A(b), 148A(d) and 151A of ITA 1961:

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29^th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

On a writ petition challenging the initial notice issued by the jurisdictional Assessing Officer u/s. 148A(b) of the Income-tax Act, 1961, the order passed on such notice u/s. 148A(d) and the consequent notice issued u/s. 148 for the A. Y. 2017-18 for reopening the assessment u/s. 147 the Bombay High Court allowed the petition and held as under:

“The jurisdictional Assessing Officer did not have jurisdiction to issue the notice u/s. 148 to reopen the assessment u/s. 147 in view of the provisions of section 151A read with the notification dated 29^th March, 2022 ([2022] 442 ITR (St.) 198) issued by the Central Government. The initial notice issued u/s. 148A(b) and the order u/s. 148A(d) were set aside. The consequent notice issued u/s. 148 was illegal and invalid.”

BCAJ Admin

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3rd February, 2022 and assessment completed on 22nd March, 2022 — Held, assessment order barred by limitation:

8. CIT vs. Ramco Cements Ltd.:

[2025] 474 ITR 9 (Mad):

A. Y. 2017-18: Date of order 19^th December, 2024:

Ss.143(3), 144B and 144C(13) of ITA 1961

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31^st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3^rd February, 2022 and assessment completed on 22^nd March, 2022 — Held, assessment order barred by limitation:

The order of the Dispute Resolution Panel (DRP) was uploaded on 31^st January, 2022 in the Department’s portal of Income-tax Business Application for National e-Faceless Assessment Centre, Delhi. The order was received by the Assessing Officer on 3^rd February, 2022 as per the case history data and the proceedings were completed by the Assessing Officer on 22^nd March, 2022. On the questions of whether the date of receipt of direction of the DRP was 31^st January 2022 or 3^rd February, 2022 and whether the completion of proceedings by 22^nd March, 2022 was within the time limit stipulated u/s. 144C(13), the Madras High Court, dismissing the appeal filed by the Revenue, held as under:

“i) The commencement of limitation for the passing of the final assessment order is 30 days from the end of the month when the directions of the Dispute Resolution Panel are received by the Assessing Officer. Section 144C of the Income-tax Act, 1961 is a code by itself that provides for very strict timelines for completion of an assessment. Hence the stipulation in regard to limitation cannot be reckoned in a manner so as to give rise to more than one interpretation, where either party can take benefit of a later date.

ii) The communication from the Dispute Resolution Panel to the Tribunal confirmed that the directions of the Dispute Resolution Panel had been uploaded in the Income-tax Business Application on 31^st January, 2022 itself. Since the Income-tax Business Application portal could be accessed by both the assessee as well as the Assessing Officer on their furnishing necessary credentials, the point that remained to be determined was how there could be two dates, i. e., 31^st January, 2022 and 3^rd February, 2022, when the same order was served upon the Faceless Assessment Officer and which date was to be reckoned as the point of commencement of limitation.

iii) The internal processes followed by the Income-tax Department make it possible for the user to initiate proceedings in the Income-tax Business Application portal using two methodologies. According to the unmasking report, if the Dispute Resolution Panel user selects the option of “draft order u/s. 144C” in the screen, then a link is created with the assessment module such that the direction passed by the Dispute Resolution Panel would automatically be reflected in the case history or notings of the Assessing Officer, both the Faceless Assessment Officer and jurisdictional Assessing Officer. The second method is where the Dispute Resolution Panel user has initiated proceedings, by using the option of manually entering the details of the order u/s. 144C in the screen. In such circumstances, the Dispute Resolution Panel order does not reflect automatically in the case history or notings of the assessment proceedings. According to the report, the second option had been availed by the Dispute Resolution Panel user and hence though the order was uploaded by the Dispute Resolution Panel user in the Income-tax Business Application on 31^st January, 2022 itself, such uploading was not noticed by the Assessing Officer. However, as far as the Assessing Officer was concerned, an advisory issued by the Income-tax Business Application team on visibility of orders passed by Dispute Resolution Panels to other Income-tax Business Application users, was relevant. Paragraphs 1 and 2 of the advisory stipulated the two methods or options for uploading of the order. However, whatever be the method chosen, the directions of the Dispute Resolution Panel would be visible in the 360-degree screen to the Faceless Assessment Officer, if any assessment work-item were pending with him, in relation to a permanent account number. In other words, in the event of pending assessment proceedings, he would have to key in the concerned permanent account number of the assessee, such that, panoramic, 360-degree visibility was available to him to view the Dispute Resolution Panel directions as and when uploaded, which in the assessee’s case was on 31^st January, 2022. The order of assessment dated 22^nd March, 2022 had been passed u/s. 143(3) read with section 144C(13) read with section 144B. This provision required an assessment to be framed only in faceless mode by a Faceless Assessment Officer and it was he who had framed the assessment. The advisory had made it clear that the Faceless Assessment Officer would be able to view the Dispute Resolution Panel order in the 360-degree screen, since the assessment was pending with him. This feature had evidently been provided to ensure that an officer could access or receive the directions of the Dispute Resolution Panel as soon as it was uploaded by the Secretariat of the Dispute Resolution Panel and the pending proceedings would be completed within the statutory limitation provided. Hence, there was no protection available to the Department by the Dispute Resolution Panel user having selected the second manual option, since an Assessing Officer, in order to ensure that the assessment proceedings were strictly in accordance with statutory limitation, had been given full and complete access to all inputs required for completion of the assessment including the directions of the Dispute Resolution Panel immediately on their uploading into the Income-tax Business Application portal by the Dispute Resolution Panel. Clearly, limitation could not be dependent on varying user functionalities which were nothing but internal processes. If such contention was accepted, the commencement of limitation would vary depending on the option exercised by the user which would defeat the purpose of statutory limitation. The starting point of limitation was thus to be reckoned from the earliest instance when the directions of the Dispute Resolution Panel would be visible to the officer and could not be taken to fluctuate from one methodology to another depending on the option exercised by the user. The concluding portion of the advisory stated that the Dispute Resolution Panel order would be visible in the 360-degree screen to the Faceless Assessment Officer for his ready access. Therefore, all that was required to gain complete and up-to-date access to all relevant data in regard to an assessment would be available on the 360-degree screen.

iv) The fact that the Faceless Assessment Officer had merely chosen to await intimation when the order u/s. 144C had admittedly been uploaded on the Income-tax Business Application by the Dispute Resolution Panel user, and his consequent belated response, could not lead to a situation of disadvantage to the assessee, particularly when the advisory provides a methodology by which the Faceless Assessment Officer could access the document uploaded by the Dispute Resolution Panel simultaneously. The Tribunal was right in holding that the date of receipt of the direction of the Dispute Resolution Panel by the Assessing Officer was 31^st January, 2022 being the date of uploading of the order of the Dispute Resolution Panel in the Department’s portal or website though the intimation of the Dispute Resolution Panel’s order was received by the Assessing Officer only on 3^rd February, 2022 as per the case history data and the completion of the proceedings by the Assessing Officer on 22^nd March, 2022.”

BCAJ Admin

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal: Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

7. Uttar Gujarat Vij Co. Ltd. vs. ITO:

[2025] 473 ITR 729 (Guj):

A. Y. 2010-11, 2012-13 to 2014-15:

Date of order 1^st April, 2024:

S. 254 of ITA 1961

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal:

Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

The petitioner-company is owned by the Government of Gujarat and carrying on business of distribution of electricity. For the A. Y. 2013-14, the petitioner filed return of income on 30^th September, 2013 declaring the total income at ₹nil after claiming set-off of brought forward business loss and unabsorbed depreciation. The case of the petitioner was selected for scrutiny assessment by issuing notice dated 4^th September, 2014 u/s. 143(2) of the Income-tax Act, 1961 and final assessment order was passed u/s. 143(3) of the Act on 29^th December, 2016. The Assessing Officer, while framing the assessment, treated the interest income received on staff loan and other advances along with the miscellaneous receipt as income from other sources as against the income from business or profession as declared by the petitioner. Other additions were also made by the Assessing Officer.

The CIT(Appeals) partly allowed the appeal filed by the assessee. In the appeal before the Tribunal the assessee had relied on the judgment of the jurisdictional Gujarat High Court which was not considered by the Tribunal. The Tribunal dismissed the Miscellaneous Application filed by the assessee seeking review of the order of the Tribunal.

The Gujarat High Court allowed the writ petition filed by the assessee and held as under:

“i) The decision of a High Court, is binding on all subordinate courts and Appellate Tribunals within the territory of the State and subject to the supervisory jurisdiction of the court. Not following the binding decision of the co-ordinate Bench and jurisdictional High Court rendered on identical facts would be a mistake apparent on record which could be rectified by the Appellate Tribunal u/s. 254 of the Income-tax Act, 1961.

ii) The Tribunal could not have taken a different view from what was already taken by the co-ordinate Bench under similar facts which was confirmed by this court in Gujarat Urja Vikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16^th March, 2020 (Guj). The Tribunal in Gujarat UrjaVikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16^th March, 2020 (Guj) had held that interest income on staff loans was required to be treated as “business income” instead of “income from other sources” which was confirmed on appeal by this court. The decisions of the co-ordinate Bench of the Tribunal and this court were binding upon the Tribunal. When the Tribunal had not followed the decision on the identical facts by the co-ordinate Bench which was confirmed by this court, there was a mistake apparent on the face of the record in the order passed by the Tribunal which ought to have been considered by the Tribunal and the miscellaneous application filed by the assessee could not have been dismissed.

iii) The order of the Tribunal was set aside. The matter was remanded to the Tribunal to pass orders afresh. [Matter remanded.]”

BCAJ Admin

Glimpses of Supreme Court Rulings

2. Vinubhai Mohanlal Dobaria vs. Chief Commissioner of Income Tax and Ors.

(2025) 473 ITR 394 (SC)

Offences and Prosecutions – Offence under Section 276CC of the Act – Wilful failure by the Assessee in furnishing the return of income which he is required to furnish under Sub-section (1) of Section 139 – The date immediately following the due date for filing of return which is to be considered as the date of commission of the offence – Guidelines for Compounding of Offence, 2014 – The guidelines allow only those offences to be treated as the “first offence” which are committed by the Assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the Assessee to the Department before they come to be detected – The latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the Assessee comes forward on his own initiative and discloses the commission of the offence

The Appellant before the Supreme Court was an individual earning income by way of salary and also by way of share of profit of partnership firm engaged in the business of chemicals. He filed his income tax returns for the AY 2011-12 and 2013-14 on 4^th March, 2013 and 29^th November, 2014 respectively declaring his income to be ₹49,79,700/- and ₹31,87,420/- respectively. The due dates for the filing of returns for AY 2011-12 and 2013-14 were 30^th September, 2011 and 31^st October, 2013 respectively and as such there was delay on the part of the Appellant in filing the return of income for the said assessment years.

On 27^th October, 2014, a show cause notice was issued to the Appellant by the Commissioner of Income Tax – III, Baroda alleging violation of Section 276CC of the Act for the AY 2011-12. The notice stated that:

“On examination of records, it is seen that you have furnished your return of income for the assessment year 2011-12 declaring total income of ₹49,79,700/- on 4.3.2013. Further, after allowing credit of prepaid taxes, you were liable to pay self assessment tax of ₹0/- by due date of filing of return. Later, your return of income was processed Under Section 143(1) of the Act 20.3.2013 determining demand of ₹0/- out of which ₹0 is still pending.”

Although the due date for filing the income tax return for the AY 2011-12 was 1^st August, 2011 yet the Appellant had filed the same with delay on 4^th March, 2013. The notice further stated that after allowing for the credit of prepaid taxes, the Appellant was liable to pay self-assessment tax of ₹0/- which however remained unpaid by the due date prescribed for the filing of return of income. In the last, the Appellant was called upon to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him.

The Appellant replied to the aforesaid show cause notice along with the application for compounding in accordance with the Guidelines for Compounding of Offence, 2008 (hereinafter referred to as “the 2008 guidelines”). The application, along with application for compounding the delay in filing of return of income for two other years came to be allowed vide order dated 11^th November, 2014.

Thereafter, on 12^th March, 2015, the Appellant received another show cause notice as regards launching of prosecution under Section 276CC of the Act for the AY 2013-2014 issued by the Commissioner of Income Tax, Vadodara – III. The notice stated that the Appellant had furnished the return of income for AY 2013-14 declaring a total income of ₹31,87,420/- on 29^th November, 2014 and after allowing for the credit of prepaid taxes the Appellant was liable to pay self-assessment tax of ₹2,78,740/-. The notice further called upon the Appellant to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him as he had filed his return of income after the expiry of the due date.

The Appellant replied to the aforesaid notice along with an application for compounding as per the Guidelines for Compounding of Offence, 2014 (hereinafter referred to as “the 2014 guidelines”). In his reply, the Appellant stated that he had filed the return of income belatedly because necessary funds were not available with him to enable him to pay the assessed amount of tax. He further stated that the delay in filing of the return of income was neither deliberate nor wilful.

By an order dated 14^th February, 2017 passed under Section 279(2) of the Act, the Respondent No. 1 rejected the compounding application of the Appellant. The Respondent No. 1 took the view that the case of the Appellant was not fit for compounding as a committee comprising of Principal CCIT Gujarat, CCIT Vadodara, DGIT (Investigation) Ahmedabad and the CCIT – II Ahmedabad in the minutes recorded of the meeting dated 25th January, 2017 had opined that the Assessee had filed his return of income for AY 2013-14 after the show cause notice for the offence under Section 276CC for offence during AY 2011-12 had already been issued. Therefore, as per the committee, the offence committed by the Appellant under Section 276CC for the AY 2013-14 would not be covered by the expression “first offence” as defined in the 2014 guidelines.

The Appellant challenged the aforesaid order passed by the Respondent No. 1 before the High Court of Gujarat by way of Special Civil Application No. 5386 of 2017. The Appellant, who was the Petitioner before the High Court, contended that his compounding application had been rejected by Respondent No. 1 solely on the ground that the offence alleged to have been committed by the Appellant of belated filing of the return of income for AY 2013-14 was not covered by the expression “first offence” as defined in the 2014 guidelines. The Appellant further submitted that the show cause notice for the initiation of prosecution issued under Section 276CC of the Act for AY 2013-14 was issued on 12^th February, 2015 whereas he had already filed the return of income for the said assessment year on 29^th November, 2014, that is, much before the issuance of show cause notice on 12^th February, 2015 and therefore it could not be said that it was not the first offence. It was also contended by the Appellant that the Respondent had erroneously computed the date of issuance of show cause notice for AY 2011-12 for the purpose of holding that the Appellant had committed the offence post that date. Lastly, it was argued by the Appellant that the 2014 guidelines are only general guidelines and are not in the nature of strict law and thus are to be construed accordingly. The Appellant submitted that the general nature of the guidelines was also suggested by the heading “offences generally not to be compounded” used in the said Guidelines.

However, the High Court rejected the Special Civil Application of the Appellant vide the impugned judgment and order dated 21^st March, 2017 taking the view that the contention of the Appellant was based on a misreading of the Clause 8(ii) of the 2014 guidelines. The High Court held that although the show-cause notice for AY 2011-12 was issued on 27^th October, 2014, yet the Appellant filed the return of income for the AY 2013-14 on 29^th November, 2014 and thus could be said to have committed the offence under Section 276CC of the Act for the AY 2013-14 after the show cause notice for the AY 2011-12 had already been issued. It was further observed by the High Court that the circumstances surrounding the delay in the filing of return of income by the Appellant were not required to be considered in detail by the compounding authority and the same would be considered during the course of the trial.

In such circumstances referred to above, the Appellant approached the Supreme Court.

The Supreme Court noted that Section 276CC punishes the wilful failure by the Assessee in furnishing the following types of returns in due time:

a. Return of fringe benefits which he is required to furnish under Sub-section (1) of Section 115WD or by notice given under Sub-section (2) of the said Section or Section 115WH; or

b. Return of income which he is required to furnish under Sub-section (1) of Section 139 or by notice given under Clause (i) of Sub-section (1) of Section 142 or Section 148 or Section 153A.

The Supreme Court further noted that Section 139(1) inter alia provides that every person shall, on or before the due date, furnish a return of his income during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Sub-section (4) of Section 139 provides that if a person has failed to furnish the return of income within due time prescribed under Sub-section (1), then he may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

According to the Supreme Court, to fully understand the import of Section 276CC of the Act, it was necessary to understand the meaning of the expressions “wilfully fails” and “in due time” used in the said provision respectively.

The Supreme Court observed that in Prakash Nath Khanna vs. CIT reported in (2004) 9 SCC 686, it was called upon to look into the scope and meaning of the expression “in due time” appearing in Section 276CC of the Act and whether it refers to the time period referred to in Section 139(1) or the time period referred to in Section 139(4). The Supreme Court, after discussing the various methods of statutory interpretation, took the view that the legislative intent behind Section 276CC, undoubtedly, was to restrict the meaning of the expression “in due time” used in the said provision to the time period referred to in Section 139(1) and not to the time period referred to in Section 139(4). Explaining the meaning of the expression “wilful failure”, the Court observed that the same has to be adjudicated factually by the trial court dealing with the prosecution of the case. The Court further observed that by virtue of Section 278E, the trial court has to presume the existence of culpable mental state and it would be open to the Accused to plead the absence of the same in his defence.

According to the Supreme Court, what was discernable from the aforesaid decision of Prakash Nath Khanna v. CIT was that an offence under Section 276CC could be said to have been committed as soon as there is a failure on the part of the Assessee in furnishing the return of income within the due time as prescribed under Section 139(1) of the Act. Subsequent furnishing of the return of income by the Assessee within the time limit prescribed under Sub-section (4) of Section 139 or before prosecution is initiated does not have any bearing upon the fact that an offence under Section 276CC has been committed on the day immediately following the due date for furnishing return of income.

Thus, the Supreme Court was of the view that the Appellant was right in his contention that the point in time when the offence under Section 276CC could be said to be committed is the day immediately following the due date prescribed for filing of return of income under Section 139(1) of the Act, and the actual date of filing of the return of income at a belated stage would not affect in any manner the determination of the date on which the offence under Section 276CC of the Act was committed.

According to the Supreme Court, this could also be discerned from Section 139(8) of the Act. A perusal of the provisions of section 139(8) makes it clear that irrespective of whether the return of income is filed by an Assessee after the specified date or is not furnished at all, the Assessee shall be liable to pay simple interest at the rate 15% reckoned from the day immediately following the specified date notwithstanding the fact that the Assessing Officer has extended the date for furnishing of return.

According to the Supreme Court accepting the contention of the Respondents would mean that the commission of an offence under Section 276CC is made contingent upon the filing of the actual belated return by an Assessee. This could never have been the intention of the legislature in enacting the provision as such a reading would mean that no Assessee would file a return of income after the due date has expired and despite such failure would be able to escape any liability under Section 276CC of the Act.

The Supreme Court observed that in the present case, the due-date for filing the return of income for the AY 2011-12 was 30^th September, 2011. The Appellant filed his return with delay on 04^th March, 2013. Hence, as the return was filed beyond the due date for filing the return, an offence under Section 276CC could be said to have been committed by the Appellant prima facie.

Similarly, the due date for filing the return of income for the AY 2013-14 was 31^st October, 2013, whereas the Appellant filed the return for the said year on 29^th November, 2014. Hence, the Appellant once again breached the requirement of Section 276CC and thus committed an offence as defined under the said provision.

According to the Supreme Court, even otherwise, it has not been disputed by the Appellant that an offence under Section 276CC was committed by him for AYs 2011-12 and 2013-14 respectively, and he had preferred compounding applications for both the assessment years. While his compounding application for the AY 2011-12 came to be allowed, his compounding application for the AY 2013-14 was rejected by Respondent No. 1 and the rejection was upheld by the High Court vide the impugned order.

The Supreme Court noted that the Guidelines for Compounding of Offences under Direct Tax Laws, 2014 were issued by the Central Board of Direct Taxes, Department of Revenue, Government of India in supersession of the previous guidelines which were issued on 16^th May, 2008. These guidelines were one in line of many guidelines which were issued by the Central Board of Direct Taxes from time to time to provide guiding principles for the exercise of the power conferred by Section 279(2) of the Act which allows compounding of offences by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General either before or after the institution of proceedings.

The Supreme Court noted that Paragraph 8 of the guidelines prescribes offences which are generally not to be compounded under the compounding guidelines. It provides that a Category A offence which is sought to be compounded by an applicant in whose case compounding was allowed in the past in an offence under the same Section for which the present compounding application has been made on three occasions or more shall not be compounded. Secondly, it prescribes that category B offences will not be generally compounded other than the first offence as defined in the guidelines.

A “first offence” has been defined as follows:
“First offence means offence under any of the Direct Tax Laws committed prior to (a) the date of issue of any show- cause notice for prosecution or (b) any intimation relating to prosecution by the Department to the person concerned or (c) launching of any prosecution, whichever is earlier;

Offence not detected by the department but voluntarily disclosed by a person prior to the filing of application for compounding of offence in the case under any Direct Tax Acts. For this purpose, offence is relevant if it is committed by the same entity. The first offence is to be determined separately with reference to each Section of the Act under which it is committed.”

The Supreme Court noted that as per Paragraph 12.4 of the 2014 guidelines the compounding fee to be levied in the case of an offence under Section 276CC is to be reckoned from the date immediately following the date on which return was due. The Supreme Court opined that this is in consonance with Section 139(8) of the Act and further fortifies the argument of the Appellant that it was not the date of actual filing of belated return, but the date immediately following the due date for filing of return which is to be considered as the date of commission of the offence.

The Supreme Court observed that the show cause notice for the AY 2011-12 was issued to the Appellant on 27^th October, 2014. However, the offence under Section 276CC of the Act could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively. Thus, the offence for the AY 2011-12 could be said to have been committed on 1^st October, 2011 and the offence for the AY 2013-14 could be said to have been committed on 1st November, 2013. Therefore, according to the Supreme Court, it could be said that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution.

The Supreme Court noted the Respondents had contended that even if the offences committed by the Appellant for AY 2011-12 and AY 2013-14 could be said to have been committed before the issuance of the show cause notice dated 27^th October, 2014, the Appellant would still be covered by the subsequent part of the definition of “first offence” as the Appellant had voluntarily disclosed the commission of the offences for the AY 2011-12 and 2013-14 respectively by filing belated return of income for the said assessment years. In other words, the Respondents contended that the very act of filing belated return of income by the Appellant amounts to voluntary disclosure of commission of offence for the purpose of Paragraph 8 of the 2014 guidelines which defines the expression “first offence”.

The Supreme Court found it difficult to agree with the contention advanced by the Respondents that even if the Appellant is not covered by the first part of the definition of the expression “first offence”, he will still be covered by the latter half.

The Supreme Court observed that the scheme that permeates Paragraph 8 of the 2014 guidelines allows only those offences to be treated as the “first offence” which are committed by the Assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the Assessee to the Department before they come to be detected. The latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the Assessee comes forward on his own initiative and discloses the commission of the offence. The meaning as sought to be given by the Respondents to Paragraph 8 of the 2014 guidelines would turn the very purpose of having a two-fold definition of “first offence” on its head and thus cannot be accepted for it would take away the incentive of coming forward and voluntarily disclosing the commission of offences from erring-Assessees.

The Supreme Court further observed that Paragraph 4 of the 2014 guidelines specifies that compounding is not a matter of right of the Assessee and the competent authority may allow the compounding application upon being satisfied that the applicant fulfills the eligibility conditions and keeping in mind the conduct of the applicant, nature and magnitude of the offence and the facts and circumstances of each case. Further, Paragraph 7 of the guidelines prescribes the eligibility conditions and Paragraph 8 provides those cases which are generally not to be compounded. Paragraph 9 carves out an exception and empowers the Minister of Finance to relax the conditions laid down in Paragraph 8 of the 2014 guidelines and allow compounding in a deserving case.

According to the Supreme Court, a plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 of the Act which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the Appellant and nature and magnitude of offence. Seen thus, it becomes clear that the restrictions laid down in Paragraph 8 of the guidelines are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application.

The Supreme Court also had the benefit of looking at the Guidelines for Compounding of Offences under Direct Tax Laws, 2019 and the Guidelines for Compounding of Offences under Direct Tax Laws, 2022 issued by the CBDT. In both the said Guidelines, the offence under Section 276CC has been made a Category A offence instead of a Category B offence and is compoundable up to three occasions. According to the Supreme Court, although this would not have any direct implication on the case at hand since the same is governed by the 2014 guidelines, yet what it indicates is that there is a clear shift in the policy of the Department when it comes to the compounding of offences under Section 276CC in particular and in making the compounding regime more flexible and liberal in particular.

For all the aforesaid reasons, the Supreme Court held that the High Court fell in error in rejecting the writ petition filed by the Appellant against the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the application for compounding. The offence as alleged to have been committed by the Appellant under Section 276CC of the Act for the AY 2013-14 was, without a doubt, covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the Appellant could not have been rejected by Respondent No. 1 on this ground alone.

The Supreme Court set aside the impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara dated 14^th February, 2017 rejecting the compounding application of the Appellant.

The Supreme Court directed that the Appellant shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment and the same shall be adjudicated by the competent authority having regard to the conduct of the Appellant, the nature of the offence and the facts and circumstances of the case within a period of four weeks from the date on which the application is filed by the Appellant. The proceedings pending before the Trial Court shall remain stayed pending the decision of the competent authority on the compounding application of the Appellant. In the event the fresh compounding application of the Appellant is accepted by the competent authority, the proceedings pending before the Trial Court shall stand abated. If the compounding application is rejected by the competent authority, then the trial shall continue and be brought to its logical conclusion.

The appeal was disposed of in the aforesaid terms.

BCAJ Admin

From The President

Dear Members,

The term ‘profession’ traces its roots to the Latin word professio, meaning a public declaration or vow. Historically, this denoted a commitment to a higher ideal beyond personal interest—such as a vow to truth, justice, or service. Classically, professions embodied this ethos, combining specialised knowledge with a binding ethical code and a deep public responsibility.

For centuries, the distinction between a Profession and a Business has been clear. The earliest known explicit distinction of profession ≠ business comes from Plato’s Republic, circa 375 BCE, being clear in its emphasis that profession = service bound by ethics, whereas business = private gain.

The sociologist Émile Durkheim argued that professions emerged as ‘moral communities’ that filled the vacuum of trust in complex, modern societies. Similarly, Max Weber emphasised that professions are not mere occupations but vocations (Beruf)—a calling to serve society through competent and principled action.

The modern accounting profession emerged in the 19^th century as industrial economies demanded credible, independent assurance on financial statements. Our own The Chartered Accountants Act, 1949, framed after Independence, enshrines this dual role: to be technically competent and ethically upright, serving both the client and the public interest. Thus, we are heirs to a proud legacy that combines specialised knowledge, ethical codes, and a public fiduciary role—the very definition of a profession.

Over the past few decades, fuelled by the forces of globalisation and perhaps the increasing scale and complexity of global business, the lines between the realms of profession and business have become increasingly blurred. These trends have, over the years, metamorphosed into a section of professionals operating their practices in a business-like manner, aka professional business firms. Whilst a commercial outlook does bring scale, efficiencies and processes, it runs the risk of Profits preceding Purpose and Big overshadowing Good, thereby compromising greater good over personal good.

Max Weber warned that over-bureaucratisation and commercialism can lead to the “iron cage”—a disenchanted profession stripped of its soul. Durkheim emphasised that professions should counterbalance market forces with moral solidarity and not succumb to being a part of it.

Even whilst structured as professional business firms, the ownership interests in such entities continued to be held by professionals. Through a recent wave of change, this fundamental assumption has also changed on its head, as Private Equity (‘PE’) investment finds momentum in accounting and consulting firms. The trend of financial investors owning professional business firms has the potential to rewrite the century-old distinction of Profession: Business, which has been the bedrock of our professional existence. While these developments promise new opportunities and growth, they also present ethical dilemmas and existential questions about who we are, what we stand for, and what future we envision for our profession.

In the calendar year 2024, global PE and venture capital-backed deals in accounting, auditing, and taxation services totalled $6.31 billion across 24 deals, the highest in any year in amount as well as number terms. As of March 2025, 12 of the top-30 U.S. accounting firms had received PE investments, with more firms in discussion. Several significant PE transactions have reshaped the accounting landscape:

– Grant Thornton LLP, a top 10 U.S. firm, announced a significant growth investment from New Mountain Capital, marking one of the largest such deals in the profession.

– Baker Tilly US LLP, another top 10 firm, secured a strategic investment from Hellman & Friedman and Valeas Capital Partners, representing the largest private equity investment in the U.S. CPA profession to date.

– Citrin Cooperman, a mid-sized U.S. firm, was acquired by a Blackstone-led investor group in a deal valuing the firm at over $2 billion. This transaction underscores the increasing valuation and attractiveness of accounting firms to private equity investors.

– In the UK, Unity Advisory, founded by former EY and PwC executives, launched with up to $300 million in backing from Warburg Pincus. Unity aims to challenge the dominance of large firms by offering tax, technology consulting, and M&A advisory services.

– Moore Global, a British mid-tier accountancy group, achieved record revenues of $5.1 billion in 2024, with private equity investments significantly contributing to this growth.

Several mid-tier and regional accounting firms have partnered with PE firms to access capital for technology upgrades, market expansion, and service diversification. The trend is now finding resonance in India. In the Indian context also there have been investments which illustrate the growing trend of private equity investment in accounting firms, bringing both opportunities and challenges.

As stewards of the profession, it is imperative to appreciate this trend and leverage it to advantage through a proactive framework that strikes the right balance between progressive gains and the structural tensions that private equity introduces into a profession like ours. As much as outside financial capital promises scaling-up, consolidation and value-creation, the perils of misalignment of goals, loss of professional autonomy and erosion of ethics and public trust warrant a much deeper debate on its efficacy.

Should professions be treated as businesses governed by market forces and investor returns? Or as ethical practices guided by codes, communities, and public responsibilities? Or an approach that balances both these important considerations?

Closer home, Indian philosophical traditions have long emphasised dharma—the righteous duty of each profession or varna to uphold societal harmony and welfare. Kautilya’s Arthashastra (4^th century BCE) provided elaborate ethical guidelines for financial administrators, auditors (samaharta), and treasurers long before modern accounting emerged. The idea was clear: artha (wealth) must be pursued within the framework of dharma (righteous conduct).

Let us ensure that capital serves the profession and the profession serves the public—not the other way around.

With warm regards and steadfast faith in our collective wisdom,

CA Anand Bathiya

President

BCAJ Admin

From Published Accounts

COMPILER’S NOTE

Given below is reporting on material weakness in internal controls for a large financial entity headquartered in Europe where it has been reported that the group has not maintained effective internal control over financial reporting based on COSO criteria.

UBS Group AG: (year ended 31^st December, 2024)

From Independent Auditors’ Report:

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of UBS Group AG

Opinion on Internal Control over Financial Reporting

We have audited UBS Group AG and subsidiaries’ internal control over financial reporting as of 31^st December 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the COSO criteria, the UBS Group AG and subsidiaries (“the Group”) has not maintained effective internal control over financial reporting as of 31^st December 2024, based on the COSO criteria.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Group’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment related to the Group’s acquired Credit Suisse business. Prior to the acquisition, Credit Suisse management had identified and disclosed three material weaknesses, one of which related to controls to design and maintain an effective risk assessment process over internal controls. Management concluded that as of 31^st December 2024,changes made to the Credit Suisse risk assessment process were designed effectively, but that additional evidence of operation of the remediated controls, in part due to the broader integration and migration efforts, is required to conclude that these controls are operating effectively on a sustained basis.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Group as of 31^st December 2024 and 2023, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended 31^st December, 2024, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2024 consolidated financial statements,and this report does not affect our report dated 14^th March, 2025, which expressed an unqualified opinion thereon.

Basis for Opinion

The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We area public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

Not reproduced

From Management’s report on internal control over financial reporting:

Management’s responsibility for internal control over financial reporting

The Board of Directors and management of UBS Group AG (UBS) are responsible for establishing and maintaining adequate internal control over financial reporting. UBS’s internal controls over financial reporting are designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with IFRS Accounting Standards, as issued by the International Accounting Standards Board (IASB).

UBS’s internal controls over financial reporting include those policies and procedures that:

– pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets;

– provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and

-provide reasonable assurance regarding the prevention or timely detection of unauthorised acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

UBS management has assessed the effectiveness of UBS’s internal control over financial reporting as of 31st December, 2024 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment for the reasons discussed below, management believes that, as of 31^st December 2024, UBS’s internal control over financial reporting was not effective because of the material weakness described below related to the Credit Suisse business acquired in 2023.

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a registrant’s financial statements will not be prevented or detected on a timely basis.

Prior to the acquisition, Credit Suisse management had identified and disclosed three material weaknesses, one of which related to controls to design and maintain an effective risk assessment process. Management concluded that as of 31^st December, 2024, changes made to the risk assessment process were designed effectively, but that additional time, in part due to the broader integration and migration efforts underway, is required to conclude that these controls are operating effectively on a sustained basis.

The effectiveness of UBS’s internal control over financial reporting as of 31st December, 2024 has been audited by Ernst & Young Ltd, UBS’s independent registered public accounting firm, as stated in their Report of the independent registered public accounting firm on internal control over financial reporting, which expresses an adverse opinion on the effectiveness of UBS’s internal control over financial reporting as of 31^st December, 2024.

Remediation of Credit Suisse material weaknesses

In March 2023, prior to the acquisition by UBS Group AG, the Credit Suisse Group and Credit Suisse AG disclosed that their management had identified material weaknesses in internal control over financial reporting as a result of which the Credit Suisse Group and Credit Suisse AG had concluded that, as of 31^st December 2022, their internal control overfinancial reporting was not effective, and for the same reasons, reached the same conclusion regarding 31 December 2021. Following the acquisition and merger of Credit Suisse Group AG into UBS Group AG in June 2023, Credit Suisse AG concluded that as of 31^st December 2023 its internal control over financial reporting continued to be ineffective. As permitted by SEC guidance in the year of an acquisition, UBS Group AG excluded Credit Suisse AG from its assessment of internal control over financial reporting for the year ended 31 December 2023 and concluded that its internal control over financial reporting was effective as of such date.

In May 2024, Credit Suisse AG and UBS AG merged with UBS AG as the surviving entity. Although Credit Suisse AG is no longer a separate legal entity, numerous of its booking, accounting and risk management systems remain in use for activities that have not yet been exited or migrated to UBS systems.

The material weaknesses that were identified by Credit Suisse related to the failure to design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities relating to (i) providing sufficient management oversight over the internal control evaluation process to support Credit Suisse internal control objectives; (ii) involving appropriate and sufficient management resources to support the risk assessment and monitoring objectives; and (iii) assessing and communicating the severity of deficiencies in a timely manner to those parties responsible for taking corrective action.

These material weaknesses contributed to an additional material weakness, as the Credit Suisse Group management did not design and maintain effective controls over the classification and presentation of the consolidated statement of cash flows under US GAAP.

Since the Credit Suisse acquisition, we have executed a remediation program to address the identified material weaknesses and have implemented additional controls and procedures. As of 31^st December 2024, management has assessed that the changes to internal controls made to address the material weaknesses relating to the classification and presentation of the consolidated statement of cash flows as well as assessment and communication of the severity of deficiencies are designed and operating effectively.

The remaining material weakness relates to the risk assessment of internal controls. We have integrated the Credit Suisse control framework into the UBS internal control framework and risk assessment and evaluation processes in 2024. In addition, UBS has reviewed the processes, systems and internal control processes in connection with the integration of the financial accounting and controls environment of Credit Suisse into UBS, and implementation of updated or additional processes and controls to reflect the increase in complexity of the accounting and financial control environment following the acquisition.

Management has assessed that the risk assessment process was designed effectively. However, in light of the increased complexity of the internal accounting and control environment, the remaining migration efforts still underway and limited time to demonstrate operating effectiveness and sustainability of the post-merger integrated control environment, management has concluded that additional evidence of effective operation of the remediated controls is required to conclude that the risk assessment processes are operating effectively on a sustainable basis. In light of the above, management has concluded that there is a material weakness in internal control over financial reporting at 31^st December, 2024.

BCAJ Admin

Testing Times Ahead

As I write this Editorial, my heart is broken, and my eyes are filled with tears because of the ghastly terror attack on innocent tourists at Pahalgam, Kashmir, claiming 26 lives with many more seriously injured. Each story of death and injury is heart-rending. What is most disturbing is killings in the name of religion. It will derail the progress and prosperity of Kashmir as tourists will be afraid to go there. Already, many tourists have cancelled their tours, and those in the valley are returning. The Government has taken steps to neutralize terrorists. Pakistan-based terror groups are believed to be behind this attack with active state support, and therefore, the Government has suspended the Indus Waters Treaty with immediate effect. Citizens of Pakistan are asked to leave India; SAARC Visas are cancelled, the Atari border is closed, and diplomatic ties with Pakistan are pruned. Many more steps are anticipated. The entire world is shocked with major world powers declaring support to India. Indeed, we have a testing time ahead, as such barbaric terror attacks tear the basic fabric of unity, humanity and brotherhood.

Tariff / Trade Wars

On 28^th March, 2025, Myanmar experienced a devastating earthquake, the tremors of which were experienced in Thailand and other neighbouring countries.

However, the entire world experienced tremors when the Trump Administration in the USA announced a sweeping tariff hike on 2^nd April, 2025, which he described as a “Liberation Day.”

It reminded the world of the Smoot-Hawley Tariff Act of 1930 in the USA, which triggered the global trade war then and was believed to have deepened the Great Depression. The objective then was to bolster domestic employment and manufacturing. However, “the punitive tariffs raised duties to the point that countries could not sell goods in the United States. This prompted retaliatory tariffs, making imports costly for everyone and leading to bank failures in those countries that enacted such tariffs. Some two dozen countries enacted high tariffs within two years of the passage of the Smoot-Hawley Tariff Act, which led to a 65 per cent decrease in international trade between 1929 and 1934¹ .”

¹ https://www.britannica.com/question/Why-did-the-Smoot-Hawley-Tariff-Act-have-such-a-dramatic-effect-on-trade

The “Liberation Day” tariffs are intended to bolster US manufacturing and retaliate against perceived unfair trade practices by some nations in terms of trade and non-trade barriers, which have resulted in large and persistent annual US goods trade deficits. Another objective of high tariffs seems to be to raise revenue to finance the expected sweeping tax cuts. However, there is a fear that these tariffs will increase inflation in the US and reduce international trade considerably. The USA has a significant trade surplus in services as, over the years, it transitioned significantly towards banking, finance, healthcare, education, technology, professional services, etc. With low or zero import duties, sourcing goods manufactured by other countries helped Americans to get cheaper products without the headaches of manufacturing. However, this resulted in the erosion of its manufacturing base and whopping goods trade deficits.

The new tariff hike is significant and differs from country to country. A universal 10 per cent tariff on all imported goods is imposed w.e.f. 5^th April. However, the proposed additional reciprocal tariffs on various countries are kept in abeyance till 9^th July, 2025, giving countries time to negotiate bilateral agreements. India is also negotiating a bilateral agreement and is expected to sign it soon. The USA has imposed a whopping 145% tariff on imports from China, implemented right away. Indian imports will suffer a 26% tariff in the USA, while imports from Vietnam will face an import duty of 46% in the USA from 9^th July, 2025 subject to trade deals, if any. News reports suggest that Samsung and Alphabet are exploring shifting their manufacturing base to India. Thus, it appears that the Liberation Day Tariffs will help India to attract FDI in the manufacturing and other sectors and thereby generate employment, provided we play our cards well. With many countries levying counter-tariffs on the USA (e.g., China clamped a retaliatory import tariff of 125% on all US goods), the biggest fear is a reduction in international trade and commerce, which may lead to a worldwide depression. Will history repeat itself with the Great Depression of the 1930s in 2030? Indeed, we are heading for challenging times ahead.

Testing Time for the Profession

The ICAI has prescribed the revised “Format of Financial Statements for Non-Corporate Entities” (Revised 2022), effective from the financial year 2024-25 onwards, to align the reporting practices of Non-Corporate Entities (NCEs) — including sole proprietorships, partnerships, LLPs, trusts. This will facilitate better presentation, greater and more transparent disclosures, and enhance comparability. Members will have to equip themselves with these new requirements.

A testing time is ahead for partnership firms with the increased and complex TDS requirements under section 194T of the Income Tax Act, 1961.

As such, CAs are always in a testing mode with new tax filing utilities coming every year, studying and interpreting complex, ever-changing laws, keeping pace with technology and so on. The proposed new Income Tax Act will make all of us students once again, as the revised Act is expected to contain substantial policy changes.

This issue carries articles with an in-depth analysis of the important amendments by the Finance Act 2025, the provisions of TDS under section 194T of the Income Tax Act, 1961 and the New Format of Financial Statements for NCEs. We hope readers will find them useful.

Let me end on a positive note by quoting some interesting figures from the latest World Bank Reports² on India, which states that Poverty at the lower-middle income (reflecting an earning of USD 3.65 per day) fell from 61.8 to 28.1 per cent between 2011-12 and 2022-23 (2017 PPP) and the extreme poverty (reflecting an earning of USD 2.15 per day) rate decreased from 16.2 per cent to 2.3 per cent between this period. Since 2021-22, employment has grown faster than the working-age population and growth rates for India are estimated at 6.5 per cent for FY 2024-2025 and 6.3 per cent for FY 2025-2026 despite the global headwinds.

²https://thedocs.worldbank.org/ 

(Based on Information available as on 10^th April 2025)

Well, before the next season begins and before we are put to the test, let’s take out some time to rejuvenate and refresh ourselves with a good vacation with the family.

Best Regards,

Dr CA Mayur Nayak,

Editor

BCAJ Admin

Issue/ Service & Communication in Digital Era

Communication methodologies have evolved from hand-written/ delivered letters to typed/printed and postal communication, to the recent email communication and now venturing into an era of automated / BOT communication. The principle of “audi alteram partem” will nevertheless prevail and requires that none should be convicted/ condemned unheard. Thus, effective communication between the revenue officer and its taxpayers ensures that the parties concerned are duly heard. Many safeguards have been implemented by progressive administrations to improve the effectiveness and efficiency of communication. However, every change in status-quo brings along certain challenges on account of inherited practices. One such relevant change is the manner of delivery of statutory notices/orders through email or portal upload which has resulted in lack of awareness by the intended recipients.

Under the GST scheme, the phrase ‘Service of notice’ has generally not been used alongside a statutory time limitation. Generally, the time limitation is linked to ‘issuance’ or ‘communication’. Therefore, it is imperative that the legal connotation behind these terms is understood and applied contextually.

WHEN IS A NOTICE/ORDER ISSUED I.E. COME INTO FORCE/ EXISTENCE?

The GST law at many instances (such as section 73/74) mandates that the notices/ orders are ‘issued’ before a prescribed time limit. Once they are issued, the service of the notice is prescribed u/s 169. Therefore, before going into the ‘service of a notice/ order’ it is imperative to also understand when a notice/ order comes into force/existence. The Kerala High Court in Government Wood Works vs. State of Kerala¹ relying upon settled citations of the Supreme Court stated that any order of an authority cannot be said to be passed unless it is in some way pronounced/ published or the party effected has the means of knowing it. It is not enough if the order is made, signed and kept in the file because such order may be liable for change in hands of the authority who may even modify or destroy it before it is made known based subsequent information. To make the order complete and effective, it should be issued to be beyond control of the issuing authority. This should be done before the prescribed period though actual service is beyond that period. Similar views have been emphatically expressed by the Supreme Court in case of Delhi Development Authority (DDA) vs. H.C. Khurana², where despatch has been held as a sine-qua non to complete the act of ‘issuance’. The Court clarified that service on the recipient was not a condition precedent for satisfying the act of issuance. In the context of a digital environment under Income tax, the Delhi High Court in Suman Jeet Agarwal vs. Income-tax Officer³ held mere generation of the notice on the database does not amount to issuance unless, it leaves the database and goes outside the control of the ITBA software. The analysis in subsequent paragraphs is on the basis that the proper officer issues and puts into motion a notice / order, without any inordinate delay, within the prescribed time limits, though service need not be complete within the said time frame.

1 1987 SCC Online Ker 697 (Ker)

²[1993] 3 SCC 196

3 [2022] 143 taxmann.com 11 (Delhi)

WHAT ARE THE MODES OF SERVICE OF NOTICE/ ORDERS ?

Because of the sheer increase in tax-payer base and technology driven administration, the scheme of service of notices/ orders u/s 169 was amplified enlisting exhaustive modes of communication. Section 169(1) empowered the proper officer to serve notices in any one of the following modes:

i. Direct Delivery – Physically tendering through a messenger, courier partner, authorised representative or any family member;

ii. Post or Courier – Sending it through registered post or speed post at his last known address;

iii. Electronic Communication by e-mail address as per the registration details;

iv. Common Portal – Making it available on common portal;

v. Publication – in the local newspaper; and

vi. Affixation – If none of the above modes is practicable, by affixing in the place of business

On plain reading, the provision empowered the officer to pick and choose any of the five alternative modes of service and continue to persist with the said mode even if the recipient was unaware of the communication. The use of the phrase ‘any one’ inclined the officer to only upload the notice/ order on the common portal and avoid any email/ postal communication. This resulted in large scale notices concluding into adverse orders in context of cancellation of registration, assessments or adjudications on an ex-parte basis. In the era of excessive information, Taxpayers were agitated on account of the contentious service through uploading of orders, they were forced to knock the doors of the Court for such procedural matters which could have otherwise been addressed if the communication was effective and targeted to ensure the taxpayer is well informed. This article analyses the nuances of the section and whether there is any play in the said provisions which could safeguard interests of taxpayers.

WHAT IS SUBJECT MATTER OF SERVICE – NOTICE/ ORDER (OR) FORM DRC-01/07 ?

Section 169 is applicable to a decision, notice or order or communication to the taxpayer. Having understood the date of issuance of the said notice/ order, it is also important to ensure that we are looking at the right document for examining its ‘date of issue’ and ‘date of service’. In the context of adjudication, the notices are issued u/s 73(1)/74(1) and concluded by virtue of issuance of an order thereof under 73(10)/74(10). Now, Rule 142(1) requires that the summary of such notice (in Form DRC-01) and corresponding summary of the order (in Form DRC-07) are to be communicated electronically. The said DRC-01 could be issued for any proceeding under section 122, 129, 130, etc and concluded in an order under the respective section. The summary of such orders is then uploaded in form DRC-07 on the common portal.

It is thus very important to differentiate the issuance of the ‘notice’ or ‘order’ under a parent section from that of uploading the ‘summary thereof’ on the common portal. Once this distinction is noticed, it would be easier to understand and apply section 169. To reiterate, the forms in DRC-01/07 are not the notice/ orders per-se but only a summary (quantification) which needs to be uploaded on the common portal for the purpose of updation of the electronic ledgers of the taxpayer. The summary of such documents by its own does not have legal consequence over proceedings and are mere consequential documents for updating the GSTN portal, and nothing more than that. Having understood this important legal distinction, and contrary to popular perception, section 169 is to be applied onto notice/ order and not to the summary thereof which is available on the common portal.

‘COMMUNICATION’ TO TAXPAYER

There is also a third terminology ‘communicated’ which is used in the context filing of appeal u/s 107/108, where the time limit is said to commence from the date of ‘communication of order’ concerned. Though this date of communication is popularly treated as the date of service of the order and the time limit is said to have started ticking, use of a different phraseology from that specified in section 169(1), (2) and (3), suggests some different understanding to be attributed to such provision. The interpretation of the phrase ‘communicated to the person’ which is the start point of limitation, arose for consideration in SS Patel Hardware v. Commissioner, State G.S.T⁴. where the court while examining the provision held as under:

4. [2021] 127 taxmann.com 284 (All)

“8. Keeping in mind the fact that the delay in filing the appeal may not be condoned beyond the period of one month from the expiry of period of limitation, the phrase “communicated to such person” appearing in Section 107(1) of the Act commend a construction that would imply that the order be necessarily brought to the knowledge of the person who is likely to be aggrieved. Unless such construction is offered, the right of appeal would itself be lost though a delay of more than a month would in all such cases be such as may itself not warrant such strict construction.”
Similarly, Singh Traders vs. Additional Commissioner⁵ regarding satisfaction of service in accordance with the provisions of Section 169, it was stated that handing over the order to the driver of the conveyance could not be considered as valid service and hence the order itself was set aside. While the SS Patel judgement did not invalidate the order itself and merely ascertained the start time of communication of the order for the filing of appeal, the Singh Traders judgement clearly invalidated the order by holding that handing over the order to the driver (who is not an authorised person) is not valid service and hence there is no order is served on the taxpayer. This eventually leads to the conclusion that service of notice can be said to be complete only when communicated to the taxpayer or his authorised person for necessary action at its end.

⁵ [2021] 124 taxmann.com 295 (All)

COMPREHENSIVE READING OF SECTION 169

Coming back to the primary point of service of notice u/s 169, after specifying the modes u/s 169(1), sub-section (2) and (3) provided for a deeming fiction for completion of ‘service’ for certain modes of service i.e. placed a presumption about service and consequently casting an onus on the recipient to prove the contrary (if any). This emphasises that service of a notice/ order need not only be set in motion by the proper officer but also be complete at the recipient’s end. Under the presumption in sub-clause (2)/(3), service through hand delivery is considered as complete when duly signed and received by the concerned person; postal delivery is considered as received based on normal time taken for its delivery. The section not only provided for initiation of the service of a notice/ order at the officer’s end but also provided for presumption as to its completion based on certain events. This clearly implies that service u/s 169 needs to be viewed from the perspective of both the officer (as a sender) as well as the tax payer (as a recipient). Interestingly, there was no such deeming fiction over the mode of service via ‘email’ or uploading on ‘common portal’. This issue was highlighted in Udumalpet Sarvodaya Sangham vs. Authority⁶, where the Hon’ble Madras High Court interpreted section 169 and held that,

⁶ [2025] 170 taxmann.com 655 (Madras)

“A conjoined reading of Sub-Section (1)(2) & (3) of Section 169 would amply make it clear that the State is obliged to comply with the Clauses (a) to (c) alternatively and thereafter, comply with Clauses (d) to (f). Further, even though Clause (f) has also been proceeded with the word ‘or’ indicating it to be disjunctive / an alternative mode of services, a reading of the Clause (f) would indicate that Clause (f) could be resorted to by the State, if any of the Clauses preceding it, was not practicable. Here also, Clause (f) makes it imperative that such affixure shall be in a conspicuous place and the last known business or residence of the assessee. Therefore, the object of Section 169 is for strict observance of the principles of natural justice.”

Thus, Courts applied the analogy of sub-clause (2) and (3) and interpreted that mere sending by email or uploading on common portal did not absolve the officer from proving that the notice had been effectively served to the intended recipient and there must be a strict observance of natural justice principle. In the absence of any statutory presumption on this aspect, courts have generally been liberal in approaching the issue when the taxpayer claimed lack of knowledge over the proceedings/ orders.

THREADBARE ANALYSIS OF SECTION 169

The provisions of section 169 would thus have to be examined holistically along with other procedural provisions of the Act. While this section has specified multiple modes of service, the email communication as well as uploading notices/ orders has been the core area of dispute. Among the two as well, uploading of notices/ orders on the common portal has been the more contentious matters since taxpayers have claimed complete lack of knowledge about the existence of any such proceedings resulting in ex-parte orders.

Section 146 prescribes the common portal for functions such as registration, return filing, e-way Bill, and such other functions as stated in the corresponding Rules. The Government has also vide Notification 9/2018 dt. 23-01-2018 notified www.gst.gov.in (as amended) as the common portal u/s 146 for carrying out registration, returns and other the functions prescribed in the GST Rules. Accordingly, the prevalent GST Rules at many places have prescribed uploading forms electronically through the notified common portal. But there are also instances where the rules do not specify that the forms should be ‘uploaded on the common portal’ and merely prescribes that they should be communicated ‘electronically’. In the rest of the cases, the rules neither prescribe uploading on the common portal nor furnishing it electronically and is silent on the mode of communication. A simple tabulation of the relevant forms and the mode prescribed has been prepared below:

It may be observed that taxpayer-side forms have been specifically provided to be uploaded on the common portal and hence any other mode of communication would not be legally tenable. But in many cases where the forms are to be initiated by the proper officer, the law merely states that the same may be issued electronically or does not prescribe any mode.

We are all aware of the popular dicta in Taylor vs. Taylor and host of other decisions⁷ that when the statue requires doing a certain thing in a certain way, the thing must be done in that way and not using other methods. Other modes of performance are impliedly and necessarily forbidden and hence if the statute requires some form to be uploaded electronically on the common portal, the form would be considered legally filed only when the said manner as prescribed is followed (‘Expressio unius est exclusion alteris’). But where neither the statute nor the notification-9/2018 prescribes the mode specifically, is the mere uploading of the order on the common portal a sufficient and valid service?

⁷ Taylor vs. Taylor [1876] 1 Ch.D. 426 ;

Nazir Ahmed vs. King Emperor AIR 1936 PC 253;

 Ram Phal Kundu vs. Kamal Sharma [2004] 2 SCC 759; and 

Indian Banks Association vs. Devkala Consultancy Service [2004] 

137 Taxman 69/267 ITR 179/AIR 2004 SC 2615 = [2004] 11 SCC 1, 

Gujarat UrjaVikas Nigam Ltd. vs. Essar Power Ltd. [2008] 4 SCC 755

For instance, the process of application for registration requires the taxpayer to use the ‘common portal’ for filing/ uploading the required forms. However, the notices seeking clarification, documents, etc during the registration process are to be performed ‘electronically’. Once the registration is granted, provision of rejection/suspension of any registration merely direct the officer to issue a notice to this effect but does not specify any mode of issuance/ service. Similarly, the refund process requires the applicant to use the common portal for uploading the forms, but the adjudicatory process in form of SCN/ orders in the refund process, does not specify that the officer must upload the same on the common portal. Even during the adjudicatory process of demands, the Rules prescribe that the DRC-01 (being only a summary of the quantum specified in notice and not the notice per-se), etc to be communicated electronically and the orders are not stated to be uploaded on the common portal. It is only for DRC-07 (which is also a summary demand raised in the order) which is required to be uploaded on the common portal in order to update the Electronic Liability Ledger. The law is silent on the mode of communication of the detailed notice/ order.

Now juxtaposing the provisions of section 169 r.w.s.146 and other specific provisions of registration, refund, adjudication, etc, it seems that law does not mandate uploading the adjudication notices/ orders on the common portal. Notification 9/2018 (as amended) prescribes the common portal for specific function based on the requirements under the respective rule. But where there is no prescription of uploading/ making available certain notices orders on the common portal, the said Notification is not invocable and the common portal cannot be used as a medium for performing the said function. It is only where the common portal is designated for a specific purpose in terms of a specific rule/notification would the same be considered as the designated place of uploading the notices/ orders.

Given this legal picture, it could be argued out that the taxpayer should not be expected to view the notices/ orders section of the ‘common portal’ for the notice or order. Even if they are uploaded as an attachment to the summary, the notice/ order cannot be termed as ‘served’ u/s 169 as section 146 does not prescribe the common portal for such purposes. At best the common portal can be considered as a repository of the notice/ order along with the summary thereof. While the uploaded notices/ orders can be considered as informative in nature, the revenue cannot contend that ‘making available the notice / order on common portal’ (clause (d)) is legally recognised service when the common portal has itself not been designated for this purpose. This then requires the proper officer to serve the same through other modes including that of ‘email communication’ or ‘physical modes of email/ post’ as alternatively prescribed u/s 169.

Therefore, section 169 and 146 should be interplayed with the respective parent provisions and mere summary cannot be used to decide the service of such notice/ orders. The true purport of the alternatives provided in section 169 is that proper officer would be required also refer the relevant rule/ form and the manner prescribed therein. If the manner is prescribed therein, the proper officer ought to serve the notice by the manner specified therein. Where the manner is not prescribed therein, the service would have to be in the manner which ensures that the details are brought within the knowledge of the taxpayer (principles of natural justice).

One should also be mindful of the provisions of section 160(1) and (2) which presumption valid service where the recipient takes responsive action. Thus, the above analysis could be applied only where the proceedings are ex-parte and the taxpayer can establish the bonafide of being unaware of the proceeding. But where the taxpayer has downloaded the notice and taken reciprocal action by filing reply or other actions, section 160(2) grants shelter to such proceedings unless the taxpayer in its first instance specifically argues that the service of the document itself is not valid. The taxpayer cannot blow hot and cold at the same time and would be under a legal obligation to participate in the proceeding despite the service of such notice/ order not being in conformity with the respective rule, if they have acted upon the same.

ELECTRONIC COMMUNICATION UNDER IT ACT, 2000

The next question that arises is in respect of forms where rules are silent on uploading the notices/ order on the common portal. Whether e-mail communication to the registered email address would be a valid service of such notices/ order? Section 169(2)/(3) are silent on the completion of service of the said email communication and one would have to refer to ancillary enactments.

Section 4 of the Information Technology act grants legal recognition to electronic records notwithstanding that the primary enactment requires anything to be done physically. Now section 13 of the said Act speaks about the timing of receipt of documents despatched by the originator (in our case the proper officer). Where the addressee has a designated computer resource for the purpose of receiving electronic record, the receipt is said to occur when the electronic record ‘enters’ computer resource and if the electronic record is sent to computer resource of the addressee that is not designated for this purpose, then receipt occurs at the time the addressee retrieves the record from the computer resource. Where the addressee does not have a designated computer resource along with specific timings, receipt occurs when the electronic record enters the computer resource of the addressee.

In the context of uploading, can the GSTN log-in at the common portal be considered as a ‘designated computer resource’ of the addressee? Computer resource is defined under the IT Act 2000 to mean computer, computer system, computer network, data, computer data base or software. The common portal hosted on the server is owned and managed by the GST network and not strictly a computer resource ‘of’ the taxpayer. While there is no immediate answer, even if the account created therein can be said to be designated for the use of taxpayer, the said common portal has not been designated for the purpose of adjudication, cancellation, suspension, etc (refer discussion above). Therefore, there may still be an argument to not consider the GSTN portal as a ‘designated computer resource’ of the taxpayer for purpose other than those specified in the notification/ respective rule (refer table). In which case, the communication of the notices, orders etc which are required in law to be uploaded on common portal would be governed by clause 169(d) but in all other cases they can be said to be served only when the addressee retrieves (downloads) them from the GSTN portal in terms of section 169(c) read with the IT Act, 2000.

Now with respect to notices/ orders communicated via email (such as Gmail, private servers, etc), such webservers can be designated computer resources of the taxpayer. As stated earlier, though service is initiated by ‘sending an email communication’ there is no presumption u/s 169 about the completion of service in case of email communication. Therefore, in the absence of a specific presumption about the service of documents via email, the date of receipt of email in Gmail/web-server may be considered as service. But if the email account is not logged-in from a private computer, the said recipient does not acquire knowledge about it and may be caught unaware. This particular issue was examined in the context of section 13 of the Information technology Act.

What is receipt in a computer resource was analysed by Bombay High Court in Pushpanjali Tie Up Pvt. Ltd vs. Renudevi Choudhary⁸ where the court analysed ‘receipt of an electronic record’ u/s 13(2) and held that although a person may be said to have received an electronic record when it enters his computer resource, it does not necessarily mean or follow that he had knowledge either of the receipt or of the contents of the same at that time viz. at the very moment of the receipt of the electronic record. Even assuming that the legislature could enact a deeming provision fixing the time when a person is deemed to have acquired knowledge of an electronic record, section 13(2) does not contain such a deeming provision. In any event section 13 of the IT Act is not relevant for deciding whether a party had knowledge of an order for the purpose of the proceedings for contempt of court or for taking action for contempt of court, whether under the Contempt of Courts Act or under Order 39 Rule 2-A of the Code of Civil Procedure. Section 13(2), determines “the time of receipt of an electronic record”. It does not determine the time of knowledge of the contents of the electronic record or even of the receipt of the electronic record. It would be difficult to have a statutory provision to determine the time when a person acquires knowledge of something. That would depend on the facts of a case. Even if there is such a deeming provision in a statute, a person cannot be held guilty of committing a breach of an order on the basis thereof although he in fact had no knowledge of the contents of the electronic message. Take for instance a case where a person establishes that although an electronic record was received in his computer resource on a particular date, he in fact did not access the same till much later. He cannot then be held guilty of having committed a breach of the order for he had no knowledge of the same. A person may not be in a position to access the electronic record much after it was received in his computer for a variety of reasons. For instance, he may have been ill, he may have lost his computer, he may not have access to the computer or there may be an area where there is no internet access. Questions of contempt stand on an entirely different footing. Thus merely because an electronic record is deemed to have been received at the time when it enters a persons computer resource, it does not necessarily follow that he had knowledge of the communication at that point of time especially in proceedings for contempt or while deciding whether the person committed wilful breach of an order of a court. The time of receipt of an electronic record may, at the highest raise a presumption of the knowledge of the receipt and/or the contents thereof but nothing more in contempt proceedings.

⁸2014 SCC OnLineBom 1133

There is also a decision as well in the case of Rapiscan Technologies⁹ which was examining whether uploading of orders on the income-tax portal by the Dispute Resolution Panel (DRP) would amount to ‘receipt by the assessing officer’ for completion of the assessment at his end within the prescribed time frame. The court held that uploading of the order by DRP on a resource designated for the Income tax department is receipt and hence the time limitation for this purpose triggers from that day onwards.

⁹ [2025] 170 taxmann.com 753 (TELANGANA) 
Rapiscan Systems (P.) Ltd. vs. ADIT (Int.Tax)-2

FAVOURING JUDICIAL TREND

There has been a favourable judicial trend (though very summary orders) in granting relief to taxpayers where the communication was limited only to uploading on common portal. The legal citations which emerged on this subject can be clubbed into two baskets (a) decisions which analysed the section with emphasis on natural justice; (b) decisions which merely examined the deviation of portal from the law and granted relief based on taxpayer’s bonafides;

Category 1 – The Madras High Court has been particularly firm on this subject matter. In its decision¹⁰, the Court categorised the modes of service into primary and secondary. The first three clauses of physically tendering/ post or email was considered as the primary mode of service. The remaining three clauses were considered as secondary modes of service which could be resorted if the primary mode did not elicit any response from the taxpayer. The court acknowledged that the traditional modes of post were ideal for taxpayers who were yet to acclimatise to the modern digital environment. In another decision¹¹, the Court examined that while recognising the law permits service of notice/order via email, it also stated that in reality it would be onerous for small traders to expect them to monitor the emails on a regular basis; leaving a strong possibility that the communication goes unnoticed. It re-emphasised the need for a postal communication to avoid any ambiguity on the service of documents. Ultimately, the Court relied upon the legal intent to encourage compliance of the notice rather than curtail taxpayer’s response. Basing its decision on principles of natural justice, the court held that efforts should be made to serve the notice by post and elicit a response from the taxpayer.

¹⁰ Sri Balaji Traders vs. Deputy Commercial Tax Officer 
[2025] 173 taxmann.com 15 (Madras)

¹¹Sakthi Steel Trading vs. Assistant Commissioner (ST) [2024] 159 taxmann.com 233 (Madras)

Category 2 – The Madras high court in another decision¹² recognised the complex architecture of the GSTN portal and the manual. The court observed that uploading the notices/ orders in “Additional Notices and Orders” section in contrast to the “Notices and Orders” section raises a possibility of missing the notices by taxpayers. Similar view was adopted by the Allahabad High Court¹³ and the Court held that the taxpayers are entitled to the benefit of doubt in cases where the orders are uploaded under the “Additional Notices and Orders” section. The Patna High Court¹⁴ observed that as per the website manual, the notices, orders are communicated to be posted on the “Notices and orders” section and the “Additional notices and orders” section does not find any mention in the manual. Moreover, since there is no deeming fiction in 169(3) in so far as the uploading the notices/orders in the portal, the taxpayer is entitled to the benefit of being unaware of the proceedings. These decisions grant relief to taxpayers without laying down any definite legal proposition on this subject.

¹² [2023] 154 taxmann.com 147 (Madras) Sabari Infra (P.) Ltd. 
vs. Assistant Commissioner (ST)

¹³ [2025] 170 taxmann.com 482 (Allahabad)  National Gas Service 
vs. State of U.P. relying upon Ola Fleet Technologies (P.) Ltd. 
v. State of U.P. [2025] 170 taxmann.com 66 (All.)

¹⁴ [2025] 172 taxmann.com 794 (Patna) Lord Vishnu Construction (P.) Ltd.
 vs. Union of India

CONTRARY CITATIONS

In the midst of these decisions, there are certain contrary decisions of Courts¹⁵ which have specifically relied upon the plain language and stated that any of the modes of services u/s 169 could be adopted as they are not conjunctive but alternative. Accordingly, email communication has been treated as a legally valid mode of communication though the taxpayer was ultimately granted interim relief on grounds of uploading DRC-07 in the Additional Notices section. In a batch matter before the Single Member of Madras High Court in Poomika Infra Developers¹⁶, relying upon an erstwhile law decision of the division bench and distinguishing the other Single member decisions, it was held that uploading the notice/ order on the common portal is valid service u/s 169. In reaching this conclusion, the court observed that (a) section 169 is clear as it directs any mode of service and there is no reason to categorise the first three clauses and the remaining into two separate baskets; (b) reference of rule 142 prescribed under section 146 is independent of section 169 which is specific to service and despite rule 142 limiting itself only to ‘summary of notice/ order’ uploading of the notice or order is valid form of service in light of section 169; (c) section 13 of Information Technology Act, 2000 could be applied to treat the log-in credentials on the common portal as the designated computer resource and hence receipt of the notice/ order on the specific account is valid service. The said decision summarily wipes out certain arguments discussed above and contrary to other decisions that views mere uploading as not being sufficient service. This also goes against the analysis of the section and decision of Bombay High Court in Pushpanjali Tie Up Pvt (supra) which elaborates ‘receipt’ in context of IT Act, 2000. Having said all this, the Court in its conclusive part still directed the revenue to introduce a practice of sending email/ SMS communication intimating the taxpayer about the upload on the common portal with a caveat that this email would not be used for deciding service of the notice/ order. With due respect, this decision needs to be examined further and appealed to arrive at the correct legal position.

¹⁵ [2023] 148 taxmann.com 9 (Madras) New Grace Automech Products (P.) Ltd. vs.
 State Tax Officer ; 
[2024] 167 taxmann.com 228 (Calcutta)  Jayanta Ghosh vs. 
Union of India & [2024] 
167 taxmann.com 7 (Calcutta) Delta Goods (P.) Ltd. vs. Union of India; 
Koduvayur Construction vs. Asstt. Commissioner [2023] 153 taxmann.com 333 
(Ker.)

¹⁶  W.P. Nos.33562 &Ors of 2025

COMPARISON WITH ERSTWHILE LAWS

The applicability of section 169 to notices/ order varies from that specified under the erstwhile Central Excise law which contained a waterfall mechanism of service of notices/orders, etc (section 37C of Central Excise Act). Service of any document by tendering it through registered post (subsequently including speed post) was considered as the most preferred methodology. In case of failure, affixation in the factory/ warehouse or usual residence was considered as the next alternative; and as a last resort, publication on the notice board of the officer was considered as a completing the service of notice by the concerned authority. The intention of such a mechanism was to ensure that the administrating authority takes honest efforts to engage with the taxpayer and the intended recipient is conferred its due opportunity. Even in postal service, the relevant officer was mandated to retain a copy of the acknowledgement of receipt by the recipient. Naturally, a well-defined process in section 37C experienced very limited litigation on the ‘mode of service’. Previously disputes were limited and now in GST era, a relatively short timeframe of 8 years have generated far greater litigation than its erstwhile laws.

CONCLUSION

Thus, uploading of notices/ orders in many instances are not specified to be necessarily performed on the common portal. In such cases the taxpayer is rightful in its plea to expect either an email communication or a postal delivery of the relevant document. The various communications which are entirely conducted on common portal do not seem to be the legally apt approach Consequently, the persistence of the revenue in sticking only to the common portal for legal notices needs to be reviewed. Tax payers on the other hand may consider widening the scope of their tracking of notices/ order even to portal dashboard to avoid any undesired incidents in the adjudication proceedings.

BCAJ Admin

Part A | Company Law

4. Caparo India Limited

Registrar of Companies, NCT of Delhi & Haryana

Adjudication Order: ROC/D/Adj/2022/Section 149(1)/6647

Date of Order: 24^th November, 2022

Adjudication order for violation of section 149 of the Companies Act 2013 (CA 2013): Failure to appoint woman director

FACTS

As per the financial statements filed by the company for the financial year ended 31st March, 2021, the paid-up share capital of the company was R195.80 Crores.
The company is clearly required to appoint a woman director based on Rule 3(ii) of Companies (Appointment and qualification of Directors) Rules, 2014 as the paid-up share capital of the company was more than R100 Crores.
A Show Cause Notice was issued to the company and its officers in default on 27th July, 2022 in this regard. The company vide letter dated 9th August, 2022 submitted its reply and as per request of company an opportunity of personal hearing was also given. The authorised representative of the company appeared and made submissions on behalf of the company.
It was submitted that there was a woman director who had resigned from the company w.e.f. 19R March, 2020 due to some reasons. The date of the Board Meeting held immediately subsequent to the resignation of the previous woman director was 23rd March, 2020. The company made its efforts to appoint an appropriate person, but those efforts were not fruitful. However, subsequent to the issue of show cause notice, a woman director was appointed. It was submitted that in any case non-executive directors should not be liable to any penalty on this account.

EXTRACT OF THE RELEVANT PROVISIONS OF THE ACT:

Section 454(6):

(1) …………………………

Second Proviso:

Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director.

Rule 3 of the Companies (Appointment and qualification of Directors) Rules, 2014: The following class of companies shall appoint at least one-woman director-

(ii)Every other public company having- (a) Paid-up share capital of one hundred crore rupees or more; or (b) Turnover of three hundred crore rupees or more:
…………………………………..

Provided further that any intermittent vacancy of a women director shall be filled-up by the Board at the earliest but no later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

Explanation- For the purposes of this rule, it is hereby clarified that the paid-up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.

Non compliance of section 149 r/w Rule 3 of Companies (Appointment and qualification of Directors) Rules, 2014 would give rise to liability under section 172 which read as under:

Section 172: If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees , and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.

FINDINGS AND ORDER

As per second proviso to Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, the company had a period of three months from the date of resignation to appoint a woman director, however, the company failed to do so.
Further, as per explanation to Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, the paid-up capital is being reckoned from the next date of latest audited financial statement i.e. one day after 26^th November, 2021 (date of auditor report) and the period of default would continue till the issue of Show Cause Notice on 27^th July, 2022 (this period is referred as default period).
For the purpose of determination of penalty, the following data is to be considered :
Duration of the default is from 27th November, 2021 to 27th July, 2022 i.e. period of 243 days
Initial Penalty of ₹50,000 and ₹1,21,500 being Penalty for continuing default aggregating to ₹1,71,500 was levied.
No penalty was levied for officers in default since the company had only non-executive directors.

5. M/s APTIA GROUP INDIA PRIVATE LIMITED

Registrar of Companies, NCT of Delhi & Haryana

Adjudication Order No – ROC/D/Adj/Order/Section 56(4)(a)/APTIA/4831-4833

Date of Order: 30^th December, 2024

Adjudication order issued against the Company and its Director for contravention of provisions of Section 56 of the Companies Act, 2013 with respect to delay in issue of share certificate to shareholders post incorporation of the Company.

FACTS

M/s AGIPL suo-moto filed an application with regard to violation of provisions of the Section 56(4)(a) of the Companies Act, 2013 stating that the company was required to issue the share certificate to both the Subscribers of Memorandum within 2 months of its incorporation i.e. till 7^th September, 2023 but failed to do so due to delay in receipt of the subscription money in company’s bank account. Hence, there was a delay in issuance of share certificate to subscribers of 105 days.

Thereafter, office of Registrar of Companies, NCT of Delhi & Haryana i.e. Adjudication Officer (AO) issued Show Cause Notice for the said default to M/s AGIPL and its officer. A response against the notice was received wherein M/s AGIPL re-iterated the facts and also submitted that the delay in issuance of share certificates was unintentional and due to external factors beyond its control and the company had also taken steps to rectify the error.

Further Ms. C J, Company Secretary being the authorized representative of M/s AGIPL appeared for oral submission in the matter and requested to take a lenient view while levying penalty on the company and its officers as the company is newly incorporated.

PROVISIONS

Section 56 – Transfer and Transmission of Securities

(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum.
….
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

ORDER

AO after consideration of the reply submitted by M/s AGIPL concluded that M/s AGIPL had failed to issue the share certificate to both subscribers of memorandum within 2 months of its incorporation which was not in compliance with the provisions of Section 56(4)(a) of the Companies act 2013. Hence, penalty of ₹50,000/- was imposed on M/s AGIPL and penalty of ₹50,000/- was imposed on each of its officers in default.

Thus, a total penalty of ₹1,50,000/- was imposed on M/s AGIPL and its Directors.

BCAJ Admin

Section 194T – When Taxman Becomes A Silent Partner

Just as partners were settling into their cozy routines of profit-sharing (and occasional stationery disputes), Section 194T stormed into their lives like an uninvited relative at a family dinner—bringing along uncomfortable questions on mismatched Form 26AS entries, accidental GST invitations and sleepless nights for accountants. So, before your accountant contemplates early retirement, dive into this article and decode how to stay friends with the taxman (without losing your partners).

Budget Day in a Chartered Accountant’s life is no less dramatic than the final episode of a Netflix thriller—filled with suspense, sudden twists, and characters (read: taxpayers) you genuinely root for. WhatsApp groups explode faster than popcorn in the microwave, Excel sheets open quicker than umbrellas in Mumbai rains, and suddenly, everyone becomes a tax guru on LinkedIn. Gone are the nostalgic days when earnest CAs gathered in packed study circles, scribbling meticulous budget notes—today, they’re all busy crafting witty LinkedIn posts that get more likes than actual attendance at study circles! Tax professionals, lawyers, and CAs sharpen their keyboards (farewell, pencils!) to dissect, decode, and divine the implications—hoping, praying, and often failing to figure out: who gets hit this year?

This time, it was the humble partnership firm and its partners who found themselves at the receiving end of a legislative surprise—Section 194T, introduced via the Finance Act (No. 2) of 2024. It came in like an uninvited guest at a birthday party: no warning, no cake, just impact. As memes were made and coffee mugs cracked, tax teams scrambled to understand how this provision would affect the sacred bond between a firm and its partners. Many firms (including ours) realised—perhaps for the first time—that the best way to understand the law is to feel its full weight… personally.

However, before we cry over spilt revenue, let’s take a step back and admire the beauty of partnerships. A partnership is a living, breathing embodiment of the phrase Vasudhaiva Kutumbakam—the world is one family—except here, the family files a return, divides profits, and sometimes fights over stationery expenses. While firms operate with collective force, the moment profit-sharing discussions begin, the kumbaya turns into a Game of Thrones episode. Seniority, goodwill, rain-making ability, negotiation prowess (and sometimes just how loud one can argue in partner meetings) all go into deciding who gets how much of the pie.

In this article, we set out to explore how one provision will trigger far reaching impact. The conventional story of a pound of flesh holds good – there will be pain, there will be scar, but no drop of blood. Moreover, of course, all this against the backdrop of traditional issues faced by firms: the perennial people crunch (more humans, fewer hands), client fee pressure, and the age-old CA paradox—“Why is my own assignment never billable?”

So, brace yourself as we untangle the interwoven threads of tax, teamwork, and turf wars. After all, when the firm is the stage, and profits are the script, Section 194T might just rewrite the title to: “To be or not to be a partner.” If you are the managing partner or heading compliance, expect your phone to buzz soon—your partners, after reading this, are likely typing a WhatsApp message right now: “Have you read this? We need to discuss!” You might as well stay ahead—block out 15 minutes to finish this article before their queries land in your inbox.

PARTNERSHIP TAX BASICS

Before diving into case studies, it’s important to understand how partnerships are taxed and how partners are compensated under the Income-tax Act. Here is a quick refresher:

Meaning of Partnership firm, partner – firm

“Partnership” is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.

Partner and partnership stems from legal agreement. The scheme of taxation will accordingly apply to partners who are partners in the agreement. People who are designated as partners to external stakeholders but who are not parties to the partnership deed will not be governed by the scheme.

Firm as a Separate Entity

A partnership firm (including an LLP) is a separate person for tax purposes (per Section 2(31)). The firm files its own return and pays tax on its income like any other assessee, with a flat tax rate for firms of approximately 34.944%. It is possible that partners may be taxed at 39% or upwards. Given that the share of profit is exempt, this tax rate arbitrage is significant.

Share of Profit – Tax-Free for Partners

After the firm pays tax on its profits, those profits can be distributed to partners as their share of the profit, which is exempt in the partners’ hands under Section 10(2A). This avoids double taxation of the same profit. Notably, this exemption holds true even in unusual scenarios – for instance, if the firm’s taxable income is nil due to brought-forward losses, a partner’s share of profit is still exempt. The same applies if the partner is not an individual, but another firm – a partnership firm receiving profit from another firm also enjoys a Section 10(2A) exemption¹.

1. Jalaram Transport vs. ACIT [2025] 170 taxmann.com 303 (Raipur - Trib.); 
Radha Krishna Jalan vs. CIT [2007] 294 ITR 28 (Gauhati High Court)

In short, once the income has suffered tax at the firm level, it is not taxed again when passed through as a profit share.

One ongoing controversy is the meaning of share of profit, i.e. what is exempt. Is profit credited in books of account exempt, or is profit computed in accordance with profit and gains of the business or profession exempt, or is profit computed based on firm total income exempt? The difference between book profit and taxable profit is for a variety of reasons: depreciation charge, computation of capital gain (say due to 31^st March 2018 grandfathering), tax exemption for GIFT City unit, disallowance under Act, etc. This issue has been the subject matter of controversy in under-noted decisions² Share of profit would also include income not taxable in the hands of the firm.³ The conclusion of this controversy will be important as the amount paid in excess of the share of profit will be remuneration, which will be subject to TDS under section 194T.

2. Circular No. 8/2014 dated 31-3-2014; S. Seethalakshmi vs. ITO [2021] 128
taxmann.com 175 (Chennai - Trib.); Explanation to section 10(2A);
3. Vidya Investment & Trading Co. (P.) Ltd vs. UOI [2014] 43 taxmann.com 1
(Karnataka).

Remuneration & Interest – Taxable for Partners

In addition to profit share, many partners receive remuneration from the firm – this can be called salary, bonus, commission, monthly drawings, etc. – as well as interest on capital if they’ve invested capital in the firm. These payments are taxable in the hands of the partners (not as “Salaries”, though, but as business income). Section 28(v) specifically treats any salary, bonus, commission or interest from the firm as a partner’s business profit. For the firm, such payments are deductible expenses, but only if they meet the conditions of Section 40(b). Section 40(b) imposes an upper cap on how much partner’s remuneration can be deducted by the firm, linked to the “book profit” of the firm. For example, for a firm with low profits, there is a ceiling (e.g. ₹3 lakh or 90% of book profit or 60% of book profit, etc., as per 40(b)) on deductible remuneration. Amounts beyond the 40(b) limit, if paid, will be disallowed – meaning the firm can’t deduct them (and will pay firm-level tax on those). This excess is not taxable as remuneration in the hands of the partner as per Explanation to section 28(v)

Reconstitution of Firm – Special Rules

When a firm is reconstituted (say, a partner retires, a new partner joins, or profit-sharing ratios change), there can be additional tax implications under Sections 9B and 45(4). In essence, these provisions tax certain capital assets or money distributions that happen upon reconstitution or dissolution. Section 9B deems the firm to have sold any assets or inventory distributed to a partner (triggering capital gains or business income at the firm level). Section 45(4) then may tax the firm on any money or asset given to a partner in excess of that partner’s capital account balance (a formula essentially taxing the firm for paying out accumulated reserves or goodwill). The key point is that these provisions tax the firm, not the partner. The partner’s receipt in such cases (be it cash or assets during retirement or reconstitution) is typically not taxed in the partner’s hands (it is treated as a realisation of their capital interest). Thus, if a partner gets paid during a reconstitution event, that payment might trigger tax for the firm under 45(4)/9B, but the partner doesn’t separately pay income tax on it. As we’ll see, Section 194T specifically carves these situations out of its scope, recognising that those payouts are not in the nature of taxable remuneration to the partner.

With this groundwork laid, let’s introduce the protagonist of our story: Section 194T – the new TDS provision that has sent partnership firms back to the drawing board.

SECTION 194T – THE TAXMAN JOINS THE PARTNERSHIP

Effective from 1^st April, 2025, any partnership firm or LLP making payments to its partners now faces a tax withholding duty. In plain language, the firm must deduct tax at source (TDS) at 10% on most forms of partner payouts. Here are the key features of Section 194T:

Scope of Payments

“Any amount in the nature of salary, remuneration, commission, bonus or interest” paid or credited to a partner is covered. The law uses broad terms (“by whatever name called”), ensuring that whether you label it monthly salary, annual bonus, commission for bringing in clients, or interest on capital, it’s all under Section 194T’s umbrella.

Exclusions:

Notably, genuine profit distributions are not mentioned in that list – so the taxman isn’t taking a bite out of the exempt share of profit. Similarly, withdrawals of capital (like when a partner takes out some of their capital or upon retirement) are outside Section 194T. In other words, Section 194T targets what we might call “partner compensation” but not the return of capital or after-tax profit share. The Memorandum to the Finance Bill and subsequent analysis clarify that payments on dissolution or reconstitution (governed by 45(4)/9B as discussed) are not subject to TDS under 194T. The firm doesn’t have to withhold tax when merely giving a partner his own capital or post-tax accumulated profit – those are more like balance sheet transactions, not income payments.

Threshold – A Whopping ₹20,000

Yes, twenty thousand rupees per year, aggregated per partner. If the total of covered payments to a partner is ₹20,000 or less in the financial year, no TDS is required. However, if it likely exceeds ₹20,000, then TDS applies from rupee one. Practically, ₹20k is a very low bar – even a small firm paying token interest on capital will breach it.

Timing of Deduction

Like most TDS provisions, it’s whichever is earlier – the moment of credit to the partner’s account (including credit to their capital account) or actual payment. This prevents clever timing tricks. For example, if a firm accrues a bonus to the partner’s capital account at year-end instead of paying it out, that credit is enough to trigger TDS in that year.

Practically, some elements of remuneration, like bonuses or commissions, are linked with firm performance. Typically, books are finalised towards September, i.e. near to tax audit due date. Now, the law requires a deduction of TDS on the said amount which is determined later. The TDS for March needs to be deposited by April 30, and the TDS return needs to be filed by May. Practically, the firm will have to deduct tax on a provisional basis and thereafter amend the TDS return to reflect accurate figures.

Residents, Non-Residents, Working, Non-Working – All Partners

Unlike some sections that distinguish non-residents (section 195) or require the payee to be a “specified person,” Section 194T casts a wide net. There’s no exception for non-resident partners (so resident firm paying, say, interest to an NRI partner must deduct 10% plus applicable surcharge/cess, subject to treaty relief later). If a partner is non-resident, it may be better view to treat such partner as having business connection in India and deduct tax at 30% plus cess and surcharge under section 195.

Even minor partners or partner’s representatives are covered. Also, it doesn’t matter whether the partner is a “working partner” taking an active part or a sleeping partner – interest paid to a dormant partner is equally subject to TDS. Essentially, if you have a “partner” label, any taxable payment from the firm triggers the tax withholding – period!

No Escape via Lower TDS Certificate

Interestingly, Section 194T was drafted without a provision to allow lower or NIL deduction certificates under Section 197. Tax professionals noted that you cannot approach the Assessing Officer to reduce the 10% rate, even if the partner’s final tax liability may be lower. Perhaps the logic was simplicity (10% is reasonably moderate). In any case, each partner will have to claim a refund or adjustment when filing returns if 10% TDS overshoots his actual tax liability (for example, if a partner’s income falls below the basic exemption or he has sizeable deductible expenditure against his partnership income).

Compliance Burden & Consequences

Firms now have to obtain TAN, deduct 10% every time a partner’s pay is credited/paid, deposit the TDS by the due date, file TDS returns, and issue TDS certificates to partners. Non-compliance has teeth: the usual disallowance under Section 40(a) (ia) will apply. That means if a firm fails to deduct or pay the TDS, 30% of the corresponding partner payment will be disallowed as an expense, adding to the firm’s own taxable income, plus interest and penalties on the TDS default itself. In short, the cost of ignoring 194T is far heavier than the pain of compliance.

KEY CHALLENGES IN IMPLEMENTATION OF SECTION 194T

Section 194T (introduced w.e.f. April 1, 2025) brings partnership firms into the TDS net for payments to partners. While the intent is to improve reporting, it has thrown up some quirky tax compliance and reporting challenges. Below, we unpack the major issues.

MISMATCH BETWEEN FORM 26AS AND PARTNERS’ INCOME (SECTION 28(V) VS 10(2A))

One immediate challenge is the mismatch between the income shown in Form 26AS and the income the partner actually offers to tax under Section 28(v). Section 28(v) taxes a partner’s remuneration, interest, bonus or commission from the firm as business income, while Section 10(2A) exempts the partner’s share of profit from the firm. Trouble arises when a firm, in an abundance of caution, deducts TDS on conservative estimates – including amounts that might eventually be just the partner’s profit share. For instance, firms often allow partners to take profit draws (interim withdrawals of anticipated profits) during the year. If the firm treats these draws as potentially taxable payments and deducts 10% TDS on them, the partner’s Form 26AS will reflect a higher “income” (under Section 194T) than what the partner actually needs to declare as taxable income in return.

Such a scenario is not just theoretical – it is expected in practice. Consider an example: A partner withdraws ₹30 lakh over the year from the firm against upcoming profits. By year-end, the firm’s books decide that out of this, ₹20 lakh is salary (allowable under the deed and taxable for the partner), and the remaining ₹10 lakh is adjusted against the partner’s share of profit. Under Section 194T, the firm, being conservative, might have deducted TDS on the full ₹30 lakh during the year. Consequently, Form 26AS for the partner shows ₹30 lakh credited (with TDS of ₹3 lakh). However, in the partner’s return, only ₹20 lakh is offered as income under Section 28(v) (the ₹10 lakh profit share is not taxable, thanks to Section 10(2A)). This “26AS vs. ITR” mismatch can set off alarm bells in the tax processing system.

Why does this mismatch happen? Section 194T requires TDS at the time of credit or payment, whichever is earlier. If the firm hasn’t definitively credited any salary/interest until year-end, any mid-year withdrawal is technically a “payment” and attracts TDS by law. In our example, every withdrawal got hit with TDS in real time. However, at year-end, when the dust settled, part of those withdrawals were not taxable income at all. The result: Form 26AS shows more income than the partner’s taxable business income. TDS ends up being “deducted where it is not actually deductible,” leading to tax being collected on amounts that never became taxable income. In short, the partner cannot make “income” from himself/herself, yet the TDS mechanism temporarily pretends that they did.

TDS CREDIT WOES UNDER SECTION 143(1)(A) AND RECTIFICATION NEEDS

The mismatch above isn’t just academic – it has real cash flow implications for partners. The Income Tax Department’s CPC (Centralized Processing Center) loves matching figures. When the partner’s return is processed under Section 143(1)(a), the system may notice that the income reported under Profits and Gains from Business/Profession is lower than the amounts on which TDS was deducted per Form 26AS. A straight-laced algorithm does not automatically grasp that the “missing” amount was exempt under Section 10(2A). Instead, it may treat it as under-reported income or disallowance. The immediate effect could be a denial of a portion of the TDS credit – the tax on the “mismatched” amount – in the intimation. In our example, the CPC might allow credit of TDS only proportional to the ₹20 lakh income acknowledged and hold back credit for the ₹10 lakh portion unless that income is brought into the computation. This leaves the partner with a tax-due notice or reduced refund, quite an unwelcome surprise.

Such partial credit denials have been observed whenever income–TDS mismatches occur. It often falls under the umbrella of a “mistake apparent from the record” that requires fixing. The partner then must file a rectification application under Section 154 to resolve the issue. In the rectification, one would cite that the seeming income shortfall was actually exempt profit income (backed by Section 10(2A) and the partnership firm’s audited accounts). Only after this hoop is jumped can the full TDS credit be restored. This procedure is about as enjoyable as watching paint dry – an additional compliance burden that eats up time for both the taxpayer and the department.

The irony is not lost on anyone: the department issues speedy refunds nowadays, yet much of that could be avoidable if the tax were not over-collected in the first place. So, partners finding only partial TDS credit in their 143(1) intimations should not be shocked; instead, gear up to file for rectification, citing the exempt income rationale. It is an extra step in implementing 194T, almost built-in by design.

THE GST ANGLE: WHEN TDS DATA TRIGGERS INDIRECT TAX TROUBLE

Section 194T’s fallout isn’t limited to direct tax. It has an indirect tax twist, thanks to data sharing between departments. Generally, a partner’s remuneration is not considered a “service” and thus not subject to GST – the logic being that a partner isn’t an employee but also isn’t exactly an outside service provider to their firm. In fact, the CBIC has clarified that the salary paid by a partnership firm to its partners “will notbe liable for GST.”. So far, so good on paper – the partner’s income from the firm should be outside GST’s scope.

However, practical reality can differ, especially when compliance data is picked up blindly. GST authorities have started leveraging Form 26AS and income-tax data to smoke out cases where they believe someone exceeded the GST registration threshold without registering. A partner’s receipts under Section 194T could inadvertently light such a beacon. Here’s how: Form 26AS might show substantial “payments to Mr X (Partner) from ABC Firm”, say ₹25 lakh in a year, with TDS under Section 194T. To a GST officer scanning data, that looks like Mr X provided services worth ₹25 lakh (crossing the ₹20 lakh threshold for services) without GST registration. The risk is higher if the nomenclature in the TDS records or books hints at something like “commission” or “professional fees” rather than just “partner’s salary.” Descriptions matter – a label like “partner’s commission” could be misread as if the partner acted as an outside agent to the firm rather than in the capacity of the partner. And crossing ₹20 lakh in any “service” receipts is like waving a big red flag in front of GST authorities.

In short, Section 194T can unintentionally invite the GST inspector to the party. The partner and the firm then have to prove a negative – that these receipts were not for any independent service. It is an added challenge to ensure that tax compliance in one law (TDS) doesn’t create confusion in another. One might quip that a partner now needs not only a good CA but also a good GST consultant on speed dial, just in case the left hand (direct tax) doesn’t tell the right hand (indirect tax) what it’s actually up to.

ACCOUNTANT – THE UNSUNG HERO (OR VILLAIN?) OF SECTION 194T COMPLIANCE

In the whirlwind of partner withdrawals, the accountant emerges not just as someone who balances books, but as the narrator who clearly categorises each payment. Indeed, an accountant capable of distinguishing between withdrawals from previous capital, share of profit, bonus, remuneration, interest, reimbursements, loans from the firm, or simply advances against future payments is nothing short of a rare gem. If your firm happens to have such a precious resource, my advice: keep it secret and keep it safe!

The sheer variety of payment nomenclatures is enough to confuse even the most diligent AO—leading to scenarios where the Taxman may meticulously scrutinise partner capital accounts, placing the horse firmly before the cart and demanding justification for TDS compliance decisions. Accurate accounting thus becomes the saving grace, the ultimate shield against unwarranted scrutiny.

Of course, this is far easier said than done. For most CA firms, self-accounting typically resembles a frantic race against the year-end – where many (or the majority) of the firms finalise the books and file tax returns almost on the eve of the compliance due date. Perhaps, if technology ever advances sufficiently, BCAJ could even host a live poll among readers—if only to humorously reaffirm the author’s suspicion that accountants who excel in accurate partner payment narratives are as common as multi-bagger sightings in Dalal Street!

PRACTICAL TIPS TO MITIGATE THE CHAOS

Implementing Section 194T need not be a nightmare scenario. Firms and partners can take practical steps to mitigate these issues and smooth out the rough edges:

Align Income Reporting in the ITR

To pre-empt mismatches, partners may consider reporting the gross amount of firm-related receipts in their income tax return and then separately deducting/exempting the share of profit. In practice, this means if Form 26AS shows ₹30 lakh under Section 194T, the partner can report ₹30 lakh as gross receipts under business/profession in the ITR computation, then claim the ₹10 lakh (in our example) as exempt under Section 10(2A). This way, the income reported matches Form 26AS, and the exempt portion is clearly disclosed as such. It’s a bit of a workaround – effectively telling CPC, “Yes, I got ₹30 lakhs, but ₹10 lakh is tax-free” – but it can save you from the CPC’s automated mismatch adjustments.

Bottom line: mirror the Form 26AS in your ITR to the extent possible, and then claim your lawful exemptions within the return.

Smart TDS Strategy for Firms

Firms can reduce mismatches by timing and characterising partner payments carefully. One approach is to credit partner remuneration and interest only at year-end (when profits are ascertained) and treat all interim withdrawals as drawings against capital or anticipated profits. If no specific portion of a draw is designated as “salary/interest” during the year, arguably, no TDS is required on mere drawings. The TDS can be deducted when the remuneration is actually credited (i.e. when it becomes income in the sense of Section 28(v)). Of course, firms must be cautious – this works best when the deed or mutual agreement supports it, and there is confidence that by year-end, some remuneration will indeed be authorised. If the firm ends up not crediting any salary due to losses or low profits, then no TDS on drawings was needed at all – avoiding the scenario of “tax paid without corresponding income”. In essence, don’t let the TDS tail wag the dog: deduct tax when income is crystallised, not simply whenever a partner taps the firm’s ATM. This requires discipline and documentation but can save everyone from unnecessary refund / reconciliation workouts.

Partnership Deed Clauses – Clarity is King

It all starts with the deed – A sacred document which, before this amendment, was in some drawer which is today difficult to locate. To prevent misunderstandings, the partnership deed should explicitly define the nature of partner withdrawals and payments. For instance, include a clause that “any drawing by a partner during the year shall be treated as an advance against that partner’s share of profit unless specifically characterised as salary or interest by a resolution/entry.” This makes it clear that until the year-end decision, a withdrawal is not a salary payment, thereby strengthening the case for not deducting TDS on it (since it isn’t “income” yet in Section 28(v) sense). Similarly, for retiring partners, the deed (or retirement agreement) should spell out that any lump sum paid is in settlement of the retiring partner’s capital, share of accumulated profits, and goodwill. Use terms like “share of profit till the date of retirement” rather than calling it a “fee” for departure. This not only helps direct tax (by clarifying that Section 10(2A) covers the profit portion) but is also a shield against GST misinterpretation. If a GST officer inquires, a well-drafted deed allows the response: “This amount was a capital/share settlement as per deed clause X, not a consideration for any service.” In short, paperwork can prevent peril – document the intent so that no one later can recharacterise the nature of the payment.

Communication and Consistency

Partners and finance teams should maintain clear communication regarding these payments. Internally, everyone should know what the firm’s policy is on drawings and TDS, so that a lower-than-expected credit or a surprise GST query does not catch a partner off guard. Externally, if a notice does arrive (be it a 143(1)(a) intimation or a GST notice), respond promptly and factually. For a tax credit mismatch, a brief Section 154 rectification application with a note referencing “TDS on the exempt share of profit (Section 10(2A) not included in total income)” usually suffices to set things right. For a GST notice, a well-reasoned reply citing the CBIC clarification that partner remuneration isn’t taxable, along with a copy of the partnership deed and Form 26AS, should clarify the situation.

By taking these steps, firms and partners can turn Section 194T from a head-scratcher into a manageable routine. As the saying goes (with a 194T twist): “Deduct your tax and credit it too – but keep the paperwork straight to avoid a boo-boo!” And that, in essence, captures the balancing act now required in the post-194T era of partnership taxation.

CONCLUSION

The broader message for firms is clear: adapt and move on. Review your partnership agreements. Educate your partners – especially those accustomed to tax-free profit shares – that henceforth, their bank alerts will show slightly lighter credits (but not to worry, it’s their own tax being prepaid).

Ultimately, Section 194T doesn’t change how profits are split in theory – rainmakers will still rain, team players will still team – but it adds a new layer of accountability and cash-flow management to the mix.

One can end on a lighter note: if you thought partner meetings were intense when debating billable hours or client receivables, wait until someone brings up who’s contributing what to the firm’s TDS deposit each month! The silver lining is that this provision has united every kind of partner – from the golf afternoon equal sharer to the midnight oil grinder – in a single cause: figuring out how to comply. The takeaway for practitioners is to embrace Section 194T as just another business reality, as our clients did when it came to section 194Q and section 194R.

Keep calm, deduct on, and let’s get back to doing what we do best – serving clients – while the TDS Challan gets its regular date with the bank.

BCAJ Admin

Implications Arising Out of New Format of Financial Statements for Non-Corporate Entities

The Institute of Chartered Accountants of India (ICAI), through its Accounting Standards Board, issued the revised “Format of Financial Statements for Non-Corporate Entities” (Revised 2022), effective from financial year 2024-25 onwards. This move aims to align the reporting practices of Non-Corporate Entities (NCEs) — including sole proprietorships, partnerships, LLPs, trusts, and others to facilitate better presentation, greater and more transparent disclosures, and enhance comparability. This article analyses the implications of the revised format and outlines the challenges and opportunities together with the way forward, both for the NCEs as well as the regulators arising out of its implementation.

INTRODUCTION

India’s financial reporting landscape has significantly evolved in the past decade. While corporate entities governed by the Companies Act, 2013 (“the Act”) have long followed standardised formats for financial reporting in the form of Schedule III (erstwhile Schedule VI), NCEs were governed largely by inconsistent legacy practices or were following formats prescribed by the tax authorities or other regulators like the Charity Commissioner. Considering the large number of such entities and their contribution to the GDP and tax base, a standardised financial reporting framework is desirable.

The Institute of Chartered Accountants of India have prescribed Accounting Standards for different type of entities. These Accounting Standards apply with respect to any entity engaged in commercial, industrial or business activities. For the applicability of Accounting Standards (AS) on entities other than companies, these entities are classified into four categories viz., Level I, Level II, Level III and Level IV non-company entities. Level I, being large size non-company entities, are required to comply fully with all the AS. Level IV, Level III and Level II non-company entities are considered Micro, Small and Medium Sized Entities (MSMEs) that have been granted certain exemptions/relaxations by the ICAI.

Recognising this, the ICAI had earlier released the Technical Guide on “Revised Format of Financial Statements for Non-Corporate Entities (2022)” followed by a Guidance Note on Financial Statements of Non-Corporate Entities in August 2023 (“Guidance Note”), which is applicable to all financial statements from 1^st April, 2024 (i.e. for financial statements from financial year 2024-25 onwards)¹. Since NCEs will have to start preparing financial statements, they must be aware of the implications and challenges and other related matters arising from the adoption of the revised formats.

1   The Technical Guide on Financial Statements of Non-Corporate Entities 
stands superseded by the Guidance Note issued by the ICAI.

SCOPE AND APPLICABILITY

The Guidance Note specifies that all Business or Professional Entities, other than Companies incorporated under the Companies Act and Limited Liability Partnerships incorporated under the Limited Liability Partnership Act, are considered to be Non-Corporate entities. Accordingly, the revised format applies to:

Sole proprietorships
Partnerships
Hindu Undivided Families (HUFs)
Trusts
Association of Persons (AOPs)
Societies (not covered under the Companies Act)

It goes on to state that any formats/principles which are specifically prescribed under a particular statute or by any regulator/authority, e.g. trusts under the Maharashtra Public Trusts Act, 1956 or other autonomous bodies established by the Government can follow the said formats and also specific Guidance Notes / Technical Material issued earlier for educational institutions, political parties, NGOs etc. Accordingly, in the case of Trusts, AOPs and Societies to which there is no regulatory format prescribed, it appears that they have to follow the revised format, which, as indicated later, is almost aligned on the lines of Schedule III of the Act and hence may present challenges. The ICAI can consider issuing a clarification that the formats would apply only to commercial non-corporate entities.

The revised formats are applicable to financial statements prepared for periods beginning on or after 1st April, 2024. As per the ICAI announcement on ‘Clarification Regarding Authority Attached to Documents Issued by the Institute’ amended in August 2023, a member of the ICAI, while discharging his/her attest function, should examine whether the recommendations in a Guidance Note relating to an accounting matter have been followed or not. If the same has not been followed, the member should consider whether, keeping in view the circumstances of the case, a disclosure in his report is necessary in accordance with Engagement Standards. Further, though not expressly mentioned, it is presumed that the formats are applicable to general-purpose financial statements for which the audit needs to be conducted and reports to be issued as per the Standards of Auditing issued by the ICAI.

SALIENT FEATURES OF THE REVISED FORMAT

The revised format is almost entirely aligned with the formats prescribed under Schedule III of the Act, except for minor changes taking into account the operations of NCEs. However, they do not address specific operational features applicable to non-commercial / non-profit NCEs.

The following are certain salient features of the revised format:

Uniform Presentation

The revised format introduces a standardised structure for the Balance Sheet and the Profit & Loss Account, similar to those used by corporate entities under the Act. This ensures a consistent and familiar layout for stakeholders, improving readability, comparison, and analytical evaluation.

Classification of Assets and Liabilities

Entities are now required to distinguish between current and non-current assets and liabilities based on a 12-month operating cycle. This aligns with common accounting standards and helps in better liquidity and solvency assessments. It enhances the understanding of an entity’s short-term vs long-term financial obligations.

Disclosure-Oriented Approach

The revised format includes detailed disclosure requirements, extending beyond basic numerical data to cover related party transactions, contingent liabilities, and significant judgments or assumptions made, amongst other matters.

Notes to Accounts

Narrative and tabular notes are now emphasised. These provide clarity on the accounting policies adopted, detailed breakdowns of figures in the financial statements, and explanations of items such as provisions, asset valuations, and legal contingencies.

Alignment with AS Framework

The financial statements are to be prepared in line with the Accounting Standards issued by ICAI (not Ind AS) whilst maintaining relevance and feasibility for small and medium-sized non-corporate entities not governed by the Companies Act. This makes the standards accessible without being overly complex.

Transparency

Uniform formats encourage fuller and more accurate disclosures, thereby enhancing stakeholder confidence.

Creditworthiness Assessment

With standardised presentation, lenders and financial institutions can more reliably assess the risk profile and repayment capability of non-corporate borrowers, leading to improved access to finance.

Compliance Culture

The revised format will enable non-corporate entities to be ready for more structured and regulatory-compliant operations, facilitating easier transitions to corporate structures or public disclosures if needed in the future.

MAJOR CHANGES AND THEIR IMPACT

The revised format contains some major changes which will have far-reaching impact on non-corporate entities. These are briefly analysed hereunder:

Presentation of Shareholders’ / Owners / Partners Funds

There is a clear distinction between capital contributions, current account balances, and retained earnings which will help in understanding partner interests and fund movements.

Borrowings and Loan Disclosures

All borrowings must be classified as current or non-current and disclosed with details of security, terms of repayment, interest rates and nature (secured/unsecured). This will provide visibility on future commitments and repayment obligations and allow users to evaluate the entity’s leverage and funding structure.

Trade Payables Ageing Schedule

A detailed ageing analysis discloses the time-wise breakup of outstanding payables, specifically distinguishing amounts due to MSMEs. This would provide insights into the payment culture and vendor management practices, as well as working capital management policies. This also promotes compliance with MSME payment timelines and helps assess liquidity pressure.

Trade Receivables Ageing Schedule

Entities are required to present receivables based on due dates (e.g., less than 6 months, over 6 months). This identifies potential bad debts and inefficiencies in collection cycles, aiding in credit risk management.

Revenue and Other Income

Entities are required to provide a clear demarcation between operational revenue and other income streams such as interest, rent, and dividend income. This helps in assessing the core vs ancillary sources of income and facilitates better performance analysis.

Expenses Classification

Expenses must be grouped under predefined heads as per their nature. Further, any major items (exceeding 1% of turnover or ₹1 lakh, whichever is higher) must be individually disclosed. This improves cost transparency and helps in better variance analysis.

Related Party Disclosures

Entities are now required to follow tabular disclosure formats for related party disclosures. Non-corporate entities must reassess their definition of related parties under AS 18, which includes:

Individuals with control or significant influence (e.g., proprietors, partners)
Relatives of such individuals
Entities under common control (including group firms, HUFs, trusts, etc.)

This will formalise the presentation of disclosures, reducing subjectivity and increasing uniformity in reporting across entities and will enhance the depth, clarity, and consistency of related party disclosures and improve the credibility and transparency of financial reporting.

Disclosure of Contingent Liabilities

The new format formalises the disclosure of contingent liabilities via specific note formats, requiring entities to explicitly categorise and quantify such liabilities under the following broad heads, as against scattered and unstructured disclosures earlier.

Claims against the entity not acknowledged as debts
Guarantees provided to banks or third parties
Disputed tax and other statutory demands pending before authorities Entities must now assess the following in terms of AS-29:
Probability of outflow of resources
Reliability of estimation
Legal and contractual basis of such obligations

This would lead to improved comparability across reporting entities and a more accurate representation of financial risk.

BENEFITS AND IMPLEMENTATION CHALLENGES

Benefits

Adopting the revised formats provides several benefits not only for the entities but also for stakeholders, some of which are highlighted below:

Enhanced Credit Access

A clear, standard format makes financial statements more understandable to bankers and investors, improving creditworthiness assessments and enabling faster loan processing.

Improved Tax Compliance

Accurate and detailed reporting reduces mismatches with tax filings and enhances credibility, lowering the chances of tax disputes or penalties during assessment proceedings.

Professional Image

Entities with standardised, audited financials are more likely to attract partners, investors, and vendors, enhancing their brand perception and business prospects.

Better Internal Control

The need for enhanced disclosure and segregation coupled with more granular data collection
enforces tighter financial controls, better record-keeping, and informed decision-making. This would eventually translate into a better Compliance culture.

Challenges

In spite of the above benefits, there are several implementation challenges which can act as hurdles in the effective transition to the new financial reporting regime for such entities, some of which are briefly discussed below:

System and Template Overhaul

Many of these entities operate on basic or customised accounting systems that may not support the new classification and disclosure requirements. Significant effort may be required to update
software or manual reporting templates, the benefits of which may not be commensurate with the cost involved.

Data Availability

Entities may not maintain the level of detail required by the new format. For example, ageing analysis or related party disclosures might require significant historical data reconstruction or adjustments.

Lack of Awareness

Owners and managerial staff may not fully understand the relevance or implications of the new reporting format, leading to resistance or poor adoption.

Audit and Review Complexity

Auditors will need to verify new disclosure items, such as the classification of debtors, related party balances, and security on borrowings, which may involve additional work efforts, audit procedures, and reconciliations. Further, the additional effort and documentation may not result in a commensurate increase in their fees. Finally, the auditors may be exposed to greater scrutiny by the regulators.

WAY FORWARD

For Stakeholders

The new formats will have far-reaching implications primarily for ICAI and other Regulators, Chartered Accountants, Tax authorities, banks and other lenders.

ICAI and Other Regulators

Additional Guidance Notes / Technical Material-

Since non corporate entities take diverse forms and structures, ICAI could consider issuing further guidance on sector-wise illustrative financial statements, especially for non-commercial/non-profit entities, FAQs and implementation guidance to assist preparers and auditors.

Phased Implementation

ICAI and/or the regulators may consider introducing a simplified version of the format or a phase-wise implementation to reduce the initial compliance burden while maintaining reporting integrity.

Capacity Building

ICAI and/or the regulators should undertake capacity-building measures by organising webinars, workshops, and training for small practitioners, especially in Tier 2 and Tier 3 cities, which will enhance the quality of the overall adoption ecosystem.

Regulatory Synchronisation

Efforts should be made to harmonise financial statement formats with those used in tax return forms (ITRs) and other statutory filings like GST, charity commissioner, etc., thereby reducing duplication and reconciling mismatches. Finally, steps should be taken to harmonise the format with the filing under Tax Audit, especially for related party disclosures and contingent liabilities.

Chartered Accountants

CAs will have to play a greater and more proactive attest or advisory role than what is currently done, covering the following aspects:

Helping entities to restructure financial data, align ledgers, understand classification norms, adhere to structured accounting policies and maintain detailed financial and accounting records and MIS, as relevant.
Audit and review procedures will become more detailed and disclosure-focused, and greater emphasis will have to be placed on compliance with accounting and auditing standards and maintaining more robust documentation.

Tax Authorities

Tax officials and banks will benefit from structured and detailed financial statements, enabling quicker assessments and due diligence, reducing the scope for disputes, and promoting transparency in compliance and lending.

Banks and Other Lenders

Banks and others will benefit from structured and detailed financial statements, enabling proper and focused due diligence, reducing the scope for disputes, and promoting transparency in compliance and lending and monitoring the usage of funds

For Non-Corporate Entities

Entities will need to take several far reaching measures to align themselves with and gear up to the new financial reporting regime. The key matters in connection therewith are briefly discussed hereunder:

Transition Planning

Entities should map their existing reporting systems to the new format and create a migration plan, identifying gaps in account groupings and disclosures. Special efforts will be required to compile a master-related party register and revisit inter-firm and family group structures to identify indirect relationships. Similarly, entities would have to create a contingent liability register updated at each balance sheet date and obtain legal or expert opinions where outcome probability is uncertain.

Staff Training

Finance personnel and bookkeepers must be trained in the classification of accounts as per the formats, drafting of notes to accounts and accounting policies as per the Accounting Standards. Similarly, they need to be trained to maintain proper records and to improve the documentation, thereby ensuring accuracy and consistency in reporting. This will assist them in complying with the increased audit requirements.

Use of Technology

Entities will be required to use compliant accounting software or ERP systems to streamline compliance, reduce manual errors, and simplify periodic reporting and audit preparation. In certain cases, this may involve significant one-time implementation costs as well as additional recurring costs for employing persons with relevant skills who understand such systems.

CONCLUSION

The new format for financial statements for non-corporate entities will mark a significant step in the formalisation of India’s financial reporting ecosystem. While the journey to full adoption may be gradual and initially meet with some resistance, the long-term gains in credibility, compliance, and consistency will be substantial. Chartered Accountants, as custodians of financial integrity, have a vital role in driving this transition through proactive engagement, hand-holding of clients, and embedding best practices in the profession. To conclude, any short-term pain always paves the way for long-term gain!

BCAJ Admin

Tribute to Shri Haren Bhalchandra Jokhakar, Past President of the Society

On 11^th April 2025, an icon of our profession, CA Haren Jokhakar — affectionately known as Haren Bhai — breathed his last and left his mortal body.

Born on 10^th September 1939, Haren Bhai was a one-man institution. He was a gentle giant. His presence commanded respect, not because he demanded it, but because he earned it through unwavering integrity, wisdom, and humility.

For Haren Bhai, the Society was like his very own child. He was the youngest president of the Society when he served the Society as its President. In fact, all the OBs were much older to him and yet they supported him like their younger brother. Some of those colleagues at BCAS remained closest friends all his life. He was involved in every activity in those early formative years of the Society when much of work was done from office of the President and few others who supported the Society, nurturing it with care, commitment, and vision. He served as the President of BCAS in the year 1971-1972 leaving behind a legacy that continues to inspire generations.

While BCAS was close to his heart, his contributions were not confined to one institution. He extended his energy and expertise to several professional and social causes. His role as a Chartered Accountant was marked by brilliance and integrity, and earned him respect of both his peers and students. He had a deep sense of fairness and balance, always striving to bring visibility and respect to a profession he believed was under-recognized in those decades.

One of the most endearing qualities of Haren Bhai was that despite his towering personality, he was always careful not to overshadow others. He made space for everyone to grow and even stopped coming to Society at some stage to make way for next generation.

If we are truly to pay our respects to this great soul, let us follow his ideals — to not only become better professionals but also responsible citizens and above all good human beings.

-BCAS

BCAJ Admin

Important Amendments by The Finance Act, 2025 – 2.0 Block Assessment in Search Cases

Introduction

The procedure of block assessment to be made in cases where a search has been conducted under Section 132 or a requisition has been made under Section 132A was earlier introduced in 1995. Under this erstwhile scheme of block assessment, in addition to the assessments which were to be conducted in a regular manner, a special assessment was required to be made assessing only the ‘undisclosed income’ relating to the ‘block period’ in a case where the search has been conducted.

In 2003, these provisions dealing with block assessment in search cases were made inapplicable for the reasons as stated in the Memorandum explaining the provisions of the Finance Bill, 2003 which are reproduced below –

The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. The main objectives for the introduction of the Chapter XIV-B were avoidance of disputes, early finalization of search assessments and reduction in multiplicity of proceedings. The idea was to have a cost-effective, efficient and meaningful search assessment procedure.

However, the experience on implementation of the special procedure for search assessments (block assessment) contained in Chapter XIV-B has shown that the new scheme has failed in its objective of early resolution of search assessments. The new procedure postulates two parallel streams of assessment, i.e., one of regular assessment and the other for block assessment during the same period, i.e., during the block period. Controversies have sprung up, questioning the treatment of a particular income as ‘undisclosed’ and whether it is relatable to the material found during the course of a search etc. Even where the facts are clear, litigation on procedural matters continues to persist. The new procedure has thus spawned a fresh stream of litigation.

Thus, the experience was that providing for two parallel assessments; one for undisclosed income and the other for regular income, had resulted in a lot of litigation. As a result, the new Sections 153A, 153B and 153C were introduced wherein it was provided that the assessments pending as on the date of initiation of search would abate and only one assessment would be made wherein the total income of the assessee, including undisclosed income, was required to be assessed. Further, separate assessment was required to be made for every year involved unlike the single assessment for the entire block period as provided under Chapter XIV-B. In 2021, these provisions for making the assessment in the cases of the search were merged with the provisions dealing with reassessments in general, as provided in Sections 147 to 151 with the appropriate amendments.

Thereafter, in the last year, the Finance Act (No.2), 2024, had once again restored the scheme of ‘block assessment’ as provided in Chapter XIV-B but in a revised form. This was made effective from 1-9-2024, i.e. when the search was initiated on or after 1^st September, 2024. Unlike the erstwhile scheme of block assessment, which had provided for making parallel assessments of the undisclosed income of the block period and of the regular income, the revised scheme of block assessment provided for making only one assessment of the block period wherein the total income was required to be assessed including the undisclosed income as well as the other regular incomes.

However, the Finance Act, 2025 has made further amendments to the provisions of Chapter XIV-B having retrospective effect from 1^st September, 2024, i.e. the date from which these provisions were reintroduced by the Finance Act (No. 2) 2024. One of the major amendments which have been made by the Finance Act 2025 is that the scope of the block assessment has been restricted to the assessment of only the ‘undisclosed income’ instead of the ‘total income’. Although the amended provisions do not provide expressly that the assessment of the undisclosed income and of the regular income would be made separately, it implies that there would be two parallel assessments once again as were being made under the erstwhile scheme of the block assessment, which was in force till 2003. Therefore, the provisions which were considered to be highly litigation prone in 2003 have been reintroduced in the Act by the Finance Act, 2025, with effect from 1^st September, 2024. Further, it is worth noting that this amendment was made at the time of passing of the Finance Bill, and, therefore, there is no mention of the reasons for making such an amendment in the Memorandum explaining the provisions of the Finance Bill 2025.

In this article, the important amendments to Chapter XIV-B made by the Finance Act 2025 have been discussed and analysed.

Restricting the scope of assessment to the undisclosed income

Section 158BA provides that the Assessing Officer shall make the assessment of the block period in accordance with the provisions of Chapter XIV-B in a case where the search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A on or after 1^st September, 2024. Under this provision, the Assessing Officer was required to make the assessment of the ‘total income’. Now, this section has been amended to provide that the Assessing Officer shall make the assessment of the ‘total undisclosed income’ of the block period. The marginal heading of this section has also been changed appropriately by replacing the words ‘assessment of total income’ with the words ‘assessment of total undisclosed income’.

The consequential changes have also been made to the other provisions of Chapter XIV-B by replacing the reference to the assessment of total income with the assessment of total undisclosed income.

Thus, as mentioned earlier, the basic principle of the scheme of block assessment itself has been changed with retrospective effect from 1^st September, 2024 restricting it now to the assessment of only undisclosed income.

It is worth noting that surprisingly no changes have been made to the provisions dealing with the abatement of the assessments under the other provisions of the Act pending as of the date of initiation of the search. Section 158BA(2) has remained unamended which provides that the assessment or reassessment under the other provisions of the Act pertaining to any assessment year falling in the block period on the date of initiation of search or making of requisition shall abate and shall be deemed to have abated on the date of initiation of search or making of requisition. Although these pending assessments are considered to have been abated, the Assessing Officer is going to make the assessment of only the undisclosed income while making block assessment under the amended provisions. There is no clarity as to whether and how the Assessing Officer would be assessing the income other than the undisclosed income in respect of those assessment years in respect of which the assessments were in progress but have abated as a result of the search being conducted. Therefore, it appears that this particular aspect has remained to be considered while making the amendments to the provisions dealing with the block assessment.

Further, under the erstwhile provisions dealing with the block assessment (as it was in existence prior to 2003), in which assessment was required to be made of only the undisclosed income in the manner same as which is provided now, there was an Explanation to Section 158BA(2) by which the position of the block assessment vis-à-vis the assessment under the other provisions was being clarified as under –

Explanation.—For the removal of doubts, it is hereby declared that—

(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;

(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;

(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.

Under the current provisions as amended by the Finance Act 2025, no such clarity has been provided expressly as to whether the block assessment would be in addition to the regular assessment to be made under the regular provisions or there would be only one assessment, i.e. the block assessment. The very fact that the block assessment only deals with the undisclosed income implies that it is intended that the regular assessment can be made in addition to the block assessment for the purpose of making the assessment of the income other than the undisclosed income. However, if that is the case, then the question arises as to why such regular assessments, which were pending as of the date of initiation of the search are considered to have been abated.

Computation of the total undisclosed income of the block period

Section 158BB provides the manner of computing the income which needs to be assessed by the Assessing Officer under Section 158BA. Since this section was providing for the computation of the total income, it has also been amended consequentially to provide for the computation of only undisclosed income.

The amended provisions of Section 158BB provide that the total undisclosed income of the block period which is required to be assessed shall be the aggregate of the following –

(a).Undisclosed income declared by the assessee in the return furnished under Section 158BC;

(b).Undisclosed income determined by the Assessing Officer under Section 158BB(2).

The ‘undisclosed income’ has been defined in Section 158B(b), and there has been no change in this definition except for the inclusion of the virtual digital asset in the list of several assets like money, bullion, etc., which can be regarded as the undisclosed income if they are representing the income or property which has not been or would not have been disclosed for the purposes of the Income-tax Act.

Further, the provisions of Section 158BB have also been amended to specifically provide that the following income shall not be included in the total undisclosed income of the block period –

(a).The total income determined under the applicable provisions of the Act (like Section 143(1), 143(3), 144, 147, 153A, 153C, 158BC(1) etc.) prior to the date of initiation of the search or the date of the requisition, in respect of any previous year falling within the block period. Therefore, the income already assessed will not be included in the total undisclosed income.

(b).The total income declared in the return of income filed under Section 139 or in response to a notice under Section 142(1) prior to the date of initiation of the search or the date of requisition in respect of any previous year falling within the block period, if it is not covered by (a) above.

(c).The income as computed by the assessee in respect of the period as specified below and subject to the condition as mentioned below –

However, if the Assessing Officer is of the opinion that any part of such income referred to in the above table as computed by the assessee is undisclosed, then he may recompute such income accordingly.

Undisclosed income of any other person

Section 158BD provides for the assessment of the undisclosed income of any other person, i.e. the person other than a person in whose case the search was initiated under Section 132 or requisition was made under Section 132A. Such other person is required to be assessed when the Assessing Officer is satisfied that any undisclosed income emanating from the search belongs to or pertains to or relates to that person.

It was provided that the block period for the purpose of making the assessment of such other person would be the same period which has been considered to be the block period in the case of the person in whose case the search was conducted. However, it is quite possible that multiple persons are covered by the same search which has been conducted. In such case, the last of the authorisations for the search in the case of such different persons might be executed on different dates. As a result, the block period would not be the same and it would differ from person to person who has been searched. Therefore, in such a case, difficulty will arise in determining the block period for the purpose of making the assessment of the other person who was not covered by the search but the undisclosed income belonging to him has been found.

Therefore, the provisions of Section 158BD have now been amended to provide that where more than one person was covered by the search, then the block period for such another person would be the period which has been considered to be the block period in the case of such person amongst all the persons in whose case the search was conducted which is ending on a later date.

Extension of the time limit for furnishing the return of income in response to the notice issued under Section 158BC

As per Section 158BC, the concerned person is required to submit the return of income in response to the notice issued by the Assessing Officer in this regard. Consequent to the shift in the scheme of the block assessment from the assessment of the total income to the assessment of only undisclosed income, the amendment has also been made in this Section to provide that the return of income shall be filed declaring only the undisclosed income and not the total income.

Further, this return of income is required to be submitted within a period, not exceeding sixty days, as may be specified in the notice issued in this regard. The amendment has been made to provide that the time allowed for furnishing the return of income may be extended by a further period of thirty days if the following conditions are satisfied –

i. In respect of the previous year immediately preceding the previous year of search, the due date for furnishing the return has not expired prior to the date of initiation of such search;

ii. The assessee was liable for audit under Section 44AB for such previous year;

iii. The accounts of such previous year have not been audited on the date of issuance of such notice; and

iv. The assessee requests in writing for an extension of time for furnishing such return to get such accounts audited.

Other amendments

A few other amendments have also been made in Chapter XIV-B, which are summarised as under –

The ‘undisclosed income’ as defined in section 158B shall now even include ‘virtual digital asset’ in addition to any money, bullion, jewellery or other valuable article or thing, etc.
Section 158BA(4) provides that any block assessment which is pending in a case where a subsequent search has been initiated, or requisition has been made shall be duly completed, and thereafter, the block assessment in respect of such subsequent search or requisition shall be made. This provision has been amended to refer to the assessment ‘required to be made’ instead of the assessment which was ‘pending’. Therefore, not only the block assessment which was commenced and pending but also the block assessment required to be made consequent to the search already conducted earlier shall be completed first before making the block assessment in respect of the subsequent search.
Section 158BA(2) provides for the abatement of the assessment or reassessment or recomputation which is being conducted under any other provisions of the Act other than the block assessment and which is pending on the date of initiation of the search or making of the requisition. Also, section 158BA(3) provides for the abatement of reference made to the Transfer Pricing Officer under section 92CA(1) or the order passed by the Transfer Pricing Officer under section 92CA(3) during the course of such pending proceeding for assessment or reassessment or recomputation.

Further, section 158BA(5) provides for the revival of such pending proceeding under any other provisions if the proceeding initiated for the block assessment under Chapter XIV-B or the order of assessment passed under section 158BC(1) has been annulled in appeal or any other legal proceeding. However, this provision providing for revival was referring only to the ‘assessment’ or ‘reassessment’ which had been abated under sections 158BA(2) or 158BA(3). Now, this provision has been amended to refer not only to the ‘assessment’ or ‘reassessment’ but also to ‘recomputation’ or ‘reference’ or ‘order’.

Section 158BE provides that the assessment order in respect of the block period shall be passed within twelve months from the end of the month in which the last of the authorisations for the search was executed or requisition was made. This provision has been amended to provide the period of twelve months shall be reckoned from the end of the quarter in which such last authorisation was executed or requisition was made.
Section 158BI provided that the provisions of Chapter XIV-B shall not apply where the search was initiated, or the requisition was made before 1^st September, 2024, and proceedings in relation to such search or requisition shall be governed by the other provisions of the Act. This section has been completed and omitted with retrospective effect from 1^st September, 2024.

BCAJ Admin

Important Amendments by The Finance Act, 2025 -1.0 Charitable Trusts

Important Amendments by the Finance Act, 2025 are covered in three different Articles. It is not possible to cover all amendments at length, and hence, the focus is only on important amendments with a detailed analysis of their impacts. This in-depth analysis will serve as a future guide to know the existing provisions, current amendments, their rationale and impact. We hope that the detailed analysis will enrich the readers. – Editor

The Finance Act, 2025 carried out four amendments in the provisions relating to the exemption of charitable or religious trusts. All these amendments have somewhat relaxed the harshness of the provisions providing partial relief to charitable and religious trusts.

PERIOD OF REGISTRATION FOR SMALL TRUSTS

Every charitable or religious trust seeking exemption under sections 11 and 12 of the Income-tax Act, 1961, is required to be registered under section 12A. The procedure for this is laid down in section 12AB. There are 7 types of applications laid down under section 12A(1)(ac). One of these is a case where an application is made by a trust which was not registered so far under section 12A and which has not yet commenced its activities at the time of making the application [clause (vi)(A) of section 12A(1)(ac)]. Such a trust is granted a provisional registration for a period of 3 years. In all other cases [clauses (i) to (v) and (vi)(B)], registration is currently granted for a period of 5 years by the Commissioner of Income Tax (CIT) or Principal CIT.

By insertion of a proviso to section 12AB(1) with effect from 1st April, 2025, the Finance Act 2025 now grants a longer period of registration of 10 years to certain types of small trusts in all these cases where the period of registration was earlier 5 years, except for one category – clause (vi)(B), i.e. trusts which have commenced their activities and which have never been allowed exemption under clause (iv), (v), (vi) or (via) of section 10(23C) or under section 11 or section 12 before the date of the application since commencement of their activities. These trusts [clause (vi)(B)], even if they are small trusts, will continue to be granted registration only for a period of 5 years. Similarly, the period of registration of trusts covered by clause (vi)(A) remains unchanged at 3 years. There is also no change in the period of section 80G approval, even for eligible small trusts, which remains the same at 5 years.

The small trusts which are eligible to be granted the benefit of the longer period of exemption of 10 years are those trusts whose total income (before considering the exemption under sections 11 and 12) during each of the two previous years preceding the date of application does not exceed ₹5 crore. If income in any of the two years exceeds this limit, the benefit of such a longer period of registration would not be available.

The Finance Minister, in her Budget Speech, has stated:

“I propose to reduce the compliance burden for small charitable trusts / institutions by increasing their period of registration from 5 years to 10 years”.

The Explanatory Memorandum explains the rationale behind this amendment as under:

“2. It has been noted that applying for registration after every 5 years increases the compliance burden for trusts or institutions, especially for the smaller trusts or institutions.

3. To reduce the compliance burden for the smaller trusts or institutions, it is proposed to increase the period of validity of registration of trust or institution from 5 years to 10 years, in cases where the trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of section 12A, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed ₹5 crores during each of the two previous years, preceding to the previous year in which such application is made.”

In the FAQs issued, the amendments have been explained as under:

Q.2. What amendment has been carried out in respect of registration of trusts?

Ans. The period of validity of registration of a trust or institution with income below ₹5 Crore has been increased from 5 years to 10 years in certain cases.

Q.3. Which cases shall benefit from the above amendment?

Ans. The amended provisions shall be applicable to certain small trusts or institutions whose total income does not exceed ₹5 crores in each of the two previous years, preceding the previous year in which application is made.

In computing income for this limit of ₹5 crore:

i. The income of the trust has to be considered on a commercial income basis based on the method of accounting followed by the trust;

ii. all incomes of the trust, including donations, have to be considered;

iii. in case the trust is carrying on a business, the net business income of the trust is to be considered;

iv. Corpus donations are also to be considered, adopting a conservative view, as the tax authorities are of the view that such donations are income which may be exempt under section 11(1)(d);

v. Administrative expenses are not to be deducted, unless such expenses are incurred to earn the income;

vi. Only profit on the sale of assets as per books of account is to be considered as income, and not the entire sales proceeds nor the capital gains as computed under the head “Capital Gains”.

Since the amendment is with effect from 1^st April, 2025, and is a procedural amendment, it applies to all cases where registration is granted on or after 1^st April, 2025. There is a doubt as to whether it would apply to extend existing registrations automatically, since it also applies to cases covered by clause (i) of section 12A(1)(ac). From the manner in which the proviso is drafted, the amendment will not extend to cases of existing registrations – it will apply only to approvals granted after that date. All those cases where the registration was granted for a period of 5 years from 1^st April, 2021 to 31^st March, 2026, including such small trusts, would now need to apply for renewal of their registration on or before 30^th September, 2025. The renewed registration, when granted, would then be for a period of 10 years if the trust qualifies for such a longer period of registration.

A large number of trusts (approximately 2,50,000 trusts) with existing registration as of 31^st March, 2021, would have been granted registration for a period of 5 years till 31^st March, 2026. The applications of all these trusts would have to be processed within a period of 6 months by 31^st March 2026, a mammoth task indeed, if all documents and activities of each such trust have to be scrutinised. Not only that, during the same period, section 80G renewal applications of the vast majority of trusts having such approval would also have to be processed. Since a large number of such trusts are small trusts with a total income of less than ₹5 crore, it would have been better had the amendment extended the existing 5-year registration automatically to a period of 10 years, in the case of all such trusts whose total income is less than ₹5 crore for the 2 years ending 31^st March 2024 and 31^st March 2025. This would have ensured that the focus of the renewal process would then be on the larger trusts.

One aspect which needs to be kept in mind by such small trusts is that after the next renewal period of 10 years, at the time of subsequent renewal, details would have to be provided of activities, etc., over the longer time period of the last 10 years. It would, therefore, be essential for such trusts to maintain a year-wise record of such activities on an ongoing basis to avoid a situation where the trust is unable to provide details of activities carried out from the date of the last renewal till the date of a subsequent application for renewal. Similarly, the records of the trust would have to be maintained for such a longer period, so as to facilitate reply to any query that may be raised during the process of scrutiny of the renewal application.

SUBSTANTIAL CONTRIBUTOR – SECTION 13(3)

Under section 13(1)(c), if any part of the income or property of the trust is utilised for the benefit of a person specified in section 13(3), such income is subjected to tax at the rate of 30% under section 115BBI, besides attracting a penalty at 100% of such amount under section 271AAE for the first offence, and at 200% of such amount for subsequent offences.

The persons specified in section 13(3) include a person who has made donations exceeding ₹50,000 in aggregate to the trust since its inception till the end of the relevant year (a substantial contributor). This limit was ₹5,000 from 1976 to 1984, ₹25,000 from 1985 to 1994 and ₹50,000 thereafter till 2025. Effectively therefore, this limit, which was earlier being modified every 10 years, had remained unchanged for 30 years. The absurdity of such a low limit resulted in a situation where most large trusts were unable to keep a list of such donors (which is one of the documents required to be kept by a charitable trust), and therefore, in cases of the audit reports (Form 10B or 10BB) in most of the trusts, there was a qualification to the effect that the trust had been unable to identify and maintain a list of such substantial contributors.

This limit of ₹50,000 in aggregate has now been increased with effect from 1^st April 2025 (i.e. AY 2025-26) to a more reasonable aggregate limit of ₹10,00,000, with an additional alternative limit of donations exceeding ₹1,00,000 for the year. Therefore, a person would be regarded as a substantial contributor either if he has made aggregate donations exceeding ₹10,00,000 over the years or has made a donation exceeding ₹1,00,000 during the relevant year. Hitherto, since there was only an aggregate limit, a person who became a substantial contributor in one year would always remain a substantial contributor for future years, since he had already crossed the aggregate limit of ₹ 50,000. Now, given the two alternative limits, it is possible that a person who is a substantial contributor in one year on account of donations exceeding ₹1,00,000 in that year may not be a substantial contributor in a subsequent year due to the fact that he may not have contributed more than ₹ 10,00,000 in aggregate over the years.

Unfortunately, many trusts, particularly large trusts which have been in existence for many decades, would continue to face difficulty in compiling a list of such substantial contributors with accuracy, since the list has to take into account the aggregate donations received over the past many decades, an impossible task. It would perhaps have been better if the limit of aggregate donations had been made applicable only to donations made in the last few years – maybe 5 years or 10 years, which would have ensured proper compliance by all trusts.

RELATIVE AND CONCERN OF SUBSTANTIAL CONTRIBUTORS – SECTION 13(3)

The list of specified persons in section 13(3) also included:

♦ any relative of persons referred to in clauses (a) – author or founder, (b) – substantial contributor, (c) – any member of the HUF if a HUF was an author, founder, or substantial contributor, and

♦any concerns in which any of the above (including trustees and relatives of such persons) has a substantial interest.

The definition of “relative”, contained in Explanation 1 to section 13, was fairly vast, as under:

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) any lineal ascendant or descendant of the individual;

(v) any lineal ascendant or descendant of the spouse of the individual;

(vi) spouse of a person referred to in any of the above clauses;

(vii) any lineal ascendant or descendant of a brother or sister of either the individual or of the spouse of the individual.

Here also, obtaining such details of relatives, particularly from substantial contributors, was an impossible task for the trust, as no donor would want to give so many personal details to an organisation to which he was doing a favour by donating. Similarly, obtaining details of concerns in which donors or their relatives have a substantial interest was again almost impossible.

The Finance Act 2025 has amended the definition of specified persons in section 13(3) by excluding relatives of substantial contributors and concerns in which substantial contributors or their relatives have substantial interest from this definition.

The Explanatory Memorandum has also recognised the practical difficulty as under:

“Suggestions have been received that there are difficulties in furnishing certain details of persons other than author, founder, trustees or manager etc. who have made a ‘substantial contribution to the trust or institution’, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees. These details are about their relatives and the concerns, in which they are substantially interested.”

However, relatives of the author or founder, trustees or manager, and concerns in which the author or founder, trustees or manager or their relatives have a substantial interest would continue to be regarded as specified persons. The FAQs clarify this as under:

“Q.7. Whether the relaxation provided to specified person also covers author, founder of trust, trustees, member or manager of the trusts?

Ans. It is clarified that the relaxation shall not apply to author, founder of trust, trustees, member or manager of the trusts”.

Unfortunately, there has been no amendment to the definition of “relative”, which is fairly wide and ropes in even a person not closely related; to illustrate, a brother-in-law’s or sister-in-law’s granddaughter would also be covered. Fortunately, her husband would not be covered! Even for a trustee, to provide such a detailed list of relatives and concerns in which they are substantially interested is indeed a tall task. Getting new trustees today is, as it is, a difficult proposition for most trusts – such detailed compliance adds to the reluctance of persons to take on what is often an honorary and thankless post. One wishes and hopes that the definition of relative is aligned with that under the Companies Act 2013, which only extends to first-degree relatives – spouse, member of HUF, father, mother, son, son’s wife, daughter, daughter’s husband, brother and sister. Unfortunately, even in the draft Income Tax Bill 2025, the same definition of “relative” is continued.

CANCELLATION OF REGISTRATION – SECTION 12AB

Section 12AB(4) provides for cancellation of registration of a trust, if it has committed specified violations. The list of specified violations is contained in the explanation to s.12AB(4). Clause (g) of the explanation refers to a situation where the application referred to in s.12A(1)(ac) (i.e. application for registration or renewal of registration under s.12A) is not complete or contains false or incorrect information.

This clause has been amended by the Finance Act 2025, to remove the reference to application not being complete with effect from 1^st April 2025. The amended specified violation would now cover only a situation where the application contains false or incorrect information and would apply to situations where the cancellation order is being passed after 1^st April 2025.

The Explanatory Memorandum states that:

“ It is noted that even minor default, where the application referred to in clause (ac) of sub-section (1) of section 12A is not complete, may lead to cancellation of registration of trust or institution, and such trust or institution becomes liable to tax on accreted income as per provisions of Chapter XII-EB of the Act.

It is, therefore, proposed to amend the Explanation to sub-section (4) of section 12AB so as to provide that the situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section.”

In the FAQs, it is clarified as under:

“Q.4. What amendment has been carried out in provisions relating to ‘specified violation’ in the case of trusts or institution?

Ans Under current provision an ‘incomplete’ application for registration is treated as specified violation. This may result in cancellation of registration and consequently, fair market value of the assets becomes chargeable to tax under the Act.

In order to prevent harsh consequences for default of filing incomplete application, the above amendment has been carried out. The trust or institution shall be able to complete the application and the same shall be considered for the purposes of registration.”

This amendment really rectifies a drafting mistake made when the provision was introduced, as if an application was incomplete, under rule 17A(6), the Commissioner has the power to reject the application and cancel the registration. While processing the application, the fact that it is incomplete would be obvious, resulting in a rejection, which may not always be the case with respect to incorrect or false information provided in the form, which may come to light later. Hence, the provision for cancellation was perhaps justified for false or incorrect information, but not for incomplete application.

Post amendment, an issue that may arise is whether an omission to provide certain information may amount to giving false or incorrect information. To illustrate, a practical situation often faced is when the Commissioner has cancelled the registration of a trust, and the Appellate Tribunal has set aside such an order of cancellation. One of the questions to be answered in Form 10AB is whether any application for registration made by the applicant in the past has been rejected. This question has to be answered only with a “yes” or “no”. If the trust states “no”, would this amount to giving false or incorrect information? This should not amount to giving incorrect or false information, as when the Tribunal sets aside the order of rejection of the Commissioner, that rejection order ceases to exist. At best, it can be said to be a provision of incomplete information, though that too may not hold good, as the form itself merely requires ticking of the appropriate box without any further details.

CONCLUSION

These amendments, though providing some relief to charitable trusts, do not really address all the issues and problems being faced in these areas by charitable trusts, as discussed above. These amendments have also been incorporated in the draft of the Income Tax Bill 2025, which has been introduced in Parliament, and therefore, one may have to wait for some time for any further amendments in this regard unless the Income Tax Bill 2025 is appropriately amended before being enacted.

BCAJ Admin

Allied Laws

6. Inder Singh vs. The State of Madhya Pradesh

Special Leave Petition (Civil) No. 6142 of 2024 (SC)

21^st March, 2025

Condonation of delay – Mere technicalities –Substantial justice – Merits to be examined – Liberal approach – Delay of 1537 days is condoned. [S. 5, Limitation Act, 1963].

FACTS

The Appellant had instituted a suit for declaration of title of the suit property/land. The suit property consisted of 1.060 hectares of land situated in Madhya Pradesh. According to the Appellant, the said land was allotted to him in 1978. The Respondent refuted the claim of the Appellants and contended that inter alia, the said property was part of government land. The learned Trial Court, after going into the merits of the claims made by both parties, dismissed the suit. Aggrieved, an appeal was filed before the First Appellate Authority. The First Appellate Authority allowed the appeal and directed the State (Respondent) to hand over the suit property to the Appellant. The Respondent, thereafter, filed a review petition which was dismissed on the grounds of inordinate delay in filing the review petition. Thereafter, the State filed a regular appeal before the Hon’ble Madhya Pradesh High Court with a delay of 1537 days. The State attributed the delay towards review applications pending before the Appellate Authority and corona virus pandemic. The delay was accordingly, condoned.

Aggrieved, a special leave petition was filed by the Appellant before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court observed that the suit property, according to the State, was a government property allocated for public purposes. Further, the Hon’ble Court observed that the claims made by both parties required thorough examination. Therefore, the Hon’ble Court opined that the appeal preferred by the State should not be dismissed only on the grounds of delay when its merits needed examination. Further, the Hon’ble Court noted that though delay should normally not be excused without sufficient cause, mere technical grounds of delay should also not be used to undermine the merits of a case. Thus, a liberal approach must be adopted while condoning the delay. The Hon’ble Court also relied on its earlier decision in the case of Ramchandra Shankar Deodhar vs. State of Maharashtra (1 SCC 317). Thus, the decision of the High Court was upheld, and the appeal was dismissed.

7. Arun Rameshchand Arya vs. Parul Singh

Transfer Petition (Civil) No. 875 of 2024 (SC)

2^nd February, 2025

Registration – Stamp duty – Suit Property – Compromise between parties – No stamp duty payable. [Art. 142, Constitution of India; S. 17, Registration Act, 1908].

FACTS

Two separate applications were filed by both, Petitioner – husband and Respondent – wife under Article 142 of the Constitution of India for dissolving their marriage by mutual consent. The only contention was with respect to the source of funds utilised by the parties for acquiring the suit property. However, post counselling sessions as mandated by the Hon’ble Court, the Petitioner–husband consented to relinquish his entire rights in the suit property in favour of the Respondent–wife. Therefore, the only question of law that remained to be answered by the Hon’ble Court was whether the Respondent–wife had to pay any stamp duty for the transfer of the said suit property in her name.

HELD

The Hon’ble Supreme Court observed that as per Section 17(2)(vi) of the Registration Act, 1908, no stamp duty is payable if any compromise relates to any immovable property for which the decree is prayed for. The Hon’ble Supreme Court noted that indeed the suit property was the subject matter before it. Thus, the Hon’ble Court, after relying on its earlier decision in the case of Mukesh vs. The State of Madhya Pradesh and Anr.(2024 SCC Online 3832) held that the Respondent–wife is not entitled to pay any stamp duty on the transfer of the property. The applications were accordingly disposed of.

8. Mohammad Salim and Ors. vs. Abdul Kayyum and Ors.

S.B. Civil Writ Petition No. 4561 of 2025 (Raj) (HC)

26^th March, 2025

Registration – Unregistered document –Admissible as evidence – Collateral purpose – To be taken as evidence subject to payment of requisite stamp duty and penalty. [O. VIII, R. 1A (3), S. 151, Code for Civil Procedure, 1908; S. 17, Registration Act, 1908].

FACTS

A suit was instituted by the Respondent (original Plaintiff) for the declaration of title of the suit property. During the Trial Court proceedings, the Petitioners (Original Defendants) filed an application under Order VIII, Rule 1A (3) r.w.s. 151 of the Code for Civil Procedure, 1908 for admission of certain documents including one partition deed allegedly entered between the parties. The admission of the said partition deed was objected by the Respondent on the ground that the same is an unregistered document and thus, cannot be accepted as evidence. The Petitioner (Original Defendant) contended that the said document, though unregistered, can be accepted as evidence for collateral purposes. The Trial Court, however, rejected to take the partition deed on record.

Aggrieved, a writ was filed under Articles 226 and 227 of the Constitution before the Hon’ble Rajasthan High Court (Jodhpur Bench)

HELD

The Hon’ble Rajasthan High Court observed that the partition deed, indeed required proper registration as mandated by Section 17 of the Registration Act, 1908. However, the said unregistered document could be used as evidence for any collateral purpose.

Relying on the decision of the Hon’ble Supreme Court in the case of Yellapu Uma Maheswari and another vs. Buddha Jagadheeswararao and others, (16 SCC 787), the Hon’ble Rajasthan High Court held that the said partition deed shall be taken into evidence subject to payment of stamp duty, penalty, its proof thereof and relevancy. Thus, the Petition was allowed.

9. Amritpal Jagmohan Sethi vs. Haribhau Pundlik Ingole

Civil Appeal No. 4595-4596 of 2025 (SC)

1^stApril, 2025

Mesne Profits – Eviction of tenant – Calculation of mesne profits – Date of decree till handover of possession of the property [O. XX, R. 12, S. 2 (12) Code for Civil Procedure Code, 1908; Maharashtra Rent Control Act, 1999].

FACTS

The Respondent (landlord) had filed a suit for eviction of the Appellant (tenant) under various provisions of the Maharashtra Rent Control Act, 1999. Accordingly, the learned Trial court had granted for eviction of the tenant. Thereafter, a decree was passed for the possession of the property. In the said decree, the learned Trial Court had inquired into the ‘mesne profit’ to be received by the landlord. According to the directions given by the Trial Court, the mesne profits were to be calculated from the institution of the eviction suit till the date of handover of the possession of the property.

The tenant challenged the said calculation before the Hon’ble Supreme Court. According to the tenant, the calculation of mesne profits ought to have been calculated from the date of the decree being passed till the date of handover of the possession of the property.

HELD

The Hon’ble Supreme Court observed that mesne profits, as per Section 2(12) of the Code for Civil Procedure, 1908, refers to profits earned by a person who is in wrongful possession of the property. In the present facts of the case, unless and until the final decree was passed, there existed a legal relationship of landlord-tenant between the parties.

It is only after the decree is passed that the landlord can be said to be in wrongful possession of a property. Thus, the calculation of mesne profits was modified from the date of the decree till the date of handover of possession of the property.

The appeal was, therefore, allowed.

10. Union of India vs. J.P. Singh

Criminal Appeal No. 1102 of 2025 (SC)

3^rd March, 2025

Money Laundering — Retention of records and Electronic documents — Even if the person is not an accused in the complaint — Seizure of property to continue till disposal of the complaint. [S. 8, 17, 44 Prevention of Money Laundering, 2002 (PMLA)].

FACTS

Based on an Enforcement Case Information Report (ECIR) against the respondent, a search and seizure took place wherein electronic records, cash and other documents were seized. Subsequently, a complaint was filed by the Enforcement Department on which cognizance was taken by the special court.

On appeal by the respondent, the appellate authority and High Court took a view that the order dealing with seized property would cease to exist after 90 days. The Department filed an appeal before the Supreme Court.

HELD

On the contention of the Respondent that he was not named in the complaint, it was held that for the purpose of section 8(3) of PMLA, he was named in the ECIR based on which the complaint was made. Therefore, he was not required to be named as an accused in the complaint. Further, it was held that even after the competition of 90 days, the order under the amended section 8(3) of PMLA was to continue till the disposal of the complaint.

The Appeal was allowed.

BCAJ Admin

A Series of Articles on NRIs – Tax and FEMA Issues

The BCAJ published an “NRI Series” of 12 articles (December 2023 – April 2025) covering Income Tax and FEMA issues for NRIs. The index below provides details of the topics, authors, publication month, and page numbers for easy access.

Please send feedback on the “NRI Series” to editor@bcasonline.org or publicationofficer@bcasonline.org.

Sr. No.	Topic	Author	Publication Month / Year	Page Nos.
1	NRI – Interplay of Tax and FEMA Issues – Residence of Individuals under the Income-tax Act	Ganesh Rajgopalan, Chartered Accountant	December, 2023	25
2	Residential Status of Individuals — Interplay with Tax Treaty	Mahesh G. Nayak, Chartered Accountant	January, 2024	19
3	Decoding Residential Status under FEMA	Rajesh P. Shah, Chartered Accountant	March, 2024	19
4	Immovable Property Transactions: Direct Tax and FEMA issues for NRIs	Namrata R. Dedhia, Chartered Accountant	April, 2024	11
5	Emigrating Residents and Returning NRIs Part I	Rutvik Sanghvi \| Bhavya Gandhi, Chartered Accountants	June, 2024	11
6	Emigrating Residents and Returning NRIs Part II	Rutvik Sanghvi \| Bhavya Gandhi, Chartered Accountants	August, 2024	13
7	Bank Accounts and Repatriation Facilities for Non-Residents	Hardik Mehta \| Arwa Mahableshwarwala, Chartered Accountants	October, 2024	39
8	Gifts and Loans — By and To Non-Resident Indians: Part I	Harshal Bhuta \| Naisar Shah, Chartered Accountants	November,2024	21
9	Gifts and Loans — By and To Non-Resident Indians: Part II	Harshal Bhuta \| Naisar Shah, Chartered Accountants	December,2024	17
10	Investment by Non-Resident Individuals in Indian Non-Debt Securities – Permissibility under FEMA, Taxation and Repatriation Issues	Prashant Paleja \| Paras Doshi \| Kartik Badiani, Chartered Accountants	February, 2025	11
11	Non-Repatriable Investment by NRIs and OCIs under FEMA: An Analysis – Part – 1	Bhaumik Goda \| Saumya Sheth \| Devang Vadhiya, Chartered Accountants	March, 2025	11
12	Non-Repatriable Investment by NRIs and OCIs under FEMA: An Analysis – Part – 2	Bhaumik Goda \| Saumya Sheth \| Devang Vadhiya, Chartered Accountants	April, 2025	23

BCAJ Admin

Letter To The Editor

To,

The Editorial Board,

BCAJ.

Subject: Article “परोपदेशेपांडित्यम्” in the March 2025 issue

Thank you for publishing C.N. Vaze’s deeply thought-provoking article “परोपदेशेपांडित्यम्” in the March 2025 issue. It struck a powerful chord. The observation that we are often eloquent in advising others yet lax in applying those very principles to our own lives is not only accurate but uncomfortably familiar.

Mr. Vaze has written with great clarity on professional ethics in the past, and this piece continues that important reflection. A typical case in this context is when a peer, who shares the same ethical vows, enables the filing of frivolous complaints—not out of a sense of duty, but from rivalry, resentment, or plain indifference. These aren’t just baseless grievances; they are missiles launched from the silos of personal angst, and once fired, they initiate a procedural chain reaction. Long-drawn ethical proceedings are set in motion. Time, energy, and resources are drained not in pursuit of justice, but in managing shadows. And while these cases often crumble under scrutiny, their residue lingers—on reputations, on mental health, on the very fabric of professional dignity.

Genuine breaches must be pursued with rigor—I fully support that. But unchecked misuse erodes trust. Ethics and values must be more than just talk; they should guide our choices, especially when faced with personal agendas.

The line चित्तेवाचिक्रियायांचसाधूनाम्एकरूपता encapsulates a rare ideal—that of harmony between thought, speech, and action. As professionals, that alignment should be our guiding star. And though we may falter, striving toward that integrity gives our journey its meaning.

Warm regards,

CA Rajeev Joshi

Mumbai

The Editor

BCAJ

Mumbai

Dear Sir,

I refer to Ms. Kunjal Parekh’s article “ A Chartered Accountant’s guide to writing…”. She has written like a veteran writer and not as some one who is writing her first article. With liberal doses of humour (self-deprecating at times), the article is a good read. Having made a start, hope Ms. Parekh writes more often. After all, writing, as the author says, is about starting.
Congratulations to the author for scoring a century on debut.

Warm regards.

S.Viswanathan

Bangalore

BCAJ Admin

Article 7(3) of India-UAE and Section 44Cof the IT Act – Prior to amendment with effect from 1st April, 2008, while computing the profits of PE, expenses incurred by HO were allowable without any restriction as per domestic tax law governing computation of income

1- [2025] 171 taxmann.com 230 (SB)

Mashreq Bank Psc vs. DCIT

ITA No:1342 (MUM) of 2006

A.Y.:2002-03Dated: 6^th February, 2025

Article 7(3) of India-UAE and Section 44Cof the IT Act – Prior to amendment with effect from 1^st April, 2008, while computing the profits of PE, expenses incurred by HO were allowable without any restriction as per domestic tax law governing computation of income

FACTS

The Assessee, a tax resident of the UAE, was engaged in banking business in India through branches. The branch claimed deduction towards expenses incurred by HO without any restriction on the quantum of deduction. Further, it claimed certain expenses that were directly incurred outside India by HO as they were related to business operations of Indian branch.

Applying Section 44C, the AO restricted deduction of HO expenses to 5% of average adjusted total income. Further, the AO denied deduction for certain expenses (such as, SWIFT charges and global accounting software maintenance expenses) that were directly incurred by HO for branch operations.

CONSTITUTION OF SPECIAL BENCH

In Assessee’s case for AY 1996-97, ITAT held that Article 25(1) provided for computation of income and Article 7(3) of India-UAE DTAA should not be interpreted in a manner to restrict the application of domestic law. For AY 1998-99 and 2001-02, ITAT did not follow its earlier order and held that Article 7(3) did not restrict deduction of head office expenses. Therefore, provisions of DTAA should prevail over domestic law. ITAT further noted that amendment to Protocol to India-UAE DTAA with effect from 01 April 2008 restricted allowability of HO expenses.
Given the conflicting view in the Assesses’ own cases and other cases, a Special Bench was constituted at department’s request.

HELD

Head Office Expenses

Article 7(3) deals with determination of profits of PE. It provides for deducting all expenses incurred for PE business, including general and administrative expenses. Prior to amendment of India-UAE DTAA vide Protocol (Notification no. SO 2001(E) (NO) 282/2007, dated 28-11-2007), the Article did not restrict quantum of deduction or provide for reference to domestic law.

The first part of Article 25(1) provides that domestic law provisions deal with income and capital taxation arising in respective states. The later part provides that if any express provision under DTAA is contrary to domestic law, taxation shall be governed by DTAA and not by domestic law. This position aligns with interpretation of Section 90(2) namely, DTAA provisions shall override domestic law provisions to the extent beneficial to Assessee.

The scope of Article 25(1) as regards computation of business profits cannot be interpreted in a way that imposes restrictions on the manner of computing tax liability under Article 7(3), or to read restrictions under domestic law into DTAA. There was no need to introduce limitation via the Protocol if Article 25(1) was to be interpreted otherwise. Article 25(1) and Article 7(3) operate differently as the former deals with eliminating double taxes and later deals with determining business profits.

Provisions contained under DTAA must be interpreted in good faith in accordance with the terms employed by the contracting states. Prior to its amendment, Article 7(3) did not restrict allowability of expenses. This position was changed after re-negotiation of India-UAE DTAA. The amended Article 7(3) was intended to be applied w.e.f. 1st April, 2008. Hence, in absence of an express provision, it could not be applied retrospectively.

India has entered into certain DTAAs, such as those with UK and Germany, which impose restrictions on allowability of expenses, and certain DTAAs, such as those with France, Mauritius, and Japan, which do not impose any such restrictions. This indicates that conditions imposed under respective DTAAs are based on bilateral negotiations between the partners and consideration of economic and political factors.

Therefore, Article 7(3) is an express provision that overrides the provisions of Section 44C of the Act.

DIRECT EXPENSES BY THE HO FOR BRANCH OPERATIONS

Section 44C defines the term ‘head office expenditure’. These are common expenses incurred by HO for HO and various branches and are subsequently allocated to respective branches.

Circular No. 649 dated 31^st February, 1993, provides that while computing business profits, the expenditure covered by Section 44C must be allowed without imposing any restriction.

Therefore, an expenditure exclusively incurred outside India for Indian branches must be allowed as a deduction without any limits.

BCAJ Admin

Unravelling The Forensic Accounting And Investigation Standards

1. INTRODUCTION:

Investigations in the corporate landscape are referred to by a multitude of typologies, such as workplace, fraud, forensic or ethics investigations, to name a few and these typologies are representative of the myriad methods, techniques and processes deployed to achieve a singular objective i.e. discovery and determination of facts relating to an alleged violation. Given this context, the Forensic Accounting and Investigation Standards (“FAIS” or “Standards”)¹ issued by the Institute of Chartered Accountants of India (“ICAI”) is a salient endeavor as it seeks to amalgamate a multitude of complex and divergent topics to provide a simple and unified framework for practitioners. However, applying a reductive approach to a complex matter can sometimes introduce unforeseen challenges. This note explores issues which stakeholders ought to consider apropos the services which fall within the ambit of FAIS.

¹ Paragraph 1.2 of the Framework governing Forensic Accounting & Investigation 
(“FAIS Framework”) read with Paragraph 1.2 of FAIS 110 – Nature of Engagement

2. SCOPE:

The FAIS which took effect on 1st July, 2023, comprise of 20 standards addressing core topics such as fraud risk and fraud hypothesis, engagement acceptance, planning, and reporting and apply when a Professional renders services falling within the definition of Forensic Accounting, Investigation or Litigation Support services (“FAIS Services”). The definition of “Professional”² encompasses not only members of ICAI but also other professionally qualified accountants engaged in forensic accounting and investigation. However, while compliance with the FAIS is mandatory for Chartered Accountants (“CA”), whether in practice or employment, it remains voluntary³ for qualified professionals who are not members of the ICAI.

²  Paragraph 3.1 of FAIS Framework

³  Paragraph 3.1.2. of the Implementation Guide on FAIS No 000

3. DEFINING & DISTINGUISHING FAI SERVICES: OVERLAPPING BOUNDARIES AND CONSEQUENCES

Formulating a precise definition can be especially challenging when a term aims to cover a wide range of scenarios or straddles multiple domains. This difficulty is apparent in the FAIS, which seeks to capture all possible subject matter and objectives of investigations, including investigations into financial, operational matters or in connection with litigation. As discussed further, while striving to remain sufficiently broad, these definitions run the risk of being so expansive that they become unwieldy.

3.1. FAIS DEFINITIONS

Forensic Accounting⁴ :This term is defined as “gathering and evaluation of evidence by a professional to interpret and report findings before a Competent Authority⁵” and is further explained as “The overriding objective of Forensic Accounting is to gather facts and evidence, especially in the area of financial transactions and operational arrangements, to help the Professional⁶ report findings, to reach a conclusion (but not to express an opinion) and support legal proceedings”.

⁴ Paragraph 3.2.1 of FAIS Framework read with Paragraph 3.3.1 of FAIS 
Framework

⁵ Competent Authority is defined as “Competent Authority refers to a court of law 
(or their designated persons), an adjudicating authority or any other judicial 
or quasi-judicial regulatory body empowered under law to act as such” - 
Refer Page 155 of FAIS - Glossary of Terms

⁶ Professional is defined as a professionally qualified accountant, 
carrying membership of a professional body, such as the ICAI, 
who undertakes forensic accounting and investigation assignments using accounting, 
auditing and investigative skills. Refer Paragraph 3.1 of the FAIS Framework.

Investigation⁷: Investigation is defined as “the systematic and critical examination of facts, records and documents for a specific purpose” and is explained as “a critical examination of evidences, documents, facts and witness statements with respect to an alleged legal, ethical or contractual violation. The examination would involve an evaluation of the facts for alleged violation with an expectation that the matter might be brought before a Competent Authority or a Regulatory Body⁸”.
```
⁷ Paragraph 3.2.2 of FAIS Framework read with Paragraph 3.3.2 of FAIS Framework.

⁸ Regulatory Body is defined as “Regulatory Bodies are established to govern 
and enforce rules and regulations for the benefit of public at large”.- 
Refer Page 160 of FAIS – Glossary of Terms
```
Litigation Support⁹: While this term is undefined, it has been explained as “may include mediation, alternative dispute resolution mechanisms or the provision of testimony”¹⁰. Litigation is defined as “a process of handling or settling a dispute before a Competent Authority or before a Regulatory Body. Litigation could include mediation and alternative dispute resolution mechanism¹¹”. Examples of Litigation Support include scenarios where a CA is asked to provide evidence in support of the observations made in a forensic report to an Investigation Agency or Competent Authority or a valuation exercise which may be used in settlement negotiations in context of a dispute¹².

⁹ Paragraph 3.2.3 of FAIS Framework – Page 17

¹⁰ Paragraph 1.2.(c) of FAIS 110 – Nature of Engagement

¹¹  Paragraph 3.2.3 of FAIS Framework

¹² Paragraph 5.4 of the Implementation Guide on FAIS 110 –
      Nature of Engagement

While at first blush, Forensic Accounting and Investigation appear to be similar in coverage as they envisage evaluation of evidence in connection with reporting to a Competent Authority. However based on a conjunct reading of FAIS 110¹³ – Nature of Engagement read with the Implementation Guide on FAIS 110¹⁴ it appears that matters involving review of transactions and accounts with a definitive objective to report to a Competent Authority would be classified as Forensic Accounting. The clear implication here is that this exercise should be taken to gather evidence which is admissible in front of a Competent Authority. On the other hand, considering that Forensic Accounting presupposes reporting to a Competent Authority, it appears that any internally initiated exercise including review of financial transactions, would be classified as an Investigation, even though the underlying issue may be subject to the jurisdiction of a Competent Authority or Regulatory Body.

¹³  Paragraph 3.2, 3,3,4.2 & 4.3 of FAIS 110 – Nature of Engagement.

¹⁴  Paragraph 3.2, 3.3 and 3.4 of the Implementation Guide on FAIS 110 – 
Nature of Engagement

However, the examples cited in the FAIS¹⁵ do not appear to support the aforesaid reasoning. For instance, the estimation of loss of assets or profits for an insurance claim or the assessment of pilferage of inventory, which would not necessarily entail reporting to a Competent Authority are classified as Forensic Accounting, whereas alleged manipulation of stock prices or an exercise to identify misutilisation of funds consequent to loan defaults, are placed under the umbrella of Investigations. Furthermore, although the term Litigation Support suggests services where a CA represents a client in legal proceedings, its broad scope and varied applications, as can be inferred from the inclusive meaning and examples, can blur the lines between Litigation Support and Investigation.

¹⁵ Paragraph 5.2 and 5.3 of the Implementation Guide on FAIS 110 –
 Nature of Engagement

In conclusion, the imprecision and overlap in the definitions of Forensic Accounting, Investigation, and Litigation Support create an interpretational haze that is difficult to resolve.. Without more precise and harmonized guidelines, these definitions risk being stretched to a point where they offer little functional clarity, thereby leaving CA uncertain about the exact nature of their engagements and the requirements to be met before a Competent Authority or a Regulatory Body.

3.2. BROADENING THE SCOPE: BEYOND FRAUDULENT ACTS

Although fraud¹⁶ has been defined in the FAIS, the definitions of Forensic Accounting and Investigation (“Forensic Investigation”) do not explicitly reference it. The Implementation Guide on FAIS 110 – Nature of Engagement, which is advisory, notes that an Investigation aims to “uncover potential fraud…” and “check for fraudulent intent…”¹⁷, yet the definition of Investigation, which refers to “legal, ethical or contractual violation”, strongly suggests that fraud is not a predicate element. Collectively this implies that even matters where fraud, misrepresentation, or misappropriation (collectively “Fraudulent Acts”) is not suspected might fall under the FAIS.

¹⁶  Paragraph 3.2.4 of FAIS Framework

¹⁷  Paragraph 3.3 of Implementation Guide on FAIS 110 – Nature of Engagement

The Cambridge dictionary describes the term Forensic as “related to scientific methods of solving crimes”¹⁸. The American Institute of Certified Public Accountant’s Statement on Standards for Forensic Services (“AICPA FS”) specifies wrong doing ¹⁹ as predicate element of an investigation. On a similar note, SEBI’s LODR which mandate reporting of Forensic Audits by listed companies reference an element of wrongdoing by referring to “mis-statement in financials, mis-appropriation / siphoning or diversion of funds” as a prerequisite element²⁰. Collectively, this implies that wrongdoing or misconduct ought to be an essential aspect of a Forensic Investigation.

¹⁸ Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/english/forensic?q=Forensic, 
Last accessed on March 25, 2025.

¹⁹  Para 1 of AICPA FS

²⁰ “Frequently Asked Questions (FAQ) On Disclosure of Information Related 
to Forensic Audit of Listed Entities”, SEBI, https://www.sebi.gov.in/sebi_data/faqfiles/nov-2020/1606474249513.pdf, 
Last Accessed on March 25, 2025.

As such, it appears that FAIS diverges from the norm. To cite an example, the AICPA FS stipulate that valuation exercises not rendered in context of a litigation or investigation, would not be considered as a forensic service²¹. However, the examples cited in the FAIS²² suggest that exercises in nature of valuations and loss estimations are classified as Forensic Accounting, including even where litigation is not anticipated or wrongdoing is not suspected.

²¹ Para 2 of AICPA FS

²² Annexure 1 of FAIS 210 – Engagement Objectives read with Paragraph 5.2

 and 5.3 of the Implementation Guide on FAIS 110 – Nature of Engagement

By not requiring Fraudulent Acts as a starting point and by using undefined terms like “operational arrangements” or broad phrases such as “legal, ethical or contractual violations,” the FAIS potentially and may be inadvertently extend their scope to a wide array of fact-finding engagements. Even routine engagements can fall under the FAIS definition of an Investigation. For instance, if GST authorities flag discrepancies in sales data, hiring a CA to verify these discrepancies, even without any suspicion of wrongdoing could fall within the ambit of FAIS, as it involves a critical examination of records for a potential legal violation. Similarly, if a buyer alleges discrepancies in supply of goods, any assistance provided in evaluating the claims, may qualify as an Investigation, given the alleged breach of contract.

The decision not to explicitly require an allegation or indication of fraudulent activity in the definitions of Forensic Accounting and Investigation under the FAIS has significant practical implications. Although this breadth appears designed to accommodate a wide range of factual inquiries, it can lead to confusion and dissonance among both CAs and stakeholders as to whether a particular engagement would fall within the ambit of FAIS.

CAs are bound to assess whether an engagement falls within the FAIS and report compliance in their reports²³. However, clients would be wary of labelling ordinary fact-finding exercises as a “forensic” exercise as this characterisation may lead to an inference of suspected misconduct triggering governance and reporting obligations as well as potential reputational risks. This approach may translate into more extensive documentation, enhanced reporting standards, and greater administrative overhead, placing a disproportionate burden on clients for lower-risk assignments. The same poses practical challenges which the CAs and client will have to proactively work together to address appropriately.

²³  Paragraph 4.3 of FAIS 510 – Reporting Results

Furthermore, if Fraudulent Acts are not a predicate element, then the application of topical standards relating to fraud (such FAIS 120 – Fraud Risk) would be irrelevant. And since fraud is the predicate theme which binds the various FAIS, this incongruity may lead to potential complexities in the application of the FAIS leading to deficient outcomes.

3.3. DETERMINING FAIS APPLICABILITY

The FAIS ties its applicability to the purpose for which a service is rendered, yet its broad definitions may make it difficult to classify engagements. In particular, the terms “alleged legal, ethical or contractual violations” and “expectation” of litigation remain undefined, allowing multiple interpretations of whether an engagement qualifies as an Investigation or a general fact-finding exercise.

For instance, examining financial records for improper payments can serve markedly different objectives; from a straightforward risk assessment to probing suspected impropriety. If the client’s stated goal is merely to assess risk, the FAIS may not apply. However, if concerns of wrongdoing trigger the exercise, then FAIS could be applicable. In practice, determining which scenario applies can be challenging and, while dependent on the Client’s stated objectives, would also require a CA to assess the potential outcomes which would arise thereon.

Making a consistent and defensible classification often calls for legal expertise to interpret complex facts and predict potential outcomes; tasks that may extend beyond the CA’s traditional skill set. In high-stakes situations with uncertain or evolving circumstances, this lack of clarity poses a significant risk of non-compliance, underlying the need for more precise guidance in the FAIS.

4. INDEPENDENCE – UNREALISTIC PRESCRIPTIONS

The Basic Principles of FAIS (“Principles”) mandate that a CA should be “independent” and should “be free from any undue influence which forces deviation from the truth or influences the outcome of the engagement”²⁴ and that the CA “needs to resist any pressure or interference in establishing the scope of the engagement or the manner in which the work is conducted and reported”²⁵. A CA who is unable to establish the scope or the way the work is conducted would be violating the principle of independence²⁶, which in turn would necessitate a qualification in the CA’s report²⁷ or withdrawal by the CA from the engagement. At the same time ‘FAIS 210 – Engagement Objectives’ indicates that scope should be agreed upon with the client. Based on a conjunct reading, it appears that a CA should primarily determine the scope but with the consent of the client.

This strict independence requirement would be reasonable where the mandate to investigate is derived under law, such as an investigation initiated by regulators like SEBI but would appear to be excessive in case of client-initiated mandates, such as internal investigations, where a CA is rendering a contractual service at the client’s request. It may be noted that he AICPA FS do not prescribe independence as a requisite standard for forensic service²⁸.

²⁴ Paragraph 3.1 of Basic Principles of Forensic Accounting
 and Investigation (“Basic Principles”)

²⁵  Paragraph 3.1 of Basic Principles

²⁶  Paragraph 3.1 of the Basic Principles

²⁷Paragraph 5.3 of the Preface to the Forensic Accounting 
and Investigation Standards (“Preface”)

²⁸  Paragraph 6 of AICPA FS

5. ADHERENCE TO FAIS BY IN-HOUSE CAs

As explained above, the Basic Principles of FAIS (“Principles”) mandate that a CA should be “independent” and “needs to resist any pressure or interference in establishing the scope of the engagement or the manner in which the work is conducted and reported”²⁹. FAIS appear to be mandated for CAs in employment (“CA-E”) and it is obvious demonstrating this extent of independence in an employer-employee relationship is infeasible given the nature of the relationship.

²⁹ Paragraph 3.1 of Basic Principles

CA-Es operate in a different work construct when compared to CAs in practice. In fact, independence standards stipulated in the Code of Ethics issued by the ICAI apply to CAs in practice only. If FAIS are considered to be applicable to CA-Es, the potential conflicts and issues which would arise, may discourage CA-Es in undertaking any task in the nature of a FAIS Service. To illustrate, FAIS presupposes that the lifecycle of a FAIS engagement would be structured starting with engagement acceptance and culminating with a report, a structure which may not be practical or realistic in certain respects in the context of Forensic Investigations performed by a CA-E. As such, FAIS Services rendered by CA-E may be challenged as being non-compliant with FAIS and this deficiency may be used to discredit the outcome or findings of FAIS Services.

6. ATTORNEY CLIENT PRIVILEGE – DISHARMONIOUS CONSTRUCTION

Attorney-client privilege, in the context of investigations, is a legal doctrine that protects communications, including the work product, between a client and their legal counsel from disclosure to third parties including regulators, ensuring that sensitive information exchanged for obtaining legal advice remains confidential. In many Forensic Investigations, a CA may be retained under the direction of legal counsel specifically to maintain this protective umbrella, thus preserving privileged communications and related work products from forced disclosure.

However, the FAIS presupposes that the CA independently determines the scope and procedures of the engagement, without explicitly acknowledging the role of legal counsel over the investigatory process. This oversight can create tension: on one hand, the CA must comply with the FAIS; on the other, she is expected to operate under legal counsel’s instructions to maintain privilege. The resulting ambiguity raises serious questions about whether adherence to FAIS could inadvertently undermine attorney-client privilege, potentially compelling a CA to disclose information that would otherwise remain protected.

While the FAIS provides that CAs should consider the applicability of privilege while sharing evidence, the application of independence standards prescribed under FAIS may mean that umbrella of privilege may not be available, even if the CA is working under the directions of legal counsel. It is suggested that the ICAI should provide clarification that in relation to all work products protected by privilege, CA engaged through legal counsel may heed to the advice of the legal counsel, especially considering the applicable law which confers privilege on persons engaged by advocates under Section 132 (3) of Bhartiya Sakshya Adhiniyam, 2023.

7. SHARING INFORMATION WITH GOVERNMENT AGENCIES: BALANCING OBLIGATIONS AND CONFIDENTIALITY

“FAIS 240 – Engaging with Agencies” (“FAIS 240”) prescribes the standards in connection with interactions with Law Enforcement Agencies³⁰ and Regulatory Bodies³¹ (collectively referred to as “Agencies”) in connection with FAIS Services. FAIS 240 clarifies that testimony³² is a statement provided to a Competent Authority³³ such as a court, and is not included in the scope of FAIS 240. As such, it appears that any interaction with Agencies such as CBI or the ED, which are distinct from a Competent Authority, would fall under the scope of FAIS 240.

FAIS 240³⁴, when read with Implementation Guide on FAIS 240³⁵, appears to stipulate that a CA should provide information and / or clarifications to Agencies in connection with FAIS Services when called upon do so. FAIS 240 also stipulates that CAs should, in their engagement letters³⁶, include clauses relating to sharing of information with Agencies without prescribing any guardrails on the nature or extent of information which is to be shared or any due processes to be followed, such as approval of or communication to the client, before sharing such information.

³⁰ Defined in Paragraph 1.3 of FAIS 240 – Engaging with Agencies as 

“typically Central or State agencies mandated to enforce a particular law with the power to prevent,

 detect and investigate non-compliances with those laws. Their powers may be restricted

 by jurisdiction or by the law they are entrusted to enforce.”

³¹ Defined in Paragraph 1.3 of FAIS 240 -- Engaging with Agencies as

 “established to govern and enforce rules, laws and regulations for the benefit of public at large”

³² Defined in Paragraph 1.3(b) of FAIS 360 – Testifying before a Competent Authority - 

 as “A statement of the Professional whether oral, written or contained in electronic form,

 testifying before the Competent Authority on the facts in relation to a subject matter.”

³³ Defined in Paragraph 1.3(d) of FAIS 360 – Testifying before a Competent Authority as 

“Competent Authority refers to a court of law (or their designated persons), an adjudicating 

authority or any other judicial or quasi-judicial regulatory body empowered under law to act as such.”

³⁴ Paragraph 1.4(b) FAIS 240-Engaging with Agencies

³⁵ Paragraph 3.2 of Implementation Guide on FAIS 240

³⁶ Paragraph 4.4 FAIS 240-Engaging with Agencies

It also appears that FAIS 240 conflicts with the Basic Principles which prohibit the sharing of confidential information without the approval of the client, unless there is a legal or professional responsibility to do so and it can be argued that FAIS 240, which is specific, would take precedence over the Basic Principles, which are generic. Agencies can potentially use this argument to seek information from CAs, including that protected by attorney-client privilege, as refusal to share may be construed as non-compliance with FAIS which would in turn may lead to grounds for initiating disciplinary action against the CA.

It would be beneficial for the FAIS to explicitly provide exemptions for CAs from disciplinary action in situations where they refrain from sharing information to uphold attorney-client privilege, as outlined in FAIS 240. This clarification would further reinforce the principle of client primacy established in the Basic Principles.

8. CONCLUSION

While the FAIS are a laudable initiative to standardize and elevate forensic engagements, certain ambiguities and unrealistic requirements risk creating confusion and compliance challenges. The likely outcome and forum of a FAIS Service is litigation where it would be subject to extensive rigor and scrutiny. However, as discussed, the inherent ambiguities and sometimes, incompatible standards may impact the defensibility of a FAIS Service in a legal setting. Greater precision in defining key terms, a more realistic approach to independence in client-engaged scenarios, explicit accommodation for attorney-client privilege, and clearer guidance for in-house CAs are needed. By addressing these issues, the ICAI can ensure that the FAIS supports effective and credible investigative work.

BCAJ Admin

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

7 [2024] 116 ITR(T) 261 (Mumbai – Trib.)

Piramal Enterprises Ltd. vs. DCIT

ITA NO.:3706 & 5091(MUM.) OF 2010

AY.: 2005-06

Dated: 11th January, 2024

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

FACTS I

The assessee had sold a flat at Malabar Hills during the year under consideration and for computing the cost of Acquisition of the said flat the assessee adopted the fair market value as on 1-4-1981 based on valuation report of government valuer. The AO after rejecting the valuation made by the valuer, calculated the cost of acquisition by assessing the rate at ₹1480 per sq. ft. as compiled in the reference book and thereby made an addition of ₹2,98,680/-.

Aggrieved by the order, the assessee preferred an appeal before the CIT(A). The CIT(A) upheld the addition. Aggrieved by the CIT(A) order, the assessee preferred an appeal before ITAT.

HELD I

The ITAT observed that for the year under consideration, the AO had no power to refer the matter for valuation to the Department Valuation Officer (DVO) but rather had power under section 50A of the Act to refer the case to the valuation officer in case the valuation adopted by the assessee was lower than the fair market value. But at the same time section 50A of the Act inserted by Finance Act, 2012 is prospective in nature as has been held by Hon’ble Jurisdictional High Court in case of CIT vs. Puja Prints[2014] 43 taxmann.com 247/224 Taxman 22/360 ITR 697 (Bom.).

The ITAT held that when the assessee had calculated the cost of acquisition on the basis of fair market value determined by the government valuer the AO had no right to replace the government approved valuer’s opinion on his own.

Thus, the appeal of the assessee was allowed to the extent of this ground.

Sec. 24.: Where assessee continued to be owner of part premises of House, rental income should be assessed only under the head income from house property and assessee would be entitled for statutory deduction @30% under section 24(a) for same.

FACTS II

The AO had treated the rental income earned by the assessee during the year under consideration from the let out portion of the property named “RP house” as income from other sources instead of income from house property on the ground that the assessee was not the owner of the property. The CIT(A) had confirmed the action of AO.

Aggrieved by the CIT(A) Order, the assessee preferred an appeal before ITAT.

HELD II

The ITAT followed the order passed by the co-ordinate Bench of the Tribunal on the identical issue in its own case for A.Y. 2003-04 & 2004-05 wherein rental income earned by the assessee from let out portion of RP house was treated as income from house property and directed the AO to assess the rental income of let out portion of RP house as income from house property.

BCAJ Admin

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC. S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts. S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

6 (2025) 171 taxmann.com 392 (Mum Trib)

Sai Baba Sansthan Trust vs. DCIT

ITA Nos.: 932 & 935(Mum) of 2023

A.Ys.: 2013-14

Dated: 17^th January, 2025

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC.

S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts.

S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

FACTS – I

The assessee was a charitable organisation registered under section 12A, section 80G and section 10(23C)(v). It was having a temple complex in the town of Shirdi consisting of Samadhi of a popular Saint fondly called as “Shri Sai Baba” and also other deities. The assessee usually receives huge amount of cash donations by way of hundi collections / charity box collections from the followers/devotees of Shri Sai Baba where the name and address of the contributor is not maintained. The assessee filed its return of income for A.Y. 2013-14 declaring NIL income which was processed under section 143(1).

Taking note of the Annual Information Report (AIR) for A.Y. 2013-14 and based on the stand taken by him for A.Y. 2015-16, the AO sought to reopen the assessee’s assessment by issuing notice under section 148 dated 23.3.2018 on the basis that cash deposits of ₹257 crores received by the assessee were taxable as anonymous donations under section 115BBC.The writ petition filed by the assessee against the notice was rejected by the High Court. SLP against the said High Court judgment was also rejected by the Supreme Court. Accordingly, the AO proceeded to pass the reassessment order wherein he determined the total income of the assessee at ₹67.01 crores, besides bringing the anonymous donations of ₹175.53 crores to tax @ 30% under section 115BBC.

On appeal, CIT(A) held that the reopening of the assessment was valid. On merits, CIT(A) held that the assessee was both charitable and religious trust and hence it would fall within the exceptions provided under section 115BBC(2). Consequently, he held that the anonymous donations received by the assessee were not taxable in the hands of the assessee. However, on other issues, CIT(A) confirmed the additions.

Aggrieved, both the parties filed appeals before the Tribunal.

HELD – I

The Tribunal observed that-

(a) At the time of recording of reasons for reopening, the AO should have been aware of the approval granted to the assessee under section 10(23C)(v) which is granted to a trust existing wholly for public religious purposes or wholly for public religious and charitable purposes. If the approvals under section 80G and section 10(23C)(v) granted by the income tax authorities were read together, there should not have been any doubt that the tax department has recognized the assessee trust as existing “wholly for charitable and religious purposes” which was covered by the exception listed in section 115BBC(2). Accordingly, had the AO considered both these approvals, he would not have entertained the belief that the assessee would be covered by section 115BBC.

(b) The AO had relied upon the approval granted under section 80G only and had chosen a document which would suit his requirement and ignored another important document which went in favour of the assessee, which is not permitted in law.

(c) Even on merits, in the appeals for AY 2015-16 to 2018-19, the Tribunal had held that the assessee was a charitable and religious trust, which order was upheld by the Bombay High Court vide its order dated 8.10.2024 in (2024) 167 taxmann.com 304 (Bombay).

Thus, the Tribunal held that the belief entertained by the AO, without considering the record in totality, could not be considered as a legally valid belief under section 147 and accordingly, the reopening of assessment was not valid.

HELD – II

On the issue of accumulation under section 11(1)(a), following the decision of the Supreme Court in CIT vs. Programme for Community Organisation,(2001) 248 ITR 1 (SC), the Tribunal held that accumulation under section 11(1)(a) is to be allowed on the gross receipts and not on the net receipt.

FACTS – III

In the return of income, the assessee had claimed accumulation of income under section 11(2) to the tune of ₹183.26 crores. During the course of assessment proceedings, it came to light that the assessee had omitted to disclose receipts from educational and medical activities to the tune of ₹78.84 crores. The assessee agreed to the addition of said amount and prayed that the deduction under section 11(1)(a) @ 15% of the above receipts should be allowed and further claimed enhanced accumulation under section 11(2) for the balance amount of ₹67.01 crores.

The AO noticed that the Form No. 10 filed by the assessee during assessment proceedings had certain deficiencies such as (a) it did not mention the date;(b) it did not quantify the amount to be accumulated; (c) the Board resolution passed for accumulation mentioned all types of objects; and (d) the amount to be accumulated was incorrectly mentioned as ₹575 crores. Therefore, he rejected the claim for enhancement of accumulation under section 11(2). However, he allowed the claim of accumulation of ₹183.26 crores as was originally claimed in the return of income.

CIT(A) upheld the action of the AO.

HELD – III

The Tribunal observed that the AO, even after pointing out the deficiencies in Form No. 10, had allowed the claim of accumulation under section 11(2) as originally claimed in the return of income. Therefore, such deficiencies should not come in the way of allowing the enhanced accumulation claimed by the assessee during assessment proceedings. In any case, as held by Gujarat High Court in CIT (E) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust, (2019) 102 taxmann.com 122 (Gujarat), any inaccuracy or lack of full declaration in the prescribed format by itself would not be fatal to the claimant for the purpose of section 11(2). Accordingly, the Tribunal directed the AO to allow the enhanced amount of accumulation claimed under section 11(2).

In the result, the appeal filed by the assessee was allowed and the appeal of the Revenue was dismissed.

BCAJ Admin

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable. S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

5 (2025) 171 taxmann.com 133(Pune Trib)

DCIT vs. Chakradhar Contractors and Engineers (P.) Ltd.

ITA No.:1939 & 1940(Pun) of 2024

A.Y.: 2020-21 & 2021-22.

Dated: 26^th December, 2024

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable.

S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

FACTS

The assessee was a company engaged in the business of construction. It filed its return of income declaring total income by estimating the income from contract work at 7.37% of the turnover. The AO completed scrutiny assessment by estimating the income from contract work at 10 per cent of the turnover, which the assessee accepted and paid the due taxes thereon.

Subsequently, the AO initiated penalty proceedings under section 270A. Referring to section 270A(9), he levied penalty @ 200% of the tax payable on the under-reported income in consequence of misreporting.

On appeal, CIT(A) cancelled the penalty on the ground that the AO had not specified the sub-limb under section 270A(9)(a) to (g) and therefore, the penalty was not sustainable.

Aggrieved, the tax department filed appeals before ITAT.

HELD

The Tribunal held that where the Assessing Officer had not specified, either in the assessment order or in the notice issued under section 274 read with section 270A, as to under which limb of provisions of section 270A(2) or section 270A(9) the case of the assessee falls, no penalty under section 270A was leviable.

Further, applying the various decisions under erstwhile section 271(1)(c) that penalty was not leviable when the profit was estimated, the Tribunal held that since the profit of the assessee had also been estimated by resorting to the provisions of section 145(3), no penalty under section 270A was leviable.

Accordingly, the appeals of the tax department were dismissed.

BCAJ Admin

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

4 (2025) 171 taxmann.com 569 (Jaipur Trib)

APJ Abdul Kalam Education and Welfare Trust vs. CIT(E)

ITA No. 567 (Jpr) of 2024

A.Y.: N.A.

Date of Order: 15^th January, 2025

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

FACTS

The assessee was running a hostel. It obtained provisional registration under section 12A(1)(ac)(vi) on 3.8.2022. Thereafter, it applied for final registration on 30.9.2023.

CIT(E) rejected the application for final registration and cancelled the provisional registration on the grounds that (a) non-registration under the Rajasthan Public Trusts Act, 1959 (RPT) was in violation of section 12AB(1)(b)(ii)(B); (b) it was not specifically mentioned in the trust deed that foreign donations will be taken only after prior approval under Foreign Contribution (Regulation) Act, 2010 (FCRA); and (c) the assessee was not able to prove genuineness of its activities.

Aggrieved with the order of CIT(E), the assessee filed an appeal before ITAT..

HELD

Distinguishing Aurora Educational Society v. CCIT, (2011) 339 ITR 333 (Andhra Pradesh) and New Noble Educational Society vs. CCIT, (2022) 448 ITR 594 (SC) on the ground that the said cases applied to educational institutions only, the Tribunal observed that a plain reading of section 12AB (1) (b) (ii) (B) shows that compliance of requirement of any other law is required if compliance under such other law is material for achieving its objects. Section 17 of the RPT Act, 1959 requires that trustees of the trust have to apply for registration of a public trust. However, there is no section in the RPT Act, 1959 which prohibits a trust to carry out its objects if it is not registered under the RPT Act, 1959. Both the statutes, namely Income-tax Act and RPT Act, have their own provisions and implications and none of them have overriding effect. Even if the assessee trust was not registered with the RPT Act, 1959 and the concerned officials under the RPT Act, 1959 deemed it necessary to get the entity registered under section 17 of the RPT Act, 1959, appropriate action could be taken against the trustees of the trust. However, this issue cannot be a hurdle in getting registration under section 12AB of the Income-tax Act. Accordingly, the Tribunal directed the CIT(E) to not deny registration on this ground.

Considering the provisions of FCRA, the Tribunal directed the assessee trust to incorporate the relevant amendment in the trust deed mentioning that prior to receiving any foreign remittance whatever may be the form or nomenclature, prior approval will be taken from the Ministry of Home Affairs, Govt. of India, and produce the same for verification (in original) before CIT (E). Accordingly, the Tribunal restored the matter back to the file of CIT(E).

Since the assessee had furnished all the information and documents such as Income an Expenditure Account, note on activities etc. and the observations of the CIT(E) were either wrong or self-contradictory in nature, the Tribunal held that the CIT(E) was wrong in rejecting the registration on the ground of genuineness of activities and directed him to accept the reply of the assessee in toto.

Accordingly, the appeal of the assessee was allowed.

BCAJ Admin

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30thJune, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

3 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3553/Mum./2024

A.Y.: 2014-15

Date of order: 28^th February, 2025

Section: 149

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30^th June, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

FACTS

For AY 2014-15, a notice u/s 148 of the Act (old regime) was issued to the Assessee on 07.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of AY 2014-2015). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment.

The Assessee filed reply on 09.06.2022. Thereafter, order u/s 148A(d) of the Act was passed on 24.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 24.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 26.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment, the Assessee preferred an appeal to CIT(A) who vide Order dated 16.05.2024 allowed the appeal.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee has filed cross-objection challenging the validity of the re-assessment proceedings.

The contention, on behalf of the Assessee was that the AO has passed order u/s 148A(d) of the Act and has issued notice u/s 148 of the Act (new regime) after the expiry of surviving period as computed according the judgment of the judgment of the Apex Court in the case UOI vs. Rajeev Bansal [(2024) 469 ITR 46]. Therefore, both, the order u/s 148A(d) of the Act and the notice u/s 148 of the Act (new regime) are barred by limitation.

HELD

The Tribunal observed that the issue which arises for consideration is whether the order, dated 24.07.2022, passed u/s 148A(d) of the Act and notice, dated 24.07.2022, issued u/s 148 of the Act (new regime) were passed / issued within the prescribed time. It noted that there is no dispute as to facts. It is admitted position that the notice issued u/s 148 of the Act (old regime) on 24.07.2022, was treated as notice issued u/s 148A(b) of the Act by the Assessing Officer (AO). Thereafter, order u/s 148A(d) of the Act, was passed on 24.07.2022, and the same was followed by issuance of notice dated 24.07.2022, u/s 148 of the Act (new regime). Thus, the notice u/s 148 of the Act (new regime) was issued after the expiry of 6 years from the end of the relevant assessment year.

The Tribunal noted the observations of Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46] which have been made in relation to the interplay between the judgment of the SC in the case of UOI vs. Ashish Agarwal [444 ITR 1] and TOLA.

The Tribunal held that on perusal of the observations of the Apex Court it becomes clear that the assessing officer was required to complete the procedures within the ‘surviving time limit’ which can be calculated by computing the number of days between the date of issuance of the deemed notice u/s 148A(d) of the Act and 30th June 2021 (i.e. the extended time limit provided by TOLA for issuing reassessment notices u/s 148, which fell for completion from 20.03.2020 to 31.3.2021).

The clock of limitation which has stopped with effect from the date of issuance of S. 148 notices under the old regime (which is also the date of issuance of the deemed notices), would start running again when final reply to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO. It was clarified that a reassessment notice issued beyond the surviving time limit would be time-barred.

The Tribunal observed that, in the present case, notice u/s 148 of the Act (old regime) was issued on 07.06.2021 and was deemed to be notice issued u/s 148A(b) of the Act (new regime). Thus, the surviving time limit can be calculated by computing the number of days between the date of issuance of the deemed notice (i.e., 07.06.2021) and 30.06.2021, which comes to 23 days. The clock started ticking only after Revenue received the response of the Assesses to the show causes notices on 09.06.2022. Once the clock started ticking, the AO was required to complete these procedures within the surviving time limit of 23 days which expired on 02.07.2022. Since notice u/s 148 of the Act was issued on 24.07.2022 which fell beyond the surviving time limit that expired on 02.07.2022, the Tribunal held that the notice issued u/s 148 of the Act to be time-barred and therefore, bad in law.

The Tribunal quashed notice dated 24.7.2022 issued u/s 148 of the Act (new regime), the consequential reassessment proceedings and the Assessment Order, dated 26.5.2023, passed u/s 147 r.w.s. 144B of the Act.

Thus, Cross-Objection raised by the Assessee was allowed and accordingly, all the grounds raised by the Revenue in the departmental appeal in relation to the relief granted by the CIT(A) on merits were dismissed as having been rendered infructuous.

BCAJ Admin

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

2 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3552/Mum./2024

A.Y.: 2015-16

Date of Order: 28^th February, 2025

Section: 149

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

FACTS

For AY 2015-16, notice u/s 148 of the Act was issued to the Assessee on 30.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of the relevant AY). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022 which was followed by issuance of notice u/s 148 of the Act on 27.07.2022.

The reassessment proceedings culminated into passing of the Assessment Order, dated 29.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment made, the assessee preferred an appeal to CIT(A) who allowed the appeal videhis Order dated 16.05.2024.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee filed cross-objection challenging the validity of the re-assessment proceedings.

HELD

The Tribunal, first dealt with the cross objections of the Assessee. It noted that the issue which arises for consideration is whether notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) is barred by limitation specified in S. 149 of the Act as contended, on behalf of the Assessee.

The Tribunal observed that it is admitted position that the notice, dated 30.06.2021, issued u/s 148 of the Act (old regime) was treated as notice issued u/s 148A(b) of the Act by the AO. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022, and the same was followed by issuance of notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) (i.e. after the expiry of 6 years from the end of the Assessment Year 2015-2016).

The Tribunal noted the contention made on behalf of the Assessee that as per First Proviso to S. 149(1) of the Act, no notice u/s 148 of the Act (new regime) could have been issued after 31.03.2022.

The Tribunal noted the relevant portions of the decision of the SC, in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], dealing with notice issued u/s 148 for AY 2015-16 and in relation to first proviso to section 149(1) of the Act (new regime). On perusal of the relevant extracts of the said decision of the SC, the Tribunal held that the SC has clarified as under –
(a) a notice could be issued u/s 148 of the new regime for AY 2021-2022 and assessment years prior thereto only if the time limit for issuance of such notice continued to exist u/s 149(1)(b) of the old regime;

(b) in view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

Having noted that, in the present case, the time limit of 6 years from the end of AY 2015-2016 expired on 31.03.2022, the Tribunal held that, as per S. 149(1)(b) read with First Proviso to S. 149(1) of the Act (new regime), notice u/s 148 of the Act could not have been issued for the AY 2015-2016 after 31.03.2022. It held that notice, dated 27.07.2022, issued u/s 148 of the Act was barred by limitation.

The Tribunal also noted that before the Apex Court in the case of Rajeev Bansal [(2024) 469 ITR 46], the Revenue has conceded that for the AY 2015-16, notices issued on or after 01/04/2021, would have to be dropped and this has been recorded by the SC in para 19 of the decision of the Apex Court.

In view of the above, the Tribunal quashed the notice, dated 27.07.2022, issued u/s 148 of the Act and the consequent the Assessment Order, dated 29.05.2023, passed u/s 147 read with Section 144B of the Act as being bad in law.

BCAJ Admin

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

1 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3551/Mum./2024

A.Y.: 2017-18

Date of Order: 28^th February, 2025

Sections: 148, 148A, 151

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

FACTS

A notice u/s 148 of the Act (old regime) was issued to the Assessee for the AY 2017-2018 on 28.06.2021 (i.e., after the expiry of 3 years but before 30.06.2021 — extended period time granted by TOLA1 ). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 27.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of S. 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The AO also shared with the Assessee material/information on the basis of which he had formed a belief that income had escaped assessment.

1 Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

Thereafter, order u/s 148A(d) of the Act was passed on 30.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 30.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act.

The appeal preferred by the Assessee against the aforesaid Assessment Order was allowed by the CIT(A) vide Order, dated 16.05.2024.

HELD

The Tribunal, at the outset, observed that the issue which arises for consideration is whether the PCIT or the PCCIT was the Specified Authority for seeking approval for passing order u/s 148A(d) of the Act and issuance of notice u/s 148 of the Act (new regime) for the AY 2017-18.

The Tribunal having considered the decision of the Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], to the extent it has dealt with issue of approval from Specified Authority in terms of section 151 of the Act, noted that the Supreme Court has clarified as under –

(a) under new regime introduced by the Finance Act, 2021 Assessing Officer was required to obtain prior approval or sanction of the ‘Specified Authority’ at four stages – at first stage under Section 148A(a), at second stage under Section 148A(b), at third stage under Section 148A(d), and at fourth stage under Section 148. In the case of Ashish Agarwal [444 ITR 1] the Apex Court waived off the requirement of obtaining prior approval u/s 148A(a) and u/s 148A(b) of the Act only. Therefore, the AO was required to obtain prior approval of the ‘Specified Authority’ according to Section 151 of the new regime before passing an order u/s 148A(d) or issuing a notice u/s 148;

(b) under new regime if income escaping assessment is more than ₹50 lakhs a reassessment notice could be issued after expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner(PCCIT) or Principal Director General (PDGIT) or Chief Commissioner (CCIT) or Director General (DGIT);

(c) the test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20^th March, 2020 and 31^st March, 2021, then the ‘Specified Authority’ under Section 151(i) has an extended time till 30^th June 2021 to grant approval;

(d) S. 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the AO with the strict time limits prescribed u/s 151 affects their jurisdiction to issue a notice under section 148;

(e) grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

The Tribunal held that, in the present case, the period of 3 years from the end of the AY 2017-2018 fell for completion on 31.3.2021. The expiry date fell during the time period of 20.3.2020 and 31.3.2021, contemplated u/s 3(1) of TOLA. Resultantly, the authority specified u/s 151(i) of the new regime could have granted sanction till 30^th June, 2021.

On perusal of the order, dated 30.07.2022, passed u/s 148A(d) of the Act the Tribunal found that the aforesaid order was passed after taking approval from PCIT. The Tribunal held that since the aforesaid order was passed after the expiry of 3 years from the end of the AY 2017-2018, as per the new regime, the authority specified under Section 151(ii) of the Act (i.e. PCCIT or CCIT) was required to grant approval. The Tribunal also noted that even the notice, dated 30.07.2022, was issued u/s 148 of the Act (new regime) after obtaining the prior approval of the PCIT.

The Tribunal concluded that, in the present case, the approval has been obtained by authority specified u/s 151(i) of the new regime instead of the authority specified u/s 151(ii) of the new regime.

The Tribunal held that non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Accordingly, the order, dated 30.07.2022 passed u/s 148A(d) of the Act, the consequential reassessment proceedings and the order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act were quashed as being bad in law as being violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

The Tribunal allowed the cross objections filed by the assessee and dismissed, as infructuous, all the grounds raised by the Revenue in the appeal in relation to the relief granted by CIT(A) on merits.

BCAJ Admin

The Judgement Of The Supreme Court In The Case Of Radhika Agarwal And Its Implication On Arrest Under The Goods And Service Act, 2017

1. INTRODUCTION

The laws regarding the prosecution of economic offences are evolving at a rapid pace. With the multitude of special acts governing commercial transactions growing and evolving over the years, it is but natural that even the enforcement of penal provisions would occur. The structure of taxation for indirect tax saw a marked change with the introduction of the Goods and Service Tax Act, 2017 (‘GST’) in all its various avatars. Almost a decade later, the field of direct taxation seems to be headed for a complete overhaul in the year 2026. These new laws, which have financial consequences and also impose criminality on certain transactions will interact with laws that were enacted prior in time to them and shall also try and find a place within the existing framework of criminal law jurisprudence. The subject of tracing the interplay between various acts has justifiably become a blockbuster headline for many articles and seminars. With a variety of laws being triggered by a singular transaction, the implication in the commercial world can be that of a complication. While it is true that ignorance of the law cannot be a defence against legal action, the plethora of laws that can potentially get triggered and the consequent multitude of proceedings (both civil and criminal) can weigh very heavily on the shoulders of a businessman or a professional. As if the interplay between various special laws by themselves was not complicated enough, the interplay of these special acts with traditional acts and codes has given rise to significant litigation in recent days.

The recent judgment of the Supreme Court in the case of Radhika Agarwal vs. UOI [2025] 171 taxmann.com 832 (SC) is a landmark judgment that sheds light on certain aspects of summons and arrest under the Customs Act, 1972, as well as the Goods and Service Tax Act, 2017. For the purposes of this discussion, we will explore the implications it has on proceedings under the latter.

A BRIEF INTRODUCTION TO PROSECUTION UNDER THE GST

Chapter XIX of the GST deals with offences and penalties under the central act and its counterpart in each State. The various offences under the act are contained primarily under section 132 of the GST. While Section 132(1) lists the various offences that are punishable under the act, all of them are not equal.

Section 132(4) states that “Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in subsection (5), shall be non-cognizable and bailable.”

Section 132(5) states, “The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.”

For the sake of convenience, let us call the non-cognizable and bailable offences minor offences and the cognizable and non-bailable offences major offences. The major offences are as follows:-

Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences

(a) supplies any goods or services or both without the issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

(d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

Only when they are punishable under sub-section (i) – which reads as follows –

“In cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine”.

The term five hundred lakh refers to a sum of ₹5,00,00,000/- (Rupees five crore only). Therefore, even if the above offences are committed, and the sum involved is ₹5,00,00,000/- or less, then the offence shall be non-cognizable and bailable. It is important to note that the monetary limit in this case, therefore, is an indicator not of the threshold for prosecution but more of the severity of the consequences that follow. There are three different monetary limits prescribed in Section 132, with the thumb rule being that the lower the threshold, the lesser the severity of the sentence. However, if the accusation is of the aforementioned offences for more than a sum of Rupees Five Hundred Lakh, then the GST department officers are clothed with significant powers of arresting without a warrant, and bail is not available as a matter of right.

WHAT IS THE DIFFERENCE BETWEEN A BAILABLE AND A NON-BAILABLE OFFENCE?

A bailable offence is one in which Bail is available as a matter of right. Section 436(1) of the Code of Criminal Procedure, 1973 (‘CRPC’) and Section 478(1) of the BharatiyaNagrik Suraksha Sanhita,2023 (‘BNSS’) are parimateria in as much they mandate that if a person other than one detained or arrested for the non-bailable offence without a warrant, then the officer in charge of the police station or the Court shall release such person on bail. The word shall signify that in the case of a bailable offence, bail is available as a matter of right.

For a non-bailable offence, bail is not available as a matter of right and is at the discretion of the Court as per Section 437 of the CRPC and Section 480 of the BNSS. The term non-bailable does not signify that there is an absolute bar on the grant of bail but signifies that the grant of bail will not be a matter of course or a matter of right.

WHAT EXACTLY IS A COGNIZABLE OFFENCE?

Section 2(c) of the CRPC defines a cognizable offence. In the BNSS, the same is defined in Section 2(1)(g). The words used in the definition are ‘parimateria’ to each other and read: “cognizable offence” means an offence for which, and “cognizable case” means a case in which a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant”.

In short, for a cognizable offence, the police officer does not require a warrant to arrest an accused.

DO GST OFFICERS HAVE THE POWER TO ARREST?

The Supreme Court, in the case of Om Prakash v. Union of India (2011) 14 SCC 1, while examining the powers of officers of the Central Excise Department to effect arrest, had held that “In our view, the definition of “non-cognizable offence” in Section 2(l) of the Code makes it clear that a non-cognizable offence is an offence for which a police officer has no authority to arrest without warrant. As we have also noticed hereinbefore, the expression “cognizable offence” in Section 2(c) of the Code means an offence for which a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant. In other words, on a construction of the definitions of the different expressions used in the Code and also in connected enactments in respect of a non-cognizable offence, a police officer, and, in the instant case, an Excise Officer, will have no authority to make an arrest without obtaining a warrant for the said purpose. The same provision is contained in Section 41 of the Code which specifies when a police officer may arrest without order from a Magistrate or without warrant.” However, the statutory scheme under the GST is different from what the scheme under the Central Excise Act 1944 was at the time of ‘Om Prakash’.

In the case of GST, Section 69 explicitly deals with the power to arrest and vests the discretion to authorize an officer to effect arrest based on his ‘reasons to believe’ that a person has committed any offence specified in Section 132(1) a, b, c or d as read with Sub-section (1) or (2) thereof.

The power of the GST officers to arrest has been upheld by the Supreme Court in the case of Radhika Agarwal. This power had been challenged in the said Petition on the grounds of legislative competency. The position canvassed was that Article 246-A of the Constitution, while conferring legislative powers on Parliament and State Legislatures to levy and collect GST, does not explicitly authorize the violations thereof to be made criminal offences. The Court held that “The Parliament, under Article 246-A of the Constitution, has the power to make laws regarding GST and, as a necessary corollary, enact provisions against tax evasion. Article 246-A of the Constitution is a comprehensive provision and the doctrine of pith and substance applies.. .. a penalty or prosecution mechanism for the levy and collection of GST, and for checking its evasion, is a permissible exercise of legislative power. The GST Acts, in pith and substance, pertain to Article 246-A of the Constitution, and the powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect goods and services tax.”

The Supreme Court has, therefore, upheld the power of GST officers to effect arrests as provided by the GST.

CAN ANTICIPATORY BAIL BE SOUGHT FOR OFFENCES UNDER THE GST?

The power of the Courts to grant anticipatory bail under Section 438 of the CRPC (predecessor to Section 482(1) of the BNSS) was not available in the cause of a person summoned under Section 69 of the GST Act.

In State of Gujarat vs. Choodamani Parmeshwaran Iyer, (2023) 115 GSTR 297, a two-judge Division Bench of the Supreme Court had held that “The position of law is that if any person is summoned under section 69 of the CGST Act, 2017 for the purpose of recording of his statement, the provisions of section 438 of the Criminal Procedure Code, 1973 cannot be invoked. We say so as no first information report gets registered before the power of arrest under section 69(1) of the CGST Act 2017 is invoked, and in such circumstances, the person summoned cannot invoke section 438 of the Code of Criminal Procedure for anticipatory bail. The only way a person summoned can seek protection against the pre-trial arrest is to invoke the jurisdiction of the High Court under article 226 of the Constitution of India.” The decision was then later followed in the case of Bharat Bhushan v. Director General of GST Intelligence, (2024) 129 GSTR 297 by another two-judge Division Bench of the Supreme Court.

However, Radhika Agarwal marks a departure from this line of Judgements in as much as the three-judge bench of the Supreme Court has held that the power to seek anticipatory bail shall be available to a person who is apprehensive of arrest under the GST. The Supreme Court held that

“The power to grant anticipatory bail arises when there is apprehension of arrest. This power, vested in the courts under the Code, affirms the right to life and liberty under Article 21 of the Constitution to protect persons from being arrested. Thus, in Gurbaksh Singh Sibbia (1980) 2 SCC 565, this Court had held that when a person complains of apprehension of arrest and approaches for an order of protection, such application, when based upon facts which are not vague or general allegations should be considered by the court to evaluate the threat of apprehension and its gravity or seriousness. In appropriate cases, application for anticipatory bail can be allowed, which may also be conditional. It is not essential that the application for anticipatory bail should be moved only after an FIR is filed, as long as facts are clear and there is a reasonable basis for apprehending arrest. This principle was confirmed recently by a Constitution Bench of Five Judges of this Court in Sushila Aggarwal and others vs. State (NCT of Delhi) and Another (2020) 5 SCC 1. Some decisions State of Gujarat vs. Choodamani Parmeshwaran Iyer and Another, 2023 SCC OnLine SC 1043; Bharat Bhushan v. Director General of GST Intelligence, Nagpur Zonal Unit Through Its Investigating officer, SLP (Crl.) No. 8525/2024 of this Court in the context of GST Acts which are contrary to the aforesaid ratio should not be treated as binding.”

Therefore, anticipatory bail can be applied for and granted in the case of offences under the GST, where there is a reasonable basis for apprehending arrest.

ARE THERE SAFEGUARDS OF THE POWER TO ARREST?

Though the Supreme Court has upheld the power of GST officers to arrest, it has deemed fit to elucidate and clarify certain aspects of this power. Some key takeaways are listed below:-

(a) The GST Acts are not a complete code when it comes to the provisions of search and seizure and arrest, for the provisions of the CRPC (and now the BNSS) would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts.

(b) To pass an order of arrest in case of cognizable and non-cognizable offences, the Commissioner must satisfactorily show, vide the reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and that the pre-conditions of sub-section (5) to Section 132 of the Act are satisfied. Failure to do so would result in an illegal arrest. On the extent of judicial review available with the court viz. “reasons to believe”, in Arvind Kejriwal vs. Directorate of Enforcement, (2025) 2 SCC 248, it was held that judicial review could not amount to a merits review.

(c) The exercise to pass an order of arrest should be undertaken in right earnest and objectively, and not on mere ipse dixit without foundational reasoning and material. The arrest must proceed on the belief supported by reasons relying on material that the conditions specified in sub-section (5) of Section 132 are satisfied and not on suspicion alone. Such “material” must be admissible before a court of law. An arrest cannot be made to merely investigate whether the conditions are being met. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe. The reasons to believe must be based on the evidence establishing —to the satisfaction of the Commissioner — that the requirements of sub-section (5) to Section 132 of the GST Act are met. In Arvind Kejriwal it was held that “reasons to believe” are to be furnished to the arrestee such that they can challenge the legality of their arrest. Exceptions are available in one-off cases where appropriate redactions of “reasons to believe”
are permissible.

(d) The power of arrest should be used with great circumspection and not casually. The power of arrest is not to be used on mere suspicion or doubt or for even investigation when the conditions of subsection (5) to Section 132 of the GST Acts are not satisfied.

(e) The reasons to believe must be explicit and refer to the material and evidence underlying such opinion. There has to be a degree of certainty to establish that the offence is committed and that such offence is non-bailable. The principle of the benefit of the doubt would equally be applicable and should not be ignored either by the Commissioner or by the Magistrate when the accused is produced before the Magistrate.

(f) The Supreme Court reiterated certain principles laid down in Arvind Kejriwal with regard to arrest by the Directorate of Enforcement and held that they shall be applicable to arrest under GST as well. These safeguards include the requirement to have “material” in the possession of the Commissioner, and on the basis of such “material”, the authorised officer must form an opinion and record in writing their “reasons to believe” that the person arrested was “guilty” of an offence punishable under the PML Act. The “grounds of arrest” are also required to be informed forthwith to the person arrested.

(g) The Court reiterated that the courts can judicially review the legality of arrest. This power of judicial review is inherent in Section 19, as the legislature has prescribed safeguards to prevent misuse. After all, arrests cannot be made arbitrarily on the whims and fancies of the authorities. This judicial review is permissible both before and after criminal proceedings or prosecution complaints are filed. Courts may employ the four-part doctrinal test as observed in the case of Arvind Kejriwal with regard to the doctrine of proportionality in their examination of the legality of arrest, as arrest often involves contestation between the fundamental right to life and liberty of individuals against the public purpose of punishing the guilty.

(h) The investigating officer is also required to look at the whole material and cannot ignore material that exonerates the arrestee. A wrong application of law or arbitrary exercise of duty by the designated officer can lead to illegality in the process. The court can exercise judicial review to strike down such a decision.

(i) The authorities must exercise due care and caution as coercion and threat to arrest would amount to a violation of fundamental rights and the law of the land. It is desirable that the Central Board of Indirect Taxes and Customs promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment. In case there is a breach of law, and the Assessees are put under threat, force or coercion, the Assessees would be entitled to move the courts and seek a refund of tax deposited by them. The department would also take appropriate action against the officers in such cases.

(j) A person summoned under Section 70 of the GST Acts is not per se an accused protected under Article 20(3) of the Constitution.

(k) It is obvious that the investigation must be allowed to proceed in accordance with law and there should not be any attempt to dictate the investigator, and at the same time, there should not be any misuse of power and authority.

(l) Relying on Instruction No. 02/2022-23 [GST – Investigation] dated 17^th August, 2022, the Court held that the procedure of arrest prescribed in the circular has to be adhered to and that the Principal Commissioner/Commissioner has to record on the file, after considering the nature of the offence, the role of the person involved, the evidence available and that he has reason to believe that the person has committed an offence as mentioned in Section 132 of the GST Act. The provisions of the Code, read with Section 69(3) of the GST Acts, relating to arrest and procedure thereof, must be adhered to.

(m) The arrest memo should indicate the relevant section(s) of the GST Act and other laws. In addition, the grounds of arrest must be explained to the arrested person and noted in the arrest memo as per Circular No. 128/47/2019-GST dated 23.12.2019 and the format prescribed by it.

(n) Instruction No. 01/2025-GST dated 13.01.2025 now mandates that the grounds of arrest must be explained to the arrested person and also be furnished to him in writing as an Annexure to the arrest memo.

(o) Instruction 02/2022-23 GST (Investigation) dated 17.08.2022 further lays down that a person nominated or authorised by the arrested person should be informed immediately, and this fact must be recorded in the arrest memo. The date and time of the arrest should also be mentioned in the arrest memo. Lastly, a copy of the arrest memo should be given to the person arrested under proper acknowledgement. The circular also makes other directions concerning medical examination, the duty to take reasonable care of the health and safety of the arrested person, and the procedure of arresting a woman, etc. It also lays down the post-arrest formalities which have to be complied with. It further states that efforts should be made to file a prosecution complaint under Section 132 of the GST Acts at the earliest and preferably within 60 days of arrest, where no bail is granted.

(p) The arresting officer shall follow the guidelines laid down in D.K. Basu vs. State of West Bengal. (1997) 1 SCC 416.

TO CONCLUDE

The Judgement of the Supreme Court in the case of Radhika Agarwal is a giant leap forward in the realm of GST prosecutions. While it does not divest the GST officers of their powers to effectively investigate and prosecute offences under the GST, it also clarifies and reiterates the important safeguards to be kept in place to ensure that these provisions are not abused.

However, in a separate and concurring Judgement Justice Bela Trivedi, while agreeing with the Judgement of Chief Justice Sanjeev Khanna and Justice M.M. Sunderesh, expressed that she thought it expedient to pen down her views on the jurisdictional powers of judicial review under Article 32 and Article 226 of the Constitution of India when the arrest of a person is challenged.

She held that “When the legality of such an arrest made under the Special Acts like PMLA, UAPA, Foreign Exchange, Customs Act, GST Acts, etc. is challenged, the Court should be extremely loath in exercising its power of judicial review. In such cases, the exercise of the power should be confined only to see whether the statutory and constitutional safeguards are properly complied with or not, namely to ascertain whether the officer was an authorized officer under the Act, whether the reason to believe that the person was guilty of the offence under the Act, was based on the “material” in possession of the authorized officer or not, and whether the arrestee was informed about the grounds of arrest as soon as may be after the arrest was made. Sufficiency or adequacy of material on the basis of which the belief is formed by the officer, or the correctness of the facts on the basis of which such belief is formed to arrest the person, could not be a matter of judicial review.” She further held that “Sufficiency or adequacy of the material on the basis of which such belief is formed by the authorized officer, would not be a matter of scrutiny by the Courts at such a nascent stage of inquiry or investigation.”

Reiterating the principle that was invoked in the case of Vijay Madanlal Choudhary and Others vs. Union of India and Others 2022 SCC OnLine SC 929 while weighingthe constitutional validity of certain provisions of the Prevention of Money Laundering Act, 2005 (‘PMLA’) that special Acts are enacted for special purposes and must be interpreted accordingly, it was held that:-

“Any liberal approach in construing the stringent provisions of the Special Acts may frustrate the very purpose and objective of the Acts. It hardly needs to be stated that the offences under the PMLA or the Customs Act or FERA are offences of a very serious nature affecting the financial systems and, in turn, the sovereignty and integrity of the nation. The provisions contained in the said Acts therefore must be construed in a manner which would enhance the objectives of the Acts and not frustrate the same. Frequent or casual interference of the courts in the functioning of the authorized officers who have been specially conferred with the powers to combat serious crimes may embolden the unscrupulous elements to commit such crimes and may not do justice to the victims, who in such cases would be the society at large and the nation itself. With the advancement in Technology, the very nature of crimes has become more and more intricate and complicated. Hence, minor procedural lapses on the part of authorized officers may not be seen with a magnifying glass by the courts in the exercise of the powers of judicial review, which may ultimately end up granting undue advantage or benefit to the person accused of very serious offences under the special Acts. Such offences are against the society and against the nation at large and cannot be compared with the ordinary offences committed against an individual, nor can the accused in such cases be compared with the accused of ordinary crimes. To sum up, the powers of judicial review may not be exercised unless there is manifest arbitrariness or gross violation or non-compliance of the statutory safeguards provided under the special Acts required to be followed by the authorized officers when an arrest is made of a person prima facie guilty of or having committed offence under the special Act.”

The last word on this subject may not yet have been spoken. The application of the law laid down in this judgement, as always, shall depend upon the facts and circumstances of each case. However, with this Judgement, an accused under the GST who is apprehensive of arrest is no longer without safeguards.

BCAJ Admin

Learning Events at BCAS

1. Suburban Study Circle Meeting on “Navigating the New Income Tax Bill, TDS, Deductions & Critical Provisions” on Thursday, 13^th March, 2025 and at C/o SHBA & Co. LLP, Andheri (E), Mumbai.

Suburban Study Circle Meeting on “Navigating the New Income Tax Bill, TDS, Deductions & Critical Provisions”, was led by CA Upamanyu Manjrekar & CA SnehalMayacharya, where they delved into critical amendments in the Income Tax framework, with a focus on TDS, deductions, and key provisions. The discussion highlighted changes in terminology, procedural updates, and practical implications for businesses and professionals.

Key changes discussed included:

Modifications in Income Tax Bill Wording – Minor yet impactful changes in phraseology, altering interpretation and compliance requirements.
TDS Revisions – Updates on applicability, rates, and compliance, including sector-specific changes.
Procedural & Compliance Changes – New filing requirements, reporting obligations, and penalty structures.
Impact on Business & Professionals – Discussion on how the amendments affect different taxpayer categories.
Group Interpretation & Case Studies – Open discussion on ambiguous provisions and their practical implementation.
Retrospective vs. Prospective Amendments – Debate on whether certain provisions apply retrospectively or prospectively.
Practical Challenges & Solutions – Addressing common compliance difficulties and suggested best practices.
The session was highly interactive, with participants engaging in insightful discussions and real-world case studies. CA Upamanyu Manjrekar & CA SnehalMayacharya provided clear explanations, ensuring attendees left with a well-rounded understanding of the amendments and their implications.

2. HRD Study Circle on The Secret Formula of Successful ENTREPRENEURS on Tuesday, 11^th March, 2025 @ Virtual.

The Human Resources Development Committee Organised a Talk on Topic “The Secret Formula of Successful ENTREPRENEURS” on 11^th March, 2025.
Faculty Mr. Walter Vieira

The takeaways from the workshop are briefly given below:

Comparing entrepreneur with a turtle he quoted James Byrant Conant who said – “Behold the turtle. He makes progress only when he sticks his neck out.”All cannot be entrepreneurs. Those who stick their neck out — take risk, have perseverance, conviction in their idea and believe in themselves could become excellent entrepreneurs
Entrepreneurship is a process of creating something new and needs deep study of business environment backed up by Fundable business plan.
There is a certain degree ofaptitude and attitude that is needed to do business and move further as Entrepreneur

They are

a) Creativity and flexibility
b) Resilience
c) Humility to accept success and failure
d) Perseverance
e) Spirit of adventure
f) People skills with a back-up technical knowledge in the subject

There were 167 participants who attended the meeting and good number of them asked questions which were well answered by the faculty.

3. Indirect Tax Laws Study Circle Meeting on Tuesday, 25^th February, 2025, @ Virtual

The Group Leader & the Group Mentor introduced the participants to the topic and dealt with the relevant provisions & clarifications before proceeding to the case studies covering the following contentious & practical issues on the topic:

Can an application be filed u/s 128A filed when there is a demand for only interest & penalty?
Distinction between self-assessed liability and whether section 128A can be invoked if an Order is passed confirming demand for such self-assessed liability?
Practical challenges in adjusting liability when payment is made in GSTR-3B / pre-deposit while filing an appeal / third party recovery against DRC-13.
In case of appeal Order, section 128A application to be filed against the appeal Order or adjudication order?
Is section 128A option available if the Appeal Authority remands the matter?
Can application for rectification of order for demand confirmed for multiple points, including section 16 (4) be filed?
Can the rectification order for demand confirmed u/s 16 (4) go beyond the scope of the original notice?
Availability of refund of pre-deposit paid in case of successful appeal order for demand u/s 16 (4)

The meeting was attended by 50 members. The participants appreciated the efforts of the Group Leader and Group Mentors.

4. Tarang 2K25 – The 17^th Jal ErachDastur CA Students’ Annual Day on Saturday, 22^nd February, 2025 @ M M Pupils Own School — Khar.

The completion of the November 2024 CA exams commenced the preparations for the grand Tarang 2k25. The stage was set for the awe-inspiring event to happen, and it was when the Students’ Team and members of the Human Resource Development Committee (HRD) met to re-write the success story of the marvellous legacy of the past 16 years.

The 17^th year of Jal ErachDastur CA Students’ Annual Day under the brand of ‘Tarang’ had to be engaging, enthralling, and magnificent. With this mission in mind, the Students’ Team started upon the journey for delightful Tarang 2k25 under the requisite guidance of CA MihirSheth, CA DnyaneshPatade, CA Jigar Shah, and CA Utsav Shah. MsPrachi Shah and Mr Paras Doshi were appointed as the student coordinators.

Tarang, when described, is an ecstatic annual CA students’ celebration mainly intended to provide a platform for CA students to unleash their talent and creativity in areas of public speaking, writing skills, performing arts, business, technical, and innovative skills. Additionally, the event also intends to act as an insight and potential gateway into the real world outside academic books by providing access and tutelage by skilled and experienced leaders in the form of participation in various fields with a view to building interpersonal and team-building skills with an opportunity to fraternize and network with hundreds of like-minded students.

The event was organized under the auspices of the HRD Committee of BCAS. All meetings were held in offline and online format. The event was supported by a total of 30 volunteers. Tarang 2k25 completely changed the dull and monotonous perception regarding CA students when they were witnessed as event managers, anchors, talented dancers, and photographers too!

As intended, it was truly an event ‘Of CA Students, By CA Students and For CA students.’

Tarang 2k25, to our surprise, saw a huge enrollment of around 350 students despite the pending due dates. There were an overall 165 participants in Tarang 2k25, along with the highest number of participants in the ‘Treasure Hunt’ too. The event became very popular, and we received huge enrollments along with amazing ideas that were pitched to the judges, which were worth the watch.

Also for the very first time Mock Stock exchange was organised specially for CA students where around 75 students participated.

The 17^th Jal ErachDastur CA Students’ Annual Day – ‘Tarang 2K25’ elimination rounds were held at the BCAS Hall on the 15^th and 16^th of February 2025, To keep the fun going and the crowd engaged, the students’ team had organized various online games and networking sessions, This provided a unique opportunity for all the participants to build a productive and constructive network along with a lot of fun too.

The Grand Finale of Tarang 2k25 was held at MM Pupils School, Khar on the 22-2-25 from 3 pm onwards. We were delighted to have Bank of Baroda as the sole sponsor for the prizes of the winners of the various games and quizzes held offline. Arrangements for various exciting games were made to engage and build excitement among the audience before the event’s commencement.

The grand finale commenced at 3 pm with the lighting of the divine lamp by the HRD Committee with the Ganesh Vandana and Saraswati Vandana being played in the background to seek blessings and express gratitude to Lord Ganesh and Maa Saraswati.

The winners of the competition representing their firms were announced as follows:

Invest, Conquer, Compete (Mock Stock Exchange) – Winning Team – Dikshant Pandiyan, Jainil Sheth and Priyansh Jindal

Reel Making Competition ‘Shutter Stories’ – Sushil Khubchandani

Photography Competition ‘The Capture Challenge ’ – Anjali Vaishya

Antakshari Competition – ‘Suronke Maharathi’
Winning Team – NikunjPatel ,Harshita Dave and Rahul Jaiswar

Debate Competition – ‘The Battle Of Perspectives’ Winning Team – Sanjog Shah, Jainam Doshi, Vedant Agarwal and Madhur Bhartiya

Best Debater – Vedant Agarwal

The Rotating Trophy went to – Vedant Agarwal (SRBC and Co)

Talk Tastic – Winner – Piyush Gupta

2nd – Neha Agnihotri

3rd – Sejal Bagda

The Rotating Trophy went to – Piyush Gupta (DBS Bank)

Essay Writing Competition – ‘Pen- Power- Play’ 1st Prize Winner – Dhairya Thakkar

2nd Prize Winner – Neha Agnihotri

3rd Prize Winner – JesikaSahaya

The Rotating Trophy went to – Dhairya Thakkar (JHS Associates)

Talent Show ‘CA’s Got Talent’ Best Performer – Music Category – YashLadha

Best Performer – Instruments Category – Mithil Category

Best Performer – Dancing Category – The JDians

Best Performer – Other Performing Arts Category – Param Savijani and Rishit Raithatha

Pirates Plunder (Treasure Hunt) winners – Rushi Ghuge, Siddharth Gada and Yash Khalse

Hearty Congratulations to all the winners and their firms.

The euphoric evening was superbly anchored by the Master of Ceremony with their unmatched energy and mind-boggling acts to keep the audience engaged throughout the event.

With the 17^th edition reaching new milestones and the scale increasing, all eyes are now set on what the anticipated 18^th edition would have to offer. One thing is clear, the sky will not be the limit for the goals set to be achieved.

II. BCAS Quoted in News & Media

BCAS has been quoted in various esteemed news and media platforms, reflecting our thought leadership and commitment to the profession. For details

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

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BCAJ Admin

Rights Issue Simplified (SEBI ICDR Amendments, 2025)

CONCEPTUAL FRAMEWORK FOR RIGHTS ISSUE

A Rights Issue is a well-established capital-raising mechanism that enables companies to generate additional funds while preserving the pre-emptive rights of existing shareholders. The legal foundation for Rights Issue in India is enshrined in section 62(1)(a) of the Companies Act, 2013 (“Companies Act”), which mandates that any further issuance of capital must initially be offered to existing shareholders.

Unlike preferential allotments or public offerings, Rights Issue confer a distinct advantage by allowing companies to raise capital swiftly without requiring shareholder approval in a general meeting. Instead, the Board of directors is vested with the authority to approve and execute the Rights Issue under Section 179(3) of the Companies Act, subject to compliance with the statutory offer period, which must range between 15 to 30 days as stated in Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014.

For listed companies, the regulatory landscape extends beyond the Companies Act, with additional oversight by the Securities and Exchange Board of India (SEBI) under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”). In view of cumbersome procedure, companies usually do not consider Rights Issue as preferred mode. Following chart below depicts that in past Issuers have preferred QIP and Preferential Allotment over Rights Issue.

The other major factor was that of involvement of the timelines to complete the process of Rights Issue. The chart below shows the time taken for Rights Issue process for listed companies:

As shown above, issuers have preferred fund raising mode like preferential issues or QIP which usually takes lesser time vis-à-vis Rights Issue. It was also observed that even though the existing shareholders have the first right to participate in fund raising activity of the issuer, the listed entities have preferred to raise fund though preferential issue by offering it to select few investors including promoters’ reason being swift fundraising, attracting strategic investors and increase in promoter’s stake.

SEBI CONSULTATION PAPER DATED 20^th AUGUST 2024

To enable faster Rights Issue and to simplify procedures, SEBI initiated a comprehensive review of the Rights Issue framework and released the consultation paper on 20^th August, 2024. This consultation paper aimed to address key inefficiencies, including extended timelines, disproportionate compliance costs, and structural constraints, which made Rights issues less attractive compared to alternative fundraising methods.

Some of the key Issues which were needed attention were-

Rights Issue below ₹50 crore were exempt from the ICDR Regulations, creating an uneven compliance burden across different categories of issuers.
high cost associated with mandatory merchant banker engagement, which was often disproportionate to the size of the issue.
inefficiencies stemmed from challenges in handling unsubscribed shares, which restricted issuers from effectively managing excess demand or reallocating unclaimed shares.

In addition to above, the proposed Rights Issue guidelines also addressed the other shortcoming associated with the prevalent Rights Issue process such as lengthy time-period, requirements of filing detailed Draft offer letter, appointment of intermediaries, etc.

Following extensive industry feedback on this consultation paper, SEBI made significant amendments to ICDR Regulations on 3^rd March, 2025, effective from 4^th April, 2025 designed to streamline processes, enhance transparency, and improve overall market efficiency. These changes aim to ensure that Rights Issue remain a viable and competitive method of capital raising while fostering greater investor participation.

KEY AMENDMENTS RESHAPING THE RIGHTS ISSUE FRAMEWORK & THEIR LIKELY IMPACT

Application of ICDR Regulations to Rights Issue Below ₹50 Crore

Prior to the amendments, Rights Issue below R50 crore were exempt from ICDR Regulations, creating regulatory disparities between small and large issuers. SEBI has now mandated uniform compliance with ICDR Regulations for all Rights Issue, irrespective of size, ensuring transparency, investor protection, and a level playing field across the market.

This amendment brings additional compliance requirements, particularly in terms of enhanced disclosures, financial reporting, and regulatory approvals. While this may increase regulatory costs for smaller issues, it also enhances investor confidence and credibility, potentially improving subscription rates.

Reduction of Rights Issue Timeline from 317 Days to 23 Working Days

Prior to the Recent ICDR Amendments, while a fast-track Rights Issue typically took 12-14 weeks, a non-fast-track Rights Issue used to take approximately 6-7 months from the date of the board meeting approving the Rights Issue until the date of closure of the Rights Issue leading to valuation mismatches, investor resistance, and a lack of responsiveness to market conditions. The Recent ICDR Amendments provide that the Rights Issue may be completed within 23 working days from the date of the board of directors of the issuer approving the Rights Issue (except in case of Rights Issue of convertible debt instruments which require prior shareholders’ approval).

Reduction in timeline for completing a Right Issue from 317 days to just 23 working days will enhance efficiency, predictability, and responsiveness to market conditions, allowing companies to raise capital in a shorter timeframe and minimizing exposure to price fluctuations and the Investor will also get benefit that it will counter the volatility and enhance liquidity in the secondary market.

Elimination of Mandatory Merchant Banker Requirement

SEBI has done away with the requirement of compulsory merchant banker involvement in Rights Issue, allowing issuers to self-manage the process or engage advisors selectively.

This will result in reduction in compliance costs and timelines, particularly for mid-sized and smaller companies, which previously incurred substantial fees for engaging merchant bankers and taking time for completing the process. This amendment will grant companies with greater control over the Rights Issue process, enabling them to structure offerings in a cost-effective and efficient manner.

Improved Treatment of Unsubscribed Shares

Historically, the inability to effectively manage unsubscribed shares has been a significant challenge for issuers. SEBI’s amendment now permits issuers to reallocate unsubscribed portions to specified investors, thereby increasing the likelihood of full subscription and reducing the risk of undercapitalization. This change introduces greater flexibility for companies, allowing them to strategically distribute shares based on market demand. This amendment enhances the overall attractiveness of Rights Issue, as companies are now better equipped to manage excess demand and prevent subscription shortfalls. The companies need to ensure efficient allocation of unsubscribed shares while complying with SEBI’s revised guidelines, its legal enforceability. Also, companies must exercise due diligence to ensure compliance with the evolving framework, failing which it can lead to regulatory scrutiny and potential legal ramifications.

For professionals, this regulatory shift present both Challenges and Opportunities. The opportunity for compliance and advisory services shall witness a rise, as the role of Merchant Banker has substantially reduced at one hand and on the other hand regulatory environment has become more complex. This change opens opportunities for legal, accounting, and regulatory advisory services which includes preparation of comprehensive offer documents, ensure regulatory compliance, and reviewing disclosures. The compressed timeline necessitates faster regulatory filings, due diligence, disclosures, etc. which will open new opportunities for Chartered accountants (CAs) and Auditors.

FUTURE OF RIGHTS ISSUE IN THE CONTEXT OF INDIA’S CAPITAL MARKET

SEBI has effectively streamlined the Rights Issue process, contributing to a more predictable and efficient capital-raising environment, making Rights Issue a more attractive option for corporate Issuers.

To further strengthen the Rights Issue framework, adopting of digital platforms to streamline the application process, reducing the paperwork, and integrating blockchain technology for real-time subscription tracking, can improve transparency and allow for more effective monitoring of fund utilization.

For companies which are fully compliant having strong financials and credibility, expedited regulatory approvals may be granted under the concept of Green Route Channel, which could further enhance market efficiency. This would encourage greater participation from a diverse range of companies, making the Rights Issue process more accessible and attractive. Further relaxation of disclosure requirements for smaller issues may be provided in case companies adhere to stringent investor protection policies.

As capital markets evolve, various developments will also unfold but continued vigilance and proactive adaptation will be crucial for maintaining a competitive and investor-friendly capital-raising mechanism and retaining the trust in the integrity of the capital market ecosystem. These amendments reinforce SEBI’s emphasis on transparency, particularly through stricter fund utilisation monitoring mechanisms and enhanced investor protection measures.

BCAJ Admin

Report On BCAS 58th Members’ Residential Refresher Course

The flagship event of the Bombay Chartered Accountants’ Society (BCAS), the Members’ Residential Refresher Course (RRC), was held in the city of Nawabs, Lucknow between Wednesday, 26^th February, 2025 and Saturday, 1^st March, 2025.

Keeping pace with the theme “ReImagining the Profession” of the immensely successful three-day mega conference, held in January 2024, the theme of the 58^th RRC was finalised as “Profession Today And Tomorrow”. The Committee was seized of the need to deliver an event that would be both contemporary and forward looking. The topics and speakers were carefully selected and fitted in the time-tested mix of panel discussion, paper presentations and group discussions.

The annual RRC is nothing short of a yearly pilgrimage for her die-hard bhakts (devotees), and the consecration ceremony of Shree Ram Mandir in January 2024 had triggered the desire to hold the next year’s RRC in Ayodhya. This would provide the members a chance to pay obeisance to Ram Lalla and seek His blessings. With no hotel in Ayodhya large enough to accommodate a contingent of 175+, the Seminar, Membership & Public Relations (SMPR) Committee of the BCAS and the Office Bearers zeroed in on Lucknow — less than 160 kms from Ayodhya and, more importantly, with hotels large enough to accommodate the mammoth RRC contingent. The recce in October 2024 helped decide the venue — the newly constructed hotel, The Centrum, Lucknow.

Respecting the natural desire to visit Shree Ram Mandir along with their significant other, for the second time in history, a decision was taken to permit member spouse and children to register for the RRC. The response was immediate — it was houseful by the time the Early Bird stage ended! A total of 187 participants, drawn from 14 states and 31 cities and towns, including 11 non-residential members registered for the event. A heartening realisation was that for 76 members, this would be their very first RRC! Participants also included 2 newly wed couples, 5 member couples including a couple who gifted the BCAS Life Membership to their recently qualified daughter and enrolled her for the RRC as well.

The excitement in the air on the afternoon of 26^th February was there for all to see as delegates checked in from all corners of the country. Day 1 began with the group discussion on “Case Studies in Direct Taxes on Assessment, Reassessment, Reviews and Appeals” which saw the break-out groups discuss the challenging and compelling case studies threadbare. This was followed by the formal inaugural session, with CA Preeti Cherian, Convenor, SMPR Committee, extolling everyone with the city’s tagline, “Muskuraiye! Aap Lucknow Mein Hain!”.

The President, CA Anand Bathiya, in his address, thanked the Committee for delivering on its promise to make the dream of visiting Shree Ram Mandir into a reality. He spoke about how the “Members’ only” flagship event of BCAS, the RRC has stood the test of time and continues to have its devoted following; the RRC serves as a confluence of like-minded members, with each one bringing a certain uniqueness to the table. The Chairman of the Committee, CA Chirag Doshi elaborated on the relevance of the RRC, selection of the venue, detailed schedule and RRC statistics.

It was then the turn of the unbeaten RRC champion (with 38 RRCs Not Out), Past President, CA Uday Sathaye to take centre stage and to formally introduce the Chief Guest, Past President CA Govind G Goyal to the audience. Past Presidents of ICAI, CA Mukund Chitale and CA Ved Jain joined the Chief Guest, the President CA Anand Bathiya, the Vice President CA Zubin Billimoria, the Past Presidents CA Anil Sathe,CA Ashok Dhere, CA Pranay Marfatia, CA Rajesh Muni and CA Uday Sathaye, the Chairman CA Chirag Doshi and the Convenors of the Committee, CA Ashwini Chitale,CA Mrinal Mehta and CA Preeti Cherian in lighting the ceremonial lamp. The esteemed Chief Guest and Past President, CA Govind G Goyal spoke in chaste Hindi about his association with BCAS in general and with RRCs in particular.

The inaugural session was followed by the curtain raiser — the fireside chat on the contemporary topic “Journey of CA Firms (Investible Firms, Mergers and Alliance of Firms)” with CA Manish Modi and CA Vaibhav Manek. The chat was moderated by Managing Committee member, CA Samit Saraf. The panelists spoke frankly of the challenges and opportunities their individual journeys had posed / opened up for them.

Day 2 started with the participants experiencing the mehman-nawaazi (hospitality) of our local member, CA Pradeep Kumar who made special arrangements to make available a huge cauldron of the winter speciality Malai Makhan at the breakfast table.

Suitably satiated, the participants were greeted by Convenor, CA Rimple Dedhia as they sat down to listen to the Past President of ICAI, the erudite Adv. CA Ved Jain discuss in detail the intricacies of the case studies which had been deliberated upon a day prior by the groups. The session was chaired by CA Pankaj Agarwal.

The Presentation Paper I “Role of Chartered Accountants in IPO Process” by CA Sumith Kamath helped the audience realise the opportunities available to CAs in this otherwise less explored terrain. The session was chaired by Past President CA Rajesh Muni. The Presentation Paper II “Practical Use of Technology in Professional Firms” by CA Rahul Bajaj had the audience captivated as they experienced for themselves the power of AI through his live demonstrations. The session was chaired by Joint Secretary, CA Kinjal Shah. The fact that the participants were reluctant to allow the session to close for the lunch break (despite it being way past 2 pm!) speaks volumes.

Post a sumptuous meal, Convenor, CA Mrinal Mehta invited all gathered to the Multi-Disciplinary Brains Trust session on the topic “Interplay of Direct Tax, GST Law and Audit on issues relating to Real Estate and Health Care Industry”. The esteemed panel comprising the Past President of ICAI, CA Mukund Chitale, Past President CA Anil Sathe and Shri Vishal Agarwal presented their views on the case studies at hand. The session was ably moderated by Adv CA Kinjal Bhuta and CA Mandar Telang. The day had been long; however, given that the dawn held the promise of fulfilling their dream of a lifetime, the participants felt doubly energised as they retired for the night.

Day 3 found a super enthusiastic group of devotees dressed in traditional attire, gather in the hotel foyer, eagerly waiting for the buses to take them to Ayodhya. The Committee Organisers had pulled out all stops to ensure that all the logistic arrangements, permissions, etc to transport the 190+ devotees from Lucknow to Ayodhya and back, were in place. The recently concluded Maha Kumbh Mela had resulted in unprecedented crowds flooding Ayodhya after taking the holy dip. The strain on the infrastructure had been tremendous — and yet, despite all this, through divine intervention undoubtedly, the entire contingent travelled to Ayodhya in a seamless manner.

The Sugam Darshan of Ram Lalla organised by the Committee brought tears of joy to many an eye and the group returned to Lucknow late afternoon, suitably invigorated. After a refreshing coffee break, the break-out groups for the group discussion on “Case Studies on Practical Implementation of Auditing Standards” retired to their designated areas to discuss the interesting case studies.

Day 4 was kick-started by Convenor, CA Ashwini Chitale inviting Past President CA Ashok Dhere to chair the session by CA Himanshu Kishnadwala as he replied to the case studies debated a day prior by the groups. This was followed by a presentation on the New Income Tax Bill by CA Uttamchand Jain. The session was chaired by Past President CA Pranay Marfatia.

The presence of BCAS through its annual RRC in the city of Lucknow had not gone unnoticed by the powers-that-be. A special session with none other than the Deputy Chief Minister of Uttar Pradesh, Shri Brajesh Pathak ji formed part of the concluding session. In his address, the Deputy CM acknowledged the vital role played by Chartered Accountants in the nation building process and spoke at length about the various domestic and international industries that are now housed in Uttar Pradesh. Shri Mukesh Singh, Executive Council Member & Chairman UP Coordination Committee Indo American Chamber of Commerce then addressed the audience on the topic “Challenges & Opportunities for Business in UP”. The address by the Deputy CM was extensively covered in the news by the 10+ media channels who were in attendance.

In the concluding session, both the President CA Anand Bathiya and Chairman of SMPR Committee, CA Chirag Doshi acknowledged all those who had worked towards delivering a successful RRC, especially the support extended by the local members, CA Anshul Agarwal and CA Pankaj Agarwal. And as the curtains came down on yet another successful RRC – one which had the participants wear their thinking caps and deliberate on where the profession is today and what the future holds, one was reminded of the ghazal penned by shaayar Nida Fazli:

सफ़र में धूप तो होगी, जो चल सको तो चलो

सभी हैं भीड़ में, तुम भी निकल सको तो चलो

किसी के वास्ते, राहें कहाँ बदलती हैं

तुम अपने आप को,

ख़ुद ही बदल सको तो चलो…..

यही है ज़िंदगी, कुछ ख़्वाब, चंद उम्मीदें

इन्हीं खिलौनों से तुम भी बहल सको, तो चलो l

BCAJ Admin

Regulatory Referencer

DIRECT TAX: SPOTLIGHT

Due date for filing of Form No. 56F required to be filed under section 10AA(8) for Assessment year 2024-25 extended to 31^st March, 2025 — Circular No. 2/2025 dated 18^th February, 2025
Income tax deduction from Salaries during the financial year 2024-25 under section 192 of the Act — Circular No. 3/2025 dated 20^th February, 2025
Frequently Asked Questions (FAQs) on Guidelines issued for Compounding of Offences under the Income-Tax Act, 1961 dated 17^th October, 2024 — Circular No. 4/2025 dated 17^th March, 2025
Ten Year Zero-Coupon Bond of Power Finance Corporation Ltd. notified for the purpose of section 2(48) — Notification No. 19/2025 dated 11^th March, 2025

FEMA:

1. IFSCA replaces Fund Management Regulations of 2022 with IFSCA (Fund Management) Regulations, 2025.

IFSCA, along with the Fund Management Advisory Committee (FMAC) of IFSCA, senior industry leaders and through public consultations, has reviewed and replaced Fund Management Regulations of 2022 in order to enhance the ease of doing business and to develop the GIFT IFSC as a hub for International financial activities. Key reforms have been made in following areas:

i. Non-Retail Schemes (Venture Capital Schemes and Restricted Schemes)

ii. Manpower requirements for FMEs

iii. Registered FME (Retail) and Retail Schemes

iv. Portfolio Management Services

v. Other Key matters

Significant relaxations have been made including by way of reduction in minimum corpus; carve-outs from the regulatory requirements for fund of funds schemes; dispensation of prior approval for appointment of KMPs; streamlining and broadening the requirements regarding educational qualification and work experience of the KMPs; clarifications on several requirements; and reduction in compliance burden among several other measures. It will be worthwhile to read the new Fund Management provisions in detail for those interested in Fund Management activities in IFSCA.

[International Financial Services Centres Authority (Fund Management) Regulations, 2025 Notification No. IFSCA/GN/2025/002 and Press Release dated 19^th February, 2025]

2. IFSCA sets procedure for ‘Fund Management Entity’ (FME) to appoint or change KMPs post-registration

The IFSC Authority has prescribed the manner and procedure to be followed by a Fund Management Entity for effecting the appointment of or change to the Key Managerial Personnels (KMPs) subsequent to the grant of registration by the Authority to the FME. The FME shall file an intimation to the Authority regarding the proposal to appoint or change a KMP in the prescribed format. This circular shall come into force with immediate effect.

[International Financial Services Centres Authority (Fund Management) Regulations, 2025 Press Release No. IFSCA-IF-10PR/1/2023-Capital Markets/6, dated 20^th February, 2025]

3. IFSCA amends Aircraft Lease (“AL”) framework — restricts IFSC Lessors from leasing solely to Indian residents

Clause O.2 of AL Framework is replaced with O.2

“Transactions with person(s) resident in India”. As per this circular, lessor shall not purchase, lease or otherwise acquire the assets covered under this framework, where post-acquisition the asset will be operated or used solely by persons resident in India or to provide services to persons resident in India. The amendments to AL Framework shall come into force with immediate effect.

[Circular No. F. No. 172/IFSCA/Finance Company Regulations/2024-25/02 dated 26-2-2025]

4. IFSCA issue guidelines on ‘Cyber Security and Cyber Resilience’ for Regulated Entities in IFSCs

IFSCA has issued guidelines on ‘Cyber Security and Cyber Resilience’ for Regulated Entities in IFSCs. The guidelines intend to lay down IFSCA’s broad expectations from its Regulated Entities (REs). For these guidelines, REs must include any entity which is licensed, recognised, registered or authorised by IFSCA. The key components of the guidelines are categorised into (a) Governance, (b) Cyber security and cyber resilience framework, (c) Third party risk management, (d) Communication and (e) Audit.

[International Financial Services Centres Authority Circular No. IFSCA-CSDOMSC/13/2025-DCS, dated 10^th March, 2025]

5. RBI permits settlement of Indo-Maldives trade in INR and MVR, alongside the existing ACU mechanism

In the wake of signing of Memorandum of Understanding (MoU) between RBI and Maldives Monetary Authority in November 2024, the Reserve Bank of India (RBI) has now allowed bilateral trade transactions between India and Maldives to be settled in Indian Rupees (INR) and Maldivian Rufiyaa (MVR) in addition to the existing Asian Clearing Union (ACU) mechanism. These instructions shall come into force with immediate effect.

[Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023 A.P. (DIR Series) Circular No. 22 under FEMA, 1999, dated 17^th March, 2025]

BCAJ Admin

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.10/2025-Central Tax dated 13^th March, 2025

Above notification seeks to amend Notification No. 2/2017-Central Tax dated 19^th June, 2017 which is regarding revision of the Territorial Jurisdiction of Principal Commissioner/Commissioner of Central Tax, etc.

B. CIRCULARS

(i) Clarification on Rate of tax and Classification of various items under GST – Circular no.247/04/2025-GST dated 14^th February, 2025.

By above circular, the clarifications are given about GST Rates and Classification for various products including SUVs, Popcorn, Raisins, Pepper, and AAC Blocks based on the recommendations of the GST Council in its 55th meeting.

C. ADVISORY

i) Vide GSTN Advisory dated 12^th February, 2025, information is given regarding guidelines on GST registration under Rule 8 of the CGST Rules, 2017.

ii) Vide GSTN Advisory dated 15^th February, 2025, information about introduction of Form ENR-03, allowing unregistered dealers to generate E-Way Bills using unique Enrolment ID, effective 11^th February, 2025, is given.

D. ADVANCE RULINGS

Lease of land vis-à-vis Exemption Anmol Industries Ltd. (AAR Order No. 03/WBAAAR/2024 Dated: 30^th August, 2024 DT. 26^th November, 2024 (WB AAAR)

Earlier there was AR order no.24/WBAAR/2023-24 dated 20^th December, 2023 passed by WBAAR, holding that long-term lease transaction effected by Shyama Prasad Mukherjee Port, Kolkata (SMPK) is not exempted from GST.

The ld. WBAAAR set aside said order and remanded matter back to AAR vide appeal order dated 18^th April, 2024. Thereafter, fresh AR passed by AAR.

This appeal was against fresh AR No. 06/WBAAR/2024-25 dated 29^th July, 2024-2024-VIL-143-AAR. By the said order, the ld. WBAAR ruled that Services by way of grant of long-term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex’ is not to be covered under entry 41 of Notification No.12/2017 Central Tax (Rate) dated 28^th June, 2017 and, therefore, cannot be treated as an exempt supply.

The facts are that the appellant entered into a leasing agreement with SMPK to take on lease a plot of land at Taratala Road for thirty (30) years for the purposes of setting up a commercial office complex. The appellant was to pay upfront lease premium along with GST @ 18% on consideration of `30,90,11,000/-. The question before AAAR was:

“Whether the upfront premium payable by the appellant towards the services of by way of granting of long-term lease of thirty years, or more of industrial plots or plots for development of infrastructure for financial business by SMPK is exempted under entry 41 of Notification No. 12/2017-CGST (Rate) dated 28^th June, 2017?”

Based on use for infrastructure for financial business, the crux of the contention of the appellant was that the appellant being an industrial unit has fulfilled all the conditions as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28^th June, 2017 from the end of the recipient and hence SMPK should take exemption and should not charge any GST.

The conditions of aforesaid entry 41 are reproduced as under:

“I. The lease period should be of thirty years or more;

II. The property leased should be industrial plots or plots for development of infrastructure for financial business;

III. Service provider must be a State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory);

IV. Service recipient must be an Industrial Unit.”

The ld. AAAR held that AAR has not discussed the condition mentioned in the first proviso in entry 41 i.e. whether the lease plot is being used for industrial or financial activity in an industrial or financial business area, which is substantial condition for grant of exemption.

The ld. AAAR examined the said issue in detail and found that the appellant is going to set up Commercial Office by setting up such commercial office complex and all the corporate activities including accounting and financial activities will be undertaken there and that such office will be planned to maintain and monitor all the financial records and transactions of the appellant company. The ld. AAAR found that the appellant is contemplating use of plot for financial business based on use of plot for such financial activity. Though finding on above aspect was not there in AR, the ld. AAAR held that under power u/s.101(1), the AAAR can modify AR order and accordingly considered itself as competent to go into above aspect of use for financial business.

In this respect, the ld. AAAR referred to Notice Inviting Tender, NIT No. SMP/KDS/LND/03-2022 dated 15^th March, 2022, in which in para 8.7 the definition of setting up of a Commercial office complex is given as under:

“Setting up of a commercial office complex in a particular plot may be allowed where the listed purposes in the tender include Assembly, Business and Mercantile Buildings and the said land shall be used by the original lessee for own Corporate use and excess vacant space of the said office complex to be let out on lease to other corporate entities who will use the complex for setting up of Business Centre, Business Chambers, Conference Rooms, Office Infrastructure, Cafeteria, Restaurant, Gymnasium, Guest House, hotel accommodation, recreation facilities, pharmacies, diagnostic clinics, retail outlets etc. In other words, the original lessee will be a business integrator where various other stake holders /investors /retailers /service providers will operate under the business integrator (original lessee) as sub-lessees.”

As per clause 8.8 in NIT, it was also found that the plot is not allowable for Industrial building defined as “Any building or structure or part thereof used principally for fabrication, assembly and or processing of goods and materials of different kinds. Such building shall include laboratories, power plants, smoke houses, refineries, gas plants, mills, dairies, factories and workshops”.

Based on above facts, the ld. AAAR observed that when Industrial building itself is not allowed, no stretch of imagination can conclude that industrial activity is allowed under the instant tender. Accordingly, the ld. AAAR held that setting up of commercial office complex has a specific purpose and the same cannot be equated to industrial activity.

Regarding use for “financial activity”, the ld. AAAR observed that “Financial activity” is not defined in the GST Laws and hence meaning to be seen as per common business parlance. The ld. AAAR held that mere maintenance and monitoring of all the required financial records and transactions of a company does not mean financial activity. The ld. AAAR held that every business aims to achieve a profit which occurs because of increase in income and decrease in expenses and for this purpose obviously every business entity undertakes activities which have financial implications. The ld. AAAR held that it is a normal activity for a business and cannot be considered as financial activity implied in NIT. Elaborating this aspect, the ld. AAAR referred to meaning of Financial Service in IBC which indicates financial activity as services like acceptation of deposits and other such independent financial activities. SAC Code 9971 specifying financial services also referred to gather meaning of ‘financial activity’.

Noting above, the ld. AAAR came to the conclusion that the appellant is not providing any of the above Finance Services and hence cannot be considered as carrying out financial activity in a financial business area.

In respect of SMPK being Government Undertaking the ld. AAAR held that though SMPK is audited by the office of the Comptroller and Auditor General of India, it cannot be conclusively regarded as an entity having 20% or more ownership of Central Government.

Accordingly, the ld. AAAR confirmed AR of the AAR and rejected the appeal.

GST on Canteen Facility for Contractual Workers Troikaa Pharmaceuticals Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/07 (in Appl. No. Advance Ruling/SGST & CGST/2022/AR/09) dt.28^th February, 2025)(Guj)

The present appeal was filed against the Advance Ruling No. GUJ/GAAAR/R/2022/38 dated 10^th August, 2022 – 2022-VIL-231-AAR.

The facts are as under:

♦ “the appellant is engaged in the manufacture, sale & distribution of pharma products and is registered with the department;

♦ the appellant has appointed a CSP [Canteen Service Provider];

♦ the appellant provides subsidized canteen facilities to its employees & contractual workers;

♦ the appellant recovers 50% of the amount from the employees;

♦ that as far as security service contract workers is concerned, the canteen service provider raises bill for only 50% of the amount as the rest of the amount is being directly paid by the individual workers to the service provider.”

Based on above facts, the appellant had sought Advance Ruling on the following questions:

“ Whether GST shall be applicable on the amount recovered by the company,Troikaa Pharmaceuticals Limited, from employees or contractual workers,when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948?
Whether input tax credit of GST paid on food bill of the Canteen Service Provider shall be available, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948?”

The ld. AAR gave following ruling:

“ GST, at the hands of M/s Troikaa, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
GST, at the hands of M/s Troikaa, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
ITC on GST paid on canteen facility is admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to employees of the
company subject to the condition that burden of GST have not been passed on to the employees of the company.
ITC on GST paid on canteen facility is not admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to contractual worker supplied by labour contractor.”

This appeal was filed in respect of denial of ITC on canteen services provided by the appellant to contractual workers and levy of GST on food charges recovered from contractual workers.

To decide the issue, the ld. AAAR referred to provision of Section 17(5) about blocking of ITC and also Circular No.172/04/2022-GST-dated 6^th July, 2022 in which clarifications are given about various issues of section 17(5) of the CGST Act.

Regarding question about levy of GST on receipts for Contractual Workers, the ld. AAAR referred to provisions of Factories Act, 1948 as well as sections 20 and 21 of CTRA,1970.

The appellant was canvassing that statutorily it is the contractor who is required to provide the amenity to the contractual workers in terms of section 16 and the onus shifts on the principal employer i.e. the appellant in case the contractor is not providing the same. The ld. AAAR concurred with above situation that though statutorily it is the contractor on whom the CLRA Act has entrusted the task of providing the amenity and the responsibility shifts on the principal employer i.e. appellant in case the contractor is not providing the same. However, the ld. AAAR observed that section of CLRA provides also that all expenses incurred by the principal employer in providing such amenity may be recovered from the contractor either by deduction from any amount payable under any contract or as a debt payable by the contractor.

From documents submitted the ld. AAAR found that the contractor has been paid the gross amount which includes salary, allowances such as canteen facility, provident fund, etc. The ld. AAAR also did not found averment by the appellant that the contractor has failed to fulfil his statutory obligation so as to shift primary requirement for providing facility on appellant.

The ld. AAAR also noted terms in agreement with Labour Contractor which explicitly states that no relationship of employer-employee is created between the appellant and the workers engaged by the contractor. The ld. AAAR, therefore, held that the clarification at serial no.5, vide circular no. 172/4/2022-GST dated 6^th July, 2022 relied upon by the appellant to aver that no GST amount is leviable on the amount recovered from contractual workers for canteen services is incorrect since the clarification states that GST will not apply when perquisites are provided by the employer to its employees and not in other cases. The ld. AAAR also held that clarification at serial no. 3 of the said circular dated 6^th July, 2022, regarding availment of ITC, would also not be applicable since it is available only in respect of the goods supplied to the employees of the appellant in terms of section 46 of the Factories Act, 1948, which mandates provision of canteen facilities to the employees.

In view of the above, the appeal was rejected, confirming the AR given by AAR.

Classification – Treated Water

Palsana Enviro Protection Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/08 (in Appl. No. Advance Ruling/ SGST & CGST/2023/AR/04) dt.28^th February, 2025)(Guj)

The present appeal was against the Advance Ruling No. GUJ/GAAR/R/2022/47 dated 30^th December, 2022 – 2023-VIL-09-AAR.

The facts are that the appellant, who has been promoted by a cluster of textile processing industries, has set up a CETP [Common Effluent Treatment Plant]. In the said CETP, the appellant recycles & thereafter supplies treated water to its member units for use in their activities. This treated water can be used in non-potable activity. Though the CETP treated water is made free from various impurities, however, even after carrying out the said physical and biological processes the said water is not pure water& cannot be termed as purified water.

The further fact is that CETP treated water is supplied to industries through pipelines. The appellant further claimed that their activity falls within the ambit of Sr. No. 99 of notification No. 2/2017-CT (R), as amended vide notification No. 7/2022-CT (Rate) dtd 13^th July, 2022, as the water obtained from CETP is not ‘purified water’. To substantiate this claim, they have also relied on circulars No. 52/26/2018 dated 9^th August, 2018 & 179/11/2022-GST dated 3^rd August, 2022.

With above background appellant posed following questions before the ld. AAR.

“ Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) will be eligible for exemption from GST by virtue of Sl. No. 99 of the Exemption Notification No. 02/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Water (other than aerated, mineral, purified, distilled, medical, ionic, battery, demineralized and water sold in sealed container)’? or
Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18 per cent b virtue of Sl. No. 24 of Schedule – III of notification No. 01/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Waters, including natural or artificial mineral waters, and aerated waters, not containing added sugar or other sweetening matter nor flavoured (other than Drinking water packed in 20 liters bottles).”

The ld. AAR ruled as under:

“ ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is not eligible for exemption from payment of Tax by virtue of Sl. No. 99 of the exemption notification No. 02/2017-CT (Rate) dated 28^th June, 2017 (as amended) and Sl. No. 99 of the exemption notification No. 02/2017- Integrated Tax (Rate), dated 28^th June, 2017 (as amended).
‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18% by virtue of Sl. No.24 of schedule – III of notification No.01/2017- CT (Rate) (as amended) and Sl. No. 24 of schedule – III of notification No. 01/2017-Integrated Tax (Rate), dated 28^th June, 2017 (as amended).”

In essence, the AAR held that CETP water as ‘de-mineralized water’, excluded from exemption.

The appeal was against the above ruling.

In appeal, the appellant has reiterated its stand.

The ld. AAAR referred to relevant entries and averment. The appellant has produced laboratory certificate in course of appeal.

Based on sample water of appellant, in certificate it was stated that the water does not meet parameters of demineralized water.

The ld. AAAR declined to accept the said certificate produced by the appellant because, [a] the same was produced at an appellate stage; [b] the certificate nowhere states that the laboratory is an accredited laboratory and [c] there is no mention about the way the sample was drawn.

The appellant had relied upon certain rulings.

The ld. AAAR did not agree with rulings cited before it on ground that rulings by the Authority for Advance Ruling would be binding only on the applicant who sought it, the concerned officer or the jurisdictional officer in respect of the applicant. The ld. AAAR further observed that the Tamilnadu Authority for Advance Ruling has held that treated water obtained from CETP is de-mineralized water and will
therefore not be eligible for the benefit of the notification Nos. No. 2/2017-CT(R) dated 28^th June, 2017 as amended.

In view of above findings, the appeal was rejected confirming the AR passed by GAAR.

Supply of Transportation Service vis-à-vis School Students

Batcha Noorjahan (AAR Order No. 06/ARA/2025 dt.13^th February, 2025)(TN)

The applicant is engaged in the business of plying school buses and providing transportation services to the school students in commuting to their school and back home.

Applicant put up following questions to AAR.

“ Whether the services provided by the applicant to the school students by way of transportation of students and staff, shall be considered as the services provided to the school (Educational Institute).
Whether the services provided by the applicant as mentioned above, shall be considered as exempted from GST as per the Serial No. 66 of Notification No. 12/2017 – Central Tax (Rate) dated 28^th June, 2017 or any other applicable provision of the Act.”

The applicant has submitted following aspects of the transaction:

“i) The fees for the transportation of school students are being collected from the students directly as per the agreement with the schools.

ii) There could be a view that since the fees are directly collected from the students, the service recipient is not the school or the Educational Institution.”

As per the provisions of the Act, the services provided to the Educational Institution by way of transportation of students and staff is exempted from GST (Notification No.12/2017). It was further submitted that the applicant is providing services by way of transportation of students and staff though the bus fee is received from the students directly. It was interpretated by applicant that the schools are the service recipients though the consideration is not directly paid by them.

The ld. AAR referred to facts like the applicant has entered into a lease agreement with Alphabet International School vide agreement dated 30.09.2022 for a period of 5 years for the purpose of transporting students and staff of the school only in connection with school activity as provided under clause (8) of Rule 2 of the Tamil Nadu Motor Vehicles Regulations and Control of school buses special rules, 2012.

It was seen from agreement that there was no mention of the consideration part payable by the school to the applicant for providing the vehicle and the services related thereto. There was also no mention in the lease agreement as to how the transportation fees are to be collected, whether by the applicant or by the school.

From the copies of the receipts furnished by the applicant, it was seen that the applicant has directly raised receipt on the student concerned, towards ‘Student Transport Fees’.

The ld. AAR also observed that the applicant is not receiving any payment from the school administration and therefore, no services are rendered to the school by the applicant. The ld. AAR held that the services provided by the applicant to the school students by way of transportation and accordingly, the first question is answered in negative.

Regarding second question the ld. AAR held that the school has outsourced the transport serviceto the applicant and the applicant is directly in receipt of the consideration from the students and accordingly, the service rendered by the applicant to the students is to be considered as ‘Transport of passenger by any motor vehicle’, meriting classification under SAC 9964, attracting GST at 5% without ITC as per Sl.No.8(vi) of Notification No. 11/2017, dated 28^th June, 2017, as amended vide Notification No. 31/2017-Central Tax (Rate) dated 13^th October, 2017.

Since the transportation services are not suppliedto Educational Institutions as provided under Sl. No.66 of Notification No. 12/2017 – Central Tax (Rate) dated 28^th June, 2017, it is not applicable to the applicant. The ld. AAR decided the AR accordingly.

Composite Supply vis-à-vis Mixed Supply

Doms Industries Pvt. Ltd. (AAR (App) Order No. GUJ/GAAAR/APPEAL/ 2025/05 (In Appl. No. Advance Ruling/SGST&CGST/2023/AR/03) dt. 22^nd January, 2025) (Guj)

This appeal was filed against the Advance Ruling No. GUJ/GAAR/R/2022/52 dt.30.12.2022-2023-VIL-03-AAR.

The appellant supplies the goods in a combination with other products viz.

[a] DOMS A1 pencil. This consist of 10 pencils along with a sharpener & eraser.

[b] DOMS Smart Kit. This is a gift pack which consists of a colouring book, two pack of pencils,
one pack of colour pencil, one pack of oil pastels, one pack of plastic crayons, one pack of wax crayons, one eraser, one scale and one sharpener.

[c] DOMS my first pencil kit. It consists of a pencil, eraser, scale and a sharpener.

The applicant held view that he satisfies the four conditions to term the aforesaid supply as ‘composite supply’.

With above background, ruling was sought on following questions:

“(i) Whether the supply of pencils sharpener along with pencils being principal supply will be considered as the composite supply or mixed supply?

(ii) What will be the HSN code to be used by us in the above case.

(iii) Whether supply of sharpener along with the kit having a nominal value will have an impact on rate of tax.

If yes, what will be the rate of tax & HSN code to be used by use.”

The ruling of ld. GAAR dated 18^th October, 2021 held as under:

“(i) the supply of pencils sharpener along with pencils is covered under the category of ‘mixed supply’;

(ii) as discussed in para 21.1 of the impugned ruling.

(iii) yes, the supply of sharpener along with the kit having a nominal value will have an impact on rate of tax. As discussed in para 21.2 and 21.3 of the impugned ruling.”

The appeal was filed against the above ruling.

Appellant made various submission as well as cited case laws.

In appeal, the ld. AAAR observed that the appellant is aggrieved only in respect of their product ‘DOMS A1 pencil’ which consists of 10 pcs of pencil, one eraser and one sharpener and accordingly AAAR restricted scope of appeal to the ruling on above product only.

The ld. AAAR referred to Guidance in Service Tax Education Guide issued by CBIC.

The ld. AAAR also referred to definition of term ‘composite supply’ and ‘mixed supply’ given in Sections 2(30) and 2(74) of CGST Act respectively.

The ld. AAAR concluded its finding in following terms:

“We find that the CGST Act, defines a composite /mixed supply. Additionally, CGST Act, 2017, thereafter, specifies the tax liability in such case wherein a supply falls within the ambit of either a composite /mixed supply. We have already held that the product ‘DOMS A1 pencil’, is a mixed supply, the product not being naturally bundled, not having a principal supply and not supplied in conjunction with each other in the ordinary course of business. Now, for the sake of argument, even if we were to examine the claim of the appellant, we find that the product of the applicant, in question, would not fall either within Rule 3(a) or 3(b) of the GIR, leaving us with the only alternative of resorting to Rule 3(c). The question then which would arise is whether Rule 3(c) of the GRI or Section 8(b), of the CGST Act, 2017, would prevail. It is a trite law that when the section is unambiguous, the averment of the appellant to take the assistance GRI for deciding the nature of supply, classification and rate of tax, is not legally tenable. We therefore, reject this submission of the appellant.”

Accordingly, the ld. AAAR rejected the appeal and confirmed AR given by AAR.

BCAJ Admin

Goods And Services Tax

HIGH COURT

1. [2025] 172 Taxmann.com 66 (Madras) Madhesh @ Madesan Vs. State Tax Officer Dated 21^st December, 2024

Once the goods are detained under section 129, detention order passed beyond the period of seven days from the date of show cause notice is liable to be set aside and detention of goods based on such time-barred order is illegal.

FACTS

In this case, the goods were detained on 29^th October, 2024 and notice under section 129(3) of the Act, 2017 in Form GST MOV-07 was also issued on 29^th October, 2024. However, no order of detention made in Form GST MOV-09 till date of filing writ, thereby violating the time-line stipulated under section 129(3) of the Act. The short question was whether the proceedings under section 129(3) can be sustained in the absence of complying with the time-line mandated under section 129(3).

HELD

The Hon’ble Court noted that under section 129(3) of the Act, the order ought to have been passed within a period of seven days from the date of service of such notice and hence held that the impugned proceedings are beyond the timelines stipulated under section 129(3) of the Act. Consequently, the impugned proceedings are set aside and the vehicles / goods in question were directed to be released forthwith.

2. [2025] 172 taxmann.com 100 (Allahabad) Kei Industries Ltd vs. State of U.P dated 4^th February, 2025

Where goods not covered under the requirements of an E-way bill were transported, they could not be seized under section 129 for not being accompanied with an E-way bill.

FACTS

The petitioner was aggrieved by an order directing a seizure of the vehicle and the goods on the ground that the E-way Bill was not present with the goods. The department admitted in the Court that during the period under consideration, the goods that were being transported by the petitioner were not covered by the requirement of the E-way bill.

HELD

Based on the admission of the department that during the period under consideration, goods which were being transported by assessee, were not covered by the requirement of the E-way bill and relying on the decision in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. State of U.P. — [2018] 97 taxmann.com 552 (Allahabad), the Hon’ble Court held that the impugned order was bad and is therefore, liable to be set aside.

3. [2025] 172 taxmann.com 133 (Gujarat) Patanjali Foods Ltd. vs. Union of India dated 12^th February, 2025

Notification No. 9/2022, effective from 18^th July, 2022, has a prospective effect and did not apply to refund claims of prior period, even if the claim of refund is made after 18^th July, 2022. Further, once the refund application filed by the assessee is adjudicated and order is passed sanctioning the same, it is not open for the department to recover the said refund by issuing another SCN and passing different order and not by challenging the earlier order which has become final.

FACTS

The petitioner is inter-alia, engaged in the manufacture and sale of edible oil. According to the petitioner, the rate of tax applicable to input supplies of the petitioner exceeded the rate of tax on output supplies. Therefore, the petitioner qualified for a refund under the inverted duty structure scheme as per section 54(3) of the Central / Gujarat Goods and Services Tax Act, 2017. Notification No.9/2022-Central Tax dated 13^th July, 2022, was issued by the Central Government, notifying certain goods, including edible oil, as ineligible for a refund under the inverted duty structure. The said Notification was made effective from 18^th July, 2022. The petitioner submitted a refund application dated 5^th December, 2023 for the period from February 2021 to March 2021 under section 54(3) of the GST Act.

The petitioner received a show cause notice proposing to reject the refund application on the ground that there was an existing demand against the petitioner on the GST portal. The petitioner replied to the said show cause notice, pointing out that the demands had been withdrawn pursuant to the direction of the NCLT. Thereafter, the respondent accepted the petitioner’s explanation and granted the refund after passing a sanction order.

However, subsequently, the respondent issued a notice under section 73 of the Act in Form GST-DRC-01, claiming that the earlier refund was erroneously granted in terms of application of the aforesaid notification read with Circular No.181/13/2022-GST dated 10^th November, 2022 wherein it was clarified that said restriction shall apply in respect of all refund applications filed on or after 18^th July, 2022.

HELD

The Hon’ble Court relied upon the decision in the case of Ascent MeditechLtd. vs. Union of India, wherein the Court struck down para 2(1) of the same Circular dated 10^th November, 2022 on the ground that an artificial class of assessees cannot be created on the basis of date of filing of refund application. By that exact logic, the Hon’ble Court held that Para 2(2) of the impugned Circular dated 10^th November, 2022 insofar as it provides that the restriction contained in notification no. 13^th July, 2022 will apply to all the refund applications filed after 13^th July, 2022, even though they are pertaining to a period prior to the date of notification, is wholly arbitrary, discriminatory and ultra-vires Article 14 as well as section 54 of the CGST Act. The Court held that as the notification is prospective in nature, the refund pertaining to period prior to 13^th July, 2022 cannot be affected by such notification.

The High Court also noted that against the petitioner’s refund application dated 5^th December, 2023, there has been an adjudication by the order dated 12^th January, 2024, by which the petitioner’s refund application was accepted and the refund was granted. No appeal under section 107 or revision under section 108 of the CGST Act, 2017 was preferred by the department, challenging the adjudication of the petitioner’s refund application and the consequent order sanctioning the refund. Therefore, the Hon’ble Court, opined that the grant of refund to the petitioner by order dated 12^th January, 2024 had become final and no show cause notice could be issued by the respondents to take away the benefits of a quasi-judicial order in the petitioner’s favour. Thus, the subsequent Order-in-Original dated 10^th September, 2024, by which the show cause notice dated 2^ndMay, 2024 was adjudicated, was held to be illegal and unsustainable and was quashed and set aside.

4. [2025] 172 taxmann.com 105 (Jharkhand) Steel Authority of India Ltd vs. State of Jharkhand dated 30^th January, 2025.

Inadmissible ITC of VAT regime cannot be disallowed in the GST regime which is carried forward through TRAN-1 and must be adjudicated under the pre-GST law.

FACTS

Petitioner, a Public Sector Undertaking is engaged in the manufacture of various steel products. Under the VAT regime, as on 30^th June, 2017, Petitioner Company had un-availed input tax credit which was transitioned by it under the GST regime in terms of section 140(1) of JGST Act. However, the petitioner received a show cause notice on the following grounds, namely;

Petitioner availed input tax credit on the purchase of consumables which it was not entitled to avail in terms of section 18(8)(viii) of JVAT Act and accordingly, the transition of said credit under the GST Act was impermissible.

(ii) Petitioner availed input tax credit on capital goods which was also not available to them in terms of provisions of section 18(5) of JVAT Act and thus, transitioning of the same under the GST Act was illegal.

Petitioner filed a detailed reply, however order was passed denying the transitional credit in GST regime on the ground that transitioning of inadmissible input tax credit under the GST Act was illegal. Against the aforesaid order, the petitioner preferred an appeal before the Appellate Authority, but the Appellate Authority, rejected the appeal and confirmed the adjudication order.

HELD

Eligibility of input tax credit under erstwhile VAT Act to be adjudicated under provisions of repealed Act. Proceedings for alleged inadmissible credit under the GST Act is improper and without jurisdiction. Impugned adjudication order and appellate order quashed. Amount recovered to be restored with interest, however, Respondent authorities were allowed to initiate proceedings under repealed VAT Act if so advised.

5. [2025] 172 taxmann.com 129 (Madras) KesarJewellers vs. Additional Director General dated 7^th February, 2025

There must be tangible material on record suggesting that it is necessary to provisionally attach the property of the petitioner, for the purpose of protecting the interest of the revenue.

FACTS

The petitioner is registered as a taxable person under the GST Act engaged in the trading of Gold Bullion and Gold Jewellery. The Senior Intelligence Officer, Directorate General of Goods and Service Tax, Intelligence (DGGI), issued a summons to the petitioner under section 70 of the CGST Act, calling upon the petitioner to be present at their office in connection with an investigation. Thereafter, the petitioner’s place of business was searched and certain documents such as purchase / sale invoices, mobile phone, pen drive along with files containing certain papers were seized. Thereafter there was another search of the petitioner’s place of business, during which, gold bars along with computer, mobile phones, loose cash, documents were seized and duly recorded in the Mahazar. Yet another summon came to be issued under section 70 of the CGST Act, calling upon the petitioner to appear for an enquiry. Thereafter, an arrest memo with grounds for arrest was issued. The petitioner was arrested and remanded to judicial custody. The impugned order in Form DRC-22 came to be issued i.e. on the very day when the petitioner was granted bail, thereby attaching provisionally the petitioner’s bank accounts.

Petitioner submitted that the impugned attachment proceeding is bad for want of jurisdiction inasmuch as it did not disclose any tangible material leading to the formation of the opinion, that it is necessary to provisionally attach the property of the petitioner, for the purpose of protecting the interest of the Government warranting exercise of power under section 83 of the Act and that in the absence of tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the Revenue, the exercise of power under section 83 of the Act is without jurisdiction.

HELD

The Hon’ble Court held that the provisional attachment is an extreme measure that must be based on tangible material and must be necessary to protect revenue. The Court held that the attachment order in the present case was mechanical and failed to disclose any specific tangible material or justification for attachment. Since, the pendency of proceedings under Chapter XII, XIV or XV was not sufficient to justify provisional attachment and revenue did not establish that revenue could not be protected without attachment, the impugned order of provisionally attaching multiple bank accounts was to be set aside.

BCAJ Admin

Non-Repatriable Investment by NRIs/OCIs under FEMA: An Analysis – Part 2

NON-REPATRIABLE INVESTMENTS: EASY ENTRY, TRICKY EXIT!

In Part I, we explored how NRIs and OCIs can invest in India under Schedule IV, enjoying the perks of domestic investment while sidestepping FDI restrictions. We saw how this route offers flexibility in entry—with no foreign investment caps, no strict pricing rules, and freedom to invest in LLPs, AIFs, and even real estate (as long as it’s not a farmhouse!). But, much like a long-term relationship, once you commit, FEMA expects you to stay for the long haul.

Now, in Part II, we address the big question: Can you transfer, sell, or gift these investments? Will FEMA allow you a graceful exit? We’ll dive into the rules governing transfers, repatriation limits, downstream investments, and more—so buckle up, because while the non-repatriable entry was smooth, the exit is where the real thrill begins!

TRANSFER OF SHARES/INVESTMENTS HELD ON NON-REPATRIATION BASIS

Just as important as the entry is the ability to transfer or exit the investment. FEMA provides certain pathways for transferring shares or other securities that were held on a non-repatriation basis:

Transfer to a Resident: An NRI/OCI can sell or gift the securities to an Indian resident freely. Since the resident will hold them as domestic holdings, this is straightforward. No RBI permission, pricing guideline, or reporting form is required. For instance, if an NRI uncle wants to gift his shares (held on a non-repat basis) in an Indian company to his resident Indian nephew, it’s permitted and no specific FEMA filing is triggered (aside from perhaps a local gift deed for records). Similarly, suppose an NRI non-repat investor wants to sell his stake to an Indian co-promoter. In that case, he can transact at any price mutually agreed upon (pricing restrictions don’t apply as this is essentially a resident-to-resident transfer in FEMA’s eyes), and no FC-TRS form is required.
Transfer to another NRI / OCI on Non-Repat basis: NRIs / OCIs can also transfer such investments amongst themselves, provided the investment remains on non-repatriation. For example, one OCI can gift shares held under Schedule IV to another OCI or NRI (maybe a relative) who will also hold them under Schedule IV. This is allowed without RBI approval, and again, no pricing or reporting requirements apply. The only caveat is that the transferee must be eligible to hold on a non-repat basis (which generally means they are NRI / OCI or their entity). Gifting among NRIs / OCIs on the non-repat route is quite common within families. Note: If it’s a gift, one should ensure it meets any conditions under the Companies Act or other laws (for instance, if the donor and donee are “relatives” under Section 2(77) Companies Act, as required by FEMA for certain cross-border gifts – more on that below).
Transfer to an NRI / OCI on a repatriation basis (i.e., converting it to FDI): This scenario is effectively an exit from the non-repatriable pool into the repatriable pool. For instance, an NRI with non-repat shares might find a foreign investor or another NRI who wants those shares but with repatriation rights. FEMA permits the sale, but since the buyer will hold on a repatriation basis (Schedule I or III), it must conform to FDI rules. That means sectoral caps and entry routes must be respected, and pricing guidelines apply to the transaction. If it’s a gift (without consideration) from an NRI (non-repat holder) to an NRI / OCI (who will hold as repatriable), prior RBI approval is required and certain conditions must be met. These conditions (laid out in NDI Rules and earlier in TISPRO) include: (a) the donee must be eligible to hold the investment under the relevant repatriable schedule (meaning the sector is open for FDI for that person); (b) the gift amount is within 5% of the company’s paid-up capital (or each series of debentures / MF scheme) cumulatively; (c) sectoral cap is not breached by the donee’s holdings; (d) donor and donee are relatives as defined in Companies Act, 2013; and (e) the value of securities gifted by the donor in a year does not exceed USD 50,000. These are designed to prevent the abuse of gifting as a loophole to transfer large foreign investments without consideration. If all conditions are met, RBI may approve the gift. If it’s a sale (for consideration) by NRI non-repat to NRI/OCI repatriable, no prior approval is needed (sale is under automatic route) but pricing must be at or higher than fair value (since NR to NR transfer with one side repatriable is treated like an FDI entry for the buyer). Form FC-TRS must be filed to report this transfer, and in such a case, since the seller was holding non-repat, the onus is on the seller (who is the one changing their holding status) to file the FC-TRS within 60 days. Our earlier table from the draft summarizes: Seller NRI-non-repat -> Buyer NRI-repat: pricing applicable, FC-TRS by seller, auto route subject to caps.
Transfer from a foreign investor (repatriable) to an NRI/OCI (non-repatriable): This is the reverse scenario – a person who holds shares as foreign investment sells or gifts to an NRI / OCI who will hold as domestic. For example, a foreign venture fund wants to exit and an OCI investor is willing to buy but keep the investment in India. FEMA allows this as well. Since the new holder is non-repatriable, the sectoral caps don’t matter post-transfer (the investment leaves the FDI ambit). However, up to the point of transfer, compliance should be there. In a sale by a foreign investor to an NRI on a non-repat basis, pricing guidelines again apply (the NRI shouldn’t pay more than fair value, because a foreigner is exiting and taking money out – RBI ensures they don’t take out more than fair value). FC-TRS reporting is required, and typically, the buyer (NRI / OCI) would report it because the buyer is the one now holding the securities (the authorized dealer often guides who should file; it has to be a person resident in India and as non-repat investment is treated as domestic investment, it has to be filed by NRI / OCI acquiring it on non-repat basis). If it’s a gift from a foreign investor to an NRI / OCI relative, RBI approval would similarly be needed with analogous conditions (the NDI Rules conditions on gift apply to any resident outside to resident outside transfer, repatriable to non-repat likely treated similarly requiring approval unless specified otherwise). The draft table indicated: Buyer NRI-non-repat from Seller foreign (repat) – gift allowed with approval, pricing applicable, FC-TRS by buyer, and subject to FDI sectoral limits at the time of transfer.

In all the above cases of change of mode (repatriable vs non-repatriable), one can see FEMA tries to ensure that whenever money is leaving India (repatriable side), fair value is respected and RBI is informed. But when the money remains in India (purely domestic or non-repat transfers), the regulations are hands-off.

Downstream Investment Impact: A critical implication of holding investments on non-repatriation basis is how the investing company is classified. FEMA and India’s FDI policy have the concept of indirect foreign investment – if Company A is foreign-owned or controlled, and it invests in Company B, then Company B is considered to have foreign investment to that extent. However, Schedule IV investments are excluded from this calculation. The rules (as clarified in DPIIT’s policy) state that if an Indian company is owned and controlled by NRIs / OCIs on a non-repatriation basis, any downstream investment by that company will not be considered foreign investment. In other words, an Indian company that has only NRI / OCI non-repat capital is treated as an Indian-owned company. So if it later invests in another Indian company, that target company doesn’t need to worry about foreign equity caps because the investment is coming from an Indian source (deemed). This is a major benefit – it effectively ring-fences NRI domestic investment from contaminating downstream entities with foreign status. This clarification was issued to remove ambiguity, especially in cases where OCIs set up investment vehicles. Now, an NRI / OCI-owned investment fund (registered as an Indian company or LLP) can invest freely in downstream companies without subjecting them to FDI compliance, provided the fund’s own capital is non-repatriable.

From a practical standpoint, when structuring private equity deals, if one of the investors is an NRI / OCI willing to designate their contribution as non-repatriable, the company can be treated as fully Indian-owned, allowing it to invest into subsidiaries or other companies in restricted sectors without ceilings. This has to be balanced with the investor’s interest (since that NRI loses repatriation right). Often, OCIs with a long-term commitment to India might be agreeable to this to enable, say, a group structure that avoids FDI limits.

Summary of Transfer Scenarios: For quick reference:

NRI / OCI (Non-repat)-> Resident: Allowed, gift allowed, no pricing rule, no reporting.
Resident -> NRI / OCI (Non-repat): Allowed, gift allowed, no pricing rule, no reporting (essentially the mirror of above, turning domestic holding into NRI non-repat).
NRI / OCI (Non-repat) -> NRI / OCI (Non-repat): Allowed, gift allowed, no pricing, no reporting.
NRI / OCI (Non-repat) -> Foreigner / NRI (Repat): Allowed, the gift needs RBI approval (with conditions), if sale then pricing applies; report FC-TRS.
Foreigner / NRI (Repat) -> NRI / OCI (Non-repat): Allowed, gift possibly with approval; sale at pricing; report FC-TRS.

The key is whether the status of the investment (domestic vs foreign) changes as a result of transfer, and ensuring the appropriate regulatory steps in those cases.

Comparative Interplay Between Schedules I, III, IV, and VI

To fully understand Schedule IV in context, one must compare it with other relevant schedules under FEMA NDI Rules:

Schedule I (FDI route) vs Schedule IV (NRI non-repat route)

Nature of Investment: Schedule I covers FDI by any person resident outside India (including NRIs) on a repatriation basis. Schedule IV covers investments by NRIs / OCIs (and their entities) on a non-repatriation basis. Schedule I investments count as foreign investment; Schedule IV do not.
Sectoral Caps and Conditions: Schedule I investments are subject to sectoral caps (% limits in various sectors) and sector-specific conditions (like minimum capitalization, lock-ins, etc., in sectors like retail, construction, etc.). By contrast, Schedule IV investments are generally not subject to those caps/conditions because they are treated as domestic. For example, multi-brand retail trading has a 51% cap under FDI with many conditions – an OCI could invest 100% in a retail company under Schedule IV with none of those conditions, as long as it’s on a non-repatriation basis. Similarly, real estate development has minimum area and lock-in requirements under FDI, but an NRI could invest non-repat without those (provided it’s not pure trading of real estate).
Prohibited Sectors: Schedule I explicitly prohibits foreign investment in sectors like lottery, gambling, chit funds, Nidhi, real estate business, and also limits in print media, etc. Schedule IV has its own (smaller) prohibited list (Nidhi, agriculture, plantation, real estate business, farmhouses, TDR) but notably does not mention lottery, gambling, etc. Thus, some sectors closed in Schedule I are open in Schedule IV, and vice versa (as discussed earlier).
Valuation / Optionality: Under Schedule I, any equity instruments issued to foreign investors can have an optionality clause only with a minimum lock-in of 1 year and no assured return; effectively, foreign investors cannot be guaranteed an exit price. Under Schedule IV, these restrictions do not apply – one can issue shares or other instruments to NRIs/OCIs with an assured buyback or fixed return arrangement since it’s like a domestic deal. Likewise, provisions like deferred consideration (permitted for FDI up to 25% for 18 months) need not be adhered to strictly for non-repat investments – an NRI investor and company can agree on different terms as it’s a private domestic contract in FEMA’s eyes.
Reporting: FDI (Sch. I) transactions must be reported (FC-GPR, FC-TRS, etc.), whereas Sch. IV initial investments are not reported to RBI as noted.
Exit / Repatriation: Schedule I investors can repatriate everything freely (that’s the point of FDI), whereas Schedule IV investors are bound by the NRO / $1M rule for exits.

Bottom line: Schedule IV is far more liberal on entry (no caps, any price) but restrictive on exit, whereas Schedule I is vice versa. A legal advisor will often weigh these options for an NRI client: if the priority is to eventually take money abroad or bring in a foreign partner, Schedule I might be preferable; if the priority is flexibility in investing and less regulatory hassle, Schedule IV is attractive.

Schedule III (NRI Portfolio Investment) vs Schedule IV (NRI Non-Repatriation)

Schedule III deals with the Portfolio Investment Scheme (PIS) for NRIs / OCIs on a repatriation basis, primarily buying/selling shares of listed companies through stock exchanges.

Listed Shares via Stock Exchange: Under Schedule III (PIS), an NRI / OCI can purchase shares of listed Indian companies only through a recognized stock broker on the stock exchange and is subject to the rule that no individual NRI / OCI can hold more than 5% of the paid-up capital of the company. All NRIs / OCIs taken together cannot exceed 10% of the capital unless the company passes a resolution to increase this aggregate limit to 24%. These limits are to ensure NRI portfolio investments remain “portfolio” in nature and do not take over the company. In contrast, under Schedule IV, NRIs / OCIs can acquire shares of listed companies without regard to the 5% or 10% limits because those limits apply only to repatriable holdings. An NRI could, for instance, accumulate a larger stake by buying shares off-market or via private placements under Schedule IV.
Other Securities: Schedule III also allows NRIs to purchase on a repatriation basis certain government securities, treasury bills, PSU bonds, etc., up to specified limits, and units of equity mutual funds (no limit). On this front, both Schedule III and Schedule IV allow NRIs to invest in domestic mutual fund units freely if the fund is equity-oriented. So whether repatriable or not, an NRI can buy any number of units of, say, an index fund or equity ETF.
Nature of Investor: Schedule III is meant for NRIs investing as portfolio investors (often through NRE PIS bank accounts), whereas Schedule IV is not limited to portfolio activity – it can be FDI-like strategic investments too.
Trading vs Investment: Under PIS (Sch. III), NRIs are typically not allowed to make the stock trading their full-time business (they cannot do intraday trading or short-selling under PIS; it’s for investment, not speculation). Schedule IV has no such restriction explicitly; however, if an NRI were actively trading frequently under non-repatriation, it might raise questions – usually, serious traders stick to the PIS route for liquidity.

In summary, Schedule III is a subset route for market investments with tight limits, whereas Schedule IV offers NRIs a way to invest in listed companies beyond those limits (albeit off-market and non-repatriable). As a strategy, an NRI who sees a long-term value in a listed company and wants significant ownership may choose to buy some under PIS (repatriable) but anything beyond the threshold under the non-repat route, combining both to achieve a
larger stake.

SCHEDULE VI (FDI IN LLPs) Vs SCHEDULE IV (NRI INVESTMENT IN LLPs)

Schedule VI allows foreign investment in Limited Liability Partnerships (LLPs) on a repatriation basis. It stipulates that FDI in LLP is allowed only in sectors where 100% FDI is permitted under automatic route and there are no FDI-linked performance conditions (like minimum capital, etc.). This effectively bars FDI in LLPs in sectors like real estate, retail trading, etc., because those sectors either have caps or conditions. For example, multi-brand retail is 51% with conditions – so a foreign investor cannot invest in an LLP doing retail. Real estate business is prohibited entirely for FDI – so no LLP can be structured. Even an LLP in construction development is problematic under FDI if conditions (like a lock-in) are considered performance conditions.

However, Schedule IV imposes no such sectoral conditionality for LLPs (apart from the same prohibited list). Therefore, NRIs / OCIs can invest in the capital of an LLP on a non-repatriation basis even if that LLP is engaged in a sector where FDI in LLP is not allowed. For instance, an LLP engaged in the business of building residential housing (construction development) — FDI in such an LLP would not be allowed repatriably because construction development, while 100% automatic, had certain conditions under the FDI policy. Under Schedule IV, an NRI could contribute capital to this LLP freely as domestic investment. Another concrete example: LLP engaged in single-brand or multi-brand retail – FDI in LLP is not permitted because retail has conditions, but NRI non-repat funds could still be infused into an LLP doing retail trade. The only caveat is if the LLP’s activity falls under the explicit prohibitions of Schedule IV (agriculture, plantation, real estate trading, farmhouses, etc., which we already know). As long as the LLP’s business is not in that small prohibited list, NRI / OCI money can be invested on non-repatriable basis.

Thus, Schedule IV significantly expands NRIs’ ability to invest in LLPs vis-à-vis Schedule VI. It allows the Indian-origin diaspora to use LLP structures (which are popular for smaller businesses and real estate projects), which are otherwise off-limits to foreign investors. The outcome is that an LLP which cannot get FDI can still get funds from NRI partners, treated as local funds, potentially giving it a competitive edge or needed capital infusion. As noted earlier, an LLP receiving NRI non-repat investment remains an “Indian” entity for downstream investment purposes as well, so it could even invest in other companies without being tagged as foreign-owned.

SCHEDULE IV Vs SCHEDULE IV (FIRM/PROPRIETARY CONCERNS)

There is also a provision (in Part B of Schedule IV) for investment in partnership firms or sole proprietorship concerns on a non-repatriation basis. There is no equivalent provision under repatriation routes – meaning NRIs cannot invest in a partnership or proprietorship on a repatriable basis at all under NDI rules. Under Schedule IV, an NRI/OCI can contribute capital to any proprietorship or partnership firm in India provided the firm is not engaged in agriculture, plantation, real estate business, or print media. These mirror the older provisions from prior regulations. The exclusion of print media here is interesting, as discussed: an NRI cannot invest in a newspaper partnership but could invest in a newspaper company. This is likely a policy decision to keep sensitive sectors like news media more closely regulated (partnerships are unregulated entities compared to companies which have shareholding disclosures, etc.).

For completeness, Schedule V under NDI Rules is for investment by other specific non-resident entities like Sovereign Wealth Funds in certain circumstances, and Schedule VII, VIII, IX cover foreign venture capital, investment vehicles, and depository receipts respectively.

PRACTICAL CHALLENGES AND LEGAL IMPLICATIONS

While the non-repatriation route offers flexibility, it also presents some practical challenges and considerations for legal practitioners advising clients:

Exit Strategy and Liquidity: Perhaps the biggest issue is planning how the NRI/OCI will exit or monetize the investment if needed. Since direct repatriation of capital is capped at USD 1 million per year, clients who invest large sums must understand that they can’t easily pull out their entire investment quickly. Case in point: if an OCI invests $5 million in a startup via Schedule IV and after a few years the startup is sold for $20 million, the OCI cannot take $20 million out in one go. They would either have to flip the investment to a repatriable mode before exit (e.g. sell their stake to a foreign investor prior to the main sale, thereby converting to FDI at fair value and then repatriating through that foreign investor’s sale) or accept a long repatriation timeline using the $1M per year route, or approach RBI (which historically is reluctant to approve a big one-shot remittance). This illiquidity needs to be clearly explained to clients
Mixing Repatriable and Non-Repatriable Funds: Often, companies have a mix of foreign investment – say, a venture capital fund (FDI) and an NRI relative (non-repat). In such cases, accounting properly for the two classes is key. From a corporate law perspective, both hold equity, but from an exchange control perspective, one part of equity is foreign, and one part is domestic. The company’s compliance team must carefully track these when reporting foreign investment percentages to any authority or while calculating downstream foreign investment. Misclassification can lead to errors – e.g., a company might erroneously count the NRI’s holding as part of FDI and think it breached a cap, or conversely ignore a foreign holding, thinking it was NRI domestic. It’s advisable in company records and even on share certificates to mark non-repatriable holdings distinctly. Some companies create separate folios in their register for clarity..
Corporate Governance and Control: Because Schedule IV allows NRIs to invest beyond usual foreign limits, we see scenarios of foreign control via NRI routes. For example, foreign parents could nominate OCI individuals to hold a majority in an Indian company so that it is “Indian owned” but effectively under foreign control through OCI proxies. Regulators are aware of this risk. The law currently hinges on “owned and controlled by NRIs / OCIs” as the test for deeming it domestic. If an OCI is truly acting at the behest of a non-OCI foreigner, that could be viewed as a circumvention. In diligence, one should ensure OCI investors are bona fide and making decisions independently, or at least within what law permits. If an Indian company with large NRI non-repat investment is making downstream investments in a sensitive sector, one must document that control remains with OCI and not via any agreement handing powers to someone else, lest the structure be challenged as a sham.
Changing Residential Status: An interesting practical point – if an NRI who made a non-repat investment later moves back to India and becomes a resident, their holding simply becomes a resident holding (no issue there). But if they then move abroad again and become NRI once more, by default, that holding would become an NRI holding on a non-repat basis (since it was never designated repatriable). That person might now wish it were repatriable. There isn’t a straightforward mechanism to “retroactively designate” an investment as repatriable; typically, the person would have to do a transfer (e.g., transfer to self through a structure, which is not really possible) or approach RBI. It’s a corner case, but it shows that once an investment is made under a particular schedule, toggling its status is not simple unless a third-party transfer is involved.
Evidence of Investment Route: Down the line, when an NRI / OCI wants to remit out the sale proceeds under the $1M facility, banks often ask for proof that the investment was made on a non-repatriation basis (because if it was repatriable, the sale proceeds would be in an NRE account and could go out without using the $1M quota). Thus, maintaining paperwork – such as the board resolution or offer letter mentioning the shares are under Schedule IV, or a copy of the share certificate with a “non-repatriable” stamp, or the letter to AD bank at the time of issue – becomes useful to avoid confusion. If records are lost or unclear, the bank might fear to allow remittance or might treat it as some foreign investment needing RBI permission. So, documentation is a practical must.
Taxation Aspect: Though not directly a FEMA issue, note that dividends repatriated to NRIs will be after TDS, and any gift of shares etc. might have tax implications (gift to a relative is not taxable in India, but to a non-relative, it could trigger tax for the recipient if over ₹50,000). Also, the favourable FEMA treatment doesn’t automatically confer any tax residency benefit – e.g., just because OCI investment is deemed domestic doesn’t make the OCI an Indian resident for tax

BEFORE WE ALL NEED A REPATRIATION ROUTE, LET’S WRAP THIS UP!

Before we exhaust ourselves—or our dear readers start considering their own non-repatriable exit strategies—let’s conclude. The non-repatriation route under FEMA is like a VIP pass for NRIs and OCIs to invest in India while enjoying the perks of domestic investors. It’s a fine balancing act by policymakers: welcoming diaspora investments with open arms but keeping foreign exchange reserves snugly in place.

For legal practitioners, Schedule IV is both a playground and a puzzle—offering creative structuring opportunities while demanding meticulous planning for exits and compliance. Done right, it’s a win-win for investors and Indian businesses alike, seamlessly blending “foreign” and “domestic” investment. So, whether you’re an NRI looking for investment options or a lawyer navigating these rules—remember, patience, planning, and a strong cup of chai go a long way!

BCAJ Admin

Miscellanea

1. TECHNOLOGY AND AI

# Italian newspaper says it has published world’s first AI-generated edition

An Italian newspaper has said it is the first in the world to publish an edition entirely produced by artificial intelligence. The initiative by Foglio, a conservative liberal daily, is part of a month-long journalistic experiment aimed at showing the impact AI technology has “on our way of working and our days”, the newspaper’s editor, Claudio Cerasa, said.

“It will be the first daily newspaper in the world on newsstands created entirely using artificial intelligence,” said Cerasa. “For everything. For the writing, the headlines, the quotes, the summaries. And, sometimes, even for the irony.” He added that journalists’ roles would be limited to “asking questions and reading the answers”.

The experiment comes as news organisations around the world grapple with how AI should be deployed. Earlier this month, the Guardian reported that BBC News was to use AI to give the public more personalised content. The front page of the first edition of Foglio AI carries a story referring to the US president, Donald Trump, describing the “paradox of Italian Trumpians” and how they rail against “cancel culture” yet either turn a blind eye, or worse, “celebrate” when “their idol in the US behaves like the despot of a banana republic”.

The front page also features a column headlined “Putin, the 10 betrayals”, with the article highlighting “20 years of broken promises, torn-up agreements and words betrayed” by Vladimir Putin, the Russian president.

The final page runs AI-generated letters from readers to the editor, with one asking whether AI will render humans “useless” in the future. “AI is a great innovation, but it doesn’t yet know how to order a coffee without getting the sugar wrong,” reads the AI-generated response.

Cerasa said Il Foglio AI reflected “a real newspaper” and was the product of “news, debate and provocations”. But it was also a testing ground to show how AI could work “in practice”, he said, while seeing what the impact would be on producing a daily newspaper with the technology and the questions “we are forced to ask ourselves, not only from a journalistic nature”.

(Source: www.theguardian.com dated 18^th March, 2025)

2 STARTUPS

# Nandan Nilekani predicts that India will have one million startups by 2035

Infosys cofounder Nandan Nilekani predicts that India will have one million startups by 2035. He said that there are 150,000 startups today growing at a compound annual growth rate of 20%. He also noted that among 2000 funded startups, 100 unicorns have been created. He outlined a strategic roadmap for India to achieve an 8% annual growth rate and become an $8 trillion economy by 2035.

He stressed that while a 6% growth rate is commendable, a focused effort is needed to elevate living standards and accelerate progress. He noted that 50% of India’s wealth is in land.

He cautioned that significant headwinds, including income disparity, regional imbalances, and low productivity, threaten to impede progress. Nilekani revealed that only 13 districts contribute to half of India’s GDP, underscoring the stark spatial disparities. He also noted the vast income gap and the challenges posed by a largely informal economy.

Nilekani emphasised the need to leverage AI to bridge the digital divide and reach a billion Indians. He advocated for the development of low-cost, population-scale AI solutions, particularly in regional languages.

Nilekani predicted that India will have one million startups by 2035, driven by a thriving entrepreneurial ecosystem. He highlighted the “binary fission” effect, where successful startups spawn new ventures, creating a ripple effect of innovation.

His key recommendations for an $8 trillion economy included AI for a billion Indians: focus on last mile consumers and MSMEs, and emphasis on health, education and agriculture. His second recommendation was to accelerate capital investments, maximise AA penetration, and land monetisation via tokenisation.

Nilekani also suggested “unshackling” entrepreneurs and MSMEs by funding entrepreneurs outside the eight metros, and enabling credit and market access for 10 million MSMEs. He also recommended “turbocharging” formalisation, via portable credentials and benefits, and suggested deregulation for ease of business.

(Source: www.economictimes.com dated 12^th March, 2025)

3. ENVIRONMENT

# ‘Unexpected’ rate of sea level rise in 2024: NASA

Sea levels rose faster than expected around the world in 2024 — the Earth’s hottest year on record, according to new findings from the United States’ NASA space agency, which attributed the rise to warming oceans and melting glaciers.

“With 2024 as the warmest year on record, Earth’s expanding oceans are following suit, reaching their highest levels in three decades,” NASA’s Nadya Vinogradova Shiffer, head of physical oceanography programmes said.

Josh Willis, a sea level researcher at NASA, said the rise in the world’s oceans last year was “higher than expected”, and while changes take place each year, what has become clear is that the “rate of rise is getting faster and faster”.

According to the NASA-led study of the information sourced via the Sentinel-6 Michael Freilich satellite, the rate of sea level rise last year was 0.59cm (0.23 inches) per year — higher than an initial expected estimate of 0.43cm (0.17 inches) per year.

Satellite recordings of ocean height started in 1993, and in the three decades up to 2023, the rate of sea level rise has more than doubled, with average sea levels around the globe rising by 10cm (3.93 inches) in total, according to NASA.

Rising sea levels are among the consequences of human-induced climate change, and oceans have risen in line with the increase in the Earth’s average surface temperature — a change which itself is caused by greenhouse gas emissions.

NASA said trends from recent years showed additional water from land due to melting ice sheets and glaciers to be the biggest contributor, accounting for two-thirds of sea level rise.

In 2024, however, the increased rise in sea levels was largely driven by the thermal expansion of water – when ocean water expands as it warms — which accounts for about two-thirds of the increase.

The UN has warned of threats to vast numbers of people living on islands or along coastlines due to rising sea levels, with low-lying coastal areas of India, Bangladesh, China and the Netherlands flagged as areas of particular concern, as well as island nations in the Pacific and Indian Oceans.

(Source: www.aljazeera.com dated 14^th March, 2025)

# Purpose defeated: Brazil cuts thousands of trees to make way for climate summit

Brazil is facing growing criticism after clearing large sections of the Amazon rainforest to build a highway for the upcoming COP30 climate summit, set to take place in Belém, a northern city in Brazil, this November.

The four-lane highway, designed to accommodate tens of thousands of delegates, including world leaders, has sparked concerns about the environmental impact in one of the world’s most biodiverse regions.

The highway project, which was proposed by the state government of Pará over a decade ago, was delayed several times due to concerns about its environmental impact. However, with the summit approaching, the project has moved forward as part of a broader plan to prepare Belém for the influx of visitors. The state is also undertaking other major infrastructure projects, such as expanding the airport, redeveloping the port for cruise ships, and constructing new hotels.

The state government defends the highway, claiming it will be sustainable. They point to features like cycle lanes and wildlife crossings designed to help animals move through the area safely. Adler Silveira, the state’s infrastructure secretary, also highlighted that the road would use solar-powered lighting, further emphasizing its environmental credentials.

Despite these claims, many locals and environmental groups are outraged. Residents like Claudio Verequete, who lives about 200 meters from the new road, argue that the construction is devastating their livelihoods. Verequete, who once made his living harvesting açaí berries, shared his frustration with the BBC, saying, “Everything was destroyed. Our harvest has already been cut down. We no longer have that income to support our family.”

Conservationists have also raised alarms, warning that the deforestation could harm wildlife and disrupt the delicate balance of the Amazon ecosystem. The region is crucial for absorbing carbon dioxide and preserving global biodiversity, and many critics argue that the destruction of the forest for a highway goes against the very purpose of hosting a climate summit in the area.

As the summit draws closer, the debate over the highway and its environmental impact is intensifying, with critics questioning whether the destruction of part of the Amazon can be justified in the name of hosting a global climate event.

(Source: www.timesofindia.com dated 13^th March, 2025)

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