2026 Archives

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.19/2025-Central Tax dated 31.12.2025

By above notification, certain tobacco products are notified for declaration of Retail Sale Price under section 15(5) of CGST Act.

ii) Notification No.20/2025-Central Tax dated 31.12.2025

By above notification, the CBIC seeks to notify Central Goods and Services Tax (Fifth Amendment) Rules, 2025 as operative from 1.2.2026.

B. NOTIFICATION RELATING TO RATE OF TAX

i) Notification No.19/2025-Central Tax (Rate) dated 31.12.2025

The above notification seeks to amend Notification 09/2025- Central Tax (Rate), to prescribe GST rates on tobacco products.

C. OTHERS

i) GSTN has issued consolidated FAQ on GSTR-9/9C for financial year 2024-25, dated 17.12.2025.

ii) The order about filing of appeals before GSTAT in staggered manner is withdrawn vide order No.315/3025 dated 16.12.2025.

iii) GSTN has also issued Advisory and FAQ on Electronic credit reversal and Reclaimed Statement and RCM liability/ITC statement dated 29.12.2025.

D. ADVANCE RULINGS

7. Manav Seva Charitable Trust (AAR Order No. 2025/AR/28 dt.23.12.2025)(Guj)

Plantation of trees – Exemption as Charitable activity

FACTS

The facts are that the applicant is a registered Charitable Trust duly recognised by way of Registration u/s 12AB of Income-tax Act, 1961. They are engaged in charitable activities, including preservation of environment by way of plantation of trees and maintenance of trees. The activity of plantation and maintenance of Trees, inter alia, involves, avenue plantation, its required maintenance, application of pesticide/insecticide/anti-termite and generally to do anything incidental, ancillary or subservient to the principal object of plantation of trees and post-plantation maintenance.

The main object of applicant, as contained in Trust Deed, was also “Tree Plantation and Maintenance”.

Following questions were raised for ruling by AAR.

“1. Whether, in the facts and circumstances of the case, the entry no. 1 of Notification No. 12/2017 (as amended from time to time) applies to the charitable activity of plantation and maintenance of tree (more particularly described in the Statement of Relevant Facts), by the applicant being a Charitable Institution, duly recognized u/s. 12AA of the Income-tax Act, 1961 for Preservation of Environment?

2. Whether, in the facts and circumstances of the case, the applicant being a Charitable Institution, duly recognized u/s. 12AA of the Income-tax Act, 1961, is liable to pay tax on charitable activity of plantation and maintenance of tree? If yes, then to what extent and at what rate?”

In application, applicant highlighted the importance of activity including supported by State of Gujarat and implication of various policies formulated by Government, including National Forest Policy,1988. Applicant relied on Entry no. 1 of Notification No. 12/2017 (as amended from time to time), which describes that “Services by an entity registered under section 12AA or 12AB of the income-tax Act, 1961 (43 of 1961) by way of charitable activities.”- shall be taxable at Nil Rate. The term “Charitable Activities”, as defined in the said notification includes activities relating to preservation of environment including watershed, forests and wildlife and therefore, applicant submitted to give ruling in its favour, declaring its above activity as exempt under above entry.

HELD

The ld. AAR narrated features about Government’s forest policy and scope of entry 1 of Notification no.12/2017. The ld. AAR, observed that for being covered under the said entry, following conditions have to be fulfilled:

“(a) The entity should be registered under Section 12AA or 12AB of the Income Tax Act, 1961.

(b) the services provided should fall under the definition of charitable activities as defined in the notification.”

The ld. AAR concurred with applicant and observed that as per the definition of charitable activities mentioned in Clause 2(r) of the notification No.12/2017-CT(R) dtd. 28.6.2017, activities related to preservation of environment including watershed, forests and wildlife fall under the ambit of charitable activities.

The ld. AAR further observed that the objective of the schemes is for preservation of environment and therefore the activity of applicant falls under the definition of charitable activities mentioned in Notification No. 12/2017-CT(R) dated 28.06.2017 and eligible for exemption.

8. Advanced Hair Restoration India Pvt. Ltd. (AAR Order No. 37/2025 dt.24.11.2025)(Ker)

Specified Healthcare Services – AAR held the activity of applicant as exempt under above entry 74 of Notification no.12/2017-CT (R) dt.28.6.2017.

FACTS

The applicant submitted that it is engaged in rendering healthcare services in connection with the treatment of psoriasis affecting the skin and scalp, dandruff, dermatitis, anti-fungal infections, folliculitis, and other related ailments. Applicant has its principal place of business at Ernakulam and maintains additional places of business across the State. It is also submitted that the applicant is duly authorised to carry out the aforesaid service activities under the licences issued by the respective local authorities, including the paramedical licence granted by the Health Services Department.

It was further explained that for providing such services, the applicant has appointed around 80 qualified medical officers, dental surgeons, and dermatologists across its various centres. It was elaborated that with the professional expertise of these doctors, including skin specialists and dermatologists and with the assistance of paramedical staff such as nurses, the applicant has been providing systematic and effective treatment for the aforesaid ailments across its establishments in the State.

The applicant maintains necessary records, including details of service recipients, nature of ailments treated, treatments administered, and particulars of the doctors concerned. The applicant contended that the services rendered in connection with the aforesaid healthcare activities are squarely covered under Sl. No. 74 of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017, thereby entitling the applicant to exemption from GST.

HELD

The ld. AAR analysed the scope of above entry 74 in Notification no.12/2017 and noted that the said entry prescribed NIL rate for-

“(a) Healthcare services by a clinical establishment, an authorised medical practitioner or para-medics;

(b) services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.”

The ld. AAR also observed that healthcare services should fall within ambit of para 2(zg) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. AAR noted that the essential element of “healthcare services” is that the treatment should relate to an illness or abnormality and should be provided under a recognized medical system.

Applying above criteria the ld. AAR held that the applicant’s activity of rendering hair treatment described above clearly falls within the scope of “illness” or “abnormality” as contemplated in the Notification.

It was also noted that the applicant holds statutory licences issued under section 447 of the Kerala Municipality Act, such as the IFTE and OS licences, which describe the establishments as “skin clinics” which further strengthens the case that the applicant falls within the statutory meaning of a “clinical establishment”.

Accordingly, the ld. AAR held the activity of applicant as exempt under above entry 74 of Notification no.12/2017-CT (R) dt.28.6.2017.

9. Goexotic Plus91 Motors Pvt. Ltd. (AAR Order No. 42/2025 dt.11.12.2025) (Kerala)

Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles – held that ITC is eligible on other items as well as capital goods also.

FACTS

The facts are that the applicant is a registered Tax Payer under GST regime and is engaged in the business of buying and selling second hand motor vehicles, primarily old and used luxury cars. These vehicles are procured from both registered and unregistered persons.

The applicant, before supplying these vehicles to customers, undertakes minor processing activities such as repairs and refurbishment, including the replacement of spare parts. These activities are undertaken to enhance the resale value of the vehicles but do not alter their fundamental nature. The said repairs and refurbishments are either carried out at the applicant’s own service station or through external service stations.

For the purpose of valuation and taxation under GST, the applicant proposes to adopt the special valuation mechanism as laid down under Rule 32(5) of the CGST Rules, 2017, which permits payment of GST only on the margin (i.e., the difference between selling price and purchase price), provided that no input tax credit (ITC) is availed on the purchase of the second-hand motor vehicles.

In the course of business, the applicant incurs various common business expenses such as office/showroom rent, telephone expenses, advertising costs, professional fees, and also procures capital goods such as workshop machinery, office equipment, computer systems, and demo cars, which are utilized in the business operations.

The application is filed to seek ruling on below questions:

“Question 1- Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of goods or services which are in the nature of direct expenditures like spare purchases, repairs and refurbishment costs of vehicles, etc., except on purchase of old or used motor vehicles as mentioned in para 2 of the notification?

Question 2– Admissibility of Input Tax Credit (ITC) on Other Common Business Expenses and Capital Goods: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of other goods or services except on purchase of old or used motor vehicles as mentioned in para 2 of the notification. That is, whether credit of input tax available on inward supplies of goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc., except that on inward supply of old or used motor vehicles.”

The applicant submitted that it is eligible to ITC on other items as it complies with condition of section 16(1).

The ld. AAR referred to text of Notification no. 8/2018-Central Tax (Rate) dated 25th January 2018 and observed that the benefit of paying tax on the margin basis is not available in cases where input tax credit (ITC) has been availed on “such goods.” The ld. AAR held that, the restriction on availing ITC appears to be limited to the inward supply of the used vehicles themselves and there is no bar under the notification on claiming ITC on other inward supplies, including but not limited to spare parts, repair and refurbishment services, rent, advertising, professional services, or capital goods utilized in the course of business.

The ld. AAR also observed that in present case the applicant has applied minor modifications, repairs and refurbishments on the vehicles to enhance their market value without altering their essential character and accordingly held that the applicant’s activity qualifies under the provisions of Rule 32(5) for determination of value on the margin basis.

The ld. AAR also concurred with view of applicant that even where the margin is Nil, it cannot be classified as an exempt supply and such supply will not trigger reversal of common input tax credit under Rule 42 or 43.

Accordingly, the ld. AAR answered both questions in favour of applicant and held that ITC is eligible on other items as well as capital goods also.

10. Premlata Rakesh Jain (Sambhav Warehousing) (AAR Order No. 2025/62 dt.23.12.2025)(Guj)

ITC vis-à-vis Construction of warehouse – held that no ITC is permissible on goods/services used for construction of warehouse.

FACTS

The facts narrated by applicant are that it is a provider of Storage and Warehouse services and he is constructing a warehouse and therefore, needs to purchase cement, steel, beam, column etc. for construction of the warehouse. Applicant would also be availing the construction services for the same. It was explained that ITC on construction related material or services were covered under block credit under Section 17(5) of the CGST Act, 2017 and cannot be claimed even though the same was used for the furtherance of business. However, subsequent to the judgement of the Supreme Court in the case of Chief Commissioner of Central Goods and Services Tax Vs Safari Retreats Pvt. Ltd. [2024 (90) G.S.T.L. 3 (S.C.) – 2024-VIL-45-SC] (Safari Retreats) and the Supreme Court’s interpretation of Section 17(5) on the issue, the applicant felt that ITC can be eligible and hence approached AAR. Accordingly, the applicant has sought an advance ruling on the following question: –

“Whether ITC is admissible for the goods or services utilised for the construction of warehouse or shed from which storage and warehousing services are provided as furtherance of business or provided on rent.”

It was submission that ITC would be allowable on construction expenses for building intended for leasing, treating such building as plant, based on their functional use, in view of the judgement of the Supreme Court in the case of Safari Retreats.

Since the whole basis of applicant was on the judgment of the Supreme Court in the Safari Retreats, ld. AAR went through said judgment and analysed fully.

The ld. AAR noted distinction made by Supreme Court between the expression “plant and machinery” used in Section 17(5)(c) and ‘plant or machinery’ used in Section 17(5)(d).

The ld. AAR noted that based on above distinction, Supreme Court has come to conclusion that blockage u/s.17(5)(d) is not applicable when warehouse is plant or machinery.

The ld. AAR observed that though there may be scope to apply such interpretation, now it is not possible due to fact that subsequent to the judgment of Safari Retreats, the Legislature, vide Section 124 of the Finance Act, 2025 has amended Section 17(5)(d) and substituted the words ‘Plant or Machinery’ with the words ‘Plant and Machinery’ with effect from 01.07.2017. It is also noted that another explanation is added in Section 17(5)(d), as per which, for the purpose of clause (d), anything contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery. The ld. AAR held that the amendment read with the new explanation has basically nullified the effect of the judgement of the Supreme Court in Safari Retreats as far as the interpretation of Section 17(5)(d) is concerned.

In view of above latest position, the ld. AAR ruled in negative and held that no ITC is permissible on goods/services used for construction of warehouse.

11. Medtrainai Technologies P. Ltd. (AAR Order No. 25/WBAAR/2025-26 dt.24.12.2025)(WB)

Pure Agent Conditions – AAR ruled that the supply received by the applicant from the foreign attorneys is a taxable service and accordingly liable to tax under RCM.

FACTS

The facts are that the applicant wanted to file patent in Japan (and later in USA and UK) and also allotted the task to one Indian concern viz: M/s. Seenergi IPR (GSTIN 19ABLFS2275H1ZR). M/s. Seenergi IPR, on completion of the task in Japanese patent office, raised the invoice which is fully paid by the company. M/s.Seenergi IPR did not collect GST and directed the company to pay tax under reverse charge mechanism (RCM) for total invoice amount. The invoice has two parts. Part-A is reimbursement of payment to Japanese attorney at Japan and Part-B is Seenergi IPR’s own fee. The applicant had reservation about paying RCM on Part A as it envisaged no benefit out of such payment.

The applicant raised following questions:

“(i) Whether the company needs to pay GST towards reimbursement of expenses Japanese patent attorney has done towards filing a patent in Japanese patent office. The company is filing the patent in favour of Nilanhra Banerjee, one of the directors. The company is not planning to do business in Japan.

(ii) Same question remains for any other patent office on foreign soil as the company has submitted patents in USA and UK.”

The main contention of applicant was that Part A in invoice is a reimbursement of expenditure done by Japanese patent lawyers in Japan and therefore, the actual transaction was done on the company’s behalf in Japan and applicant derives no benefit, whatsoever, from the given transaction in India. The company is only reimbursing the money and transaction is outside the jurisdiction of GST law of the country. Accordingly, it was submitted that GST is not applicable on said Part A.

The ld. AAR examined the meaning of ‘reimbursement’ as per different dictionaries and derived meaning that the reimbursement is repayment of what has already been spent or incurred for the restoration of the spent or incurred amount and it is not a consideration for a service rendered.

The ld. AAR also referred to section 15 of the CGST Act,2017 which provides for value of supply and laid stress on language of section 15(2)(c) which reads as under:

“15. (2) The value of supply shall include—

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;”

HELD

The ld. AAR also referred to Rule 33 where requirements for being ‘pure agent’ are mentioned.

Analysing fact position that there is no contract or signed agreement between applicant and M/s. Seenergi IPR, the ld. AAR observed that M/s. Seenergi IPR never acted as a ‘pure agent’ as per Rule 33. The claim of being reimbursement was also turned down as the amount was paid in advance.

Based on above finding the ld. AAR concluded that the applicant has received service of filing patent application from foreign companies situated outside India and covered under SAC 9982 as legal and accounting service at Serial No.20 of Notification no.11-Central Tax (Rate) dated 28.6.2017.

Referring to section 13 about place of supply, the ld. AAR held that legal services do not fall in sub-sections (3) to (13) of section 13 and hence the place of supply for service received by the applicant in Japan is the location of the applicant i.e. West Bengal.

The argument of exempt service for Advocate or Senior Advocate also rejected as the foreign service provider do not fall under the Advocate Act,1961.

Accordingly, the ld. AAR ruled that the supply received by the applicant from the foreign attorneys is a taxable service and accordingly liable to tax under RCM. The ld. AAR answered the issue against applicant.

BCAJ Admin

Goods And Services Tax

HIGH COURT

93. (2025) 31 Centax 53 (Del.) Om Prakash Gupta vs. Principal Additional Director General, DGGI dated 14.05.2025.

Provisional attachment of a bank account under Section 83 of the CGST Act automatically lapses upon culmination of proceedings under Section 74.

FACTS

The petitioner was investigated by the respondent for alleged wrongful availment and passing of ITC, during which the respondent provisionally attached the petitioner’s bank account under SSection 83 of the CGST Act, 2017. Thereafter, a SCN under SSection 74 of the CGST Act was issued by the respondent. Aggrieved by the provisional attachment and the issuance of the SCN, the petitioner approached the Hon’ble Delhi High Court. During the pendency of the writ petition, the respondent passed a final adjudication order under Section 74 of the CGST Act. However, notwithstanding the culmination of proceedings and the petitioner having availed the statutory appellate remedy under Section 107 of the CGST Act, the petitioner’s bank account continued to remain frozen, thereby compelling the petitioner to approach the Hon’ble High Court seeking relief for lifting of the provisional attachment.

HELD

The Hon’ble High Court held that provisional attachment of a bank account under Section 83 of the CGST Act is temporary and cannot continue once proceedings under Section 74 culminate and the assessee avails the statutory appellate remedy under SSection 107. Placing reliance on the Supreme Court’s decision in Radha Krishan Industries vs. State of Himachal Pradesh [48 G.S.T.L. 113 (SC)], the Court observed that upon conclusion of proceedings under Section 74, the provisional attachment automatically ceases to operate. Accordingly, since the petitioner had already challenged the final order in appeal, the Court directed that the provisional attachment of the petitioner’s bank account shall stand lifted.

94. (2025) 37 Centax 400 (Mad.) TVL. Voylla Fashions (P) Ltd. vs. Assistant Commissioner (ST) (FAC), Chokkikulam Assessment Circle, Madurai dated 17.12.2025.

Assessment or adjudication orders passed relying on invalid or quashed notifications under Section 168A of the CGST Act are unsustainable in law and liable to be set aside.

FACTS

The Petitioner was issued assessment and adjudication orders by the respondent. These orders relied on Notification No. 09/2023–Central Tax dated 31.03.2023 and Notification No. 56/2023–Central Tax dated 28.12.2023. Both notifications were issued under S Section 168A of the CGST Act, 2017 and extended the limitation period for passing adjudication orders. Aggrieved by the notifications and the consequential orders, the petitioner approached the Hon’ble High Court by way of the present writ petition.

HELD

The High Court held that Notification Nos. 09/2023–Central Tax dated 31.03.2023 and 56/2023–Central Tax dated 28.12.2023 were issued under Section 168A of the CGST Act, 2017 to extend the limitation period. These notifications were vitiated and illegal, as already held in Tata Play Ltd. vs. Union of India [(2025) 32 Centax 318 (Mad.)]. The Court observed that any assessment or adjudication orders relying on such invalid notifications could not be sustained in law. Consequently, the order passed against the petitioner was quashed.

95. (2025) 37 Centax 132 (Ker.) K.V. Joshy & C.K. Paul vs. Assistant Commissioner of Central Tax and Central Excise, Chalakudy dated 27.10.2025.

A purchaser who has claimed ITC in good faith and paid tax to the suppliers cannot be held liable for the suppliers’ defaults, unless there is evidence of collusion or failure by the suppliers to rectify the discrepancy after notice.

FACTS

The Petitioner purchased goods from two registered suppliers during the financial year 2019–20 and paid the full tax to them. ITC was claimed in the petitioner’s GST returns based on proper invoices and E-way bills. However, the suppliers failed to deposit the tax and did not report the supplies in their GST returns. Despite this, the respondent issued a SCN under Section 73 of the CGST Act, 2017, demanding reversal of ITC along with payment of tax and penalty from the petitioner. Aggrieved, the petitioner approached the Hon’ble High Court challenging the SCN.

HELD

The Hon’ble High Court held that the SCN under Section 73 issued to the petitioner was unsustainable and illegal, as the petitioner had availed ITC in good faith, paid tax to the suppliers, and produced proper invoices. The Court observed that under Sections 16 and 42 of the CGST Act, proceedings against a purchaser can only be initiated after issuing notice to the defaulting suppliers and if the suppliers fail to rectify the discrepancy or in cases of collusion, which was absent in the present case. Relying on Assistant Commissioner of State Tax vs. Suncraft Energy Pvt. Ltd. (2023) 13 Centax 189 (SC), Commissioner Trade and Tax vs. Shanti Kiran India Pvt. Ltd. (2025) 35 Centax 222 (SC) and Lokenath Construction Pvt. Ltd. vs. Tax/Revenue, Government of West Bengal [ (2024) 18 Centax 97 (Cal.)], the Court held that a purchaser cannot be penalized for suppliers’ defaults in absence of collusion. Accordingly, the SCN against the petitioner was quashed.

96. (2025) 37 Centax 225 (P&H.) Abhishek Goyal vs. Union of India, dated 21.11.2025.

Rule 86A empowers authorities only to restrict utilisation of existing ITC and does not authorise a negative balance or blocking credit beyond what is available in the Electronic Credit Ledger.

FACTS

The Petitioner’s Electronic Credit Ledger (ECL) entries were blocked by the respondent under Rule 86A of the CGST Rules, 2017. This resulted in a negative balance exceeding the ITC actually available. Consequently, the petitioner was prevented from utilising legitimately available credit to discharge GST liabilities. Aggrieved, the petitioner challenged the blocking before the Hon’ble High Court.

HELD

The Hon’ble High Court held that Rule 86A of the CGST Rules, 2017 does not authorise blocking of ITC beyond the credit actually available in the ECL. The Court observed that Rule 86A is a temporary, restrictive measure to block utilisation of existing credit and cannot be used as a recovery mechanism. Relying on Shyam Sunder Strips vs. Union of India (2025) 37 Centax 65 (P&H), the Court held that such negative blocking is without legal authority. Consequently, the impugned blocking entries were set aside.

97. (2025) 37 Centax 120 (Kar.) H.R. Carriers vs. State of Karnataka dated 04.11.2025.

Bona fide clerical errors in GSTR-1, such as incorrect GSTINs, are curable even beyond statutory timelines where tax is paid and no revenue loss is caused.

FACTS

The Petitioner filed GSTR-1 returns but inadvertently mentioned the GSTIN of the Kerala branch of its customer instead of the correct GSTIN of the customer’s Tamil Nadu branch. The recipient was unable to avail ITC despite the tax having been duly paid by the petitioner. The mistake came to light only when the recipient informed the petitioner and withheld subsequent payments on the ground of denial of ITC. Upon discovering the error, the petitioner requested the respondent to permit rectification of the GSTR-1 returns, either through the GST portal or by manual means. However, no action was taken by the respondent. Aggrieved thereby, the petitioner approached the Hon’ble High Court seeking permission to amend the returns to enable the recipient to claim ITC in accordance with law.

HELD

The Hon’ble High Court held that a bona fide clerical error in GSTR-1, such as mentioning an incorrect GSTIN, which resulted in denial of ITC despite tax having been duly paid with no loss to revenue, cannot defeat substantive rights. Relying on NRB Bearings Ltd. vs. Commissioner (2024) 15 Centax 444 (Bom.), Sun Dye Chem vs. Assistant Commissioner 2021 (44) G.S.T.L. 358 (Mad.) and Pentacle Plant Machineries Pvt. Ltd. vs. Office of the GST Council 2021 (52) G.S.T.L. 129 (Mad.), the Court directed the respondent to permit rectification of GSTR-1, either online or manually, to enable the recipient to avail ITC, while keeping all inter se disputes open.

98. (2026) 38 Centax 53 (All.) Raghuvansh Agro Farms Ltd. vs. State of U.P. dated 17.12.2025.

Section 74 proceedings are invalid without jurisdiction or specific findings of fraud, wilful misstatement, or suppression and cannot override documentary evidence of genuine transactions.

FACTS

The Petitioner was subjected to a survey by the respondent, pursuant to which a notice under Section 74 was issued alleging circular trading and wrongful availment of ITC. In response, the petitioner filed detailed submissions supported by documentary evidence establishing that all purchases and sales were genuine, payments were made through banking channel, and actual physical movement of goods had taken place. The petitioner further contended that the proceedings were initiated without granting any personal hearing and were without jurisdiction, as the petitioner was under Central GST jurisdiction and no cross-empowerment notification had been issued authorising the State GST authorities (respondent). However, disregarding documentary evidence on record, the respondent proceeded solely on the basis of survey observations. Being aggrieved, the petitioner approached Hon’ble High Court.

HELD

The Hon’ble High Court held that the demand raised under Section 74 was unsustainable, as the proceedings were initiated by the State GST authority (respondent) despite lack of jurisdiction and in the absence of any cross-empowerment notification. The Court further observed that neither the SCN nor the adjudication order recorded any finding of fraud, wilful misstatement or suppression of facts, which are mandatory pre-conditions for invoking Section 74. It was held that mere survey-based allegations of circular trading, without disproving the actual movement of goods or rebutting the documentary evidence on record, were insufficient in law. Accordingly, the impugned orders were quashed and the respondent were directed to refund the amount deposited.

99. (2025) 36 Centax 226 (All.) B.P. Oil Mills Ltd. vs. Additional Commissioner Grade-2 dated 17.11.2025.

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

FACTS

The Petitioner was subjected to investigation and proceedings under Section 74 of the CGST Act on the allegation that the supplier was a bogus dealer due to cancellation of its GST registration. Consequent thereto, a demand of tax along with penalty was raised by the adjudicating authority and was subsequently upheld in appeal by the respondent. During the pendency of these proceedings, the supplier’s cancelled GST registration was restored by the competent authority, and there was no material on record indicating absence of physical movement of goods or any discrepancy in the supporting documents or payments. Aggrieved by the initiation and continuation of such proceedings, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that invocation of proceedings under Section 74 of the CGST Act was unsustainable in absence of any finding or material establishing fraud, wilful misstatement, or suppression of facts with intent to evade tax. It was observed that once the supplier’s GST registration, which had been cancelled, stood restored, the transactions could not be treated as having been made with a bogus or unregistered dealer. The Court further noted that actual physical movement of goods was duly established through contemporaneous documentary evidence and banking records, and no discrepancies therein were pointed out by the respondent. Accordingly, the impugned orders passed by the adjudicating authority and respondent were quashed.

100. [2026] 182 taxmann.com 432 (Bombay) Aerocom Cushions (P.) Ltd. vs. Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1 dated 09-01-2026.

Assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation, like GIDC or MIDC to the lessee in favour of a third-party assignee shall be an assignment/sale/transfer of benefits arising out of immovable property by the lessee-assignor and would not be subject to the levy of GST.

FACTS

The petitioner received a show cause notice alleging suppression and non-payment of GST on a transaction wherein it had assigned his leasehold rights in the plot belonging o Maharashtra Industrial Development Corporation (MIDC) to a third person. The department contended that the transaction of seeking compensation towards transfer of such rights amounted to a service classifiable under “other miscellaneous services” and is taxable at 18% under Sr. No. 35 of the Notification No.11/2017 -CT (Rate) dated 28-06-2017.

HELD

The Hon’ble Court noted that the transaction under question was an assignment of leasehold rights and was admittedly not a case of lease or sub-lease. The Court further noted that the category under which the department sought to tax the subject transaction includes miscellaneous services like washing, cleaning, dyeing, beauty, physical well-being, etc. which could not be extended to assignment of leasehold rights in an immovable property and held that the notice was bad-in-law on this count alone. Without prejudice,, the Hon’ble Court further held that holding of lease for 95 years amounts to long term lease and in that sense constituted leasehold ownership property. These rights are transferable in terms of lease deed with MIDC and were transferred by the petitioner accordingly. The transaction, thus, on the face of the record, constituted a transfer of immovable property by the petitioner to a third person with consent of MIDC. The Court held that the transaction pertained exclusively to the transfer of benefits arising out of immovable property and had no nexus whatsoever with the business of the petitioner. Consequently, an essential element of the supply of service in the course of business or in furtherance of business was completely absent.

The Hon’ble Court relied upon and subscribed with the view expressed in the judgment of Hon’ble Gujarat High Court, in Gujarat Chamber of Commerce and Industry vs. UOI [2025] 170 taxmann.com 251/94 GSTL 113 (Gujarat), and held that the assignment by sale and transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC to the lessee in favour of a third-party assignee for consideration would not be subject to levy of GST.

Referring to the CIT vs. Smt. Godavari Devi Saraf [1978] 113 ITR 589 (Bombay), the Hon’ble Court also held that until a contrary decision is rendered by any other competent High Court, authorities are bound to follow the law declared by a High Court, even if of another State.

101. All Cargo Logistics Ltd. vs. State of Gujarat [2026] 182 taxmann.com 49 (Gujarat) dated 22.12.2025.

The order under Section 129(1) cannot be passed beyond the prescribed period of seven days from the date of service of the Notice under Section 129(3).

FACTS

The petitioner’s consignment and the vehicle were intercepted by the authorities and GST MOV 01 and GST MOV 02 were issued on 05.11.2025, alleging that multiple E-Way Bills, accompanied the consignment and that the vehicle number mentioned therein did not match the vehicle actually transporting the goods. The petitioner rectified the error in the E-way Bills; however, a Notice in Form GST MOV-07 under Section 129(3) of the CGST Act was issued on 10.11.2025 which was not served upon the petitioner through any prescribed modeIt appears that the petitioner visited the department, where the notice was handed over to him. The Proper Officer passed an order in Form MOV-09 on 19.11.2025 i.e. after the expiry of 7 days.

HELD

The Hon’ble Court set aside the order, holding that there was a violation of provisions of Section 129(3) of the CGST Act, as the order dated 19.11.2025 was been passed beyond the period of 7 (seven) days from the date of service of notice.

102. State of Jharkhand vs. BLA Infrastructure (P.) Ltd [2026] 182 taxmann.com 405 (SC) dated 09.01.2026.

The High Court held that the refund of the pre-deposit paid at the time of filing appeal is governed by Section 107(6) read with 115 and not with Section 54 and hence the Single Member’s exercise of interpreting Section 54 for the grant of such a refund was held unnecessary and was set aside.

FACTS:

The assessee appealed against the order issued under Section 74 of the GST Act, which was allowed in its favour of the assessee. Thereafter, the assessee filed a refund application for the amount pre-deposited at the time of filing the appeal, the appeal was rejected by issuance of a deficiency memo on the ground that the refund application was filed beyond the period prescribed under Section 54(1) of the Goods & Services Tax Act. Aggrieved, the assessee approached the Hon’ble High Court.

The Hon’ble Court examined the scope and interpretation of Section 54 of the CGST Act and held that once refund is by way of statutory exercise, the same cannot be retained either by the State or by the Centre, that too by taking aid of a provision which on the face of it is directory, in as much as, the language couched in Section 54 is “may make an application before the expiry of 2 years from the relevant date”. The Hon’ble Court relied upon the decision in the case of Lenovo (India) (P.) Ltd. vs. Jt. Commissioner of GST [2023] 156 taxmann.com 467/79 GSTL 299/[2024] 101 GST 4 (Mad.), Muskan Enterprises vs. State of Punjab 2024 online SC 4107 and Rakesh Ranjan Shrivastava vs. State of Jharkhand [2024] 160 taxmann.com 479/183 SCL 311 (SC) as also, taking into consideration that the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favour, held that the action of the department in rejecting the refund application considering it as time barred has no legs to stand in law and accordingly, the rejection order by way of deficiency memo was quashed and set-aside. The department challenged this order before the Division Bench.

HELD:

The Hon’ble Court upheld the decision in favour of the assessee but clarified that the refund of statutory pre-deposit is governed by Section 107(6) read with Section 115 of the Jharkhand Goods and Services Tax Act, 2017 and not by Section 54.The High Court erred in interpreting Section 54 for this purpose. Accordingly, the interpretative exercise undertaken by the Single-Member Bench was set aside, and the department was directed to grant refund of the pre-deposit along with applicable interest.

BCAJ Admin

Miscellanea

1. ARTIFICIAL INTELLIGENCE

#Even the Sky May Not Be the Limit for A.I. Data Centers

As artificial intelligence continues to expand rapidly, tech leaders are warning that Earth’s land and energy resources may soon be insufficient to support the massive data centers required to power it. Earthbound facilities are already facing significant constraints, including power shortages, rising utility costs for consumers, water scarcity issues from cooling needs, and growing local opposition to new constructions. In response, prominent figures in AI and space industries are proposing a bold solution: building giant orbital data centers that could float in space, powered by abundant solar energy and naturally cooled by the vacuum, potentially becoming visible from Earth like bright planets in the night sky.

While some experts believe versions of space-based data centers could become feasible within decades, the idea has gained traction among high-profile supporters including Elon Musk, who predicted they could be the cheapest option for AI training within five years, as well as Jeff Bezos, Sam Altman, and Jensen Huang. Companies like SpaceX have referenced funding such projects through future IPOs, and startups like Starcloud envision modular orbital facilities rebuilt every five years to update hardware. However, the concept remains highly speculative, blending financial incentives from the booming AI and space sectors with substantial technical and economic challenges ahead.

(Source: nytimes.com dated 1 January 2026)

# New Billionaires of the A.I. Boom

The artificial intelligence surge in 2025 has minted a new class of billionaires, primarily through skyrocketing valuations of private startups rather than public markets, echoing the dot-com boom of the late 1990s. While established figures like Nvidia’s Jensen Huang and OpenAI’s Sam Altman saw their wealth grow further, the spotlight fell on founders of lesser-known AI companies whose equity turned into billions on paper. These emerging tycoons, positioned to become influential Silicon Valley players, amassed fortunes as investors poured funds into data-labelling, coding tools, search engines, robotics, and specialized AI labs.

Notable new billionaires include Alexandr Wang and Lucy Guo of Scale AI (boosted by a major Meta investment leading to a $14.3 billion valuation), the four founders of Cursor—Michael Truell, Sualeh Asif, Aman Sanger, and Arvid Lunnemark—whose AI coding startup reached a $27 billion valuation, and Brett Adcock of humanoid robot maker Figure AI. Others hail from Perplexity, Mercor (Adarsh Hiremath, Brendan Foody, and Surya Midha), Safe Superintelligence, Harvey (Winston Weinberg and Gabriel Pereyra), and Thinking Machines Lab. However, venture capitalists caution that much of this wealth remains “on paper” and could evaporate if the startups fail to deliver sustained success, drawing parallels to historical tech bubbles like the 1890s railroad barons.

(Source: nytimes.com dated 1 January 2026)

2. WORLD NEWS

#Australia Enforces World-First Under-16 Social Media Ban, Deactivating Millions of Accounts

In December 2025, Australia implemented the world’s first nationwide ban on social media for users under 16, with the law taking effect on December 10. The Online Safety Amendment (Social Media Minimum Age) Act requires major platforms—including TikTok, Instagram, Facebook, X (formerly Twitter), YouTube, Snapchat, Reddit, Threads, Twitch, and Kick—to take reasonable steps to prevent children under 16 from creating or maintaining accounts. Platforms face fines of up to A$49.5 million (approximately $32 million USD) for non-compliance, but there are no penalties for young users or their parents. The measure, championed by Prime Minister Anthony Albanese, aims to protect children from online harms, despite ongoing debates about its effectiveness and enforcement methods, such as age verification technologies.

In the weeks following implementation, social media companies reported deactivating or restricting approximately 4.7 million accounts identified as belonging to Australian users under 16, significantly impacting millions of children and teenagers. While supporters praise the swift action as a global precedent for child online safety, critics highlight implementation challenges, including inaccurate age verification that allowed some under-16s to retain access while incorrectly blocking others.

(Source: theguardian.com – dated 16 January 2026)

3. ENVIRONMENT

#2025 Confirmed as One of the Three Hottest Years on Record

In January 2026, the World Meteorological Organization confirmed that 2025 was among the three warmest years on record, with a global average surface temperature of 1.44 °C above the pre-industrial baseline. Despite the cooling influence of La Niña, 2025 ranked second or third in most datasets, behind only 2024 and 2023,
underscoring the dominant role of human-caused greenhouse gases.

The years 2023–2025 now form the warmest three-year period ever recorded, with their combined average exceeding 1.5 °C above pre-industrial levels in some analyses. The last 11 years are the 11 hottest on record, and these persistent high temperatures have driven more intense extreme weather events, including heatwaves, floods, and cyclones, highlighting the need for urgent emission reductions.

(Source: returns.com – 14 January 2026)

BCAJ Admin

Probate – No Longer Required, Or Is It?

A probate is a court-certified copy of a Will that establishes its authenticity and validates the executor’s authority. Historically, the Indian Succession Act mandated probate for specific communities (e.g., Hindus, Parsis) residing in or holding assets in Mumbai, Chennai, or Kolkata. Significantly, the Repealing and Amending Act 2025 removes this mandatory requirement effective January 1, 2026, aiming to unify legal provisions across communities. While this amendment is prospective and does not affect pending proceedings, practical challenges likely persist. Institutions like housing societies may still insist on probate or indemnity bonds to avoid liability in family disputes. Furthermore, while the right to apply for probate is viewed as “continuous” courts generally apply a three-year limitation period from when the right accrues. Consequently, Living Trusts are recommended as a safer alternative to unprobated Wills.

INTRODUCTION

“Where there is a Will, there is a Relative,

Where there is a Relative, there is a Dispute,

And where there is a Dispute, there is a Probate.”

The above quote is the reality of several succession/inheritance cases. A probate is a copy of the Will certified by the seal of a Court. The probate of a Will establishes the authenticity and finality of a Will and validates all the acts of the executors. It conclusively proves the validity of the Will, and after a probate has been granted, no claim can be raised about the genuineness of the Will. A probate is different from a succession certificate. A succession certificate is issued by a Court when a person dies intestate, i.e., without making a valid Will. Thus, a probate is granted by a Court only when a valid Will is in place, while a succession certificate is granted only if a Will has not been made.

PROBATE WAS MANDATORILY REQUIRED

According to the Indian Succession Act, 1925 (‘the Act”), no right as an executor or a legatee can be established in any Court unless a Court has granted a probate of the Will under which the right is claimed. This provision applied only to certain communities:

(a) To those Hindus, Sikhs, Jains and Buddhists who were residing within the territory which on September 1870, was subject to the Lieutenant Governor of Bengal (Kolkata) or within the local limits of the ordinary original civil jurisdiction of the High Courts of Madras and Bombay.

(b) To those Hindus, Sikhs, Jains and Buddhists who were residing elsewhere, but who had immovable properties situated within the above territories. Thus, for Hindus, Sikhs, Jains and Buddhists who were residing or whose immovable properties were situated outside the territories of West Bengal or the Presidency Towns of Madras and Bombay, a probate was not mandatorily required. The requirement of probate also applied to Parsis who were residing or whose immovable properties were situated within the limits of the High Courts of Calcutta, Madras and Bombay.

Thus, the Act had a unique situation where a combination of certain communities and locations mandatorily required probate.

PROCEDURE

To obtain a probate, an application needs to be made to the relevant court along with the Will. The executor has to disclose the names and addresses of the heirs of the deceased. Once the Court receives the application for a probate, it invites objections, if any, from the relatives of the deceased.

The Court also places public notice for public comments. The petitioner must satisfy the Court about the proof of death of the testator and the proof of the Will. Proof of death could be in the form of a death certificate. However, in the case of a person who is missing or has disappeared, it may become difficult to prove the death. Under Section 108 of the Indian Evidence Act, 1872, any person who is unheard of or missing for a period of seven years by those who would have naturally heard of him if he had been alive, is presumed to be dead unless otherwise proved to be alive.

On being satisfied that the Will is indeed genuine, the Court grants a probate (a specimen of the probate is given in the Act) under its seal. The probate is granted in favour of the Executor/s named under the Will. The Supreme Court has held in the cases of Lalitaben Jayantilal Popat vs. Pragnaben J Kataria (2008) 15 SCC 365 and Syed Askari Hadi Ali vs. State (2009) 5 SCC 528, that while granting a probate, the Court must not only consider the genuineness of the Will but also the explanation given by the parties to all suspicious circumstances surrounding thereto along with proof in support of the same. The onus of proving the Will is on the propounder. The propounder has to prove the legality of the execution and genuineness of the Will by proving the absence of suspicious circumstances and surrounding the said Will and also by proving the testamentary capacity and the signature of the testator. When there are suspicious circumstances, the onus is also on the propounder to explain them to the court’s satisfaction and only when such onus is discharged would the court accept the Will – K. Laxmanan vs. T. Padmini (2009) 1 SCC 354.

It may be noted that the mere fact that a nomination has been made would have no impact on the Probate since the nominee is only a stop-gap arrangement till the actual legal heir is given the estate of the deceased.

The Evolutiom of Probate understanding the 2025 legal shift

OPPOSITION

If any relative, heir of the deceased, or other person feels aggrieved by the grant of a probate, then he must file a caveat before the Court opposing the granting of the probate for the Will. Once a caveat has been filed, the Court hears the aggrieved party. The aggrieved party has to prove that he would have a share in the estate of the testator if he (testator) had died intestate, i.e., without leaving a Will.

WHY DOES ONE NEED A PROBATE?

One of the questions that almost always arises in the case of a Will, is “why is the probate required?” A probate is a certificate from the High Court certifying the genuineness and finality of the Will.

Some of the reasons why a probate is obtained (even in cases/cities where not mandatorily required) are as follows:

(a) It is necessary to prove the legal right of a legatee under a Will in a court.

(b) Some listed / limited companies insist on a probate for the transmission of shares.

(d) The Registrar of Sub-Assurances usually insists on a probate for the registration of immovable properties/lands.

However, it would not be correct to say that no transfer can take place without a probate. There are several companies, societies, etc., which do transfer shares, flats, etc., even in the absence of a probate. They may, as a precaution, insist upon a release deed from the other heirs in favour of the legatee who is the transferee. Sometimes, the company/ society also asks for an indemnity from the legatee in its favour against any possible claims/lawsuits from the other heirs of the deceased.

SPECIAL FACTORS

Some of the rules in respect of obtaining a probate are as follows:

a) For obtaining a probate, the applicable court fee stamp is payable as per the rates prescribed in different States. For instance, to obtain a probate in the city of Mumbai, the application has to be made to the Bombay High Court and the court fee rates prescribed under the Bombay Court-Fees Act, 1959 would apply which are as follows:

Situation Court fees

(a) If the Property value 2% of the property value

exceeds ₹1,000 but is

lower than ₹50,000

(b) If the Property value 4% of the property value

exceeds ₹50,000 but is

lower than ₹2,00,000

exceeds ₹200,000 but

is lower than ₹300,000

(d) If the Property value 7.5% of the property

exceeds ₹300,000 value, subject to a maximum of ₹75,000

(b) A probate cannot be granted to a minor or a person of an unsound mind.

(c) If there is more than one executor, then the probate can be granted to all of them simultaneously or at different times.

(d) If a Will is lost since the testator’s death or it has been destroyed by accident and not due to any act of the testator and a copy of the Will has been preserved, then a probate may be granted on the basis of such a copy until the original or an authenticated copy has been produced. If a copy of the Will has not been made or a draft has not been preserved, then a probate can be granted of its contents or of its substance, if the same can be proved by evidence.

(e) A probate petition requires the following contents:

(i) A copy of the Will or the contents of the Will in case the Will has been lost, mislaid, destroyed, etc.

(ii) The time of the testator’s death – a proof of death would be helpful.

(iii) A statement that the Will is the last Will and testament of the deceased and that it was duly executed.

(iv) The details of assets which may come to the petitioner and the value for the purposes of computing the Court Fees.

(v) A statement that the petitioner is the executor of the Will.

(vi) That the deceased had a fixed place of residence or some immovable property within the jurisdiction of the Judge where the application is made.

(vii) It must be verified by at least one of the witnesses to the Will in the manner prescribed. It must be signed and verified by the petitioner and his lawyer.

2025 AMENDMENT

In light of the above position, the Repealing and Amending Act 2025 has removed the mandatory requirement of obtaining a probate in case of certain communities. As of 1st January 2026, a probate would not be mandatory even for Hindus and Parsis residing in Mumbai, Chennai, or Kolkata, or for those having immovable properties in these locations. The amendment aims to bring about uniformity in the provisions of the Act for all communities. However, this amendment does not alter the position in respect of a Will for which a probate petition is pending before any Court. The repeal will not affect existing rights, acts, obligations, liabilities, or proceedings. Thus, the amendment is not retrospective but is prospective from 1st January 2026. The amendment does not invalidate existing probates or automatically terminate pending existing probate proceedings. In the author’s view, even if a person resident in Mumbai, Chennai or Kolkata has died before 1st January 2026, but his Will is executed after this date, then a Probate would not be required.

IS NO PROBATE PRACTICALLY POSSIBLE?

While the Amending Act 2025 removes the mandatory requirement of a probate, in practice it may still be required. Without a probate the executor would immediately divide the estate among the beneficiaries under the Will. What happens in case of a subsequent challenge to the Will? What if the Will is challenged after many years? In case of disputes among family members, a probate may yet be insisted upon by the sub-registrar / company. As explained above, even today in places where a probate is not mandatory under the Act, many agencies insist upon the same. A similar scenario is likely to unfold even in Mumbai, Chennai and Kolkata. Some co-operative housing societies have taken a stand that even after the above Repealing Act, they would insist on a probate since the Managing Committee does not want to be caught up in the cross -fire of an unprobated Will.

WHEN CAN AN UNPROBATED WILL BE CHALLENGED?

One of the important questions which often arises in relation to a probate is, until when can the probate petition be lodged? Thus, is there a maximum time limit after the death of the testator within which the executors must lodge the petition before the Courts? In Vasudev Daulatram Sadarangani vs. Sajni Prem Lalwani, AIR 1983 Bom 268, the Court dealt with the issue of whether Article 137 was applicable to applications for probate, letters of administration or succession certificate? The Court held that there was no warrant for the assumption that this right to apply accrued on the date of death of the deceased. It held that the right to apply may therefore accrue not necessarily within 3 years from the date of the deceased’s death but when it becomes necessary to apply, which may be any time after the death of the deceased, be it after several years. However, reasons for delay must be satisfactorily explained to the Court. Further, such an application was for the Court’s permission to perform a legal duty created by a Will or for recognition as a testamentary trustee and was a continuous right which could be exercised any time after the death of the deceased, as long as the right to do so survived. This view of the High Court was approved by the Supreme Court in Kunvarjeet Singh Khandpur vs. Kirandeep Kaur &Ors(2008) 8 SCC 463. However, the Supreme Court also held that the application for the grant of a probate or letters of Administration was covered by Article 137 of the Limitation Act.

In Krishna Kumar Sharma vs. Rajesh Kumar Sharma (2009) 11 SCC 537 the Supreme Court once again reiterated this view and also held that the right to apply for a probate was a continuous right.

The Bombay High Court had an occasion to consider this question in the case of Suresh Manilal Mehta vs. Varsha Bhadresh Joshi, 2017 (1) AIR Bom R 487. The Court held that the only consistent view was that the right to apply for a probate was a continuing right and the application must be made within three years of the time when the right to apply accrued. An executor named in the Will could apply for probate at any time so long as the right to do so survived.

The next issue that arises is whether there is a time limit within which the unprobated Will can now be challenged? The Law of Limitation provides for a three years for filing a suit. However, it is important to note that the three-year period would commence from the time of the petitioner coming to know of the Will and not from the date of the death of the testator.

EPILOGUE

Removing the mandatory filter of a probate for certain communities and cities is a good move. However, one needs to tread with a great deal of care and caution in case of an unprobated Will. The risk of passing off a fraudulent /forged Will without the scrutiny of a Court will now be higher and could lead to higher hazards for families. A living Trust could be a better solution in such cases since it constitutes a transfer inter vivos rather than one that takes place on death.

BCAJ Admin

Accounting Treatment Of Expenditure Incurred On Development Of A Pilot / Model Factory Under Ind As 16

The accounting treatment of expenditure incurred on pilot or model factories hinges on whether such costs are “directly attributable” under Ind AS 16 or constitute revenue expenditure. Unlike commercial facilities, pilot plants are often essential for technical validation, testing machinery configuration, and ensuring safety prior to full-scale production. Ind AS 16 (Paragraphs 16(b) and 17(e)) supports capitalising costs necessary to bring an asset to its intended condition, specifically including costs for testing whether the asset is functioning properly. While ICAI EAC opinions vary based on specific facts—rejecting capitalization if assets are already operable—global IFRS guidance clarifies that “functioning properly” denotes technical readiness rather than commercial optimization. Consequently, pilot-phase costs required to resolve technical uncertainties and establish operability should be capitalised, while subsequent costs for fine-tuning or scaling must be expensed once the asset is technically ready.

INTRODUCTION – THE CONCEPT OF A PILOT / MODEL FACILITY

In several capital-intensive and process-driven industries, entities often establish a pilot plant or model factory prior to commissioning a full-scale commercial production facility. Such pilot facilities are not intended for routine commercial exploitation. Rather, they serve as a technical and operational validation mechanism to test machinery configuration, process integration, design assumptions, safety parameters and operational stability.

The costs incurred during this pilot phase are often significant and raise an important accounting question, whether such expenditure represents directly attributable costs necessary to bring an asset to its intended operating condition, warranting capitalisation, or whether they constitute pre-operative or start-up expenses to be charged to profit and loss. This article analyses this issue under Ind AS 16, Property, Plant and Equipment, supported by ICAI Expert Advisory Committee (EAC) opinions and global IFRS interpretative discussions.

2. THE ACCOUNTING ISSUE

The central issue is whether expenditure incurred on the development and operation of a pilot or model factory, such as employee costs, utilities, consumables, trial-run materials, calibration expenses and technical testing costs meets the definition of “directly attributable costs” under Ind AS 16.

The complexity arises particularly where:

(i) The pilot phase is integral to determining whether the production assets can operate as intended;

(ii) The outcome of the pilot directly influences final plant design, configuration, or acceptance of machinery; and

(iii) Commercial production is not feasible or intended until the pilot phase is successfully completed.

3. RELEVANT ACCOUNTING LITERATURE

3.1 Ind AS 16 – Property, Plant and Equipment

Paragraph 7 of Ind AS 16 provides that the cost of an item of PPE shall be recognised as an asset if it is probable that future economic benefits will flow to the entity and the cost can be measured reliably.

Paragraph 16(b) provides that the cost of PPE includes “any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.”

Paragraph 17(e) specifically includes “costs of testing whether the asset is functioning properly” as directly attributable costs. Conversely, paragraph 19 excludes costs of opening a new facility, introducing a new product, or conducting business in a new location.

3.2 ICAI Expert Advisory Committee (EAC) Opinions

In addition to the December 2025 EAC Opinion on capitalisation of employee and trial costs incurred prior to opening of a restaurant outlet, the ICAI EAC has, in earlier opinions, articulated a broader principle relevant to cost incurred for bringing an asset to its present location and condition.

An EAC opinion published in The Chartered Accountant, July 2021 (Volume 70, No. 1) and compiled in the ICAI Compendium of EAC Opinions discusses the accounting treatment of costs incurred on a configuration design study for a plant / project, and directly addresses whether such costs can be capitalised as part of Property, Plant and Equipment under Ind AS 16.

Key points from the Opinion:

The Committee was asked whether expenditure incurred for a configuration design study could be capitalised as part of capital work-in-progress under Ind AS 16.
The EAC held that such costs should be capitalised only if they are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
The Opinion specifically notes that the costs must be directly attributable to construction and not research or held for some other purpose.
The Committee referenced the Ind AS 16 definitions of directly attributable costs (such as installation, assembly and testing whether the asset is functioning properly) when forming its view.

By contrast, in the December 2025 restaurant-industry opinion, the EAC rejected capitalisation primarily because the assets were already capable of operating and the trials were conducted to achieve consistency of output and customer experience rather than to establish asset operability. This distinction is critical when analysing pilot factories.

(All EAC opinions are advisory in nature and must be read in the context of the specific facts presented.)

3.3 Global IFRS Guidance – IASB and IFRIC Discussions

Although IAS 16 itself mirrors Ind AS 16, the IASB and IFRS Interpretations Committee (IFRIC) have, through agenda decisions and Board discussions, clarified the meaning of “testing whether an asset is functioning properly” and “ready for intended use.”

During IFRIC deliberations on IAS 16, the Committee observed that:

“Functioning properly” refers to technical and physical performance, not to the achievement of targeted production volumes, margins, or commercial optimisation.
Testing activities undertaken to determine whether an asset can operate in accordance with its design specifications form part of bringing the asset to its intended condition.

Further, in the context of the IAS 16 amendments on proceeds before intended use, the IASB reiterated that:

Only costs that are necessary to bring the asset to the condition required for its intended technical operation qualify for capitalisation.
The point at which an asset becomes “available for use” is a matter of substance and technical capability, not merely completion of installation or commencement of output.

While these discussions primarily addressed accounting for proceeds from items produced during testing, the conceptual emphasis remained firmly on technical readiness, reinforcing the boundary between capitalisable testing costs and non-capitalisable operational or optimisation costs.

Given that Ind AS 16 is broadly aligned in principle with IAS 16 , the same interpretative emphasis supports the application of Ind AS 16, particularly paragraph 16(b) (directly attributable costs to bring the asset to the condition necessary to operate as intended) and paragraph 17(e) (costs of testing whether the asset is functioning properly).

4. ANALYSIS – APPLICATION TO A PILOT / MODEL FACTORY

4.1 Pilot Factory as a Technical Necessity

A pilot or model factory is not established to introduce a product to the market or to commence commercial operations in a new location. Its primary objective is to determine whether the production assets, individually and collectively are capable of operating in the manner intended by management.

In many industries, the pilot phase:

Reveals design flaws requiring modification of equipment or layout;
Determines operating tolerances and safety parameters;
Establishes process sequencing and automation logic.

Until these activities are completed, the assets cannot be said to be technically ready for intended use, even if they are physically installed.

4.2 Alignment with Ind AS 16 and IFRS Interpretations

Applying paragraphs 16 and 17 of Ind AS 16, costs incurred during the pilot phase are capitalisable where they:

Are directly attributable to resolving technical uncertainties:
Are necessary to confirm that the asset functions in accordance with its intended design; and
Cease once the asset achieves technical operability, even if further optimisation is undertaken.

The IFRIC discussions reinforce that technical operability and not commercial readiness is the relevant threshold. Accordingly, pilot-phase costs that establish whether the plant can operate as designed fall squarely within the ambit of directly attributable costs.

4.3 Distinguishing from Non-Capitalisable Expenditure

Costs incurred after the pilot phase, such as:

Fine-tuning output quality to meet market preferences
Training production staff for efficiency,
Scaling output to targeted capacity levels,

would fall within paragraphs 19 and 20 of Ind AS 16 and must be expensed. However, this does not negate capitalisation of earlier pilot-phase costs that are essential to asset readiness.

5. CONCLUSION AND VIEW

On a combined reading of Ind AS 16, ICAI EAC opinions and IASB / IFRIC interpretative discussions, the following conclusions emerge:

Expenditure incurred on a pilot or model factory should be capitalised where such expenditure is demonstrably necessary to bring the related assets to the condition required for their intended technical operation.
The restrictive conclusions in certain EAC opinions are fact-specific and do not override the broader principle that technically indispensable testing and validation costs, where directly attributable, should be capitalised.
Global IFRS discussions strongly support a substance-based assessment of technical readiness, rather than a mechanical focus on commencement of output or passage of time.

Accordingly, where a pilot facility is an essential precursor to commissioning the final production plant, capitalisation of pilot-phase expenditure is both conceptually sound and fully aligned with Ind AS 16.

BCAJ Admin

Re-opening of assessment — Re-assessment in respect of transactions which were not mentioned in the show cause notice u/s. 148A — Explanation to section 147 — Re-assessment on a different transaction which was not intimated to the assessee in the show cause notice — Reassessment on issues which come to notice of the AO subsequently — AO can make assessment of such issues only after the re-assessment proceedings have commenced — Since the AO proceeded to issue notice u/s. 148 on an issue other than the issue mentioned in the show cause notice, re-opening held to be bad in law and the order u/s. 148A(3) and notice issued u/s. 148A quashed and set-aside.

60. Balmer Lawrie and Company Limited vs. UOI

2026 (1) TMI-628-(Cal.)

A. Y. 2019-20: Date of order 09/01/2026

Ss. 148 and 148A of ITA 1961

Re-opening of assessment — Re-assessment in respect of transactions which were not mentioned in the show cause notice u/s. 148A — Explanation to section 147 — Re-assessment on a different transaction which was not intimated to the assessee in the show cause notice — Reassessment on issues which come to notice of the AO subsequently — AO can make assessment of such issues only after the re-assessment proceedings have commenced — Since the AO proceeded to issue notice u/s. 148 on an issue other than the issue mentioned in the show cause notice, re-opening held to be bad in law and the order u/s. 148A(3) and notice issued u/s. 148A quashed and set-aside.

The assessee, a Government Company, was engaged in several businesses which the company conducts, one such business being to provide travel facilities, including air travel services, to its customers. In the course of its air travel services, the petitioner’s customers often seek air travel insurance, which is facilitated by the assessee through empanelled insurers, one such insurer being Reliance General Insurance (Reliance). Apart from this, the assessee also has hoardings and other spaces at its premises for putting up marketing banners or advertisement material, and the assessee uses the same for generating revenue.

During the F. Y. 2018-19, relevant to A. Y. 2019-20, the assessee received a sum of ₹1,10,33,116/- towards commission for insurance from Reliance and offered the same to tax, while filing its return of income for the said A. Y. on 31/10/2019. The return was processed u/s. 143(1) of the Income-tax Act,1961 and the return of income was accepted.

On 30/03/2025, a show cause u/s. 148A(1) of the Act was issued stating that there was information suggesting that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Along with the said notice, information was supplied which, inter alia, contained Case Related Information Detail, Dissemination Note and certain other documents, including Excel sheets, relevant chapters of appraisal report pertaining to the search operation conducted in respect of Shri Ajay Mehta and Others and relevant statements recorded during such search operation. By the said notice, the petitioner was asked to show cause as to why a notice u/s. 148 of the Act should not be issued.

In response to the said notice, the assessee furnished its reply and submitted various details, such as details of payments received from Reliance, including UTR numbers and sample policy issued to customers and requested for dropping the reassessment proceedings.

Upon receipt of the said reply, the revenue authorities issued another notice dated 14/06/2025 u/s. 148A(1) of the Act. The annexure to the said notice referred to the earlier notice dated 30/03/2025 issued u/s. 148A(1) of the Act and indicated that the issuer of the fresh notice had taken over charge of Circle 5(1), Kolkata, on 16/05/2025 and had considered the submissions made by the assessee on 09/04/2025. Further, the assessee was requested to furnish further submission/document, if any, on or before 20/06/2025. The said notice was followed by another notice dated 16/06/2025 again u/s. 148A(1) of the Act, along with an annexure, whereby the assessee was informed that the reply dated 09/04/2025 did not correlate with the notice and information shared with the assessee and that the information was therefore once again being shared with the petitioner.

The assessee furnished its fresh reply to the said show cause notice on 20/06/2025, thereby objecting to the impugned proceedings for reassessment on similar lines as done in its earlier reply and prayed to drop the reassessment proceedings.

Thereafter, an order u/s. 148A(3) of the Act was passed by the AO on 28/06/2025, holding the case to be fit for issuance of notice u/s. 148 of the Act. In the said order, the Assessing Officer referred to the transactions of the assessee with one Prudent Insurance Brokers (Prudent) and held that income had escaped assessment insofar as transactions with Prudent were concerned, as there was an unaccounted receipt. Immediately after the said order, notice u/s 148 of the Act was issued on 30/06/2025.

Against the said order and notice, the assessee filed a writ petition before the High Court. The Calcutta High Court allowed the petition and held as follows:

“i) The impugned order passed u/s. 148A(3) of the said Act of 1961, reveals that the relevant Assessing Officer has proceeded to reopen the petitioner’s case on a ground that did not find mention in the notice to show cause issued u/s. 148A(1) of the said Act of 1961. In the notice to show cause issued u/s. 148A(1) of the said Act of 1961, the Assessing Officer has flagged the transactions between the petitioner and Reliance, in the order u/s. 148A(3) of the said Act of 1961, the Assessing Officer has changed the basis of reopening from the transaction between the petitioner and Reliance to transaction between the petitioner and Prudent. If the explanation sought from the petitioner by the notice issued u/s. 148A(1) of the said Act of 1961 was in respect of its transactions with Reliance, then the order u/s. 148A(3) of the said Act of 1961 could not have rolled on a different turf. It is very well settled now that an order cannot travel beyond the confines of the notice to show cause.

ii) By proceeding on a ground different than the one urged in the notice u/s. 148A(1) of the said Act of 1961, the Assessing Officer has indirectly accepted the petitioner’s contentions in response to the said notice. That being the position, the defence of the petitioner against reopening of proceedings for assessment of its income could not have been trumped by the Assessing Officer by relying on a ground that was never put to the petitioner.

iii) Information provided to the petitioner and relied on by the Assessing Officer does not suggest that the petitioner’s income has in any manner escaped assessment at least on the basis of the material presently on record. The legal principles established by the Hon’ble Supreme Court in the case of Lakhmani Mewal Das (supra) still remain foundational to the income tax jurisprudence. The requirement of “rational connection” which in terms of the said judgment “postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer” cannot be given a go-by. Thus direct nexus or live link between the information and the Income Tax Officer’s opinion that income has escaped assessment will have to be established. Indeed at the stage of issuance of notice u/s. 148 the Assessing Officer is not required to conclusively prove that income has escaped assessment but then the information must suggest that there is income has escaped assessment. In the case at hand there is no such suggestion at all.

iv) It must be kept in mind that reopening of assessment is a serious action and it must be done strictly in accordance with law. In the case at hand at least two conditions justifying invocation of writ powers stand satisfied – arbitrariness in changing the ground of reopening indicated in the show cause notice and consequential violation of principles of natural justice in passing an order against the petitioner based on a ground which the petitioner had no opportunity to deal with.

v) A meaningful reading of the provisions of Section 147 of the Act would make it clear that the same would get activated only after completing the drill in Section 148 and 148A (where applicable) and not before that. The power of the Assessing Officer to assess or reassess income in respect of issues which come to his notice subsequently can be exercised only after the assessment or reassessment proceedings have commenced. The emboldened and underscored portion of the Explanation to Section 147 of the said Act of 1961 makes the said aspect very clear.

vi) For all the reasons aforesaid, the order impugned dated June 28, 2025 passed u/s. 148A(3) of the said Act of 1961 and the consequential reopening notice dated June 30, 2025 issued u/s. 148 of the said Act of 1961 in respect of A. Y. 2019-20 fail to withstand judicial scrutiny. The same are set aside.”

BCAJ Admin

Re-opening of assessment — Findings given in Suspicious Transaction Report (STR) — No material or evidence to suggest escapement of income — No infirmity in documentary evidence furnished by the assessee — Re-opening of assessment merely on the basis of STR report is bad-in-law.

59. Vivaansh Eductech (P.) Ltd. vs. ACIT

(2025) 181 taxmann.com 873 (Guj.)

A. Y. 2021-22: Date of order 16/12/2025

Ss. 147, 148 and 148A of ITA 1961

Re-opening of assessment — Findings given in Suspicious Transaction Report (STR) — No material or evidence to suggest escapement of income — No infirmity in documentary evidence furnished by the assessee — Re-opening of assessment merely on the basis of STR report is bad-in-law.

A notice u/s. 148A(1) of the Income-tax Act, 1961, dated 31/03/2025, was issued upon the assessee for AY 2021-22, requiring the assessee to show cause why the case of the assessee should not be re-opened u/s. 148 of the Act. In response to the notice, the assessee furnished a detailed reply objecting to the reopening of the assessment. Thereafter, vide order dated 19/06/2025, it was concluded that the income of ₹12,16,51,000 had escaped assessment and that the case of the assessee was fit for re-opening of assessment.

The assessee filed a writ petition and challenged the said order. The Gujarat High Court allowed the petition of the assessee and held as follows:

“i) A perusal of the impugned notice as well as the impugned order reveals that the respondent has formed such an opinion primarily on the allegation that the petitioner had entered into “circuitous” transactions with related parties. However, we do not find any material or evidence worth the name on record to suggest that there was any escapement of income on account of such transactions, which would invite the rigours of Section 148 of the Act. No finding has been recorded by the respondent-authorities with regard to any exchange of cash or any return of money after the execution of the transactions in question.

ii) The assessment has been re-opened merely on the basis of the findings emerging from the STR (Suspicious Transaction Report), without duly considering the submissions and explanations tendered by the petitioner. We also find that the petitioner had fully disclosed the income and had justified the same in the reply filed before the authorities

iii) The respondent has neither doubted the documentary evidence produced by the petitioner nor pointed out any infirmity in the material furnished in relation to the transactions reflected in the petitioner’s bank account. The said documentary evidence has neither been dealt with nor even considered by the respondent while passing the impugned order.

iv) In such circumstances, the impugned Notice dated 31/03/2025 as well as the impugned Order dated 19/06/2025 cannot be sustained and deserve to be quashed and set aside.”

BCAJ Admin

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

58. Shiv Kumar Jaiswal vs. The State of UP

2026 (1) TMI 371 (All.)

Date of order 05/01/2026

S. 276C(1) and 277 of ITA 1961

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

The assessee and his wife jointly owned a hotel and gifted the said hotel, out of love and affection, to one Mr. Raj Kumar, who was one of their family friend, vide a registered gift deed. Subsequently, the said Mr. Raj Kumar gifted ₹75 lakhs to the minor son of the assessee through a registered gift deed. In the assessment, the assessee voluntarily surrendered the capital gains and paid tax thereon so as to avoid further litigation and buy peace on the condition that no penalty proceedings be initiated u/s. 271(1)(c) of the Income-tax Act, 1961, in respect of the aforesaid surrender of income.

However, the Assessing Officer subsequently confirmed the levy of penalty u/s. 271(1)(c) of the Act by treating the capital gains as the concealed income. On appeal before the CIT(A), the appeal of the assessee was allowed, and the penalty was deleted. On the Department’s appeal before the Tribunal, the appeal was dismissed, and the issue was decided in favour of the assessee. On further appeal before the High Court, the High Court dismissed the appeal of the Department.

Despite the pendency of the appeal before the CIT(A), the Assessing Officer applied for sanction for criminal prosecution u/s. 276C(1) and 277 of the Act before the competent authority. The competent authority granted sanction to file a complaint against the assessee, and the complaint was filed.

Against this, the assessee filed a Criminal Writ Petition before the High Court seeking quashing of proceedings pending before the court of Special Chief Judicial Magistrate (Economic Offence), Lucknow and the summoning order passed by the Special Chief Judicial Magistrate (Custom), Lucknow. The Allahabad High Court allowed the petition and held as follows:

“i) The subject matter of penalty is the same by which, criminal proceedings have been launched. Once the Tribunal has set aside the penalty order, at this juncture, it would not be appropriate to allow criminal proceedings against the applicant. The first appellate Tribunal, the second appellate Tribunal and the High Court have not interfered in the order of penalty and the department could not succeed. Thus, the fact has come on record that the order of penalty does not exist.

ii) The Supreme Court in the case of G.L Didwania AIROnline 1993 SC 421 has considered the aspect of penalty and launching of criminal proceedings. In the said case, the Supreme Court has observed that in the order of the Appellate Tribunal, those conclusions reached by the assessing authority have been set aside and consequently, the very basis of the complaint is knocked out and, therefore, in the interest of justice, proceedings ought to have been quashed by the High Court.

iii) In the case of K.C. Builders AIROnline 2004 SC 638 wherein the Supreme Court has observed that the Assistant Commissioner of Income Tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In the opinion of the Supreme Court, if the trial is allowed to proceed further after the order of the Tribunal and consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.

iv) In view of the aforesaid factual and legal position, the application is allowed and the entire as well as all consequential proceedings of complaint pending before the court of Special Chief Judicial Magistrate (Economic Offence), Lucknow, are quashed.”

BCAJ Admin

Non-resident — Income deemed to accrue or arise in India — Amounts paid by Indian affiliates on account of marketing, distribution marketing and frequency marketing programme treated by AO as royalty — American company receiving payments from Indian affiliate for marketing and reservation services in hotel — AO held receipts taxable as royalty under I T Act and under DTAA and alternatively as fees for included services u/s. 9(1)(vii) and article 12(4)(a) and (b) of DTAA between India and US — DRP rejecting assessee’s objections holding that mere changing of business model did not change nature of receipts chargeable to tax — High Court held that the receipts neither taxable as royalty nor fees for technical services — Not taxable under DTAA as fees for included services

57. CIT(International Taxation) vs. Six Continents Hotels Inc.: (2025) 480 ITR 14 (Del): 2025 SCC OnLine Del 2744

A. Y. 2020-21: Date of order 17/04/2025

Ss. 9(1)(vii), 143(3) and 144C of ITA 1961: Art. 12(4)(a) and (b) of DTAA between India and the USA

Non-resident — Income deemed to accrue or arise in India — Amounts paid by Indian affiliates on account of marketing, distribution marketing and frequency marketing programme treated by AO as royalty — American company receiving payments from Indian affiliate for marketing and reservation services in hotel — AO held receipts taxable as royalty under I T Act and under DTAA and alternatively as fees for included services u/s. 9(1)(vii) and article 12(4)(a) and (b) of DTAA between India and US — DRP rejecting assessee’s objections holding that mere changing of business model did not change nature of receipts chargeable to tax — High Court held that the receipts neither taxable as royalty nor fees for technical services — Not taxable under DTAA as fees for included services.

The assessee was a non-resident, entitled to the beneficial provisions of the DTAA between India and the USA. During the financial year 2019-2020, the assessee had received a sum of ₹28,11,42,298 which comprised of marketing contribution, priority club receipts and reservation contribution aggregating to ₹21,22,52,199; and the Holidex fees amounting to ₹6,88,90,099 from Indian affiliate being InterContinental Hotels Group (India) Private Limited (IHG India) towards the centralised marketing and reservation related services. The assessee filed its revised return of income for the A. Y. 2020-2021 on March 31, 2021, declaring a total income of ₹1,05,20,740, which was picked up for scrutiny.

The Assessing Officer passed a draft assessment order dated September 15, 2022. The Assessing Officer held that the amounts paid by the Indian hotels for marketing contribution and reservation fees were taxable as royalty under the Act as well as under the India-USA Double Taxation Avoidance Agreement (DTAA) ((1991) 187 ITR (Stat) 102). In the alternative, the Assessing Officer held that the same would be taxable as fees for included services under section 9(1)(vii) of the Act as well as under article 12(4)(a) and article 12(4)(b) of the DTAA, the Assessing Officer determined the total taxable income at ₹39,19,56,083 after making an addition of ₹28,11,42,298 on account of marketing, distribution marketing and frequency marketing programme along with an addition of ₹10,02,93,045 on account of fees for included services/fees for technical services held as chargeable to tax under the Act as well as under the provisions of the DTAA.

The assessee filed objections to the said decision before the Dispute Resolution Panel (DRP). The DRP did not accept the assessee’s contentions that the receipts were not in the nature of royalty and concluded that the said fees were in connection with the grant of a licence for the brand for which separate fees was also charged. Thereafter, the Assessing Officer passed the final assessment order dated June 27, 2023.

The assessee carried the matter in appeal before the Tribunal. The Tribunal allowed the said appeal following the decision in the assessee’s case in the earlier assessment years. To be noted that the assessee’s contention that the receipts, as mentioned above, are not taxable by virtue of the DTAA has been sustained for the past fifteen assessment years.

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

“i) The principal question that is required to be addressed is whether the payments received by the assessee on account of providing certain centralised services including marketing services and reservation services can be construed as fees for technical services as defined under section 9(1)(vii) of the Act or fees for included services as covered under article 12(4)(a) of the DTAA. Admittedly, the said issue is covered in favour of the assessee and against the Revenue by several decisions of this court including DIT vs. Sheraton International Inc. [(2009) 313 ITR 267 (Delhi); 2009 SCC OnLine Del 4231.], CIT (International Taxation) vs. Sheraton International LLC [2023:DHC:4261-DB.], CIT (International Taxation) vs. Westin Hotel Management LP [ I.T.A. No. 213 of 2024 decided on April 10, 2024 (Delhi).] and CIT (International Taxation) vs. Shangri-La International Hotel Management Pte. Ltd. [ I.T.A. No. 532 of 2023 decided on September 18, 2023 (Delhi).]

ii) In the case of the CIT (International Taxation) vs. Radisson Hotel Interaction Incorporated [(2023) 454 ITR 816 (Delhi); 2022 SCC OnLine Del 3713; 2022: DHC: 004791.], this court had referred to the earlier decisions and dismissed the case, holding that no substantial questions of law arise for consideration by this court. The present appeal must bear the same fate.

iii) In view of the above, no substantial questions of law arise for consideration before this court. Thus, the appeal is dismissed.”

BCAJ Admin

Section 144B – faceless assessment – breach of principles of natural justice – opportunity of personal hearing through video conference – order was passed without providing details on the basis of which the SCN was issued, pointing out the difference between the purchase value and the import invoice value.

22. JSW MINERALS TRADING PRIVATE LIMITED vs. ASSESSMENT UNIT, INCOME TAX DEPARTMENT, NATIONAL FACELESS ASSESSMENT CENTRE & ORS.

[WRIT PETITION NO. 3683 OF 2023 (BOMBAY) DATED: JANUARY 13, 2026]. Assessment Year 2020-21

Section 144B – faceless assessment – breach of principles of natural justice – opportunity of personal hearing through video conference – order was passed without providing details on the basis of which the SCN was issued, pointing out the difference between the purchase value and the import invoice value.

The Petitioner filed its return of income for Assessment Year 2020-21 on 16th January 2021, declaring its total income as ₹Nil (having incurred a loss of ₹37,08,74,848/). The case of the Petitioner was picked up for scrutiny under the faceless assessment provisions set out in Section 144B of the Act.

During the year under consideration, the Petitioner had entered into various international transactions, including the ‘purchase of finished goods’ amounting to ₹1041,48,67,611/- with its associated enterprises, namely JSW International Trade Corp Private Limited. The case of the Petitioner was referred to the Transfer Pricing officer, to determine the arm’s length price with reference to the said international transactions. The TPO vide its order dated 12th May 2023, passed under Section 92CA(3) of the Act, accepted that the international transactions as reported by the Petitioner in Form 3CEB are at an arm’s length price.

Notice under Section 142(1) was issued by Respondent No. 1 on various issues, including the following:

“7. As per the ITR, purchases shown by you is ₹1,218,03,15,231/-. However, as per the data with us, the imports made by you is ₹1,520,29,89,300/-during the year. Reconcile the difference along with necessary documentary evidences”.

The said notice was duly dealt with by the Petitioner, who requested details/data on the basis of which the aforesaid difference in import purchases had been alleged/computed by Respondent No.1. The Petitioner also stated that it could not find any discrepancies as per the audited books of accounts and the return filed. The Petitioner filed another reply, resubmitting the details filed earlier, including a request for the details/data on the basis of which the aforesaid difference in purchases had been computed by Respondent No. 1. It once again reiterated that it could not find any discrepancies as per the audited books of accounts and the return filed.

Respondent No. 1 thereafter issued a show cause notice proposing interalia an addition of ₹302,26,74,069/- under Section 69A of the Act (Unexplained Money) based on the difference between the invoice value of imports as per the data received from CBEC (₹1520,29,89,300/-) and the purchase value shown in the ROI (₹1218,03,15,231/-).

The Petitioner objected to the proposed variations and again requested inter alia that the breakup of the alleged difference in purchase value of ₹302,26,74,069/- be provided The Petitioner also submitted reconciliation (to the best of its ability, with the limited data available) for purchases worth ₹270,94,21,668/- out of the alleged difference of ₹302,26,74,069/- as stated by Respondent No. 1.

Instead of providing the breakup of the purchase value as repeatedly requested by the Petitioner , without providing an opportunity of personal hearing through video conference, and without considering the Petitioner’s request for additional time, Respondent No. 1 passed the impugned assessment order dated 29th September 2023 under Section 143(3) read with Section 144B, and, interalia made an addition of ₹302,26,74,069/- under Section 69 (Unexplained Investment) – notably different from the show cause notice, which proposed an addition under Section 69A (Unexplained Money) on account of difference between purchase values as shown by the Petitioner and the invoice value of imports as per import-export data received from the CBEC.
The Petitioner challenged the said assessment order primarily on the ground that it had requested full details of the import-export data allegedly received by / available to Respondent No.1 from the CBEC, which was in the exclusive knowledge and possession of Respondent No. 1, and which formed the sole basis for the addition of ₹302,26,74,069/-, but the same was never provided. The Petitioner pointed out that it would be impossible for it to explain/reconcile the alleged variation in the value of imports without full details of the invoice value of imports as per the CBEC data. Respondent No. 1 also failed to consider that partial reconciliation was provided by the Petitioner.

The Petitioner argued that though The TPO accepted the purchase value in the transfer pricing assessment, however, Respondent No. 1 denied the purchase values in the assessment.

The Court held that there was a violation of the principles of natural justice, as in the notice dated 18th November 2021, Respondent No. 1 required the Petitioner to reconcile the stated difference between purchases shown by the Petitioner in its return of ₹1218,03,15,231/- and the “data with us” ₹1520,29,89,300/-. Other than this aggregate figure, no details were set out in the notice.

The Hon. Court observed that it was impossible for the Petitioner to reconcile and/or explain the alleged difference between the figures of imports as per the ITR/accounts of the Petitioner and the data of the CBEC, in the absence of complete details of the break-up of the CBEC data being furnished to the Petitioner. Further, the impugned order clearly indicates that Respondent No. 1 proceeded to make an addition without providing or even referring to the breakup or details of the difference in the alleged purchase value of imports of the assessee/Petitioner. In the transfer pricing proceedings, these very purchases were scrutinised and held to be at arm’s length price.

The Hon. Court held that there has been a breach of principles of natural justice and that, on this count alone, the entire addition made and the assessment proceedings are vitiated. Respondent No. 1 simply relied upon the information provided by the CBEC on the assumption that the figure mentioned by the CBEC was the actual figure of imports required to shown by the Petitioner in its ITR, notwithstanding that it had not disclosed the details of any import bills and that no break-up value of the import purchases was given, and further by not even providing the information as received from the CBEC to the Petitioner, before passing the assessment order under Section 143(3) read with Section 144B of the Act.

In view of the above , the Impugned Order and the Impugned Demand Notice were unsustainable and has been passed in violation of the principles of natural justice. The Court further observed that Respondent No. 1 must disclose complete details of any material it is relying upon to hold that additional purchases have been made over and above the disclosed purchases, and the legal basis to make such an addition. In the present case, the only basis for the addition is the aggregate purchase figures communicated by the CBEC, which did not disclose any particulars of import bills or details of additional purchases made. Such general information, without details, without a proper opportunity to set out a reconciliation, and without any supporting evidence, could not constitute valid material for the purpose of making an addition under the Act.

The Hon. Court remanded the matter back to the file of Respondent No.1 to issue a fresh Show Cause Notice to the Petitioner with respect to the addition of ₹302,26,74,069/-, clearly bringing out the provision(s) under which the addition was proposed, providing a the detailed break-up of the import value of purchases including a copy of the information as received from CBEC, and grant sufficient time of at least 15 working days to file a reply to the notice.

BCAJ Admin

Direct Tax Vivad se Vishwas Act 2020 – grant credit for taxes paid and refund/release of cash seized, in the computation of the Petitioner’s liability / refund.

21. SUNITA SAMIR SAO vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX -20 & ORS.

[WRIT PETITION NO. 1479 OF 2025 (BOMBAY) DATED: JANUARY 14, 2026]

Direct Tax Vivad se Vishwas Act 2020 – grant credit for taxes paid and refund/release of cash seized, in the computation of the Petitioner’s liability / refund.

The Petitioner is an individual and the ‘Legal Representative’ of her father, one Late Shri Bhalchandra Bhaskar Thakoor. The Petitioner’s deceased father was subjected to a ‘search & seizure’ action under section 158BC read with Section 132 of the Act’ in the year 1997, along with some of his family members. In the course of the search action, some cash was seized, along with certain
jewellery, from the persons put to search. In the case of the Petitioner (her deceased father), cash of ₹11,50,000/- was seized and an assessment was made by passing an Assessment Order under Section 158BC of the Act.

The said block assessment was carried out in appeal before the Appellate Tribunal. Against the Order of the ITAT, the Petitioner (the deceased father) filed an Appeal before the High Court, and the said Appeal, being ITXA/31/2006, was admitted. Similarly, penalty under Section 158BFA(2) of the Act was also levied and confirmed by the ITAT, against which an Appeal was filed before the Court, being ITXA/456/2015. The said Appeal against the levy of penalty was also admitted.

In the meantime, the then Assessing officer issued Notice dated 20th October 1999 to the Petitioner, stating that the cash seized of ₹11,50,000/- was contemplated to be adjusted against the demand arising out of the said assessment and called upon the Petitioner (the Petitioner’s deceased father) to give his consent for the same. The Petitioner (the deceased father), vide letter dated 1st November 1999, accorded consent for adjusting the said cash against the demand, during the pendency of the appeal against the assessment.

During the pendency of the appeals, the Petitioner paid some amount of taxes ₹7,35,049/-, arising out of the assessment, by way of challans, which were independent of the cash seized during the search action. Thereafter, the Petitioner availed of the scheme under the DTVSV Act, and also withdrew her appeals filed before the Court, in pursuance of her application under the DTVSV scheme. The Petitioner filed the necessary forms under the DTVSV Scheme (Form 1 & 2) and claimed credit for taxes paid by way of challans as well as credit for the cash that was seized and adjusted against the demand. In Form No.3 dated 27th February 2021, issued by Respondent No.1 under the said DTVSV scheme, credit was neither given for taxes paid by way of challans nor for the cash seized during the search.

The Petitioner followed/pursued the issues with the Respondents and pointed out the errors in Form-3, including non-granting of credit for cash seized of ₹11,50,000/- and raised her grievances. Having received no response from the Respondents, the Petitioner approached the Hon. Court, (being WP/836/2022), raising grievances and contending that she was entitled to the credit of the cash seized during the search action. The Court, vide its order dated 3rd March 2022, was pleased to set aside Form No.3 and directed the Respondents to grant a personal hearing to the Petitioners and also consider the Petitioner’s claim for credit of the cash seized.

The Court noted that since other family members of the Petitioner were also subjected to the search action, cash was also seized in their respective cases. The said family members had also availed of the DTVSV scheme, and the issue of non-granting of credit for cash seized had also cropped up in their cases (being WP/3850/2021 and WP/3849/2021).

The said family members had filed similar Petitions before the Hon Court, and the Court had directed the Respondent-Department to consider the claim of credit for the cash seized. The Department has released the cash seized along with interest in case of the said family members, by the Respondents.

The Respondents contended that the records pertaining to the seized cash were unavailable and, consequently, the requisite credit could not be extended. The Petitioner, in the alternative, sought release of the seized cash in accordance with Section 132B of the Act. The Hon Court noted that the Respondent-Department had adopted an identical stand in the case of a particular family member (Vasant Thakoor WP(L)/33180/2023) of the Petitioner, who was also subjected to the search action, and cash was seized in his case. The said family member had also availed of the DTVSV scheme, and the issue of non-granting of credit for cash seized had also cropped up in his case. The said family member (Shri Vasant Thakoor- WP(L)/33180/2023) had filed a similar petition before the Court wherein the Respondent-Department had conceded that cash had to be released with accumulated interest and credit had to be allowed for payments made through challans.

The Court noted that the, parties agree that the present case is identical to the facts in petition WP(L)/33180/2023.

The Hon Court observed that the Respondents have filed their reply dated 15th December 2025, wherein the fact of seizure of cash by the Department has been accepted. The Respondents state that the record of cash that was seized, was supposed to be with some other ward/circle, and there was no confirmation forthcoming from the said ward/circle despite making efforts towards the same, and hence the record/accounting treatment of the cash seized could not be ascertained.

The Hon Court, allowing the petition, directed the Respondents/Department release the cash seized and refund the cash along with accumulated interest, within 30 days from the date of order, on similar lines as in Writ Petition No. 33180/2023. The Hon. Court noted that the Respondents had called for an Indemnity Bond from the Petitioner, which the Petitioner has filed with the Respondents’ office.

Accordingly, the Respondents were directed to issue a refund of cash seized of ₹11,50,000/-, along with accumulated interest, and the CPC was further directed to issue a refund arising out of Form No.5 dated 11th December 2025, which was towards taxes paid by way of challans by the Petitioner, within 30 days.

BCAJ Admin

Real Estate Investment Trusts

A Real Estate Investment Trust (REIT) is a business trust that owns or finances income-producing real estate, such as commercial offices or malls, functioning similarly to a mutual fund. Investors purchase units, and the capital is used to invest in properties directly or through Special Purpose Vehicles (SPVs), with generated rent distributed as dividends. Key parties include the sponsor, manager, trustee, and unit holders. While established globally since 1960, India’s REIT market is transitioning from a “nascent” to a “growth” stage. As of 2025, India has five listed REITs covering 175 million square feet of assets. A significant regulatory shift occurred in September 2025 when SEBI reclassified REITs as equity instruments, removing previous allocation caps and enabling wider institutional participation. REITs provide developers with liquidity and an “asset-light” model, while offering investors stable income, high-yield returns (6%–10%), and transparency. Taxation has also evolved; the 2024 Union Budget aligned REITs with equity funds, setting capital gains tax at 12.5% for long-term and 20% for short-term holdings. Additionally, “atypical” distributions, such as debt repayments, now reduce the cost of acquisition or are taxed as “income from other sources” if they exceed the original issue price.

OVERVIEW – WHAT ARE REITs

A REIT is a business trust that owns or finances income-producing real estate which may be in the form of a commercial or any other rent generating property (malls, residential projects, etc).

The basic model of REIT can be considered as similar to a mutual fund wherein the investors shall buy REIT units based on an offer document and the REIT shall then list on the stock exchange. The money so raised would be used by the REIT either to buy into Special Purpose Vehicles (SPVs) which invest in property or the REIT may directly invest in real estate projects.

The rent income generated from the properties shall be distributed as dividend to the REIT unit holder. REITs would be traded on a stock exchange and just like shares, REIT units may trade at a discount or premium to the company’s intrinsic value.

As can be seen from the above, a REIT shall consist of a Sponsor, Manager, Trustee, SPV and unit holder which are defined in the SEBI regulations for REITs as “parties to the REIT”. Additionally, a REIT shall have a valuer and an auditor. The meaning of the aforementioned terms is summarized hereinbelow:

Sponsor(s): Who set(s) up the REIT and is designated as such at the time of application to SEBI. Sponsor is mandated to hold minimum prescribed stake of the REIT units.
Manager : One who holds the operational responsibility of the REIT
Trustee : Holds the assets of the REIT on behalf of the investor
Unit holders: Investors (including Sponsors) who hold REIT units. Unit holders could be either resident or nonresident unit holders.
Special Purpose Vehicle [‘SPV’]: Holds the real estate properties and is engaged in incidental activities. SPV is held by REIT directly or through a Holding Company
Real Estate property: Real estate properties that a REIT is permitted to hold

Global Scenario

Globally, REITs have been in existence since decades. The Dutch regime was the first REIT look alike regime in the Euro region. Further, the United States boasts of the oldest formal REIT regime, having been enacted in 1960 and effective from 1961.

Over the last decade, REITs have developed into a mature market world over, providing easy access to high-quality assets and enabling a stable return on investments.

The number of countries offering REITs as an investment vehicle has increased manifold. Several countries worldwide such as USA, UK, Australia, Malysia, Hong Kong, Singapore, Japan and Germany are said to have established REIT markets. With REIT’s introduction in the United States in 1960, it can be said to have a ‘mature’ REITs market.

India Story

India can be considered as a late entrant in the REIT market with its introduction by the SEBI in 2014. when Securities and Exchange Board of India (SEBI) enacted Real Estate Investment Trusts Regulations, 2014 (REIT Regulations) on 26th September 2014 and the first REIT being listed in India in March 2019.However, thereafter the REIT theme in India has picked up with multiple listings like Embassy REIT, Mindspace REIT, Brookfield India REIT, Nexus Select Trust and Knowledge Realty Trust between 2019 to 2025.

India’s Real Estate Investment Trust (REIT) market is steadily progressing from a “Nascent” to “Growth” stage, with close to 175 million sq ft of real estate assets including office and retail spaces already getting listed through the above mentioned five listed REITs. Additionally, about 371 million sq ft of office assets, accounting for about 46% of the existing Grade A stock, can potentially come under future REITs. Overall, Indian REITs continue to pick pace, especially in the office sector, supported by new listings, broadening of occupier base and growing institutionalization in the segment.

Below is a chart depicting the Indian REIT performance against global peers¹

1.Source -0020CREDAI and Anarock report on Indian REITs – September 2025

EASE OF STRUCTURAL NORMS OVER A PERIOD OF TIME

In the beginning, REITs were only permitted to raise funds via ECBs which had many end use restrictions. The Indian real estate sector had for long demanded opening up multiple routes for investment in REITs.

This demand from the industry finally saw the light of the day in September 2017 when the SEBI allowed REITs to raise funds via debt securities. Besides this, SEBI also allowed strategic investors such as banks, NBFCs, international financial institutions to participate in the public issue of REITs. This was followed by many further relaxations by the regulator including the latest relaxation in Union budget 2021-22. Per the said relaxation through an amendment in FPI regulations, FPIs were enabled to subscribe to debt instruments issued by a REIT. Earlier, FPIs were allowed to invest in non-convertible debentures (NCDs) issued only by a corporate entity.

Recently, in September 2025, SEBI reclassified REITs as equity instruments marking a significant shift in India’s capital markets. Earlier treated as hybrids, REITs were constrained by allocation caps that limited mutual fund and institutional participation. The move to equity classification enabled wider participation, paving the way for index inclusion, and providing institutions with the clarity to allocate at scale

These steps taken by SEBI broadened the fund raising options for REITs. As a result, fund raising in REITs has increased substantially, from ₹950 crores in FY 2021-22 to ₹4,727 crore in FY 2024-25 and ₹5,800 crores between April 2025 to August 2025². It is expected that further fresh investments in REITs shall take place which will not only provide ample real estate investment opportunities to developers but also help boost confidence of retail investors.

2. Source : Fund raising by REITs and InvITs https://www.sebi.gov.in/statistics/reitsinvits/funds-raised-reits-invits.htm

ADVANTAGES OF REITs

REITs allow tremendous advantages to multiple stakeholders and hence have been recently gaining popularity in the Indian markets. Some of the advantages to the stakeholders are captured below:

For real estate developers :

Business model: Transformation of business from a asset heavy model to a asset light model
Liquidity: Access to alternate fund raising mechanisms and resultant liquidity to carry out projects

For investors / unit holders:

Easy participation by small retail investors : Opportunity to invest in portfolios of large-scale properties the same way they invest in listed stocks. Low liquidity requirement compared to a direct investment in real estate
Income stability : Regular income in the hands of unit holders through SEBI mandated distribution criteria
High yield returns and capital appreciation : Returns in the range of 7% – 10% which is higher than the deposit rates coupled with long term capital appreciation
Hedge against inflation : REITs income primarily include lease rentals from tenants, the terms of which tend to protect REIT’s margins from effects of inflation
Transparent structure : REIT industry is highly transparent due to high scrutiny of publicly traded firm and mandatory disclosure requirements

For the macro economy

Better corporate governance : Improvement in transparency and professionalism in a highly unorganized sector
Employment opportunities : Direct and indirect employment opportunities through the following:

– Project management operations
– Fund management services
– Assurance services
– Valuation and trusteeship services

Considering the above it could be construed that the REIT market in India has significant scope for an upper thrust and we might see a lot of new REIT listings as well as additional funding in the Indian REIT market.

TAXATION ASPECTS OF A REIT

On the tax front, considering the relevance of the role played by taxation, in the case of Real Estate Investment Trusts (‘REITs’), a special tax regime was announced vide Finance Act 2014, even prior to the introduction of the REIT Regulations. There have been continuous attempts to provide for additional concessions in the subsequent finance budget announcements to make REIT structure more acceptable from a tax perspective.

EVOLUTION OF THE TAX LAW ON REITs IN INDIA

Before 2020: Tax-free for investors

When REITs were first introduced in India, the tax setup was pretty favourable for investors. The dividends received by unitholders from the REITs were totally tax-free, thanks to the pass-through status. It meant that Special Purpose Vehicles (SPVs) had already paid corporate tax, avoiding double taxation.

After 2020: Dividend taxes for unitholders comes into play

The Finance Act of 2020 introduced amendments to the Income Tax Act, 1961, where the REIT income received by unitholders becomes taxable, if SPV opts for concessional tax regime under Section 115BAA of the Act. Resultantly, dividends distributed by SPVs to REITs (and subsequently to unitholders) are added to the unitholder’s income and taxed according to their individual slab rates.

Year 2023 – Unitholder’s taxability of certain atypical distributions introduced

The Finance Act of 2023 introduced amendments to Section 48 and Section 56(2)(xii) to address tax avoidance involving certain REIT distributions. The non-income REIT distributions (capital repayments or amortization of SPV level debt) were previously not taxed in the hands of unitholders. Under the new provision, such distributions are now taxable as “Income from Other Sources” in the hands of unitholders as per the prescribed mechanism in the said section. We have discussed this in detail in the ensuing paragraphs.

Year 2024 – Bringing the taxability at par with equity oriented funds

The Union Budget 2024 aligned REITs with equity funds, changing its taxation aspect. The tax rates and holding period were revised in the said budget. Unitholders were now taxed @ 12.5% / 20% [Long-term / Short-Term] on the capital gains earned on sale of REITs depending on the holding period [i.e. more than 12 months for long-term]. The holding period prior to the said budget amendment was 36 months and tax rate was 10% / 15%

Year 2025 – Filling-in the loopholes

Prior to Budget 2025, income earned under Sec. 111A [Short-term Capital Gain tax] and Sec. 112 [Long-Term Capital Gain tax] was taxed as per the tax rates prescribed therein and all other income was taxed at Maximum Marginal Rate. However, the reference of income under the head ‘capital gains’, under section 112A [Long-Term Capital Gain tax in certain cases] of the Act was missing. The said reference was introduced by amendment of section 115UA in Finance Act 2025. Now, the income of Business Trusts, chargeable under section 112A, shall also be charged at the rate provided under said section and not at maximum marginal rate

TAX RATES ON TYPICAL INCOME STREAMS IN THE HANDS OF SPV, REIT AND UNITHOLDERS

The incomes which typically a business trust is allowed to pass through to its unit-holders are as follows:

Dividend received from special purpose vehicle (SPV);
Interest received from SPV; and
Rental income from real estate properties either directly owned by REITs or through SPVs.

The pass-through status is provided to the business trust only in respect of the aforesaid incomes and all other incomes are chargeable to tax in the hands of the business trust. Such other income is taxable under Section 115UA at a maximum marginal rate (i.e. 30%3) except the capital gains covered under Section 111A, Section 112, Section 112A.

Section 111A, Sec. 112 and Sec. 112A provide for taxability in case of short term capital gains and long term capital gains arising from units of business trust

The taxation of the abovementioned three streams of income and certain other tax aspects in the hands of various parties to a REIT tabulated below:

DIVIDEND

Particulars	In the hands of REIT	In the hands of SPV
From SPV to REIT
If SPV is a Wholly Owned Subsidiary	No tax [Sec. 115-O(7) r.w.s 10(23FC)]	No Withholding Tax (WHT) [Sec. 194 as amended by Finance Act, 2021]

Particulars	In the hands of Unit holder	In the hands of REIT
From REIT to unitholder
If SPV has not exercised the option to pay corporate tax under Sec. 115BAA	No tax [Sec. 10(23FD)]	No WHT
If SPV has exercised the option to pay corporate tax under Sec. 115BAA	Tax at rates applicable to unit-holder depending on the type of unitholder – If resident : Highest tax @ 30% – If non-resident: Tax @ 20% or as per DTAA whichever is lower	WHT @ 10% In case of non-resident unitholders, a lower WHT rate as per DTAA may apply depending on the jurisdiction

INTEREST

Particulars	In the hands of REIT	In the hands of SPV
From SPV to REIT	No tax [Sec. 10(23FC)]	No WHT [Sec. 194A(3)(xi)]

Particulars	In the hands of Unitholder	In the hands of REIT
From REIT to unitholder	Tax at prevailing rate [Sec.115A(1)(a)(iiac)]	WHT as follows: For resident : 10% For non-resident : 5% [Sec. 194LBA]

Particulars

In the hands of Unitholder

In the hands of REIT

From REIT to unitholder

Tax at prevailing rate [Sec.115A(1)(a)(iiac)]

WHT as follows:

For resident : 10%
For non-resident : 5%

[Sec. 194LBA]

RENT

Particulars	In the hands of REIT / SPV	In the hands of Tenant
From Tenant to REIT [Applicable in a scenario where assets are directly held by REIT and not through SPV]	No tax [Sec. 10(23FCA)]	No WHT by tenant [Sec. 194I]

Particulars

In the hands of REIT / SPV

In the hands of Tenant

From Tenant to REIT

[Applicable in a scenario where assets are directly held by REIT and not through SPV]

No tax [Sec. 10(23FCA)]

No WHT by tenant [Sec. 194I]

Particulars	In the hands of Unitholder	In the hands of REIT
From REIT to unitholder	Tax at rate applicable to unitholder depending on the type of unitholder	WHT as follows: For resident : 10% For non-resident : 30% [Sec. 194LBA]

Particulars

In the hands of Unitholder

In the hands of REIT

From REIT to unitholder

Tax at rate applicable to unitholder depending on the type of unitholder

WHT as follows:

For resident : 10%

For non-resident : 30%

[Sec. 194LBA]

Capital Gains

Particulars	Unitholder
From REIT to unitholder
Sale of listed units of business trust – LTCG⁴	Resident unit holder : Tax @ 12.5% without indexation Non-resident unitholder Tax @ 12.5% without indexation However, tax rate may reduce under DTAA
Sale of listed units of business trust – STCG	Resident unit holder : Tax @ 20% without indexation – Sec 111A Non-resident unitholder Tax @ 20% without indexation However, tax rate may reduce under DTAA

INCOME AS REFERRED UNDER SEC. 115UA OTHER THAN THE ABOVE

Particulars	Unitholder	REIT
From REIT to unitholder	No tax [Sec 10(23FD)]	No WHT

Particulars

Unitholder

REIT

From REIT to unitholder

No tax

[Sec 10(23FD)]

No WHT

4. Period of holding to be considered at 12 months or more for LTCG. Assuming STT has been paid by the unit holder upon acquisition of units.

Taxability of certain other distributions by REIT to unitholders

While the abovementioned items are typical streams of income distributed to unitholders, certain REITs also distribute an atypical item which is in the nature of proceeds from repayment of SPV level debt. The tax treatment of the same was clarified vide Finance Act, 2023 and the same is captured hereinbelow

PROCEEDS FROM REPAYMENT OF SPV LEVEL DEBT BY REIT

Particulars	In the hands of Unitholder	In the hands of REIT
From REIT to unitholder	Reduce the cost of acquisition of Units and in turn will be taxable under the head Capital gain when the unit(s) are sold [Amendment in Section 48 (cost of Acquisition)] – Finance Act, 2023 Will be taxable under the head Income from other source when the sum received exceeds the issue price [Sec.56(2)(xii) – Finance Act, 2023 *[Refer detailed explanation below with illustration]*	Debt repayment by SPVs to REIT is not taxed in the hands of REIT, since the same is on account of repayment of principal portion of Loan

Particulars

In the hands of Unitholder

In the hands of REIT

From REIT to unitholder

Reduce the cost of acquisition of Units and in turn will be taxable under the head Capital gain when the unit(s) are sold

[Amendment in Section 48 (cost of Acquisition)] – Finance Act, 2023

Will be taxable under the head Income from other source when the sum received exceeds the issue price

[Sec.56(2)(xii) – Finance Act, 2023

[Refer detailed explanation below with illustration]

Debt repayment by SPVs to REIT is not taxed in the hands of REIT, since the same is on account of repayment of principal portion of Loan

Per the explanation to Section 48, of the Act, any amount received except following will be considered as reduction in cost of acquisition of units of REITs:

Interest – As per Section 10(23FC); or
Dividend – As per Section 10(23FC); or
Rental income (in case of REITs) – As per section 10(23FCA); or
Debt repayment portion upto the amount at which such units was issued by the trust [Amount not chargeable to tax u/s 56(2)(xii)]
Income Chargeable to tax in the hands of the business trust under section 115UA(2) (i.e. Interest income and capital gains)

Per Sec. 56(2)(xii) any “specified sum” received by a unit holder from a business trust during the previous year, with respect to a unit held by him at any time during the previous year

“Specified sum” has been defined under the Act to as follows:

Specified Sum means: A-B-C (which shall be deemed to be zero if sum of B and C is greater than A), where—

A = Aggregate of sum distributed by the business trust during the previous year or during any earlier previous years to unit holders, not in the nature of Interest / dividend exempt u/s 10(23FC) or rental income exempt u/s 10(23FCA) or Capital Gains u/s 111A, 112 and 112A
B = Issue price of the REIT/InvIT unit
C = Amount offered to tax as IFOS in preceding previous years

Thus, debt repayment must be reduced from cost of acquisition at the time of sale of units. As a consequence, the amount received as debt repayment will in turn taxed as Capital gain at the time of transfer/sale of unit.

Example: Mr. X bought one unit of InvIT at ₹200 and selling it after 3 years at ₹300 in the open market. During this period REIT distributed ₹20 as debt repayment. To calculate Capital Gain Mr. X needs to reduce ₹20 from the cost of acquisition. Thus the net cost of acquisition is ₹180 (₹200 – ₹20) and the capital gain is ₹120 (₹300 – ₹180). Thus, the debt repayment portion is taxed under the head Capital Gain at the time of sale of Unit in the hands of unit holder.

Further, the amendment in Finance Act, 2023 provided for the chargeability of Debt repayment component of distribution under the head Income From Other Source based on certain formula

Example: Mr X bought one unit of REIT from primary market for ₹200/- on Year-1. Mr. X received debt repayment as a component of distribution from REIT as per following:

Year(s)	Amount of debt repayment	Tax treatment
Year 1-10	₹180/- (From Year-1 to year-10 Mr. X received ₹180/- as Debt repayment)	₹180 will be reduced from cost of acquisition as per Explanation to Section 48 of the Act and will be taxed under the head Capital gain at the time of sale of unit. Income From Other Source = Zero (based on Formula provided in Section 56(2)(xii) Calculation of Specified Sum [Section 56(2)(xii)]: A = Aggregate amount received: ₹180.4 B = Amount at which such units was issued by Trust = ₹200C = Amount charged to tax in earlier year = Nil Specified Sum: A – B – C = ₹180 – ₹200 – Nil = 0
Year 11	₹30/-	₹20 will be reduced from cost of acquisition as per Explanation – 1 to Section 48 and will be taxed under the head Capital gain at the time of sale of unit. ₹10/- will be treated under the head Income from Other Source (based on Formula provided in Section 56(2)(xii).
		Calculation of Specified Sum [Section 56(2)(xii)]: A = Aggregate amount received: ₹210 (₹180 + ₹30) B = Amount at which such units issued by Trust = ₹200 C = Amount charged to tax in earlier year = Nil Specified Sum: A-B-C = ₹210 – ₹200 – NIL= ₹10
Year 12	₹20	₹20/- will be treated under Income from Other Source (based on Formula)Calculation of Specified Sum: [Section 56(2)(xii)]:4 A. Aggregate amount received : ₹230 (₹180 + ₹30 + ₹20) B. Amount at which such units was issued by Trust = ₹200 C. Amount charged to tax in earlier year = ₹10 Specified Sum: A – B – C = ₹230 – ₹200 – ₹10= ₹20/-

As can be seen from the above, out of the total debt repayment component of ₹230/-, ₹200/- is reduced from the cost of acquisition/issue price of the units and the balance ₹30/- is being taxed as Income from other sources, based on the prescribed formulae.

CONCLUSION AND WAY FORWARD

REITs could be a game changer for the Real Estate sector in India. It could redefine the funding strategies and provide a lucrative platform for retail and institutional investors to reap benefits. With the Government giving REITs a much-needed boost in the regulatory and tax field, the market for these investment vehicles has grown substantially and is expected to grow at a rapid pace in the future, helping to accelerate growth in the Indian economy.

While both institutional and retail investors’ interest in REITs have increased in the recent past, India still has a long way to go considering its real estate funding requirement through instruments like REITs and tap the related growth opportunities.

BCAJ Admin

Glimpses of Supreme Court Rulings

12. Director of Income Tax (IT)-I, Mumbai vs. American Express Bank Ltd.

(2025) 181 Taxmann.com 433(SC)

Deduction of head office expenditure in case of non-residents – Section 44C applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches – Section 44C is a special provision that exclusively governs the quantum of allowable deduction for any expenditure incurred by a non-resident Assessee that qualifies as ‘head office expenditure’ – For an expenditure to be brought within the ambit of Section 44C, two broad conditions must be satisfied: (i) The Assessee claiming the deduction must be a non-resident; and (ii) The expenditure in question must strictly fall within the definition of ‘head office expenditure’ as provided in the Explanation to the Section – The Explanation prescribes a tripartite test to determine if an expense qualifies as ‘head office expenditure’ – (i) The expenditure was incurred outside India; (ii) The expenditure is in the nature of ‘executive and general administration’ expenses; and (iii) The said executive and general administration expenditure is of the specific kind enumerated in Clauses (a), (b), or (c) respectively of the Explanation, or is of the kind prescribed under Clause (d) – Once the conditions in (b) referred to above are met, the operative part of Section 44C gets triggered. Consequently, the allowable deduction is restricted to the least of the following two amounts: (i) an amount equal to 5% of the adjusted total income; or (ii) the amount of head office expenditure specifically attributable to the business or profession of the Assessee in India.

(i) Civil Appeal No. 8291 of 2015

M/s. American Express Bank, the Assessee, a non-resident banking company, is engaged in the business of providing banking-related services. The Assessee filed its income tax return on 01.12.1997 for AY 1997-1998, declaring an income of ₹79,45,07,110. In the said return, the Assessee claimed deductions for the following expenses under Section 37(1) of the Act, 1961: (i) ₹6,39,13,217 incurred for solicitation of deposits from Non-Resident Indians; and (ii) ₹13,50,87,275 incurred at the head office directly in relation to the Indian branches.

The Assessee, vide notice dated 21.10.1999, was asked to explain why the expenses in question should not be subjected to the ceiling specified in Section 44C of the Act, 1961, and thus be disallowed.

The Assessee, in its reply to the notice referred to above, clarified that the expenses in question could not have been classified as head office expenditure for the reason that Section 44C of the Act, 1961 presupposes that at least a part of the expenditure is attributable to the business outside India. If this presumption does not hold true, and the entire expenditure is incurred solely for the business in India, then Clause (c) does not apply. Consequently, Section 44C would not be applicable to such expenses.

The Assessing Officer, vide its Assessment Order dated 08.02.2000, limited the deduction to 5% of the gross total income by applying Section 44C of the Act, 1961, having regard to the view taken by the Income Tax Appellate Tribunal in the Assessee’s own case for AY 1987-88. The decision of the Assessing Officer was also based on the following reasons:

a) Section 44C is a non-obstante provision that begins with the words ‘notwithstanding anything to the contrary contained in Section 28 to 43A,’ and therefore, the head office expenses allowable to the Assessee are subject to the limits set out under Section 44C.

b) The purpose of inserting Section 44C was to address the difficulties encountered in scrutinising the books of account maintained outside India. Therefore, the Assessee could not have claimed that the expenses incurred outside India should have been allowed beyond the ceiling prescribed under Section 44C. If such a plea were permitted, Section 44C would become redundant and otiose.

c) The definition of head office expenditure is clear, and the same includes all kinds of expenses of any office outside India.

Aggrieved by the aforesaid order of the Assessing Officer, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner vide Order dated 26.09.2000 affirmed the decision of the Assessing Officer.

Thereafter, the Assessee filed an appeal before the Income Tax Appellate Tribunal, Mumbai. The Income Tax Appellate Tribunal, Mumbai, vide Order dated 08.08.2012, allowed the appeal of the Assessee by relying upon the Bombay High Court’s decision in Commissioner of Income Tax vs. Emirates Commercial Bank Ltd., reported in (2003) 262 ITR 55 (Bom).

The Revenue challenged the order passed by the Tribunal referred to above before the Bombay High Court by way of Income Tax Appeal No. 1294 of 2013. However, before the High Court, the Revenue’s counsel conceded that the question regarding the application of Section 44C for the exclusive expenditure incurred by the head office for the Indian branches had been decided against the Revenue by a division bench of the High Court in Emirates Commercial Bank (supra). As a result, the High Court, by way of its impugned order dated 01.04.2015, dismissed the Revenue’s appeal on the said issue.

(ii) Civil Appeal No. 4451 of 2016

M/s. Oman International Bank, the Assessee, filed its return of income for AY 2003-04 on 28.11.2003, declaring a loss of ₹71,79,69,260. In the return, the Assessee claimed a deduction of ₹21,63,436 towards expenses specifically incurred by the head office for the Indian branches. The Assessee was asked to justify such a claim for deduction.

The Assessee vide letter dated 16.03.2006 provided the following details with regard to the expenditure incurred by the head office specifically for the Indian branches.

The Assessee claimed that the travelling expenses included travel fares, hotel charges, and other costs incurred by the head office for staff travelling to India for various purposes, such as local advisory board meetings, training, internal audits, staff meetings, etc. Additionally, the certification fees were for the charges paid to auditors for issuing certificates of expenses incurred by the head office chargeable to the Indian branches of the bank, for the year ending March 31, 2003.

The stance of the Assessee was that since the expenses referred to above were incurred specifically for the Indian branches, they would fall outside the scope of Section 44C of the Act, and were allowable as deductions under Section 37 of the Act, 1961. It claimed that the deduction under Section 44C applies to common head office expenses attributable to Indian branches.

The Assessing Officer, vide its Order dated 20.03.2006, disagreed with the explanation offered by the Assessee and held that both the above-mentioned expenses fell within the purview of Section 44C and thus are bound by the ceiling limit set thereunder.

Aggrieved by the Order of the Assessing Officer referred to above, the Assessee appealed to the Commissioner of Income Tax (Appeals). The Commissioner allowed the Assessee’s appeal by relying on its previous years’ decisions for AY 2001-2002 and 2002-2003, respectively, where an identical question was decided in favour of the Assessee, consistent with the Bombay High Court’s decision in Emirates Commercial Bank (supra). Subsequently, the Revenue’s appeal to the Income Tax Appellate Tribunal on the said issue also came to be dismissed based on the decision in Emirates Commercial Bank (supra).

Finally, by the impugned order dated 28.07.2015, the Bombay High Court also ruled against the Revenue on the aforementioned issue.

According to the Supreme Court, the following question fell for its consideration:

“Whether expenditure incurred by the head office of a non-resident Assessee exclusively for its Indian branches falls within the ambit of Section 44C of the Act, 1961, thereby limiting the permissible deduction to the statutory ceiling specified therein?”

Having regard to the rival contentions canvassed on either side, the Supreme Court observed that the core of the disagreement concerns the scope of Section 44C of the Act, 1961. The Appellant-Revenue seeks to interpret it more broadly, encompassing not only the expenditure incurred by the head office attributable to various foreign branches, i.e., ‘common’ expenditure, but also the ‘exclusive’ expenditure incurred specifically for the Indian branches. The Respondent-Assessee, however, aim to restrict the scope of Section 44C to include only ‘common’ expenditure. According to the Supreme Court, this was best illustrated by the example provided by the Respondents. If a general counsel is appointed by the head office solely to handle Indian matters, it constitutes exclusive expenditure. However, if a general counsel is appointed by the head office to handle matters in branches across the globe (including India), it constitutes common expenditure. The Appellant contends that Section 44C applies in both cases, whereas the Respondents argue that it is only applicable in the latter scenario. In other words, the Respondents argue that for exclusive expenditure, Section 44C is wholly inapplicable, and therefore, the deduction of the expenditure is not subject to the ceiling limit set out therein.

According to the Supreme Court, Section 44C of the Act, 1961 could be divided into two separate but interconnected parts. The first is the operative or substantive provision, which outlines the conditions for applying the Section and details the computation mechanism. The second is the definitional provision in the Explanation, which clarifies the scope of the term ‘head office expenditure’. The meaning given under the Explanation serves as the statutory trigger, as only when an expense falls within the ambit of this meaning does the operative framework of Section 44C come into effect.

The Supreme Court observed that the operative part of Section 44C could be divided into the following distinct components:

a) Section 44C applies specifically to non-resident Assessees.

b) Section 44C governs the computation of income chargeable under the specific head ‘Profits and gains of business or profession”.

c) Section 44C mandates that no allowance under the aforementioned head shall be made in respect of ‘head office expenditure’ to the extent that such expenditure is in excess of the lesser of the following two amounts: (a) an amount equal to five per cent of the adjusted total income; or (b) the amount of head office expenditure attributable to the business or profession of the Assessee in India.

d) Section 44C is a non-obstante provision as it starts with a phrase: notwithstanding anything to the contrary contained in Sections 28 to 43A. Consequently, it has an overriding effect on Sections 28 to 43A for the specific purpose of computing head office expenditure of a non-resident Assessee.

According to the Supreme Court, for an expense to be governed by the tenets of Section 44C of the Act, 1961, two conditions must be fulfilled: (i) the Assessee should be a non-resident, and (ii) the expenditure should be a ‘head office expenditure’. If both conditions are met, then Section 44C, being a non-obstante provision, will apply regardless of whether its principles contravene Sections 28 to 43A respectively.

According to the Supreme Court, the Respondents may therefore be correct in stating that for an expenditure to be deductible under Section 37(1), it does not necessarily have to have been incurred in India. Furthermore, they are also correct in stating that Section 44C only seeks to put a ceiling on the ‘head office expenditure’ that can be allowed as a deduction. However, according to the Supreme Court, their argument that Section 44C cannot restrict deductions that are otherwise allowable under Section 37(1) was misplaced. If the expenditures meet the above two conditions, Section 44C governs the quantum of allowable deduction. This means that even if such head office expenditure can be allowed as a deduction under Section 37(1), it would not be permitted if it exceeds the ceiling limit set under Section 44C. To decide otherwise would be to overlook the non-obstante nature of Section 44C.

However, according to the Supreme Court, it was necessary to closely examine and understand the meaning attributed to the term ‘head office expenditure’ under Section 44C. This was because, in the context of the question under consideration, if the meaning assigned to ‘head office expenditure’ under Section 44C is taken to suggest that it only includes common expenditure incurred by the head office, then the issue would stand resolved in favour of the Respondents. Consequently, as contended by the Respondents, for exclusive expenditure incurred by the head office for the Indian branches, Section 44C would not apply, and a deduction could be claimed under other sections, including Section 37, without adhering to the ceiling limits set under Section 44C.

Upon close analysis of the meaning assigned to the words ‘head office expenditure’ under Section 44C of the Act, 1961, the Supreme Court was of the view that the legislature had not limited the scope to cover only common expenditure incurred by the head office for the benefit of various branches, including those in India. In fact, the Explanation, according to the Supreme Court, was unambiguous in stating that for an expenditure to be considered as head office expenditure, it must meet two conditions only: (i) it has to be incurred outside India by the Assessee, (ii) it must be expenditure of a nature related to executive and general administrative expenses, including those specified in Clauses (a) to (d), respectively, of the Explanation.

Thus, the Explanation focused solely on two aspects: where the expense was incurred and the nature of that expense. It did not matter whether the expense was a common expense or an expense exclusively for the Indian branch, so long as the expense incurred was for the business or profession. According to the Supreme Court, the text provided no indication that the expenditure must be of a common or shared nature. Therefore, the meaning of the Explanation was clear, straightforward, and unambiguous. According to the Supreme Court if it were to accept the Respondents’ contention, it would be forced to add words to the statute that simply did not exist. It is well settled that adding words is generally not permissible, especially when the plain meaning of the statute is unambiguous.

According to the Supreme Court, the necessary corollary of the aforesaid discussion was that, irrespective of whether the expenditure was ‘common’ or ‘exclusive’, the moment it is incurred by a non-resident Assessee outside India and falls within the specific nature described in the Explanation, then Section 44C would come into play and become applicable.

At this juncture, the Supreme Court felt that it was essential to consider and evaluate the Respondents’ contention that an additional condition must be fulfilled for Section 44C to apply.

The Supreme Court noted that, according to the Respondents, by virtue of Clause (c) of Section 44C of the Act, 1961, only when the expenditure is of a common nature, and not exclusive expenditure incurred for the Indian branches, would the Section become applicable.

Respondents placed reliance on the following decisions to support their argument –

1. Rupenjuli Tea Co Ltd vs. CIT (1990) 186 ITR 301 (Cal).

2. Commissioner of Income Tax vs. Deutsche Bank A.G. (2006) 284 ITR 463 (Bom)

3. Director of Income-tax (International) vs. Ravva Oil (Singapore) Pte Ltd

4. Commissioner of Income Tax vs. Emirates Commercial Bank Ltd., reported in (2003) 262 ITR 55 (Bom)

According to the Supreme Court, a close examination of the rulings in Rupenjuli Tea (supra) and Emirates Commercial Bank (supra), respectively, revealed that, while both held that Section 44C was not applicable to their facts, their reasoning differed significantly. For the Calcutta High Court in Rupenjuli Tea (supra), the decisive factor was the absence of any business operations outside India by the non-resident Assessee, including at its head office in London. On the other hand, the Bombay High Court in Emirates Commercial Bank (supra) proceeded on the premise that Section 44C covers only common expenditure and not expenditure incurred exclusively for the Indian branches.

But the Bombay High Court in Emirates Commercial Bank (supra) provides no basis whatsoever as to how it concluded that the expenditure which is covered by Section 44C is of a common nature, incurred for the various branches or for the head office and the branch.

The Supreme Court observed that clause (c) of Section 44C allows for the computation of head office expenditure on an actual basis, wherein all the head office expenditure that is attributable to the business in India is taken into account. A plain reading of the Clause in no way indicates that the legislature envisaged taking into account only ‘common’ head office expenditure while excluding ‘exclusive’ head office expenditure under the clause. The text of the provision is broad and unqualified. It employs the phrase ‘head office expenditure incurred by the Assessee as is attributable to the business or profession of the Assessee in India,’ without carving out any exception for expenses incurred exclusively for Indian branches.

The Supreme Court thus concluded that Section 44C does not create a distinction between common and exclusive head office expenditure. The Supreme Court found no merit in the contention of the Respondents that exclusive expenditure falls outside the purview of this section. Consequently, it held that the view expressed by the Bombay High Court in Emirates Commercial Bank (supra) regarding the applicability of Section 44C was incorrect and did not declare the position of law correctly.

The Supreme Court further addressed the ancillary issue. The Appellant claimed that the definition of ‘head office expenditure’ in the Explanation to Section 44C is inclusive and has a wide scope and illustratively includes rent, taxes, repairs or insurance of premises abroad; salaries and other emoluments of staff employed abroad; travel by such staff; and other matters connected with executive and general administration.

According to the Supreme Court, such an interpretation was impermissible as the Appellant had failed to consider Clause (d) of the Explanation in its entirety. Clause (d) to the Explanation reads as follows: ‘such other matters connected with executive and general administration as may be prescribed’. Thus, Clause (d) stands as a clear statutory indicator that the Explanation would cover ‘executive and general administration’ expenditure only of the kind mentioned in Clause (a), (b) and (c) or of the kind prescribed under (d). If the Explanation were to be interpreted as broadly inclusive, covering all kinds of executive and general administration expenses without restriction, it would render the words ‘as may be prescribed’ in Clause (d) otiose and redundant. Such a restrictive interpretation of the term ‘head office expenditure’ was also supported on the basis of legislative intent.

Lastly, it was argued on behalf of the Respondents that the Bombay High Court’s decision in Emirates Commercial Bank (supra) was challenged by way of appeal to the Supreme Court in CIT vs. Emirates Commercial Bank Ltd. (Civil Appeal No. 1527 of 2006) and the Supreme Court by its judgement dated 26.08.2008 had dismissed the appeal following the view taken by it in the case of CIT vs. Deutsche Bank A.G. (Civil Appeal No. 1544 of 2006). Consequently, the principle of law that stood approved by the Supreme Court was that if expenditure is incurred by the head office outside India, which is incurred exclusively for the Indian operations of a non-resident entity, then such expenditure cannot be brought within the ambit of the term ‘head office expenditure’ provided in Section 44C of the Act.

The Supreme Court, after noting all the orders passed in the matters, observed that orders of the Supreme Court could in no manner be said to lay down and operate as a binding precedent on the principle of law that exclusive expenditure cannot be brought within the ambit of Section 44C of the Act, 1961. The said orders, however, were indicative of one aspect only: the decision in Rupenjuli Tea (supra) stood finalised and accepted by the Revenue.

According to the Supreme Court, the pivotal question involved in these appeals had been answered in favour of the Revenue. However, it remained to be seen whether, on merits, the entire expenditure that the Respondents claimed as deductible under Section 37 would fall within the ambit of Section 44C. There was no dispute that the Respondents were non-residents and the expenditure was incurred outside India. However, there seemed to be disagreement with regard to the fact whether or not certain expenditures could be of an ‘executive and general’ nature as specifically enumerated in the Explanation. In fact, the Respondents had contended that a part of the expenditure incurred by them would not be in the nature of head office expenditure as described under Section 44C.

The Supreme Court, therefore, remanded these matters to the Income Tax Appellate Tribunal, Mumbai, on this limited issue. The Tribunal was directed to examine the expenses afresh in light of the legal principles enunciated hereinabove, more particularly to verify whether the disputed expenditures satisfy the tripartite test necessary to qualify as ‘head office expenditure’ under the Explanation to Section 44C. With respect to the expenditure which the Respondents do not wish to dispute, the same would fall under the ambit of Section 44C, and thereby their deduction will be governed by the limits set out therein

BCAJ Admin

From The President

My Dear BCAS Family,

As I begin to write, I would like to reflect on my visit to the new Parliament Building during the Direct Tax Residential Retreat in Delhi, which was a first in the history of BCAS. Being within the hallowed precincts of the “temple of democracy” gave us a glimpse of the magnificent halls where laws are debated and enacted. Each piece of legislation that emerges from there affects our economy, our businesses, and our professional practice. Further, it stands as a symbol of democratic deliberation and legislative wisdom. Also, by the time you read this, the Union Budget, which plays a pivotal role in shaping our professional landscape, will have been presented by the Hon. Finance Minister. This has prompted me to focus on the theme of legislation and its impact on professionals and institutions like us.

Legislation is not merely a tool of governance but also a means of social order, justice, and economic growth, and the foundation of our professional journey.

IMPACT ON PROFESSIONALS:

The impact of legislation on our profession can be viewed under various lenses as follows:

Collective Regulatory Functioning:

The Chartered Accountants Act, 1949, is one of the earliest laws of independent India, laying the foundation for a self-regulated profession with high ethical standards. The regulations governing the same have evolved to keep pace with changing times, as evidenced by recent networking and advertising guidelines. These empower the ICAI not only to educate and examine, but also to regulate, discipline, and uphold public interest. Accordingly, every member acts as a bridge between the legislature’s intent and society’s compliance.

The Evolving Professional Navigating the Future of Law

Advisory and Interpretative Role:

The pace of legislative change over the past few decades, especially in financial and economic domains, has accelerated significantly and fundamentally transformed our role as professionals, whether in practice, industry, or entrepreneurship. Whether it is the evolution from the Companies Act, 1956, to the Companies Act, 2013; the Income-tax Act, 1961, to the Income Tax Act, 2025; GST 1.0 to 2.0 or other legislations on IBC, Money laundering, SEBI LODR guidelines, Labour Codes, Digital Personal Data Privacy Act; the list is endless. Furthermore, as we move toward becoming a $5 trillion developed economy, new areas of legislation related to ESG Frameworks, climate change, AI regulation, Cyber and Data Security, and the Work-Life Balance (Right to Disconnect Bill) are likely to emerge. Our role to our clients and employers is not just to interpret laws, but also to provide constructive feedback to improve compliance. Whilst we have kept pace with the changes, certain challenges as follows need to be kept in mind:

Retrospective amendments and frequent clarifications create uncertainty.
Navigating through ambiguous provisions and evolving interpretations.
Frequent changes in rules and the addition of explanations, especially in tax and corporate laws.

This will require us to adapt, upskill, and remain proactive. The mantra is to learn, unlearn, and relearn!

Guardians of Legislative Integrity:

Legislation brings structure to governance and provides the framework within which economic activity takes place, disputes are resolved, and compliance is measured. Whilst legislation sets the minimum parameters, ethics sets the ideal standards for implementation. Whilst legislation may not always codify every situation or intent, we need to act in a manner that is not only legally compliant but morally and ethically sound.

The profession’s deep engagement with legislation is both a privilege and a responsibility. With the Accounting Standards now having the force of law for the last two decades, our audit report is not merely a procedural requirement, but a legal document which is relied upon by regulators, investors, lenders, and the public at large.

BCAS’s ROLE

BCAS plays a critical role in the legislative ecosystem by representing the collective voice of practitioners who implement legislation in practice. Our responsibility extends beyond continuing education to active engagement in the legislative processes. We represent practitioners’ concerns to regulatory authorities, provide platforms for knowledge dissemination, and facilitate dialogue between practitioners and policymakers. Our pre-budget memoranda, representations on both proposed and enacted legislation, and technical seminars serve as vital touchpoints in the legislative cycle. Recently, we have taken steps to strengthen our research capabilities, enhance our advocacy efforts, and ensure that practitioners’ practical challenges are communicated effectively to lawmakers.

RECENT INITIATIVES AT BCAS

Before concluding, I would like to touch on a couple of recent initiatives: Corporate Membership and the “Women’s RefresHER” Course.

Corporate Membership:

We have recently extended Corporate Membership benefits to LLPs. I would appeal to all members connected with LLPs to urge their firms to convert to Corporate Membership by nominating CAs to access membership benefits for the next three years at reduced fees, before March 2026, as Corporate Membership fees are proposed to increase from April 2026. The membership would allow you to claim the GST Input Tax Credit, which is not otherwise available to a firm for individual membership enrolment, as well as the flexibility to change nominees each year. For details, you may refer to our website.

Women’s RefresHER Course:

This is a unique course, “for women and by women,” as part of the “Nari Shakti” initiative, comprising 14 sessions and aimed at Women CAs. Non-members who have enrolled will receive a six-month journal subscription. I would like to warmly welcome all our new subscribers and urge you to become regular members soon!

Adaptability and Learning:

To conclude, I would like to refer to a profound quote by author Alvin Toffler in his book “Powershift: Knowledge, Wealth and Power at the Edge of the 21st Century,” where he places emphasis on adaptability to continuous learning to remain up to speed in the context of evolving legislation for professionals and institutions like BCAS to remain relevant.

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

A big thank you to one and all!

Warm Regards,

CA. Zubin F. Billimoria

President

BCAJ Admin

Burden of Proof

Under GST law, the “Burden of Proof” (a static legal obligation) is distinguished from the “Onus of Proof” (a shifting evidentiary duty). Generally, the Revenue bears the burden of proving taxability, correct classification, and valuation, including establishing that a transaction constitutes a “supply”. Conversely, for exemptions and refunds, the burden lies with the claimant to prove eligibility and the absence of unjust enrichment. Notably, Section 155 specifically casts the burden of proving Input Tax Credit (ITC) eligibility on the taxpayer. However, this obligation is not absolute; once the taxpayer provides reasonable evidence (e.g., proof of receipt), the onus shifts to the Revenue to rebut it. The required standard of proof varies from a “preponderance of probability” in tax proceedings to “beyond reasonable doubt” in prosecution.

The maxim “Ei qui affirmat non ei qui negat incumbit probation” embodies the principle that the party asserting a fact must prove it. Disputes under the GST law invariably require the establishment of facts through corroborative evidence and their application to statutory provisions. In this context, the concept of “burden of proof” plays a pivotal role in determining the respective obligations of the taxpayer and the revenue.

BURDEN OF PROOF – SECTIONS 104 AND 105

Section 2 of the Bharatiya Sakshya Adhiniyam, 2023 (“BSA”) (replacing the Indian Evidence Act, 1872) defines a fact as “proved” when the Court believes in its existence or considers it sufficiently probable, and “disproved” when its non-existence is similarly established. A fact remains “not proved” when neither conclusion can be drawn. Proof or disproof of any fact, therefore, necessarily rests upon admissible evidence.

Whenever it is necessary to prove a fact, the party who is bound to establish the evidence bears the burden of proof. Section 104 states that the burden of proof of establishing a fact is on the person who asserts a legal right based on the existence of the said fact. Section 105 states that the burden of proof in a suit or proceeding would be on the person who would fail if no evidence were given on either side. Though both provisions refer to “burden of proof”, they operate in distinct senses, as succinctly stated by the Supreme Court in Rajesh Jain vs. Ajay Singh:¹

“29. There are two senses in which the phrase ‘burden of proof ’ is used in the Indian Evidence Act, 1872 (Evidence Act, hereinafter). One is the burden of proof arising as a matter of pleading and the other is the one which deals with the question as to who has first to prove a particular fact. The former is called the ‘legal burden’ and it never shifts, the latter is called the ‘evidential burden’ and it shifts from one side to the other….”

1. Rajesh Jain vs. Ajay Singh on 9 October, 2023 SLP (Crl.) No.12802 of 2022

DIFFERENCE BETWEEN BURDEN OF PROOF AND ONUS OF PROOF

Though often used interchangeably in common parlance, “burden of proof” and “onus of proof” are distinct legal concepts. As stated above, burden of proof (Latin: onus probandi) is a fixed legal obligation that rests upon a party to prove a particular fact or set of facts in dispute. It is a foundational duty and, importantly, it never shifts from the party upon whom it initially lies. This means that the party asserting a fact or making an allegation must ultimately convince the adjudicating authority of the truth of that fact. Conversely, the onus of proof refers to the duty of adducing evidence. Unlike the burden of proof, the onus of proof is dynamic and shifts at every stage in the process of evaluating evidence. It indicates which party has the obligation to present evidence at a given point in a proceeding to avoid an adverse ruling. For instance, if one party presents evidence supporting their claim, the onus might shift to the opposing party to rebut that evidence. If the opposing party successfully rebuts, the onus might shift back. This continuous shifting is central to the procedural aspect of evidence presentation and explained in Ajay Singh’s case (supra):

“30. The legal burden is the burden of proof which remains constant throughout a trial. It is the burden of establishing the facts and contentions which will support a party’s case. If, at the conclusion of the trial a party has failed to establish these to the appropriate standards, he would lose to stand. The incidence of the burden is usually clear from the pleadings and usually, it is incumbent on the plaintiff or complainant to prove what he pleaded or contends. On the other hand, the evidential burden may shift from one party to another as the trial progresses according to the balance of evidence given at any particular stage; the burden rests upon the party who would fail if no evidence at all, or no further evidence, as the case may be is adduced by either side (See Halsbury’s Laws of England, 4th Edition para 13). While the former, the legal burden arising on the pleadings is mentioned in Section 101 of the Evidence Act, the latter, the evidential burden, is referred to in Section 102 thereof.”

The difference can be appreciated in a table form:

Feature	Burden of Proof	Onus of Proof
Section	Section 104 of BSA (Legal Burden)	Section 105 of BSA (Evidentiary Burden)
Definition	The obligation to prove the main facts that establish a legal right or liability.	The duty to produce evidence to introduce or rebut a specific fact during the trial.
Nature	Static. It generally never shifts. It remains on the party who asserted the affirmative case from start to finish.	Shifting. It swings back and forth between parties like a pendulum as evidence is introduced.
Example	Burden is to be understood as the first serve by the assessee to claim the point.	Onus is the tennis rally between the parties, and the one who fails loses the rally.

LEVELS OF BURDENS/ONUS OF PROOF

The degree of proof required under GST Laws varies depending on the nature of proceedings (prosecution, penalty or tax proceedings). The various standards of proof can be graded as follows:

“Preponderance of evidence/probability”, which requires a plaintiff to show that a particular fact/event is more likely than not to have occurred (say, tax proceedings).
“Clear and convincing evidence”, which requires the plaintiff to prove that a particular fact is substantially more likely than not to be true (say, penalty proceedings).
“Beyond reasonable doubt”, which is the highest standard of proof and which requires the prosecution to show that the only logical explanation that can be derived from the facts is that the defendant committed the crime and no other logical explanation can be inferred or deduced from the evidence (say, prosecution proceedings).

APPLICABILITY OF BURDEN OF PROOF TO GST

As stated above, questions of taxability, exemption, input tax credit, place of supply, valuation, etc would involve bringing certain facts to the forefront and the concerned person ought to discharge the due burden unless otherwise stated in law.

BURDEN OF ESTABLISHING TAXABILITY OF A TRANSACTION

A cardinal principle established by the judiciary is that the burden of proof lies on the taxing authorities to demonstrate that a particular case or item is taxable in the manner claimed by them². In the context of service, the revenue quite frequently presumes that the transaction is taxable. Transfer of development rights is being taxed on the premise of an RCM entry. This is being done without discharging the burden of whether the development rights are taxable as ‘supply’ u/s 7. Similarly, the burden of proof of establishing the supply of goods is on the revenue. In clandestine cases, revenue can collate facts based on statements, external evidence (such as electricity bills, digital records, banking transactions, electricity/ freight costs, inventory correlation, counterparty evidence, etc). Once this is discharged and there is a reasonable probability of the occurrence of the event, then the onus shifts onto the assessee to establish the contrary. The primary discharge is called the burden of proof, and the counter is the onus of proof.

2. UOI vs. Garware Nylons Ltd. [1996 (10) SCC 413], HPL Chemicals vs. CCE [2006 (5) SCC 208], Ponds India vs. CTT [2008 (8) SCC 369], Voltas Ltd. vs. State of Gujarat [2015 (7) SCC 527], and CCE vs. Hindustan Lever Ltd. [2015 (10) SCC 742].

Similarly, revenue issues presumptuous notices on differences in revenue based on ITR/26AS and GST data. Strictly speaking, the scope of Income in ITR returns cannot be said to be equivalent to the scope of supply in GST, and this by itself cannot be considered as evidence of a supply. Values reported in the TDS credit statement (in Form 26AS) merely affirm receipt or accrual. Once the income is reported as ‘sale’ or ‘services’ either in the ITR or TDS statement, it can at most be the basis of initiation of an investigative proceeding. But whether this data by itself would be adequate for the issuance of the SCN and consequently into confirmatory orders is questionable (especially in the absence of best judgement provisions for registered persons). Whereas, in case of data mismatch in GSTR-1/3B, E-way bills, TCS/TDS statements, etc there could be a different answer since these are reported values under the GST domain. Here, the existence of a difference in data by itself may suggest a probability of under-reporting resulting in the discharge of the revenue’s primary burden to establish a supply, and hence the onus shifts on the taxpayer to establish the reasons for short payment (if any). In essence, section 73/74 does not permit SCNs to be issued on presumptuous grounds, and the clear burden of establishing the ingredients of the charging section rests upon the revenue.

BURDEN OF PROOF FOR SUPPLY, IN THE COURSE OF BUSINESS, CONSIDERATION: COMPONENT OF TAXABLE SUPPLY

The levy of GST is predicated on a “transaction-based tax” model involving a “supply”. Section 7 of the GST law outlines four critical pillars for a transaction to constitute a supply: (a) an act of supply of goods/service; (b) supplier-recipient relationship; (c) consideration for such supply; and (d) supply being in the course or furtherance of business.

Supply: The “activity of supply” should generally emanate from an “enforceable contract” between the contracting parties. The essential elements of a contract, such as explicit terms for the supplier (promisor), recipient (promisee), the act of supply (promise), and consideration, should be clearly reflected. The Bombay High Court in the case of Bai Mamubai Trust emphasised the requirement of an enforceable contract and contractual reciprocity as quintessential for a taxable supply, distinguishing payments for restitution or damages for an illegal act from reciprocal obligations. Thus, the burden to prove that a transaction constitutes a “supply” rests with the revenue authorities initially. Similarly, where rent-free accommodation is being provided to the members of a cooperative society as part of the redevelopment of a project, the question of whether there is a distinct supply beyond the rendition of construction services by the developer is to be answered by the revenue. The revenue may not be permitted to presume that rent-free accommodation is a separate supply to the occupants. It would have to establish the burden of it being a service in terms of Section 7 of the GST law.
In the Course or Furtherance of Business: Section 7 requires a supply to be “in the course or furtherance of business” to be taxable, with specific exceptions like import of services, which are taxable whether or not in the course of business. The interpretation and evidence of this aspect would lie with the party asserting or denying its business nature. The Government has emphasised the requirement of examining the business character of the supply vide its press release dated. 13.07.2017. Accordingly, the revenue cannot presume that all income generating transaction are in the course of business and must discharge the burden that the transaction being brought to tax is a business activity. Similarly, the burden to prove that a religious or charitable trust is engaged in business activity is on the revenue.
Consideration: “Consideration” is a core element of supply, as defined under Section 7, read with the definition of ‘consideration’. In cases involving related parties, Entry 2 or 4 of Schedule I of the CGST Act excludes the requirement of ‘consideration’ for an activity to constitute a supply. This means that transactions between related parties, even without explicit consideration, can be deemed as a supply. For transactions involving compensation for non-performing contractual obligations or breach of contract (e.g., liquidated damages), these amounts can be treated as consideration for a supply, particularly if there is a clear formula for calculation and the payment is for a “certain advantage derived or to ward off any disadvantage incurred”. The CBIC Circular No. 178/10/2022-GST clarifies that payments towards damages are incidental to the main supply and their taxability depends on the taxability of the principal supply. The burden to prove whether such amounts constitute consideration for a supply would typically fall on the revenue.

BURDEN OF PROOF OF TAX RATES/ CLASSIFICATION AND EXEMPTIONS AND VALUATION

Disputes concerning classification, applicability of exemptions, correct tax rates, and valuation often arise under GST. The burden of proof in these areas is generally on the taxing authority, with specific exceptions or nuances.

Tax Rates & Classification: In a self-assessment scheme, the tax rates and classification reported by the assessee are considered final unless questioned by the revenue. The burden of proof of attributing an alternative classification/ rate of tax on a product under a particular tariff head rests with the revenue. The revenue must discharge this burden by proving that the product is understood as such by consumers in common parlance. This principle was affirmed by the Supreme Court in CCE vs. Vicco Laboratories [2005 (179) ELT 17 (SC)]. For example, printing of books (service, Heading 9989, 5% tax) versus supply of printed envelopes (goods, Chapter 48 or 49, different rates). Circulars from the Board aim to clarify these distinctions, but their interpretation might be challenged if they contradict established principles, as seen with the Prestige Engineering (India) Ltd. vs. CCE Meerut [1994 (73) ELT 497 (SC)] case concerning job work. The burden to prove the correct tax rate would typically fall on the revenue if they are alleging a higher rate, but on the taxpayer if they are claiming a lower rate or exemption.
Exemptions: When a person claims eligibility for an exemption under a notification, the burden of proving compliance with the conditions of that exemption notification lies on the taxpayer. For example, an assessee asserting eligibility for exemption in respect of a residential dwelling under Notification 12/2017-CT(R) is obligated to establish that the dwelling is residential in nature. Once the assessee establishes residential use in the form of occupancy and municipal records, the onus shifts onto the revenue to prove otherwise. The revenue cannot merely allege a strict interpretation of the exemption notification and deny exemption on the ground of ‘unsatisfactory proof of residential use’ to the assessee. The scope of the term residential dwelling is a domain of interpretation and not factual examination. Once the assessee submits the rental agreements and municipal records, it is for the revenue to discharge the onus of negating this fact. Otherwise, it would amount to revenue failing to discharge its obligation, and the SCN would stand as being unsustainable for failure to discharge the burden. The Supreme Court has taken contextual views on this subject, leading to some controversy: In Dilip Kumar & Company’s³ case, it was held that the burden of proof is on the taxpayer availing the exemption and in case of any ambiguity, the benefit should go to the revenue. But in Mother Superior Convent⁵ & in Taghar Vasudeva Ambreesh⁵ the Court emphasised that the exemption should be driven by the intention of the legislature. This throws up the debate open on whether the burden of proof for exemption is static on the assessee or the revenue would also have to establish its case on whether the assessee has violated the intent of the exemption notification.
Valuation: Section 15 of the CGST Act, read with Rule 27 of the CGST Rules, addresses valuation. For instance, the value of free-of-cost (FOC) material (e.g., diesel) provided by the service recipient is not includable in the value of GTA service if the contractual liability for such cost is not that of the supplier (Section 15(2)(b)). The revenue ought to establish that the FoC material is contractually an obligation of the supplier but incurred by the recipient before adding the same to the transaction value. Unless this burden is sufficiently discharged from the contract, the value as self-assessed by the assessee would prevail, and the SCN cannot be issued on the mere element of use of FoC goods. It is settled law that revenue must discharge its burden of undervaluation with contemporaneous information before making an addition to the reported taxable value of the supply.

3. 2018 (361) E.L.T. 577 (S.C.); 2021 (376) E.L.T. 242

BURDEN OF PROOF FOR POS, EXPORTS AND REFUNDS

The determination of the Place of Supply (POS), the nature of exports, and the eligibility for refunds are critical areas in GST where the burden of proof plays a significant role.

Place of Supply (PoS): The place of supply dictates whether a transaction is an intra-state, inter-state, import, or export supply, consequently determining the type of GST (CGST/SGST or IGST) to be levied. PoS is a jurisdictional aspect for the applicability of tax under a particular enactment. Being part of the charging provisions, the revenue must discharge the burden of PoS before even acquiring jurisdiction to tax under a particular enactment. In respect of detention of goods under movement from one state to another, for any intermittent state to impose a local tax liability, it is important to establish that the goods were meant for termination/ delivery in the detaining state (i.e. PoS in that state). Unless this burden is discharged, the jurisdiction to tax the transaction cannot be acquired. For services, in case of performance-based services of actual testing process of goods is carried out in India, the place of supply is deemed to be in India as per Section 13(3)(a) of the IGST Act, even if the service recipient is located outside India. In such a scenario, the service would not qualify as an “export of service”. The party asserting a particular place of supply bears the burden to substantiate its claim of place of performance in India. For example, if the revenue alleges that the repair services were performed in India, it must establish that the goods were physically made available in India for repairs and the services were indeed performed on such physically available goods. Unless this burden is discharged, the revenue cannot alter the self-assessment of the assessee.
Exports: Exports are typically zero-rated under GST. Being an exception to the general rule of full rate of tax, the exporter claiming the export benefit ought to establish satisfaction of the conditions of export of goods or services. In the context of goods, the assessee is under the burden to establish the physical movement of goods outside India, irrespective of the location of the buyer. Consequently, the burden of proving that the export benefits of refund, rebate, etc. are available to the taxpayer, the threshold test of being export must be factually discharged by the taxpayer. In the context of services, the definition of export of services provides certain factual parameters to be complied with for the services to be granted the zero-rating benefits. In such cases, the burden to prove the fulfilment of export conditions, including receipt of payment in convertible foreign exchange and the service being used outside India (for export of services as per Section 2(6) of the IGST Act), rests on the exporter. Once the exporter discharges the burden by proving receipt of convertible foreign exchange through RBI approvals / CA certificates, etc, the onus shifts to the Revenue to disprove this fact. The court in Kuehne Plus Nagel vs. UOI⁴ granted the benefit of export based on certain factual documents and rejected the insistence of FIRC for the claim of export benefits, implying that the burden of proof is not solely on the exporters.
Refunds: The burden of proving refund entitlement is on the claimant For refund claims, the claimant must produce the prescribed documents to establish the eligibility. Once the initial burden of submission and eligibility of refund is discharged, the onus shifts over to the revenue if it were to reject the claim of refund. The practice of returning refund applications through deficiency memos on grounds of eligibility is squarely derogatory to the legal process. For inverted refund applications, the burden is cast on the claimant to establish the accumulation of input tax credit on account of the higher rate of goods and the lower rate of output supplies. This is a question of fact and is fixated on the claimant. But once this burden is fulfilled, the onus shifts onto the revenue to deny refund eligibility either on account of non-accumulation or lack of inversion.
Refund of Wrongly Deposited Amounts: If an amount is deposited under coercion or protest, the petitioner can seek a refund in accordance with the law, but an inquiry may be needed to determine if the payment was voluntary or coerced. In Bundl Technologies⁵, recovery of taxes at the late hours when the office is not operating was considered as coercive and hence violative of the taxpayer’s rights. This was possible only after the assessee, alleging coercion, discharged its burden by submitting proof of time of payment at an irregular hour of the day.
Unjust Enrichment: Refund provisions are framed with the presumption that the incidence of duty has been passed on unless otherwise proved. Section 49(9) also states that taxes paid to the Government are deemed to have been passed on. With this presumption in place, all refund applications (except those specifically excluded in terms of sub-clauses of 54(8)) would have to undergo the rigour of establishing that the duty benefit has not been passed onto the recipient. Unless this burden is discharged, the revenue is under no obligation to credit the refund to the claimant. But once the claimant establishes through cost structures, price impact, invoice disclosures, counterparty declarations, etc, giving reasonable affirmation on unjust enrichment, the onus shifts upon the revenue to disprove the same. The revenue cannot reject a refund on grounds of lack of satisfactory documents without countering the primary evidence submitted by the claimant.

4. R/SPECIAL CIVIL APPLICATION NO. 13427 of 2024- Gujarat High Court
5. [2022] 136 taxmann.com 112 (Karnataka)

BURDEN OF PROOF FOR INPUT TAX CREDIT

One of the most litigated areas under the GST law concerning the burden of proof is the Input Tax Credit (ITC). Section 155 of the CGST Act, 2017, explicitly places the burden of proving eligibility for ITC on the person claiming such credit. This provision is notable as it deviates from the general legal principle that the burden of proof for any charge or allegation lies on the person making it, effectively placing a specific and significant onus on the assessee. While applying section 155 and revenue has strictly fixed the ‘burden of proof’ onto the assessee and disregarded that the evidentiary burden (i.e. onus) is still variable depending on the progression of evidence. Let us consider a case where the dispute is whether the input tax credit is claimed within the time prescribed by the law or not. This dispute is based on facts, and the burden of proof lies on the taxpayer to prove that the credit is claimed within the specified time limit. However, if the dispute is about the non-applicability of the timeline itself (let’s say whether section 16(4) applies to tax discharged under the reverse charge mechanism), the dispute pertains to a legal interpretation and the department cannot cite section 155 to cast an exclusive burden of proof on the taxpayer. Therefore, section 155 should be applied in relative terms rather than absolute fixation on the assessee.

Eligibility and Correctness: The burden of proving the correctness and eligibility of any ITC claim rests entirely with the taxable person. This extends to proving the actual physical movement of goods or receipt of services, holding of the tax invoice, reporting of the invoice on the GST portal, and payment of tax to the Government. The assessee may furnish details such as the name and address of the selling dealer, vehicle details, payment of freight charges, and acknowledgement of delivery for proof of receipt of goods. But freight payment, vehicle details, lorry receipts, E-way bills are not the only tests for proof of receipt of goods (though directed by the Supreme Court in Ecom Gill Coffee Trading Private⁶ case). There may be other alternative ways of establishing receipt of goods (say, video/ inventory records, counterparty declarations, etc) which could also grant reasonable certainty of receipt of goods. But section 155 should not be interpreted to mean that the revenue can decide the standards of evidence required for proving receipt of goods or services and mandate the taxpayer to meet those standards. In the absence of a defined statutory mechanism, the burden of proof of establishing receipt of goods is on the assessee through reasonable means. Where the revenue cites insufficiency of evidence, the onus shifts upon the revenue to establish the unsatisfactory nature of the evidence.
Elaborating this further, say the assessee proves that goods have been received by the recipient. Once the assessee submits evidence such as a goods receipt note, accounting records, etc before the adjudicating authority, then the onus shifts upon the said authority to disprove the fact by placing evidence. When contrary evidence is brought on record and confronted (say, non-passing of regular tolls), then the onus shifts back upon the assessee. If the assessee fails to convincingly establish the possibility of alternative routes, then the case of the assessee fails, but if such routes are comprehensively established, then the case of the revenue fails. Thus, the onus is oscillating obligation during discharge of the burden of eligibility for ITC. This process would continue until the other party cannot produce any contrary evidence, in which case, the court would, based on the adequacy of evidence (discussed above), decide if the fact has been proved or disproved, or neither proved nor disproved.
Tax Paid to Government – The same goes for the debate on whether tax has been paid to the Government. The law requires the assessee to prove that tax charged on the input invoice has been paid to the Government. The mechanism to verify this is through the process of reflection of the invoice in GSTR-2B and GSTR-3B filings. To this extent, the assessee is under the obligation to establish reasonable evidence of proof of tax payment to the Government. The question of sufficiency of such proof would once again become an evidentiary debate, which does not fall within the domain of section 155. For example, an assessee claims ITC after complying with all conditions of section 16(2) (incl. reporting in GSTR-2B) and the registration of the supplying dealer is cancelled retrospectively on any ground; the revenue ought to discharge the burden of not receiving the tax on the invoice from the supplier on the particular invoice.
Bona Fide Transactions vs. Fake Invoices: When there are allegations of fake or false invoices, or the non-existence of the consignor/consignee, the burden shifts heavily onto the person claiming the transaction to be fake to demonstrate the mala fide in the transaction. The assessee cannot be asked to unilaterally establish the bona fide of the ITC u/s 155 without being confronted with adverse material from the revenue. Once the revenue establishes with reasonable probability that there was a fake transaction, then the assessee, as part of the onus, must prove that he acted with due diligence.

6. CIVIL APPEAL NO. 230 OF 2023 Supreme Court

CONCLUSION

In conclusion, the “Burden of Proof” under GST Law is a multifaceted concept that dictates the obligations of both the taxpayer and the tax authorities at various stages of assessment, audit, demand, and prosecution. While specific statutory provisions like Section 155 place the burden squarely on the claimant for ITC, general legal principles often mandate the Revenue to establish its claims, particularly regarding taxability, classification, and penalties. Diligent record-keeping and a thorough understanding of these principles are paramount for compliance and effective dispute resolution in the GST regime.

BCAJ Admin

Co-Operative Societies

Shrikrishna: Arey Arjun, for a change, you are looking in a cheerful mood today. What is the secret?

Arjun: Nothing, Bhagwan. Just enjoying the pleasant climate. And a little relaxed from the deadlines.

Shrikrishna: I understand. From July to December, every month end is a nightmare for CAs.

Arjun: Very true. In the housing society where I stay, there were celebrations for new year, Makar Sankranti and the Republic Day.

Shrikrishna: Oh, Great! So your society members must be good and friendly with each other.

Arjun: Yes. But……….

Shrikrishna: But there are a couple of trouble makers, Right?

Arjun: Absolutely, Lord. I have observed that by and large in all co-operative housing Societies, there is nothing but non-cooperation!

Shrikrishna: Unfortunate!

Arjun: No one voluntarily comes forward for work. They consider managing committee members as their servants! Sometimes, committee members are also a little too smart. There is some friction or the other among members.

Shrikrishna: And one or two members are a bit too smart! They feel that they know everything; and they alone know the laws and regulations!

Arjun: Bhagwan, how do you know all these things?

Shrikrishna: Arjun, this is kaliyug. Even in previous Dwapar yuga, there were disputes among cousins and close relatives.

Arjun: The one or two trouble making members disturb the peace of all. They rake up disputes with the managing committee and all other members. They keep on filing complaints to all authorities – Registrar, Police, Courts, and so on!

They often refuse to pay the dues to the society.

Shrikrishna: And also to your Institute!

Arjun: Yes, I was coming to that. It is there hobby to create unrest and make the Auditor as a scapegoat.

Shrikrishna: But Arjun, you must admit that you CAs also take the society’s work rather lightly. Don’t you?

Arjun: Agreed. Our CAs are not careful and they unnecessarily invite trouble for themselves. Most common points are – These non-profit organisations cannot afford a proper accountant. So, the CAs themselves render accounting services either themselves or through their articles or employees or through their relatives.

Shrikrishna: Yes. And they raise the invoice also, mentioning as ‘Accounting and Audit Services”!

Arjun: True! That is very common biggest blunder.

Shrikrishna: Then you people never examine and insist on secretarial record – like minutes, notices, attendance record and so on. So also, the various registers which are required to be maintained, are never updated.

Arjun: And our CAs do not sign them even if they see. There should be an evidence of their verification. There should be working papers, correspondence and so on.

Shrikrishna: I have always been warning. In kaliyuga, ‘good faith’ is always very dangerous.

Arjun: Managing Committee people are not always qualified and experienced. Actually, they should attend the training programmes organised by the Federation of housing societies. But they take it lightly.

Shrikrishna: If there is some large capital expenditure or heavy repairs, the auditor has to be extra careful.

Arjun: Moreover, Bhagwan, today redevelopment of societies’ buildings is very common. There, lot of paper work is required apart from accounting and tax issues. An average auditor not having the necessary exposure and expertise should either leave the assignment or seek proper expert advice.

Shrikrishna: I have heard that many CAs are being dragged into disciplinary proceedings for the lacunae in audits of co-operative societies.

Arjun: Yes. As it is, these audits are not at all remunerative. But CAs do not take it seriously and invite disciplinary complaints.

Shrikrishna: One more aspect is of verification of original bank deposit receipts; and confirmation from banks. There have been many instances of misappropriation of money by fraudulently encashing the FDs.

Arjun: Yes. I am aware of many such complaints in the context of societies and Charitable trusts.

Shrikrishna: In short, CAs should not neglect the assignments merely because these are Non-profit organisations and not very remunerative.

Arjun: I entirely agree, Bhagwan.

OM SHANTI

(This dialogue is based on the general scenario in the audit assignments of co-operative societies and other NPOs.)

BCAJ Admin

Corporate Law Corner

22. Tictok Skill Games Private Limited

Petition No: CP -83 / ND/2021

Before, National Company Law Tribunal,

New Delhi Bench

Date of Order: 18th December, 2025

Capital Reduction must fall under four corners of Section 66(1) of the Companies Act, 2013

Facts

1. Parties and proposal

Petitioner: Tictok Skill Games Pvt Ltd (now WinZO Games Pvt Ltd), an e-sports gaming platform company, incorporated in 2016, later renamed in 2022.
Relief sought: Confirmation under section 66 of the reduction of issued, subscribed and paid-up equity capital from 3,00,000 equity shares of ₹100 each (₹3 crore) to 3,00,000 equity shares of ₹10 each (₹30 lakh) by paying ₹90 per share (total ₹2.7 crore) to certain equity shareholders.
Basis stated: The company wanted to bring the face value of all equity shares at par and claimed to have sufficient funds, invoking section 66(1)(b)(ii) (payment of paid-up capital in excess of the wants of the company).

2. Key facts and procedural history

Board resolution dated 28.01.2021 and special resolution in EGM on 19.02.2021 approved the capital reduction and authorised necessary steps, including NCLT petition and deposit of payout amounts.
Auditor’s certificate dated 17.03.2021 filed, stating that accounting treatment for the reduction conforms with the Companies Act and Ind AS.
Petition originally proceeded on a particular capital structure. However, during pendency, the supplementary affidavit (July 2021) disclosed significant changes, namely additional funding, entry of a new shareholder, altered authorised and paid-up share capital and multiple series of CCPS.
NCLT issued notices to ROC, Regional Director (RD), and Income Tax Department. The IT Department reported nil outstanding demand and no objection.
NCLT directed notice to all creditors in Form RSC 3 and publication in English and vernacular newspapers (Financial Express and Jansatta), which was done.

3. Objections of ROC/RD and the company’s response

ROC/RD filed reports pointing out, inter alia:

Mismatch between authorised/paid-up capital figures in the petition and MCA master data. Petitioner explained that subsequent allotments (including CCPS and ESOP equity) after the supplementary affidavit caused differences and termed the mismatch as inadvertent oversight.
Existence of active/open charges created on 23.03.2022 despite the petition stating nil secured creditors. The company stated these were bank guarantees backed by fixed deposits, treated by the bank as charges and later satisfied, with CHG‑4 filed.
Auditor’s “Emphasis of Matter” on Covid 19 and minor delays in statutory dues. These were flagged but not treated as determinative by NCLT.
FEMA compliance in relation to payout to foreign shareholder, The Stuart Partners LLC. Company undertook that it has been and will remain FEMA-compliant for any outflow under the scheme
Creditor protection: RD noted substantial current and non-current liabilities and the absence of “no objection” letters from creditors. The company argued that the statutory regime only requires notice and opportunity to object (RSC 3/RSC 4 and RSC 5 affidavit), not individual NOCs, and claimed full procedural compliance.

Critically, RD also objected on a substantive ground, stating that financials for FY 2019 20 did not indicate excess capital/free reserves, and the proposed reduction did not fall within section 66(1)(b)(ii). RD thus sought rejection of the scheme.

Conclusion of the Tribunal and reasoning

1. No proof of “excess capital” at the relevant time

The reduction was anchored in the February 2021 special resolution, so the relevant time to test the availability of surplus/excess capital was when the scheme was conceived and approved.
Although later balance sheets for FY 2021 22 and 2022 23 were filed, NCLT held that subsequent financials cannot cure a foundational defect regarding the absence of demonstrable excess capital or free reserves at the time of the resolution.
NCLT accepted RD’s objection that the financial statements did not show surplus capital/free reserves sufficient to justify a pay off to shareholders under section 66(1)(b)(ii), holding that in the absence of “clear and cogent material” of such surplus, the proposal was not in conformity with that provision.

2. Defective creditor notice compliance

The company had 66 unsecured creditors and claimed to have served RSC 3 notices and published RSC 4 notices. Affidavit in Form RSC 5 was filed.
On examining dispatch proofs, NCLT noted a discrepancy (65 names vs 66 creditors) and the absence of tracking/delivery reports for all creditors.
NCLT held that compliance with section 66(2) and the 2016 Rules is mandatory. The notice mechanism is to ensure creditors have a real opportunity to object.
Without conclusive proof of service, the Tribunal refused to presume compliance or accept that creditors’ interests were adequately safeguarded, particularly in the light of sizeable current and non‑current liabilities.

3. Unstable capital and shareholding structure

During pendency, the company undertook multiple capital actions, i.e. issue of new preference shares, ESOP equity, induction of new shareholders and changes to capital structure versus the position at the time of the original resolution.
NCLT held that such changes “materially alter” the factual matrix on which the scheme was premised, emphasising that a capital reduction scheme must be evaluated against a clear and stable capital structure.
Repeated changes were seen as undermining the transparency and certainty required for confirmation under section 66.

Decision :

• NCLT concluded that the petitioner had failed to:

Show that the reduction falls squarely under section 66(1)(b)(ii) of CA 2013
Satisfactorily demonstrate financial capacity at the relevant time to effect the payout.
Prove mandatory procedural compliance regarding notice to all creditors; and
Adequately safeguard creditors’ interests.

• Accepting the RD’s objections, NCLT rejected confirmation of the proposed reduction and dismissed the company petition with no order as to costs.

23. Biju Scaria & Tessy Scaria vs.

Media Team Solutions (I) Pvt. Ltd. and others

Company Appeal (AT) (CH) No.123/2025

(IA Nos. 1365 & 1366/2025)

National Company Law Appellate Tribunal (Chennai)

Date of Order: 13th October, 2025

NCLAT upheld the exercise of power/ decision taken by Majority Shareholders, which reflects Corporate Democracy with regard to the right to remove a Director under Section 169 of the Companies Act, 2013, which is absolute and cannot be diluted by judicial interference, unless there is illegality or malicious intent.

FACTS

Mr. BJ and Ms. TS, had filed Petition before National Company Law Tribunal (NCLT) Kochi under Sections 241–242 alleging oppression and mismanagement in M/s MTSPL and also sought various interim reliefs, including to stay an Extraordinary General Meeting (EGM) scheduled on 01st July, 2025 which proposed removal of Whole Time Director by resolution under Section 169 of the Companies Act, 2013 and to restrain M/s MTSPL from taking corporate actions in the matter and also status quo be maintained with respect to the management and operations of the Company.

After hearing, NCLT in its order had declined to stay the EGM, observing there was no procedural anomaly or legal lapse in calling the EGM and also held that staying the EGM would interfere in the company’s day-to-day functioning as the motion carried under Section 169 of the Companies Act, 2013 Shareholders holding more than 66.64% voting power had floated the special notice with regards to removal of director.

Further, NCLT observed that the shareholders’ right to remove a director under Section 169 of the Companies Act, 2013, is absolute and cannot be diluted by judicial interference on equity, unless there is illegality or mala fide intent.

Thereafter, EGM was held on 01st July, 2025, where Ms. TS was removed as Whole-Time Director under Section 169 of the Companies Act, 2013. An appeal against the order of NCLT was filed before the National Company Law Appellate Tribunal (Chennai), NCLAT.

ORDER

The NCLAT upheld the NCLT order and affirmed that the Right to remove a Director under Section 169 of the Companies Act, 2013 is absolute and cannot be diluted by judicial interference, unless there is illegality or mala fide intent and as the action taken was within the statutory framework of the Companies Act, 2013.

Further, the nature of the interim relief sought in the IA has been rendered redundant because the EGM has already been held.

Then NCLAT dismissed the appeal, holdingthat the NCLT’s refusal to grant interimrelief was correct, and no interference waswarranted.

BCAJ Admin

Number of Days Stay For Residence under Section 6

Determining an individual’s residential status under Section 6 of the Income Tax Act depends on the specific duration of their stay in India, yet the method for calculating this period remains highly contentious,. A significant dispute exists regarding whether to include the days of arrival and departure in the total count.

While the Authority for Advance Rulings (AAR) and the tax department argue that both days must be included—reasoning that presence for any part of a day constitutes a stay—various Tribunals and the Karnataka High Court have held otherwise. These rulings often rely on the General Clauses Act and the legal principle that the “law disregards fractions of a day,” thereby justifying the exclusion of the arrival date. Given these conflicting interpretations, appellate authorities typically adopt the view most beneficial to the taxpayer, though the ambiguity continues to trigger litigation.

ISSUE FOR CONSIDERATION

An individual is said to be a resident in India where he is in India in a year for 182 days or more, or, in the alternative, where he was in India for 365 days or more during the 4 years preceding the previous year and is in India for 60 days or more in the previous year. This period of 60 days for compliance of alternate condition is extended to 120 days or 182 days in certain cases, like seafarers, persons visiting India or leaving India for the purposes of employment. A similar condition relating to the number of days is found in respect of a person claiming the status of resident but not ordinarily resident. These provisions found in s.6 of the Act of 1961 are materially retained in the corresponding s.6 of the Act of 2025.

Determination of the number of days of stay for ascertaining the residential status is crucial on various counts and has become highly contentious. Over a period, conflicting decisions on the inclusion of the dates of arrival and/or departure and the time of arrival have been delivered on the subject. While the Authority for Advance Ruling has held that the prescribed number of days would include the days of arrival and departure, the different benches of the ITAT, in particular Jaipur, Delhi, Mumbai, Kolkata, Ahmedabad and Bangalore have held otherwise. Appeal against the decision of the Bangalore Bench has been dismissed by the Karnataka High Court.

AAR IN PETITION NO. 7 OF 1995, IN RE

In this case reported in 223 ITR 462 (AAR), the petitioner applicant claimed to be a non-resident and the sole shareholder of an unregistered company in the UAE. He opted for an advance ruling u/s. 245Q (1) of the Income Tax Act and claimed the benefit under Article 10(2)(a) of the Indo-UAE, DTAA. One of the issues relevant to our discussion, in the petition, related to the determination of the number of days of stay for ascertaining the residential status of the petitioner applicant.

The question before the Authority was whether for calculating period of stay in India, for the purposes of determining residential status of an individual under section 6(1), number of days during which he was present in India in a previous year, included the days of arrival and departure, and which therefore have to be taken into account for determination of his stay in India and not the number of days that the individual was out of India.

The Applicant submitted that he had been in and out of India on 22 occasions during the relevant financial year. According to the statement furnished by the applicant, he had been present in India for 198 days, including the days of his arrival and departure. However, by excluding the days of arrival and departure in and from India, the number of days of stay in India was 178 days only, and such stay being for less than 182 days in the financial year 1994-95, he was a non-resident and, therefore, was entitled to maintain the application under section 245Q(1).

In contrast, the case of the Income-tax Department was that the days of arrival and departure should not be excluded in counting the number of days of stay in India, but should be included in the number of days of stay in India, and as such, the applicant was a resident of India, and his application for the Advance ruling was not maintainable.

Counting the Days Navigating India's Tax Residency Rules

The additional contention of the applicant was that he was out of India for more than 187 days and, if so, he could be said to be in India for 178 days only, and as such, his stay in India could not have exceeded 181 days.

The Authority dismissed the application of the petitioner on the ground that he was a resident and not a non-resident, and his petition was not maintainable, and held as under: “Further, in order to be able to maintain the application, the applicant should have been non-resident in financial year 1994-95 as the application was preferred in 1995. Under section 6(1)(a), the applicant would have been non-resident in India for that financial year if his stay in India during that period was less than 182 days. But, according to the statement furnished by the applicant, he had been in India for 198 days. It was, however, contended that the applicant was present in India for 178 days. He arrived at this figure by computing the period during which he had been out of India in the said financial year and deducting it from 365 days. However, the calculation relevant for the purposes of section 6(1)(a) is that of the number of days during the previous year on which the applicant was present in India. For this purpose, the days on which the applicant entered India as well as the days on which he left India have to be taken into account. It is no doubt true that for some hours on these dates the applicant could be said to have been out of India also but, equally, it could not be doubted that the applicant was in India on these dates for howsoever short a period it may be. There was, therefore, really no absurdity in the computation worked out as 198 days. It was suggested that the actual number of hours during which the applicant was present in India should be found out and the number of days calculated accordingly. That idea seemed impractical but, assuming that this was a correct argument, no data had been furnished on the basis of which the stay of the applicant in India in terms of hours could be worked out. Therefore, the applicant was not a non-resident assessee entitled to maintain the application under section 245Q(1). The application was, therefore, to be rejected as non-maintainable.”

PRADEEP KUMAR JOSHI’S CASE,

The issue under consideration was also examined by the Ahmedabad Bench of the tribunal reported in 192 ITD at Page 577. In this case, the tribunal was asked to examine whether, while counting the number of days of stay in India for considering whether an individual was a resident or not, the day of arrival on a visit was to be excluded or not.

The question before the tribunal was, whether in determining the residential status of an individual assessee u/s 6 of the Income-tax Act for assessment year 2016-17, while counting the number of days of stay in India for determining the status of ‘resident’, the day of arrival had to be excluded and whether the assessee, having stayed in India during the year under consideration for less than 182 days, could not be considered as resident of India in the year under consideration.

The assessee, an individual, filed his return of income in the status of a non-resident, disclosing the income from other sources, being interest from REC Bonds, FDR, NRE Account, savings bank and dividend income. He also had income from salary earned from overseas employment with Oil Support Services, Dammam (outside India) and long-term capital gains, which were claimed as exempt from income tax. In the assessment, on the basis of verification of the passport, the AO held that the assessee was a resident, considering the calculation of days of stay in India. It was claimed by the assessee that he stayed in India during the year under consideration for 175 days, whereas the case of the AO was that the assessee had stayed in India for 184 days.

According to the assessee, the inclusion of both the days of arrival and of departure from India by the AO in counting the number of days of stay in India was not correct. The assessee relied upon the ruling of the Authority for Advance Rulings, vide an order dated 8-2-1996 in Petition No. 7 of 1995, In re (supra). In support of the case for excluding the date of arrival in India, the assessee further relied upon the order passed by the Mumbai bench of the Tribunal in the case of Fausta C. Cordeiro, 53 SOT 522.

The AO, however, held that the assessee was a resident u/s 6 of the Act and his income was taxable under the Act. The appeal of the assessee to the CIT(Appeals) was dismissed by him by a detailed order holding as follows:

‘5.4 However, it is seen that the appellant himself has computed a stay in India of 175 days as given in the return of income, 179 days as per the paper book and finally 176 days following the judgment of the ITAT Mumbai in ITA Nos.4933 & 4934/Mum/2011in the case Fausta C. Cordeiro. The said judgment has been perused, where the facts were as under:

“Briefly stated assessee has claimed status of Non Resident in India having worked as employee of M/s Transocean Discoverer and worked on rig Discoverer outside India. Assessee’s passport was examined to verify the number of day’s assessee was in India and AO noticed that assessee arrived seven times to India for varying periods and listed out them in a table and found that assessee had stayed in India for 187 days and accordingly he considered assessee as Resident and brought the salary to tax. The learned CIT (A) after considering the submissions of assessee accepted assessee’s contentions that assessee generally arrived late in the night after completing his work from abroad and attended to the work next day and generally left early in the morning so as to attend the work again after arriving at the destination. Then he analysed the General Clauses Act and the decision of the ITAT Bangalore in the case of Manoj Kumar Reddy vs. Income-tax Officer (IT), [2009] 34 SOT 180 and allowed assessee’s contention that his stay was less than 180 days in India during the relevant period.

The Hon’ble ITAT, Mumbai held that “We have considered the rival contentions and examined the facts. As rightly pointed out by the CIT (A), there was a mistake of taking number of days at Item No. 3. Therefore, according to AO’s own method it should be 186 days. If we exclude the date of arrival as it is not a complete day, the stay of assessee is less than 182 days. Accordingly there is no merit in Revenue appeal. The case law relied is in support of the contention that day of arrival, particularly late in the day should be excluded. If that day was excluded the stay in India by assessee was less than 180 days. Therefore, the grounds raised by the Revenue are dismissed and accordingly the appeal is dismissed.”

5.5 In this regard it is noted that the date of arrival and date of departure are stamped by the immigration Authorities at the Airports on the passport of the person travelling but the time of arrival and time of departure are not mentioned otherwise also the stamping by the Immigration Authority will be few hours after the arrivals (due to deplaning, arrival at lounge & queuing) and few hours before the departure (as passengers arrive about 3 hours before the scheduled departure of plane) and therefore for the purpose the expected time of arrival (ETA) and the standard time of departure (STD) in the tickets have to be taken. As per the relied upon judgement of the ITAT, Mumbai the days of arrival in India has to be ignored for counting of the period of stay in India if the arrival is in the late night. It is seen in the table as 5-2-3 that as the appellant is arriving early in the morning, typically around 8 AM to 9 AM and thus the day of arrival cannot be ignored and thus the number of clays of stay in India comes to 182 days as under: Table not printed.

5.6 It is worth noting that in general the appellant has taken flights from Bahrain for India (Bangalore or Ahmedabad or Mumbai) but the departure on 5-3-2016 from Mumbai is to Bangkok and the arrival on 18-3-2016 is from Bangkok i.e. the absence in India for the period from 5-3-2016 to 18-3-2016 was not for the purpose of work (the place of work being Dammam in Saudi Arabia) but has been undertaken for other purposes and managed for the purpose of reducing the stay of India below 182 days to avoid becoming the resident of India in the said financial year. In this regard it is noted that as per the existing provisions of Section 6 as applicable in the case no adverse view as to the visit to Bangkok for the purpose other than for the purpose of employment can be drawn because the conditions of maintenance of a dwelling place in India has been done away with.”

The Ahmedabad bench of the tribunal noted the observations of the CIT(A), who had found that the Mumbai bench, in the case of Fausta C. Cordeiro(supra), excluded the date of arrival, since it was not a complete day, and that while doing that, the Mumbai bench had relied upon the decisions of the co-ordinate benches of the tribunal in the cases of R. K. Sharma, (1987) SOT 1.127 (Jp.)Manoj Kumar Reddy(supra) and Gautam Banerjee (ITAT L. Bench Mumbai) in ITA No. 2374/Mum/2004 dated 18-6-2008). The bench also took note of the decision placed on record of the Karnataka High Court in the case of DIT International Taxation vs. Manoj Kumar Reddy Nare 12 taxmann.com 326, wherein the order of the tribunal on facts and findings was accepted.

The Ahmedabad bench took note of the contentions of the Departmental Representative, who, besides relying on the orders of the A.O. and the CIT(A) and the findings hereinabove, contended that ‘there is no provision under the Act that fraction of a day is to be excluded. Section 6(l)(c) provides that he should be in India for a period or period amounting in all to 60 days or more in that year. In case the fraction of a day is to be ignored when a person who is coming to India on different occasions during the previous year, then such fraction of day. i.e., day of arrival and day of departure will have to be excluded. This is not the case and the intention of the Legislature when it has provided the period or periods amounting in all to 60 days or more”

The Ahmedabad bench took note of the fact that the co-ordinate bench in the case of Manoj Kumar Reddy (supra) has relied on the decision of the Hon’ble Delhi High Court in the case of Praveen Kumar vs. Sunder Singh Makkar AIR 2008(NOC) 1099(Del.) delivered in the context of the performance of a suit by relying on the General Clauses Act.

The Ahmedabad bench held that the CIT(A), while counting the number of days of stay in India, purportedly counted the date of arrival of the assessee in India, without giving any cogent reason thereon, which, in the considered opinion of the bench, had no basis, more so when it had already been held by different benches that while counting the number of days of stay in India for considering the status of “Resident”, the days of arrival have to be excluded. The bench did not find any reason to deviate from the ratio laid down by the Bangalore bench with the identical facts in the case in hand. The bench ordered the exclusion of the date of arrival in counting the days of stay in India in the case of the assessee.

The bench thus held that the assessee stayed in India during the year under consideration for less than 182 days and could not be considered as a resident of India in the year under consideration. In that view of the matter, the impugned assessment made against the assessee, considering him as a resident of India, was held to be not sustainable in the eyes of law, and the overseas income assessed was deleted. As a result, the appeal preferred by the assessee was allowed, holding that in calculating the number of days of stay in India, the days of arrival were to be excluded.

OBSERVATIONS

s.6(1) of the Act reads as

For the purposes of this Act,-

(1) An individual is said to be resident in India in any previous year, if he-

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or

(b) ***

(c) having, within the four years preceding that year, been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

The main provision is followed by Explanations 1 and 2, which are not reproduced here for the sake of brevity. Both the Explanations are inserted at a later date to relax the rigours of clause (c) prescribing the period of stay in India of 60 days. Clause (c), which is an alternative to clause (a), provides that a person would be said to be a resident in India where his stay in a year is of 60 days or more, provided also that his stay during the preceding 4 years is of 365 days or more. On cumulative satisfaction of the twin conditions of clause (c), an individual is said to be resident in India, even where his stay in India does not exceed 181 days. The condition of stay of 60 days in clause (c) is relaxed in three situations narrated in clauses (a) and (b) of Explanation 1 to s.6(1) of the Act, which cases are the cases of seafarers, a person leaving India for employment outside India and a person who comes on a visit to India.

The issue for consideration here revolves in a narrow compass about how to determine whether an individual is said to be in India in any previous year for the prescribed period or periods. A person can be in India and also out of India on a given day, especially on the day of his departure and of the day of his arrival, unless the event happens exactly at midnight, when the day and the date change. The issue is about whether to include such days or to exclude them, while determining the number of days of stay in India. The Act does not prescribe any methodology for calculating the number of days in a year, nor do the rules prescribe the manner for calculating the number of days. No guidance is available in the context of s.6 of the Act. The Directorate of Income Tax (Public Relations, Publications and Publicity), in its brochure on “Determination of Residential Status under Income-tax Act, 1961” has stated that “For the purpose of counting the number of days stayed in India, both the date of departure as well as the date of arrival are ordinarily considered to be in India”.

In a general sense, a ‘day’ is the time when there is light and, in that sense, the day starts with sunrise and ends with sunset. At times, a day is taken to be a period of 24 hours. A solar day begins with midnight and ends with the following midnight; a period of 24 hours, from 12:00 midnight to 12:00 midnight of the next night. A day is usually a 24-hour period, connoting the length of time it takes the earth to rotate fully on its axis.

S.2(35) of the General Clauses Act, 1897 defines a ‘month’ to mean the period to be reckoned according to the British Calendar and s. 2(66) of the said Act defines a “Year” to mean a year according to the British Calendar. Even the General Clauses Act does not define a “day”.

The expression ‘day’ has been understood in different ways by different nations at different times. In case of Frank Anthony Public School vs. Smt. Amar Kaur, 1984 (6) DRJ 47, the Delhi High Court quoted with approval the words of Lord Coke; The Jews, the Chaldeans and Babylonians begin the day at the rising of sun; The Athenians at the fall; the Umbri in Italy begin at midday; The Egyptians and Romans from midnight; and so doth the law of Englans in many cases. The English day begins as soon as the clock begins to strike twelve p.m. of the preceding day. Williams vs. Nash, 28 L.J.Ch. 886.

In Halsbury’s Laws of England, third edition, Vol.37, pg. 84, it is said, the term ‘day’ is like the terms ‘year’ and ‘month’ used in more senses than one. A day is strictly the period of time which begins with one midnight and ends with the next. It may also denote any period of twenty-four hours, and again it may denote the period of time between sunrise and sunset.

The meaning assigned by the courts, in the context, to the word ‘day’ has been explained in the Law Lexicon by Venkatramaiah’s 1983 Edition to mean: “Day, generally speaking, is the period from midnight to midnight: the law admits not of fractions in time but, in case of necessity. [Louis Dreyfus & Co. vs. Mehrchand Fattechand ’61.C. 886]. ….The day on which a legal instrument is dated begins and ends at midnight. It is not necessary to consult the calendar to ascertain when it commences and ends. [Anderson: Law Dictionary]….”

It is settled that the law disregards fractions. In the space of a day, all the twenty-four hours are usually reckoned; the law rejects all fractions of a day to avoid disputes. Counting the date of service, which takes place in any part of the day as a day, would result in a fraction being included, and since a fraction of a day is not to be included, the limitation would begin from the next date. A day, it emerges, should be taken as a period of 24 hours and that too continuous twenty-four hours; In counting the number of days, the fraction of the day should be excluded in computing the number of days.

Section 12(1) of the Limitation Act reads as follows;

12. Exclusion of time in legal proceedings (1) In computing the period of limitation for any suit or application, the day from which period is to be reckoned shall be excluded (2) ……. Section 12(1) itself specified that for the computation of the period of limitation, the day from which the said period is to be reckoned should be excluded.

Possibilities that emerge are to exclude the days when a person arrives in India, and also the days when he departs from India. Alternatively, to include both such days on the ground that the person was in India even for a part of the day. Then there is a possibility to exclude one of these days, and yet one more is to divide the day into the number of hours and take a mean thereof and apply the test of 12 hours stay in India. There is also a possibility of excluding the day when a person has come to India after sunset and the day when he has left India before sunrise, or where he was in India for less than 12 hours.

Section 9 of the General Clauses Act, 1897 is as under —

“(1) In any (Central Act) or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time to use the word “from”, and, for including the last in a series of days or any other period of time, to use the word “to”.

(2) This section also applies to all (Central Acts) made after the third day of January 1868. and to all Regulations made on or after the fourteenth day of January, 1887.”

The Delhi High Court in the case of Praveen Kumar (supra) had an occasion to consider whether the suit before the court was filed in time. In that case, the deed of performance of the agreement dated 10.03.2002 was stipulated to take place on 30.7.2002, failing which the suit was filed on 30.07.2005 for specific performance. The suit was challenged on the ground that it was barred by time and was not maintainable. It was contended that the last date for filing the suit was 29.07.2005, and the suit was filed late by one day. In defense, the plaintiff argued that the suit was filed in time and the same was in accordance with the Order 7 Rule 11 of the Civil Procedure Code, and the Limitation Act and the General Clauses Act. In case the date set for performance, i.e., 30.7.2002, was excluded, then the limitation will commence from the next date, i.e., 31-7-2005.

The Delhi High Court referred to section 9 of the General Clauses Act to hold that, if the word ‘from’ is used, then the first day in a series of days will stand excluded, and if the word ‘to’ is used, then it will include the last day in a series of days or any other period of time. The Delhi High Court at para 28 observed that: “It is well-known maxim that the law disregards fractions. By the Calendar, the day commenced at midnight, and most nations reckon in the same manner. The English do it in this manner. We too have adopted the same. In the space of a day all the twenty four hours are usually reckoned, the law generally rejecting all fractions of a day, in order to avoid disputes. If anything is to be done within a certain time of, from, or after the doing or occurrence of something else, the day on which the first act or occurrence takes place is to be excluded from computation. (Williams vs. Burzess [1840] 113 E.R. 955) unless the contrary appears from the context. (Hare vs. Gocher F1962I2 Q.B. 641). The ordinary rule is that where a certain number of days are specified they are to be reckoned exclusive of one of the davs and inclusive of the other (R.V. Turner,(supra) p. 359).”

As per the General Clauses Act, the first day in a series of a day is to be excluded if the word from is used. Since for computation of the period, one has to necessarily import the word ‘from’ and, therefore, accordingly, the First day is to be excluded.

It is relevant to note that the ruling of the AAR is assessee-specific and is not binding on other assesseees and does not have a value of precedent. Secondly, the Authority did not have an occasion to examine the implication of s.9 of the General Clauses Act and the decision of the Delhi High Court in Praveen Kumar’s case (supra). It also did not consider the possibility of inclusion or exclusion about the number of hours and the fraction of a day, simply for the reason that such data was not made available by the petitioner applicant.

The Karnataka High Court, while dismissing the appeal of the revenue against the order of the tribunal in Manoj Reddy’s case (supra), did note the facts of the case and the findings of the tribunal and this decision of the High Court is referred to by the subsequent decisions of the tribunal.

For records, it is noted that s.32(1) granting depreciation, vide second proviso, restricts the benefit of depreciation to 50% in cases where the asset in question is put to use for a period of less than 180 days in the previous year. Likewise, the Act has many provisions that provide for limitations with reference to the number of days.

It appears that the exclusion of one of the days is not difficult and does not need extra persuasion, though the view that both days are to be included is held by the AAR and the Income Tax Department. The challenge, therefore, for an assessee is to examine whether both the days can be excluded or not. There is a good possibility of exclusion in cases where the hours of stay in India on any of these days are less than twelve hours. In such a case, applying the theory of excluding the ”fraction of the day”, such a day may be excluded.

One may also be careful to ensure that the customs authorities, in stamping the passport puts the date of actual arrival and departure to eliminate the confusion arising on account of the stamping prior to the actual time of the event.

Applying the General Clauses Act, 1897, the first date in line should be excluded in computing the number of days. Most of the cases considered by the tribunal are the cases of ”visit” to India, and therefore, in these cases, the tribunal has held that the date of arrival, being the first in line, should be excluded. Applying the principle supplied by the tribunal, basis the General Clauses Act, in computing the number of days in cases where the person leaves India for the purposes of employment, or otherwise, the date of departure should stand excluded.

One may note that the words ‘from’ and ‘to’ are not found in s. 6 of the Act and are read into the section by the courts by relying on the General Clauses Act, which inter alia does provide so in s. 9 of the said Act, relied upon by the tribunal.

While it may be true that s.6 requires one to examine the number of days stay in India and not out of India, it is also not appropriate to altogether rule out the calculation of days in India by excluding the number of days of stay outside India. In case of a person who is admittedly out of India for more than the prescribed number of days, it would not be inappropriate to derive his number of days of stay in India by excluding the number of days outside India from 365 days.

It seems that the case of the revenue for inclusion of both the days is misplaced, and even for inclusion of one of the days is debatable and is capable of two views. Under such circumstances, the view beneficial to the taxpayer should be adopted.

The issue under consideration has a very wide application and can seriously damage the cases of many taxpayers who are not vigilant about the implications of the number of days of stay in a year or years. The taxpayers, in general, are advised not to take chances and to avoid unwarranted litigation, at least in cases where it is possible for them to monitor the number of days of their stay in India. Better is for the Parliament, if not the Government, to lay down clear-cut rules to avoid any harm to unsuspecting taxpayers.

BCAJ Admin

Allied Laws

48. Rajani Manohar Kuntha & Ors vs. Parshuram Chunilal Kanojia & Ors

2025 LiveLaw (SC) 1253

December 02, 2025

Tenancy – Eviction – Tenant cannot dictate – Bona fide Requirement – Scope of Revisional Jurisdiction is narrow – The bona fide requirement has to be assessed from the landlord’s perspective and not from the tenant’s convenience.

FACTS

The Appellants (Landlords) instituted a suit seeking eviction of the Respondents (Tenants) from a commercial Premises. The eviction was sought on the grounds of bona fide requirement for commercial use. The Trial Court, upon appreciation of the pleadings and evidence, decreed the suit for eviction, holding that the requirement was genuine and bona fide. The First Appellate Court confirmed the findings and decree of the Trial Court. In revision, the Bombay High Court set aside the concurrent findings of the Trial Court and the First Appellate Court. The High Court undertook a detailed scrutiny of the pleadings and evidence and held that the landlord’s bona fide requirement was not established, inter alia, relying on the existence of other premises and the obtaining of a commercial electricity connection during the pendency of proceedings.

On an appeal to the Supreme Court:

HELD

The High Court exceeded its revisional jurisdiction by re-appreciating evidence and conducting a microscopic scrutiny of facts, despite the concurrent findings of fact recorded by the Trial Court and the First Appellate Court. Revisional jurisdiction can be exercised only when the findings of the courts below are ex facie perverse or without jurisdiction. Further, the Supreme Court observed that a tenant cannot dictate to the landlord as to the suitability of alternative accommodation or how the landlord should conduct his business. The bona fide requirement has to be assessed from the landlord’s perspective and not from the tenant’s convenience. Relying upon settled principles of law, the Court reaffirmed that the concurrent findings of fact should not be interfered with in revision, and the High Court’s interference was held to be without jurisdiction.

Accordingly, the judgement of the High Court was set aside, and the Trial Court and First Appellate Court decrees of eviction were restored.

49. Cement Corporation of India vs. ICICI Lombard General Insurance Company Limited

2025 INSC 1444

December 15, 2025

Insurance Law – Fire Insurance – Proximate Cause – Exclusion Clause – Theft preceding Fire – Interpretation of Fire and Special Perils Policy [Indian Contract Act, 1872]

FACTS

The Appellant, Cement Corporation of India, a Government company, obtained a Standard Fire and Special Perlis (Material Damage) Insurance Policy from the Respondent insurer covering its Cement Factory. An unknown miscreant entered the factory premises during the night and attempted theft of copper windings and transformer oil using blow torches and gas cutters. During the course of such attempted theft, a transformer caught fire, resulting in extensive damage to the insured property. An FIR was registered, and the Appellant lodged an insurance claim. The Surveyor appointed by the insurer opined that the fire resulted from the attempted theft and recommended repudiation of the claim by invoking the Riot, Strike, Malicious Damage (RSMD) exclusion clause, treating burglary as the proximate cause. Relying on the survey report, the Respondent repudiated the cause and the claim. Aggrieved, the Appellant filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC dismissed the complaint, holding that burglary/theft was the proximate cause of loss and that theft was not a covered peril under the policy.

HELD

The Supreme Court held that a fire insurance policy is a contract of indemnity against the loss caused by fire, and once it is established that the damage occurred due to fire, the cause that ignited the fire becomes immaterial unless it is specifically excluded under the policy or is attributable to fraud or wilful misconduct of the insured. The Court observed that burglary/theft was not an exclusion under the specific peril of “Fire” in the policy. The RSMD exclusion could not be invoked to defeat a claim where the loss was directly attributable to fire, an insured peril with its own distinct exclusions. The Court further held that the doctrine of proximate cause had been wrongly applied by the NCDRC, as the immediate and effective cause of loss was fire, while theft merely preceded the incident.

Accordingly, the Supreme Court allowed the appeal and set aside the repudiation of the claim as well as the order passed by the NCDRC.

50. Apsara Co-operative Housing Society Ltd. vs. Vijay Shankar Singh

WP 3908 of 2025 (Bom)(HC)

January 05, 2026

Cooperative Housing Society – Housing Society formed for collective management is neither “industry” nor “establishment” – Proceedings not maintainable – Gratuity Act, 1971 is inapplicable – irrespective of earning income through installation of telecommunication towers/antennas. [S. 2(j), Industrial Disputes Act, 1947; S. 1(3)(b), S. 2(4) Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017]

FACTS

The Petitioner is a Co-operative Housing Society registered under the Maharashtra Co-operative Societies Act, 1960. The Respondent was appointed as Building Manager in 2013, and his services were terminated in 2022.

The Respondent filed claim before the labour court for bonus, leave wages and gratuity before the Controlling Authority. The Petitioner opposed the maintainability by filing applications seeking dismissal of both proceedings, contending that it is neither an “industry” within Section 2(j) of the Industrial Disputes Act, 1947 (ID Act) nor an “establishment” within Section 2(4) of the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017. (MSE Act)

The Labour Court/Controlling Authority dismissed applications, holding that the Respondent should be permitted to lead evidence. Aggrieved, the Petitioner filed writ petitions challenging the said orders.

HELD

The Bombay High Court held that for invoking provisions of the ID Act, the Respondent (Original Applicant) must establish that the employer is an “industry” within Section 2(j) of the ID Act. A co-operative housing society formed by flat owners only for collective management of the building does not carry on any systematic trade, business or commercial activity and therefore cannot be treated as an “industry”. The Court further held that the mere existence of facilities such as a clubhouse or earning income through the installation of telecommunication towers/antennas does not, by itself, convert the society’s activities into a systematic commercial activity. Such incidental income is aimed at reducing maintenance contributions and does not constitute trade/business. Thus, the Labour Court erred in rejecting the dismissal application and in posting the issue for evidence, since the Respondent would not be able to demonstrate any industrial activity even upon leading evidence.

On the gratuity claim, the Court held that the applicability of the Payment of Gratuity Act (Section 1(3)(b) depends upon whether the entity is a shop/establishment within the meaning of the MSE Act. Under Section 2(4) of the Maharashtra Shops Act, an “establishment” contemplates an entity carrying on business/trade/profession or incidental or ancillary activities thereto. A cooperative housing society, managing residential premises for members’ personal use, does not carry on business/trade/profession and therefore is not an “establishment”.

Accordingly, the Court concluded that the Petitioner Society is neither an “industry” under the ID Act nor an “establishment” under the Maharashtra Shops Act and therefore both the proceedings were not maintainable.

51. Kanchana Rai vs. Geeta Sharma & Ors.

2026 LiveLaw (SC) 41

January 13, 2026

Hindu Law – Maintenance – Dependents –“Any widow of his son” – Widowhood after father-in-law’s death – Right to claim maintenance from estate of father-in-law. [S. 21(vii), Hindu Adoptions and Maintenance Act, 1956]

FACTS

The dispute arose inter se among heirs/family members of the late Dr. Mahendra Prasad, who died on December 27, 2021. He had three sons: (i) Ranjit Sharma (who later died on March 02, 2023), (ii) Devinder Rai (husband of Appellant Kanchana Rai, predeceased), and (iii) Rajeev Sharma.

Respondent No.1 Geeta Sharma, wife of Ranjit Sharma, filed proceedings before the Family Court seeking maintenance from the estate of her father-in-law under the Hindu Adoptions and Maintenance Act, 1956.

The Family Court dismissed the petition as not maintainable, holding that Respondent No.1 was not a widow on the date of death of the father-in-law, since her husband was alive at that time.

In appeal, the High Court set aside the Family Court order and held that the petition was maintainable as Respondent No.1 was the widow of the son of the deceased and thus a dependant, and directed the Family Court to decide the matter on merits and quantum. On appeal to the Supreme Court.

HELD

The Court analysed Chapter III (Sections 18–28) of the Act and especially Section 21(vii), which defines “dependants” to include “any widow of his son” so long as she does not remarry, subject to inability to obtain maintenance from husband’s estate/children, etc. The Court held that the language is clear and unambiguous and does not permit reading the words as “widow of his predeceased son”. The legislature consciously used “any widow of his son”, and the time of becoming a widow is immaterial.

The Court reiterated the literal rule of interpretation, holding that courts cannot add or subtract words from statutes. The Court further observed that restricting maintenance only to widows whose husbands died during the lifetime of the father-in-law would create an arbitrary classification violating Article 14 and would also offend Article 21 by exposing widowed daughters-in-law to destitution.

The Appeal was dismissed.

52. UOI . vs. Paresh Chandra Mondal

2026 LiveLaw (SC) 42

January 07, 2026

Nomination – Provident Fund – Succession Certificate/Probate – Nominee’s primacy – Harmonious construction – Government should not insist on succession certificate where valid nomination exists – Nominee as trustee (not beneficial owner). [S. 4(1)(c)(i), S. 5(1), Provident Funds Act, 1925; R. 33(ii), GPF (Central Services) Rules, 1960]

FACTS

The Petitioners filed a Special Leave Petition challenging the judgment passed by the Calcutta High Court whereby the High Court dismissed the writ petition filed by the Union of India against an order of the Central Administrative Tribunal,

The Tribunal had allowed the application filed by the Respondent seeking release of amounts lying in the General Provident Fund (GPF) of his deceased brother, holding that the Respondent was the only valid nominee and entitled to receive the amount under Rule 33(ii) of the General Provident Fund (Central Services) Rules, 1960.

The Union of India contended that since objections were raised by nephews of the deceased, and as the amount exceeded Rs.5,000/-, Section 4(1)(c)(i) of the Provident Funds Act, 1925 required production of succession certificate/probate/letters of administration for release of such amount, and that Rule 33(ii) could not override the statutory mandate. It was also argued that, though the Respondent produced a succession certificate, the GPF amount was not mentioned in its schedule.

HELD

The Supreme Court declined to entertain the SLP and upheld the approach of the Tribunal and the High Court, holding that Rule 33(ii) of the GPF (Central Services) Rules, 1960 provides that where the subscriber leaves no family and a valid nomination subsists, the amount standing to his credit shall become payable to the nominee.

Further, if succession certificates/probates were insisted upon even in valid nomination cases, it would render nominations otiose and defeat their object. The Court relied upon Section 5(1) of the Provident Funds Act, 1925, which begins with a non-obstante clause and confers entitlement upon the nominee to the exclusion of all other persons, thereby giving primacy to a valid nomination. The Court further observed that the Government should avoid becoming party to private inheritance disputes, which would inevitably occur if succession certificates were insisted upon even in nomination cases.

SLP of the Petitioner was dismissed.

BCAJ Admin

Generational Shifts

Recently, I was with a senior partner of a mid-sized firm who had a simple, but telling story. A junior colleague had texted him at 9 p.m. with the message: “Tomorrow, I’ll be on leave.” No explanation. No apology. Just a fact. When he asked why it was shared so abruptly, the response came: “No need to overcomplicate it.” To the senior, this felt like a breach of etiquette, a lack of respect, unprofessional. To the junior? It was just communication.

Such interactions pointing to generational shifts are increasingly common, not only in accounting firms, but across industries—from accounting and law to tech to consulting—you’ll find these micro-conflicts: senior leaders baffled by juniors who decline to work late without guilt, or young professionals puzzled by the “culture of presence” that glorifies late-sitting.

The clash isn’t about right or wrong, but a signal of a deeper shift in how different generations understand work, authority, and obligation. The discomfort is real—and it exists on both sides. Every generation believes it worked harder than the next. History suggests this belief is universal—and consistently misplaced. The way forward therefore is not to defend old norms reflexively, nor to adopt new ones uncritically, but to translate enduring values into contemporary forms by understanding these generational shifts with empathy.

Bridging the Professional Divide

For many senior professionals, professionalism was forged in an environment of scarcity and uncertainty. Long hours were not a choice but a necessity. Staying back late, deferring personal plans, and placing work above all else were ways of demonstrating seriousness and reliability. These habits were not arbitrary; they were survival mechanisms in a competitive and less forgiving professional landscape. Over time, they also became cultural norms—transmitted quietly from one generation to the next.

There is, undeniably, value in this legacy. Endurance builds resilience. Availability builds trust. Unstructured time spent observing seniors at work often imparted lessons no formal training could. Many of today’s leaders owe their professional depth to precisely this immersion. When seniors worry that something essential is being lost, the concern is neither nostalgic nor unfounded.

At the same time, younger professionals are entering a very different world – the world of abundance and technology. Work is more codified, timelines are compressed, and technology has reduced the need for physical presence. They have grown up in an environment that openly discusses mental health, personal boundaries, and sustainability. For them, clarity and planning are not luxuries but expectations. When leave is communicated as a matter of fact, it reflects not entitlement, but a belief that personal time and professional responsibility can coexist without apology.

This difference in approach often gets misinterpreted. Seniors may see a lack of commitment; juniors may experience unspoken expectations as arbitrary or inefficient. In reality, both are reacting rationally to the conditions that shaped them.

A similar tension is visible in ideas of loyalty. Earlier generations invested decades in one firm, trusting that patience and perseverance would be rewarded in time. Younger professionals, however, operate in a world of rapid change. They value learning velocity, relevance, and optionality. Shorter tenures are not necessarily signs of disloyalty, but reflections of a marketplace where skills, not institutions, offer security. Yet, from a firm’s perspective, this increased attrition and frequent job-hopping creates real challenges—continuity, succession planning, and cultural transmission all suffer when attrition is high.

Authority presents another point of divergence. Seniority once commanded automatic deference. Today, authority is often filtered through competence and explanation. Juniors are more willing to question—not to undermine, but to understand. This can feel destabilising to those accustomed to hierarchy, just as unexplained instructions can feel unsatisfactory to those trained to evaluate systems critically.

Technology further complicates the picture. Manual processes that once built discipline now appear inefficient to a generation raised on automation. Seniors may see impatience; juniors see avoidable waste. Here again, both perspectives contain truth.

And finally, there’s identity. For many seniors, the profession is the identity. “I’m a senior partner. That defines me,” said 60-year-old Ravi. But for younger professionals, work is just one thread in a tapestry of interests, hobbies, and family roles. “I’m a chartered accountant, part-time DJ, and owner of an e-commerce startup in customised birthday cakes” said 28-year-old Nia.

So, for seniors, where do we go from here? The answer isn’t choosing between “the way we did it” and “the way you want to do it.” It’s about building bridges. This isn’t a war of generations. It’s a translation. The wisdom of the past isn’t outdated, but it needs to be spoken in a language the next generation can speak. Are we ready to adapt and speak that language?

Best Regards,

CA. Sunil Gabhawalla

Editor

BCAJ Admin

त्रिपीडाSस्तु दिने दिने !

This is an interesting thought. It says, every day three types of troubles are welcome. पीडा means trouble. The shloka reads as follows: –

प्रदाने विप्रपीडाSस्तु While doing charity, a learned person (Brahman) is welcome to trouble us.

पुत्रपीडा तु भोजने While having our meals, our son (children) should be around. to trouble us.

शयने दारपीडाSस्तु In the bed, the wife should be there to ‘trouble’ a man. दार means wife.

(त्रिपीडाSस्तु दिने दिने)

The Sweet Burden 4 Troubles to welcome Daily

In our culture, doing charity or giving help to the deserving person is of utmost importance. It is called ‘Satpatri daan’ – charity to a deserving person. विप्र means a learned and pure person. In those days, at the time of lunch, people used to wait for some good guest (Atithi) to join us for food! Without giving to an Aththi, they did not consume food! Therefore, when we wish to give something for a good cause or to a deserving man, such person is welcome. Hunting for such a good person is also a welcome task.

Today many good charitable institutions find it difficult to get deserving donees or deserving students/organisations as beneficiaries.

Further, if our children are around us while having meals, it is a pleasure. Today, our family system is collapsing. There are nuclear families.

When a parent is eating, small kids sharing the food from his plate is a pleasurable scene. One enjoys feeding one’s small kids who play or dance around and get fed! Even their trouble is enjoyable.

Similarly, when in bed, the company of your spouse is very enjoyable! Her company may be ‘troublesome’ in the good sense of the term.

I heard this shloka from a very learned scholar. He was teaching something. He added a very meaningful line –

पाठने छात्रपीडाSस्तु !

Meaning, while teaching there should be inquisitive students with intense desire and curiosity for acquiring knowledge. Such students’ ‘trouble’ is welcome. That is the ideal relationship between Guru and Shishya (mentor and disciple) This fun is not available in online teaching! Students should raisequestions, doubts and queries to understand the subject better.

In this verse, the word or trouble should be taken in the right sense with a positive meaning.

BCAJ Admin

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

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

Arjun Rishi vs. ITO

ITA NO: 3020 (DEL.) OF 2023

A.Y.: 2017-18

DATE: 09.07.2025

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

FACTS

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

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

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

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

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

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

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

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

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

BCAJ Admin

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

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

DCIT vs. Sahil Vachani

ITA NO.: 2604 (DEL) OF 2023

A.Y.: 2016-17

DATE: 23.06.2025

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

FACTS

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

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

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

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

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

HELD

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

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

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

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

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

BCAJ Admin

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

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

Kusum Sahgal vs. ACIT

A.Y.: 2016-17

Date of Order: 21.11.2025

Section : 54F

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

FACTS

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

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

Aggrieved, the assessee filed an appeal before ITAT.

HELD

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

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

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

BCAJ Admin

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

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

Dudhsagar Research and Dement Association vs. DCIT

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

Date of Order: 17.11.2025

Section: 11(1)(d)

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

FACTS

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

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

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

Aggrieved, the assessee filed an appeal before ITAT.

HELD

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

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

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

BCAJ Admin

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

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

Malanadu Farmers Society vs. DCIT

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

Date of Order : 19.11.2025

Section: 2(15)

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

FACTS

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

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

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

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

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

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

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

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

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

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

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

BCAJ Admin

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

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

Rupen Marketing Pvt. Ltd. vs. DCIT

A.Y.: 2015-16

Date of Order: 18.6.2025

Sections: 143(2)

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

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

FACTS

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

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

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

HELD

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

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

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

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

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

BCAJ Admin

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

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

Oravel Stays Ltd. vs. DCIT

A.Y.: 2020-21

Date of Order : 21.11.2025

Section: 194-I

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

FACTS

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

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

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

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

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

HELD

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

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

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

BCAJ Admin

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

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

Penninti Vivekananda Rao vs. ADIT

A.Y.: 2020-21

Date of Order: 19.11.2025

Section: 270A

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

FACTS

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

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

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

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

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

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

BCAJ Admin

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

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

Sugee Seven Developers LLP vs. ITO

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

Date of Order : 10.10.2025

Section: 194-IC

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

FACTS

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

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

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

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

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

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

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

BCAJ Admin

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

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

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

IT APPEAL NO.1407 (DELHI) OF 2025

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

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

FACTS

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

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

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

The following facts were clear from the secondment agreement:

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

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

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

BCAJ Admin

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

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

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

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

A.Y.: 2022-23

Dated: 25 July 2025

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

FACTS

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

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

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

HELD

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

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

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

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

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

BCAJ Admin

Understanding Scope 2 Emissions And Why They Matter

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

INTRODUCTION

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

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

Operational boundary as per GHG Protocol Corporate Standard

WHAT IS SCOPE 2 EMISSIONS?

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

2. This article focuses on energy generated from electricity only

3. Centra Electricity Authority Report Dec 2024

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

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

Thermal Power Plant

WHAT IS THE SIGNIFICANCE OF SCOPE 2 EMISSIONS ACCOUNTING?

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

4 IPCC's 6th Assessment Report

WHAT ARE THE VARIOUS ELECTRICITY GENERATION/DISTRIBUTION METHODS?

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

Power Distribution Mechanism

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

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

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

HOW TO CALCULATE SCOPE 2 EMISSIONS?

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

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

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

Activity Data

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

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

Emission Factors

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

Scope 2 Emissions

a. Location based method:

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

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

Example:

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

Scope 2 emissions of ABC

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

b. Market based method⁶:

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

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

These criteria are:

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

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

Difference between Location based method and Market based method:

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

Example 1:

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

Scope 2 emissions of ABC

For consumption tracked by energy certificates,

1000 MWh X 0.5 tCO2e/MWh = 500 tCO2e

For consumption not tracked,

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

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

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

Example 2:

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

For consumption being covered by RECs,

1000 MWh X 0 tCO2e/MWh = 0 tCO2e

For consumption not covered by RECs,

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

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

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

REPORTING OF EMISSIONS UNDER SCOPE 2

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

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

7. The earliest period after which the organisation has started tracking its Scope 2 Emissions. It is used for setting reduction targets

THE INDIAN CONTEXT

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

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

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

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

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

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

Procedure of trading and redemption of RECs at Power exchanges

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

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

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

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

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

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

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

Source: Company Annual Report FY 2024-25

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

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

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

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

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

Source: Press release dated 01st Oct 2023

PRACTICAL CHALLENGES IN SCOPE 2 EMISSION REDUCTION

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

CONCLUSION

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

References:

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

BCAJ Admin

Tech Mantra

PDFgear

PDFg

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

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

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

https://www.pdfgear.com/

Floating Notes

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

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

Overall, a totally different Notes Experience!

Android : https://tinyurl.com/floatingnotes

URLCheck

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

An interesting free tool to avoid scams and dangerous links!

Android : https://tinyurl.com/urlch

Typi – Type with AI

Typing

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

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

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

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

Pretty neat and useful!

Android : https://tinyurl.com/typewithai

BCAJ Admin

Learning Events at BCAS

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

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

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

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

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

Scan to watch on Youtube

CA Pariksha Pe Charcha

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

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

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

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

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

Scan to watch online at BCAS Academy

Webinar on New Labour Codes

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

AARAMBH

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

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

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

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

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

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

FALCON

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

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

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

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

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

CATHON

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

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

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

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

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

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

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

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

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

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Webinar on Tax Law in Transition

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

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

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

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

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

– What do you truly want?

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

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

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

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

Key Takeaways:

– Embrace individuality and celebrate your uniqueness.

– Define priorities and make conscious choices.

– Build support systems and networks for growth.

Motivational Highlight:

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

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

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

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

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

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Lecture Meeting on Boosting Business and Professional Productivity

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

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

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

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

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

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

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

Power Summit

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

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

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

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

Topic	Speaker / Panellist & Moderator	Key Learnings for Participants
Grow In Continuum: Succession Planning Strategies for Proprietorship & Small Firms	CA Jayraj Sheth	Participants learnt from Jayraj’s presentation about key areas such as exploring when to begin succession planning, grooming successors and client transition strategies.
Partnership Deeds – Beyond the Fine Print, ICAI – Latest Updates.	Speaker: CA Vishal Doshi \| Moderator: CA Ameet Patel	Candid discussion with Vishal gave insights into how ICAI, at institution level, is perceiving and looking at mergers, multi-disciplinary partnerships etc. Also, Vishal shared updates on the latest progress happening at ICAI level on these topics.
Fireside Chat: Women in Leadership: The Evolving Role of Women Professional	Speaker: CA Priti Savla \| Moderator: CA Nandita Parekh	The chat highlighted the various initiatives taken by ICAI for empowering Women Professionals. Also, the personal journey of Priti, motivated and inspired all the participants.
Mergers and Expansion – Why some work, why many fail	Panellists: CA Manish Sampat, CA Naman Shrimal \| Moderator: CA Vaibhav Manek	The power packed discussion with the panellists left the participants with lots of food for thought on various merger models, geographic / vertical expansion, profit-sharing agreements, reasons for things not working out and practical suggestions on how to navigate these challenges.
Practice Excellence- Preparing For Growth/ Merger	Panellists: CA Paresh Shaparia, CA Subhash Saraf \| Moderator: CA Ameet Patel	The practical experience shared by both the panellists gave interesting insights to all participants on how to get oneself or one’s own firm ready for Growth and Merger. Key takeaways being around areas of practice reviews, policy documentation, MIS systems etc.
Professional Firms @ 2030 What will it take?	Panellists: CA Nilesh Vikamsey, CA Naman Shrimal \| Moderator: CA Vaibhav Manek	The panellists shared multiple perspectives on what would be the key drivers for a successful CA Firm in 2030. Also, they shared interesting suggestions on future-proofing professional firms in the next decade.
Legal Insights on the Professional Service Firms – How to Navigate the Regulatory Landscape and Prepare for Risks and Liabilities	Panellists: Mr. Shreyas Jayasimha, Ms. Radhika Iyer \| Moderator: Vaibhav Manek	It was an interesting panel discussion to provide a flavour to all the participants on the kind of legal risks that a professional is carrying in today’s time and practical suggestions on ways to navigate them. There was also discussion on how different professionals can collaborate to create a win-win situation for everyone.
Walk & Talk: Challenges of Firm Growth	CA Nilesh Vikamsey, CA Ameet Patel, CA Nandita Parekh	This was the concluding session in which the discussions focused on real-world barriers in expansion and how peers have navigated them. Interesting Q&As and discussions were done with the participants as well.

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

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

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

The following major areas were discussed during the session:

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

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

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

Felicitation of Chartered Accountancy pass-outs Nov

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

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

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Felicitation of Chartered Accountancy pass-outs

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

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

Chairman of the session – CA Sushil Lakhani

Group Leader CA Kush Vatsaraj

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

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

The Human Resource Development Committee organized a BCAS NXT Learning & Development Bootcamp on “A Deep Dive into GST Annual Return (GSTR-9) and Reconciliation Statement (GSTR-9C)” on Friday, 14th November 2025, from 4:00 PM to 6:00 PM.

The session was led by Ms Riya Bhavesh Shah, a CA Final student, who delivered a detailed presentation covering each table in the GSTR-9 and GSTR-9C forms, the correct placement of data, and the importance of accurate and timely filing. The session also highlighted the consequences of late filing, recent procedural changes, and updates in reporting requirements. CA Ashwin Chotalia, the mentor for the session, provided valuable insights and guidance throughout, offering expert interventions as needed.

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

More than 250 students benefited from this session.

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BCAS NXT - Learning & Development Bootcamp

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

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

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

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

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

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

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

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

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

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

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

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

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Half-Day Panel Discussions on Transfer Pricing Benchmarking and Compliances

II. REPRESENTATIONS

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

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

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

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

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

QR Code:

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

III. BCAS OUTREACH

• BCAS Delegation Meets Chief Executive, Indian Banks’ Association

BCAS Delegation Meets Mr Atul Kumar

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

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

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

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

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

IV. BCAS IN NEWS & MEDIA

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

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

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News and Views

BCAJ Admin

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

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

I. INTRODUCTION

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

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

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

II. THE REIT STRUCTURE

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

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

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

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

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

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

REITs

III. NEED FOR REITs AS AN INVESTMENT PRODUCT

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

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

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

IV. REITs AND KEY MERITS OF INVESTING IN REITs

1. Income Stability, Liquidity and Professional Management

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

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

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

3.SEBI Regulatory Framework and Superior Investor Protection

a) Transparency and Standardised Valuation

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

b) Prudent Asset Composition and Leverage Controls

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

c) Governance Safeguards

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

V. REITs NOT AS FIRST CHOICE PRODUCTS, WHY?

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

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

VI. SEBI MEASURE TO GIVE EXPOSURE TO REITs

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

VII. FUTURE OUTLOOK

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

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

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

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

BCAJ Admin

Regulatory Referencer

I. DIRECT TAX: SPOTLIGHT

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

II. FEMA

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

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

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

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

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

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

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

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

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

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

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

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

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

III. IFSCA

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

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

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

BCAJ Admin

Recent Developments in GST

ADVANCE RULINGS

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

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

FACTS

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

Under above background, applicant sought AR on following questions:

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

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

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

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

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

HELD

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

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

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

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

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

FACTS

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

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

Applicant sought to obtain AR on following questions:

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

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

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

HELD

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

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

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

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

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

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

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

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

FACTS

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

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

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

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

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

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

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

HELD

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

The ld. AAR passed AR accordingly.

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

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

FACTS

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

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

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

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

With above background following questions were raised.

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

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

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

HELD

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

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

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

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

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

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

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

FACTS

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

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

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

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

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

HELD

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

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

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

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

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

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

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

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

FACTS

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

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

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

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

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

HELD

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

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

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

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

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

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

BCAJ Admin

Goods And Services Tax

I. SUPREME COURT

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

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

HELD

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

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

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

II HIGH COURT

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

HELD

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

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

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

FACTS

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

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

HELD

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

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

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

FACTS

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

HELD

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

BCAJ Admin

इष्टम् धर्मेण योजयेत् !

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

सत्कुले योजयेत्कन्यां पुत्रम् विद्यासु योजयेत् !

व्यसने योजयेच्छत्रुमिष्टं धर्मेण योजयेत् !!

Literal meaning of first shloka –

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

उत्तमं प्रणिपातेन शूरं भेदेन योजयेत् !

नीचमल्पप्रदानेन इष्टम् धर्मेण योजयेत् !!

Literal meaning of second shloka –

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

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

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

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

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

In short, इष्टम् धर्मेण योजयेत्!

BCAJ Admin

Miscellanea

1. ECONOMIC & MARKETS

# Spare parts are quietly reshaping the Luxury Automotive Economy

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

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

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

2. WORLD – SCIENCE

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

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

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

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

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

3. BUSINESS

# Top Global Energy Players Assemble at Wison Technology Seminar 2025

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

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

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

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

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

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

BCAJ Admin

Revelation

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

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

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

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

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

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

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

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

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

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

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

BCAJ Admin

Transmission Of Securities

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

INTRODUCTION

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

TESTATE OR INTESTATE SUCCESSION?

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

LAW ON TRANSMISSION OF SHARES

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

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

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

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

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

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

ARTICLES OF ASSOCIATION

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

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

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

JOINT OR SINGLE HOLDING?

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

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

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

SEBI LODR PROVISIONS

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

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

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

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

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

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

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

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

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

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

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

SEBI’S NEW TLH CODE

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

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

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

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

TRUSTS AS AN ALTERNATIVE SOLUTION

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

CONCLUSION

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

BCAJ Admin

India’s New Labour Codes

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

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

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

1. INTRODUCTION

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

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

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

Decoding Indias New Labour Codes A Modern Framework for Work

2. KEY THEMES CUTTING ACROSS ALL CODES

Broader definitions of “worker” and “employee.”

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

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

Uniform definition of “wages” and the 50% rule

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

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

Inspector cum facilitator and digitisation

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

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

Common licensing and single registration

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

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

3. THE CODE ON WAGES, 2019

Consolidation and coverage

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

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

National floor wage and minimum wage

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

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

Wage definition, overtime and payment modes

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

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

Impact on CTC structuring

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

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

4. THE CODE ON SOCIAL SECURITY, 2020

Consolidation and scheme architecture

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

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

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

Gig and platform workers – registration and aggregator contributions

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

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

Aadhaar linkage and unorganised sector schemes

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

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

Gratuity and fixed term employment

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

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

5. THE INDUSTRIAL RELATIONS CODE, 2020

Consolidation and recognition of trade unions

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

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

Thresholds for lay off, retrenchment and closure

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

Fixed term employment and unfair labour practices

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

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

Regulation of strikes and lock outs

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

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

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

Consolidation and applicability thresholds

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

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

Single registration and duties of employers and workers

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

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

7. SELECTED COMPARATIVE TABLES

Old–new parameters

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

ILLUSTRATIVE OSH APPLICABILITY THRESHOLDS

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

8. IMPACT AND CRITICAL VIEWPOINTS

Employer and HR perspective

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

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

WORKER AND UNION PERSPECTIVE

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

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

Administrative and system readiness

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

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

9. CONCLUSION – READINESS ROADMAP FOR PROFESSIONALS

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

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

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

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

BCAJ Admin

Selling a Business… But What about the Goodwill?

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

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

ABC: FUTURE SALE AND GOODWILL ACCOUNTING

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

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

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

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

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

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

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

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

THE GOODWILL ALLOCATION DILEMMA

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

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

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

The Goodwill Dilemma Accounting for a planned Business Sale

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

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

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

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

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

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

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

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

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

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

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

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

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

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

View 3 — Reallocate Goodwill Only If Internal Reporting Has Changed

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

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

This view avoids both extremes, namely:

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

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

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

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

ONE SIMPLE LINE TO REMEMBER

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

BCAJ Admin

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

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

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

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

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

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

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

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

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

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

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

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

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

BCAJ Admin

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

55. Dipti Enterprises vs. ADIT

2025 (11) TMI 1856 (Bom.)

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

Ss. 264 of ITA 1961

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

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

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

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

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

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

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

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

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

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

BCAJ Admin

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

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

Date of order 04/03/2025

S. 279(2) of ITA 1961

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

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

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

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

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

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

BCAJ Admin

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

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

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

Ss. 11, 12 and 13 of ITA 1961

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

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

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

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

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

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

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

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

BCAJ Admin

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

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

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

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

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

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

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

“i) Mr. Mistri proposes the following question:

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

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

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

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

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

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

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

BCAJ Admin

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

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

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

A.Y. 2005-06

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BCAJ Admin

ICAI and Its Members

I. EXPOSURE DRAFT

EXPOSURE DRAFT OF IND AS 119

NEW ACCOUNTING STANDARD FOR SUBSIDIARIES

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

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

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

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

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

Public Comments Invited:

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

Submit Comments:

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

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

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

II. ICAI TOOLS

ICAI CAVALRY: PSYCHOMETRIC TEST ASSESSMENT SERIES

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

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

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

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

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

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

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

III. ICAI PUBLICATION

1. New Research Publication on Accounting for Digital Assets

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

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

2. RESOURCE MATERIAL ON PUBLIC PROCUREMENT

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

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

IV. EXPERT ADVISORY COMMITTEE OPINION

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

A. FACTS OF THE CASE

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

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

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

B. QUERY

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

(i) employee benefit costs, and

(ii) food and beverage material costs,

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

C. POINTS CONSIDERED BY THE COMMITTEE

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

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

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

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

D. EAC’S OPINION

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

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

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

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

V. ICAI BOARD OF DISCIPLINE’S ORDERS

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

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

Date of Order : 08.12.2025

Particulars	Details
Nature of Case	Alleged unauthorised conduct of tax audit and obstruction of incoming auditor
Background	The Respondent had earlier acted as statutory auditor of the Complainant. After deterioration of professional relations, the Complainant decided to change the auditor. It was alleged that despite cessation of engagement, the Respondent forcibly added himself as auditor on the Complainant’s Income-tax portal and conducted the tax audit for FY 2021–22 without authorisation, and thereafter wrote to the incoming auditor advising him not to accept the assignment.
Key Allegations	– Unauthorised addition of Respondent’s name on the assessee’s Income-tax portal and conduct of tax audit for FY 2021–22 without consent. – Writing to the incoming auditor claiming completion of audit and alleging non-payment of tax liabilities by the Complainant, thereby attempting to obstruct change of auditor.
Respondent’s Defence	– Allegations were mala fide and triggered by his refusal to issue an unqualified audit report contrary to law. – He had completed the audit and issued a qualified report based on professional judgment and advised payment of additional tax. – Communication to incoming auditor was factual, made in professional courtesy, without any intent to threaten or obstruct.
	– After his DSC was taken by the Complainant’s representatives without authority, he did not upload the audit report and had no further role.
Findings	– The allegation of unauthorised addition on the Income-tax portal was already dropped at the prima facie stage by the Director (Discipline). – On the surviving charge relating to communication with the incoming auditor, the Board found no evidence of malafide intent, threat, or obstruction. – The Respondent’s explanation was found credible and corroborated by surrounding circumstances. – Mere communication of factual position to an incoming auditor does not constitute misconduct.
Charges Established	None – No misconduct under Item (2), Part IV, First Schedule to the CA Act, 1949.
Decision	Not Guilty

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

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

Date of Order : 08.12.2025

Complainant	Alleged lack of fairness and transparency in conduct of ICAI branch elections
Background	The Respondent acted as Returning Officer for elections to the Managing Committee of the Satara Branch of WIRC of ICAI for the term 2016–2019. The Complainant alleged that the Respondent manipulated the election process to enable certain candidates to be elected unopposed by improperly accepting withdrawal of nominations after the prescribed deadline.
Particulars	Details
Key Allegations	– Respondent pressurised certain candidates to withdraw nominations. – Withdrawal forms were emailed after the stipulated cut-off time of 6:00 PM on 29.01.2016. – Despite absence of a valid withdrawal by one candidate, the Respondent displayed a final list of six candidates (equal to available seats) and declared them elected unopposed. – Conduct allegedly lacked fairness and transparency, amounting to other misconduct.
Respondent’s Defence	– No statutory rules or binding guidelines prescribe the manner of withdrawal of nominations in ICAI branch elections. – Both concerned candidates had communicated their intention to withdraw telephonically before the deadline, on speakerphone, in the presence of branch officials. – Actions were taken in good faith to ensure smooth conduct of elections and avoid unnecessary delay or expense. – Complaint suffered from delay and issues of locus standi.
Findings	– Witnesses (including the concerned candidates and Branch In-Charge) confirmed on oath that withdrawal intentions were communicated telephonically before the deadline. – No evidence of mala fide intent or manipulation by the Respondent was established. – In absence of any clear statutory procedure for withdrawal of nominations, reliance on telephonic confirmation, in good faith, could not be faulted. – The Complainant himself committed errors in invoking a non-existent clause in the complaint.

Particulars

Details

Charges Established

None – No other misconduct under Item (2), Part IV, First Schedule to the CA Act, 1949.

Decision

Not Guilty

3. Case : Shri AG vs. CA. VT

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

Date of Order : 08.12.2025

Complainant :	Shri AG, Director – M/s LFS Pvt. Ltd.
Nature of Case	Alleged acceptance of statutory audit without prior written communication with previous auditor
Background	The Respondent was appointed statutory auditor of the company for FYs 2020–21 to 2022–23. The Complainant alleged that the Respondent accepted the audit without obtaining a written No Objection Certificate (NOC) from the previous auditor, exerted pressure to procure the NOC, retained company documents, failed to resign formally, and did not file Form ADT-3, thereby obstructing appointment of a new auditor.
Key Allegations	– Accepted audit assignment without written communication/NOC from previous auditor.
Particulars	Details
	– Pressurised the company to obtain NOC and threatened discontinuation of audit work. – Failed to formally resign and to file Form ADT-3, allegedly blocking appointment of another auditor.
Respondent’s Defence	– Previous auditor had no objection; verbal NOC was received through a professional intermediary and later confirmed in writing. – Dispute arose due to non-payment of audit fees (₹9,500 outstanding). – Allegations were motivated to avoid payment; any lapse was procedural and bona fide.
Findings	– The complaint was filed without a valid Board Resolution authorising initiation of disciplinary proceedings on behalf of the company.
	– The purported resolution was found to be an afterthought and not a valid authorisation. – In absence of statutory authorisation, the complaint was void ab initio; merits were not examined.
Charges Established	None
Decision	Not Guilty; complaint dismissed and case closed under Rule 15(2).

BCAJ Admin

Glimpses of Supreme Court Rulings

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

(2025)181 Taxmann.com 333-SC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Re: Dividend received on redeemable preference shares

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

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

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

Re: Interest on short-term deposits in banks

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

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

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

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

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

Re: Service Charge on Sugar Development Fund loans

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

The Supreme Court observed that deduction under Section 36(1)(viii) is predicated on the financial corporation “providing” the finance. In the case of SDF loans, the admitted factual position is that the funds belong to the Government of India. The Assessee bears no risk and utilizes no capital of its own.

The receipts in question were service charges paid by the Government for the administrative tasks of monitoring and disbursement. The proximate source of this income is the agency agreement with the Government, not the lending activity itself. A fee received for agency services cannot be equated with “profits derived from the business of providing long-term finance,” which implies the deployment of the corporation’s own funds and the earning of interest thereon. Consequently, this income stream was rightly excluded from the deduction.

The Supreme Court, upon a cumulative assessment of the statutory scheme and the judicial precedents cited, held that the claim of the Assessee was not correct in law.

For the above reasons, there was no merit in the appeals and consequently, the same were dismissed.

BCAJ Admin

From The President

My Dear BCAS Family,

The new Labour Code 2019, representing one of the biggest labour reforms since independence, which consolidates 29 existing labour laws into 4 codes, Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code, aims at simplifying compliance and enhancing worker and employee welfare and protection, and has been notified for implementation effective 21st November, 2025. This has prompted me to focus on the theme of wellness and work-life balance and their impact on professionals and institutions like us.

The terms wellness and work-life balance are often used interchangeably. Wellness is not just physical fitness but is much more holistic, encompassing mental, emotional, social and even financial well-being.

Beyond Burnout

IMPACT ON PROFESSIONALS:

Our profession demands precision, rigour and stringent ethical standards, along with strong physical and mental health on an ongoing basis. Absence of the same could lead to chronic stress, burnout, diminished cognitive functioning, impaired decision-making, resulting in increased errors of judgement, thereby impacting the quality of our services to clients and other stakeholders. This has led to the adoption of sustainable practices in both our work and personal environments. A well-rested, mentally balanced professional is not only more productive, creative and collaborative, but also better equipped to navigate the complexities that define our professional role.

When professionals neglect their health and personal lives, the ripple effects touch families, teams and the broader organisational culture. When employees experience high burnout rates, the employers face increased attrition, diminished morale and reputational challenges—all of which impact service quality and client relationships.

As professionals, it is our individual as well as collective responsibility as employers to take mitigating steps to ensure that we promote wellness and work-life balance in the course of our professional duties and responsibilities.

Individual Responsibilities:

The journey toward wellness and work-life balance primarily requires personal commitment which entails taking the following steps, amongst others:

Set clear boundaries: Technology has blurred the lines between office and home. The “post-pandemic” scenario of work from home has further blurred these lines. We must learn to adopt a digital detox routine by designating tech-free hours and ensuring quality personal time.
Prioritise physical health: Regular exercise, adequate sleep and proper nutrition are not optional extras; they are professional tools that enhance performance. Even brief daily walks or stretching can make a measurable difference. The pandemic has also played a role in making us more health-conscious.
Invest in relationships: The demands of our profession should not come at the cost of meaningful connections with family and friends. These relationships provide emotional sustenance and perspective that work alone cannot offer.
Seek help when needed: Mental health struggles are not signs of weakness. Reaching out professionally to mitigate the same, whether through counselling, peer support, or therapy, should be regarded as an act of strength and self-awareness rather than shame and neglect.
Meaningful time management: Not all tasks carry equal weight. We must learn to distinguish between urgent and important. We must learn to delegate effectively whilst maintaining control and resisting the temptation to micromanage. Efficiency is not about doing more; it is about doing what matters most. Another important mantra that I have always practised is to learn to say no. Practising these results in meaningful time management and makes for an effective leader without increasing your blood pressure!
Financial Wellness- Planning for Peace of Mind: Ironically, as financial experts, we often spend more time managing clients’ wealth than our own. Financial wellness is not about having abundant wealth but having clarity, control, and confidence in one’s financial decisions. Whether it is retirement planning, risk management, budgeting, or investment discipline—peace of mind is a product of proactive planning. As professionals who are often the first responders in financial crises of others, we too must ensure that our financial foundations are sound and stress-free.

Collective Responsibility:

Wellness at workplaces is not just a personal goal but a shared responsibility. Firms, institutions, and professional bodies must lead by example by fostering respectful work cultures, discouraging toxic competitiveness and encouraging work-life balance. Leaders must set the tone at the top and support their teams. Policies framed must reflect compassion, not just compliance. Stakeholders are increasingly emphasising sustainable practices, which include wellness and work-life balance in their dealings. Finally, though the ICAI has also laid down guidelines regarding working hours for articled students since many small and medium sized firms rely on them, the ground realities reflect a different picture. It is our duty as responsible professionals to respect these guidelines both in letter and spirit to ensure healthy and balanced academic and professional growth for the younger generation who are our future.

BCAS’S ROLE:

As a responsible organisation, BCAS also resonates with what we as children have learnt in nursery rhymes that “All Work and No Play Makes Jack a Dull Boy”, by focusing on health and wellness apart from its focus on knowledge and education through various initiatives by the HR Committee. The recent CA THON and the forthcoming cricket tournament in early January 2026 are but a few of several such initiatives.

SUSTAINABLE SUCCESS VS. BEING BUSY:

To conclude, it would be appropriate to reflect on a profound quote by noted philosopher and author Henry David Thoreau in his book Life Without Principle where he emphasises about meaningful and sustainable work rather than being merely busy, both of which fit in with the philosophy of BCAS and its longevity and relevance over 77 years and many more to come!

“It is not enough to be busy; so are the ants. The question is: What are we busy about?”

I would like to end by wishing you all and your families a very happy and healthy 2026 and hope each one of you makes at least one “new-year resolution” of giving adequate attention to wellness and work-life balance in your daily lives!

A big thank you to one and all!

Warm Regards,

CA. Zubin F. Billimoria

President

BCAJ Admin

From Published Accounts

COMPILER’S NOTE:

To unlock value and for infusing funds into specific businesses, corporates are today resorting to demergers of specific business undertakings with regulatory approvals. In most such cases of demerger especially those not under common control, the resultant company uses the principles of Appendix C of Ind AS 103 “Business Combinations” whereas the demerged company uses Appendix A of Ind AS 10 “Distribution of Non-cash Assets to Owners”. Also, in the absence of any specific Ind AS dealing with the accounting of demerger in the books of the transferor under a common control business combination, paras 10-12 of Ind AS 8 on “Accounting Policies, Changes in Accounting Estimates and Errors” is resorted to.

Given below are disclosures for a demerger of an undertaking of a large company having international operations.

Tata Motors Limited (from standalone results (audited) for the period ended 30th September 2025 (demerged company)

From to Results / Notes

1. Standalone audited financial results for the quarter and six months ended September 30, 2025 (‘the Statement’)

Particulars	Quarter ended			Six months ended		Year ended
	September 30, 2025	June 30, 2025*	September 30, 2024*	September 30, 2025	September 30, 2024*	March 31, 2025*
	Audited	Audited	Unaudited	Audited	Unaudited	Audited
Profit/ (loss) for the period after tax from continuing operations	(237)	3,854	15	3,617	1,296	1,538
Profit before exceptional gain and tax for the period from discontinued	–	1,624	1,092	1,624	2,407	5,628
Exceptional gain on disposal of discontinued operations	82,318	–	–	82,318	–	–
Tax expense (net) of discontinued operations	–	212	446	212	893	1,292
Profit for the period after exceptional gain and tax from discontinued operations	82,318	1,412	646	83,730	1,514	4,336
Profit before tax from continuing and discontinued operations (before exceptional gain)	138	6,347	1,410	6,485	4,513	8,004
Profit for the period	82,081	5,266	661	87,347	2,810	5,874

*Re-presented refer note 4

Note 4: Scheme of Arrangement

The Board of Directors has, at its meeting held on August 1, 2024, approved a Composite Scheme of Arrangement amongst Company, Tata Motors Limited (formerly TML Commercial Vehicle Ltd), Tata Motors Passenger Vehicles Limited and their respective shareholders under Section 230-232 of the Company’s Act, 2013 which inter alia provides for:

demerger, transfer and vesting of the commercial vehicles business of Company along with related investments (“Demerged Undertaking”) to Tata Motors Limited on a going concern basis; and
amalgamation of Tata Motors Passenger Vehicles Ltd with the Company with an objective of consolidating the passenger vehicles business.

The Company has received the National Company Law Tribunal (NCLT) order approving the Scheme on August 25, 2025, with appointed date of July 1, 2025. Upon filing with the Registrar of Companies “ROC”, the Scheme became effective from October 1, 2025. Pursuant to the approval and effectiveness of the Scheme:

Demerged Company has transferred all the assets, liabilities and reserves (including other components of equity and general reserve), valuing ₹11,579 crores at their respective carrying amounts, pertaining to Demerged Undertaking as appearing in the books of accounts of the Demerged Company, being transferred on account of demerger. Accordingly, the Demerged Company has reduced from its books of account, the carrying amounts appearing on the appointed date.
Having recorded the transfer of the assets and liabilities, as aforesaid, the Demerged Company has made necessary adjustments for the sake of compliance with Indian Accounting Standards (“Ind AS”) notified under Section 133 of the Companies Act, 2013, specifically Appendix A to Ind AS 10 ‘Distribution of Non cash assets to Owners’, and has created a liability at the fair value of the Demerged Undertaking with gain in the income statement (net of assets and Habllities transferred) with the corresponding debit to the Retained Earnings and extinguishing the liability of ₹82,318 crores. There is no impact on net worth for this gain booked in the results, accordingly the same is not considered for EPS calculations.

Fair value has been derived for each of the companies of Demerged Undertaking separately. Depending on the business and data, we have used discounted cash flows, comparable market multiples and available quoted price to determine the fair value.

Note 5

For the quarter ended September 30, 2025, the profit before tax is ₹138 crores and tax charge is ₹375 crores. Upon effective of the Composite Scheme, the tax losses which were available for set-off in the quarter ending June 30, 2025, are now moved to the Demerged Undertaking leading to a higher tax charge in the demerged entity.

FROM AUDITORS’ REPORT

2. Independent Auditor’s Report on the audit of the Standalone Financial Results

Opinion

We have audited the accompanying standalone quarterly financial results of Tata Motors Passenger Vehicles Limited (formerly Tata Motors Limited) (“the Company”) for the quarter ended 30 September 2025 and the year-to-date results for the period from 1 April 2025 to 30 September 2025, (in which are included interim financial statements / financial information of its joint operation and financial information of a Trust) attached herewith, being submitted by the Company pursuant to the requirement of Regulation 33 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (“Listing Regulations”).

In our opinion and to the best of our information and according to the explanations given to us and report of other auditor on separate audited condensed interim financial statements/financial results of its joint operation, these standalone financial results:

a. are presented in accordance with the requirements of Regulation 33 of the Listing Regulations in this regard; and

b. in the context of the overriding effect of the provision in the Composite Scheme of Arrangement as approved by the National Company Law Tribunal (‘NCLT’), regarding accounting for demerger of commercial vehicles business from the specified retrospective appointed date, give a true and fair view in conformity with the recognition and measurement principles laid down in the applicable accounting standards and other accounting principles generally accepted in India, of the net profit and other comprehensive loss / income and other financial information for the quarter ended 30 September 2025 as well as for the year to date results for the period from 1 April 2025 to 30 September 2025.

Emphasis of Matter

a. We draw attention to Note 4 to the standalone financial results, which describes the accounting for the Composite Scheme of Arrangement (‘the Scheme’) amongst the Company, Tata Motors Limited (formerly Tata Motors Commercial Vehicles Limited) (‘TML’) and Tata Motors Passenger Vehicles Limited for demerger of commercial vehicles business from the Company into TML and merger of the Tata Motors Passenger Vehicles Limited into the Company. The Scheme has been approved by the National Company Law Tribunal (‘NCLT’) vide its order dated 25 August 2025 and a certified copy has been filed by the Company with the Registrar of Companies, Maharashtra, on 1 October 2025. Though the appointed date as per the NCLT approved Scheme is 1 July 2025, as per the requirements of Appendix C to Ind AS 103 “Business Combination”, Business Combination (‘the amalgamation of Tata Motors Passenger Vehicles Limited with the Company’) has been accounted for as if it had occurred from the beginning of the preceding period in the standalone financial results.

Accordingly, amounts relating to the quarter and year-to-date ended 30 September 2025 include the impact of the business combination and the amounts for the quarter ended 30 June 2025 and the corresponding amounts as at and for the previous year ended 31 March 2025 and for the quarter and previous year to date ended 30 September 2024 have been restated by the Company after recognising the effect of the business combination as above. The aforesaid note 4 also describes in detail the impact of the business combination on the standalone financial results. Our opinion is not modified in respect of this matter.

b. We draw attention to Note 4 to the standalone financial results, which describes the accounting for the Composite Scheme of Arrangement (‘the Scheme’) amongst the Company, TML and Tata Motors Passenger Vehicles Limited for demerger of commercial vehicles business from the Company into TML and merger of the Tata Motors Passenger Vehicles Limited into the Company. The Scheme has been approved by the National Company Law Tribunal (‘NCLT’) vide its order dated 25 August 2025 and a certified copy has been filed by the Company with the Registrar of Companies, Maharashtra, on 1 October 2025. In accordance with the scheme approved by NCLT, the Company has given effect to the Scheme from the retrospective appointed date specified therein i.e. 1 July 2025 for the demerger of the commercial vehicles business, which overrides the relevant requirement of Appendix A to Ind AS 10 (according to which the scheme would have been accounted for from 25 August 2025 which is the date on which the Scheme has been approved by the NCLT). The financial impact of the aforesaid treatment has been disclosed in the aforesaid note.

Our opinion is not modified in respect of this matter.

From composite scheme of arrangement amongst Tata Motors Limited (demerged company/ amalgamated company) and TML Commercial Vehicles Limited (resulting company) and Tata Motors Passenger Vehicles Limited (amalgamating company) and their respective shareholders under sections 230 to 232 and other applicable provisions of the companies act, 2013 (extracts)

PART I

18. ACCOUNTING TREATMENT

18.1 Accounting treatment in the books of the Demerged Company:

18.1.1 The Demerged Company shall give effect to the Scheme in its books of accounts in accordance with Appendix A to the Indian Accounting Standards 10 notified under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and the generally accepted accounting principles in India.

18.1.2 Upon the Scheme becoming effective and from the Appointed Date, the Demerged Company shall transfer all the assets and liabilities, at their respective carrying amounts, pertaining to the Demerged Undertaking as appearing in the books of accounts of the Demerged Company, being transferred to and vested in the Resulting Company. Accordingly, the Demerged Company shall reduce from its books of accounts, the carrying amounts appearing on such date in accordance with the provisions of Section 2(19AA) of the Income Tax Act.

18.1.3 Upon the Scheme becoming effective, and from the Appointed Date, the carrying value of Cost of Hedging Reserve and Hedging Reserve (forming part of “Other components of Equity” in the Statement of Changes in Equity) pertaining to Demerged Undertaking as appearing in the books of accounts of the Demerged Company will be reclassified to profit or loss as a reclassification adjustment. The carrying value of fair value reserve in relation to equity instruments carried at fair value through Other Comprehensive Income shall be transferred to retained earnings.

18.1.4 Having recorded the transfer of the assets and liabilities and balances in Other Components of Equity, as aforesaid, the Demerged Company shall make necessary adjustments for the sake of compliance with Indian Accounting Standards (“Ind AS”) notified under Section 133 of the Companies Act, 2013, specifically Ind AS 10 Appendix A ‘Distribution of Non cash assets to Owners’, and shall create a liability at the fair value of the Demerged Undertaking with the corresponding debit to the Retained Earnings.

18.1.5 The book value of net assets derecognised will be adjusted against the liability recognised at above. The difference, if any, shall be recognised in the statement of profit and loss in accordance with Ind AS 10 Appendix A.

18.2 Accounting treatment in the books of the Amalgamated Company

18.2.1 The Amalgamated Company shall give effect to the Scheme in its books of accounts in accordance with the accounting standards specified under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and the generally accepted accounting principles in India.

18.2.2 Upon the Scheme becoming effective, the Amalgamated Company shall, in accordance with Appendix C to Indian Accounting Standard 103 – Business Combinations, record all the assets, liabilities and reserves pertaining to the Amalgamating Company vested in it pursuant to this Scheme at their respective carrying values as appearing in the books of the Amalgamating Company. Merger Deficit Adjustment Account of the Amalgamating Company will be adjusted against the capital reserve (on merger/sale of business) of the Amalgamated Company.

18.2.3 The difference between (a) excess of carrying values of assets over the carrying values of liabilities of the Amalgamating Company and (b) reserves of the Amalgamating Company shall be credited or debited. as the case may be, to equity and classified as ‘capital reserve’ or any other appropriate component of the equity. The value of existing investment held by the Amalgamated Company in the Amalgamating Company shall be cancelled and the corresponding amount shall be debited to ‘capital reserve’ or any other appropriate component of the equity.

18.2.4 The financial statements of the Amalgamated Company for the prior period shall be restated as if the business combination had occurred from the beginning of the preceding period presented in the financial statements. irrespective of the actual date of the combination.

PART IV

GENERAL TERMS AND CONDITIONS

41. Change of Name of Amalgmated Company and the Resulting Company

41.1 Upon this Scheme becoming effective and subject to Clause 41.3 below, the name of the Amalgamated Company or Demerged Company shall stand changed on and from the Effective date to ‘TATA MOTORS PASSENGER VEHICLES LIMITED’ or such other name which is determined by the Board of the Amalgamated Company …

41.3 Upon Scheme becoming effective and simultaneously with the change of name of the Amalgamated Company, the name of the Resulting Company shall stand changed on and from the effective date to ‘TATA MOTORS LIMITED’ or such other name…

BCAJ Admin

CA Firm Of 2030

Let me begin by wishing you all a very Happy New Year. Every January brings its familiar mix of resolutions and reflections. This one arrives with an unmistakable question for the profession: With gradual reduction in opportunities across compliance and regulatory services, what is the future of the profession? What would the CA Firm of 2030 look like? For many professionals, the gradual reduction in professional opportunities over the last decade and rapid technological advancements, including affordable AI, has created a sense of unease.

But perhaps this moment is not a threat; it is a signal. The CA firm of 2030 will not be defined by the number of audits or compliances performed but by the quality of insight, the sophistication of systems, and the breadth of services it delivers. The redesign of our profession begins now, not in 2030.

During my professional career, I have had the opportunity to visit firms of varying sizes and meet many professionals. The ones that felt genuinely future-ready were not necessarily the ones with the biggest teams, but those with the strongest systems, which in many cases, were automated. In one mid-sized practice, a GST reconciliation that earlier consumed a week was completed overnight because they had built an internal automation engine. The senior wasn’t replaced; he was liberated—able to focus on judgment rather than just data work. This is what the future will demand: humans doing the thinking, machines doing the lifting.

Yet digital capability brings a deeper responsibility. AI today can produce a draft submission or an audit memo in minutes. But the illusion of perfection can be dangerous, with high levels of hallucinations and bias. A young manager shared, “AI makes me faster, but forces me to be twice as sceptical.” She is right. As workflows automate, professional scepticism and ethical clarity become our defining edge. In a machine-first world, conscience becomes a competitive advantage.

Building the CA Firm of 2030

Equally significant is the shift from individual-driven excellence to institutionalised resilience. Many firms still depend on a few irreplaceable seniors. When one leaves, years of templates, client nuances, and tacit knowledge vanish. A 2030-ready firm avoids this fragility by building documented SOPs, knowledge repositories, review layers, and digital memory. When such knowledge systems carry the practice, people can grow; when people alone carry it, systems collapse.

This transition to a process and system centric firm aligns closely with a broader national aspiration. The PMO’s recent push to develop large Indian accounting firms—firms with governance, specialisation, and scale comparable to global networks—captures a sentiment that has long been brewing. India’s economy demands Indian-origin institutions that can operate across cities, sectors, and service lines. I met a three-partner Jaipur firm that joined a national network and, within a year, began servicing a listed client by leveraging expertise from member firms in Mumbai and Bangalore. Their story mirrors the future: collaboration, scale, and ecosystems—not isolation—will define relevance.

Scale is just one determinant of relevance. Domain specialists can carve a niche to make scale redundant. In such a set-up, the objective is not to achieve high volume and low unit value but a low volume with high unit value. However, emphasis on processes, systems and collaboration will augur well in this approach too. A niche advise given to a client will also have to run through various processes to make sure it is balanced and implementable. In this complex world of information overload, knowledge systems can assist such expert to decipher relevant information and maintain his cutting knowledge edge. Collaboration may not take the structure of formal networks, but may be more through cordial human relationships to avoid the perception of being inaccessible or inapproachable.

And through all this, a human thread binds everything together: the ability to communicate clearly. Whether interpreting GST litigation trends, drafting an advisory note, or explaining risk in simple language, clarity has become a strategic skill. Good writing is not a cosmetic flourish; it is good thinking expressed. In the firm of 2030, every professional will need to be a designer of processes, systems, and words.

So here, at the start of 2026—amid regulatory shifts, AI acceleration, and a national call to build strong Indian accounting institutions—the real question is not, “What will happen to our profession?” but, “What will we choose to build?”

The firms that act now—by strengthening systems, embracing AI responsibly, collaborating intelligently, and communicating with clarity—will not just survive the decade. They will define it.

Best Regards,

CA Sunil Gabhawalla

Editor

BCAJ Admin

Income-Tax Act, 2025: TDS & TCS Provisions

The Income Tax Act, 2025 (‘New Act’), attempts to simplify and consolidate the extensive TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions previously spread across 69 sections in the existing Income tax Act, 1961 (‘Old Act’). TDS provisions are now merged primarily into two sections in the New Act: Section 392 (TDS on salary) and Section 393 (TDS on all other payments), while TCS provisions are consolidated into Section 394.

The New Act achieves simplification primarily through tabulation, replacing the self-contained sections of the Old Act with tables that lists payment types, payer categories (e.g., ‘Specified Person’), rates, and thresholds. Key changes in the New Act include streamlining the definition of professional services to align advertising services with Section 393, resulting in a higher 10% TDS rate. The scope for obtaining a lower TDS deduction certificate has also been expanded to cover all payment types.

Furthermore, Section 392 of the New Act merges TDS on salary and EPF withdrawals, clarifying that EPF withdrawals exceeding ₹50,000 are subject to 10% TDS. Procedurally, the timing for TCS collection on motor vehicle sales exceeding ₹10 Lacs has been preponed to the time of debiting the buyer’s account or receipt, whichever is earlier.

INTRODUCTION

Currently, the TDS and TCS provisions are spread across 69 different sections under the Old Act. The new Income Tax Act, 2025 (‘New Act’) makes a fair attempt to consolidate the TDS provisions laid down across 69 sections into 2 sections i.e. section 392 of the New Act, which pertains to TDS on salary, and section 393 of the New Act, which covers TDS on all other types of payments. Further, TCS provisions are merged into 1 single section i.e. section 394 of the New Act. The new sections are now covered under Chapter XIX of the New Act, as against the erstwhile Chapter XVII of the Old Act.

SCHEME OF THE NEW ACT

Under the Old Act, each section was a self-contained code, which included definitions, exclusions, thresholds, etc. In contrast, the New Act has spread the provisions across various tables, and one needs to read the applicable section along with the relevant table and Serial Number in the said table, to determine the applicability and rate of TDS. It is to be noted that definitions for the purpose of Chapter XIX are contained in section 402, which is titled as “Interpretations” for the purposes of this chapter.
Across the sections relating to the TDS and TCS provisions, the language has been simplified and has been put up in a tabulated manner such that it is aligned with the structure of the New Act. Various sub sections to the main section, as provided under the Old Act, are provided in a simplified language in the New Act.

The scheme of the New Act is as follows.

Section 393(1) deals with payments made to a Resident
Section 393(2) deals with payments made to a Non-Resident
Section 393(3) deals with payments made to any person (i.e. both Resident and Non-Resident)
Section 393(4) deals with payments where no deduction of tax is required to be made

Each of the above 4 sub-sections includes a table distinctly listing the type of payment, the category of the payer and the applicable TDS rate with the threshold.

In terms of reading the New Act, sub section (1) or sub section (2) or sub section (3) needs to be read in conjunction with sub section (4) concurrently, so as to check whether the applicable provisions have any carve outs or not, including thresholds for
attracting TDS.

Similarly, section 394 of the New Act, which relates to TCS provisions, also includes a table which includes all sub sections of current section 206C.

There is one more table in section 395 dealing with declaration for nil / lower TDS. This covers the procedure for obtaining Nil / lower TDS in certain cases.

Requirements for filing 15CA/15B etc. as per section 195(6) of the Old Act are now expected to be prescribed under section 397(3)(d) of the New Act.

Succinctly, these sections as outlined in the New Act have largely simplified the language as provided in the Old Act, and have essentially tabulated the provisions by retaining the core concept with certain rewording being carried out at a few places.

Furthermore, Section 400 of the New Act has been introduced to empower the CBDT to issue guidelines for the removal of any difficulty in giving effect to the entire chapter of collection and recovery of tax. It is expected that such guidelines will need to be issued considering the changes made in the entire gamut of the TDS / TCS provisions, as one will now need to refer to Serial No of the Tables under the applicable sections, rather than the current practice of referring to the section (or sub section) itself. This will require changes in the entire manner of reporting in the TDS statements, returns, certificates and challans to be used for making the TDS payments. One also awaits the Rules to be notified, as these will contain substantial procedural changes.

TDS & TCS Overhaul Whats New in the 2025 TAx Act

SIGNIFICANT CHANGES

This article brings out the changes in the TDS provisions in the Old Act and the New Act

I)Section 392 of the New Act – Salary and accumulated balance due to an employee

Section 392 of the New Act merges the existing section 192 (TDS on salary) and 192A of the Old Act (TDS on EPF withdrawals). While the crux of both sections of the Old Act is retained, the New Act also clears the ambiguity by providing that payments made to employees on account of EPF withdrawals shall be subject to TDS @ 10% for payments made in excess of ₹50,000.

II) Section 393 of the New Act – Tax to be deducted at source on other payments

Before embarking to this section, it becomes essential to discuss the concept of a ‘Specified Person’ as the table provided in the section 393 and section 394 refers to the said term. The New Act distinctly categorizes the Payer as a ‘Specified Person’ and ‘Any other person’.

The term ‘Specified Person’ has been defined under section 402(37) of the New Act as follows:

A ‘Specified Person’ means:

(a) any person, not being an individual or Hindu undivided family; or

(b) an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed ₹1 crore in case of business or ₹50 lakh in case of profession during the tax year immediately preceding the tax year in which such income or sum is credited or paid.

In terms, it is bringing into effect the exclusions from the applicability of the chapter on a pari materia basis to the existing provisos to several sections under the Old Act, and is more of a redrafting for ease of reading, rather than any material change of law. This definition is relevant for determining the applicability of the several items listed in the tables, where TDS is to be applicable to payers who are individuals or Hindu Undivided Families.

While the term ‘Any other person’ has not been defined under the New Act, it would mean that Any Person would mean a person who is not a ‘Specified Person’.

III) Lower TDS deduction certificate – Scope expanded

The Old Act provided that certificate to obtain lower TDS rate was available only to payments in the nature of Salary, interest on securities, dividends and interest other than interest on securities.

Section 395 of the New Act has expanded its scope and accordingly, all types of payments are eligible for availing the benefit of obtaining a lower TDS deduction certificate.

While the draft Bill provided for certificate only for lower rate of TDS, the New Act provides for certificate for either nil or lower rate of TDS.

IV) TDS on commission and brokerage – Streamlining of definition to exclude services in the nature of ‘advertisement’

Section 194H of the Old Act provides for deduction of tax at source for payments made in the nature of commission and brokerage (other than payments made in the nature of professional services) @ 2%. The said section also provided for a definition of ‘professional services’ by way of an Explanation in the section, i.e. Explanation (ii). This definition did not include advertising services, and hence commission or brokerage relating to advertising services were covered by section 194H.

Besides, section 194J of the Old Act, which provides for payments in the nature of professional or technical services, this section also provides for a definition of ‘professional services’. The definition under this section, in Explanation (a) includes the profession of advertisement. As a result, professional services relating to advertisement were also sought to be covered by section 194J.

Section 393 read with section 402(28) of the New Act aligns this anomaly by streamlining the definition of professional services across both TDS sections, so as to mention that advertising services are professional services.

V) Sr. no. 9 – TDS on rent – Streamlining of definition

Currently under the Old Act, TDS to be deducted on Rent is spread across 4 sections i.e. Section 194 I (Rent), Section 194-IA (Payment on transfer of certain immovable property other than agricultural land), Section 194-IB (Payment of rent by certain individuals or Hindu undivided family) and Section 194-IC (Payment under specified agreement).

While section 194 I of the Old Act provided for a broader definition for payments made in relation to Rent, Section 194 IB of the Old Act restricted itself to only land or building or both. Section 393(1) read with section 402(29) of the New Act has streamlined the definition, with the change that now even rent for the use of factory buildings and land appurtenant to factory building are now included.

VI) Sr. No. 14 – Update on timing of collection of TCS exceeding ₹10 Lacs in case of motor vehicle

Section 206C(1F) of the Old Act required collection of tax source on the amount exceeding ₹10 Lacs at the time of receipt from the buyer of a motor vehicle. Section 394(1) of the New Act as amended has brought forward the timing for collection of tax at source by changing the timelines as follows:

– at the time of debiting of the amount payable by the buyer or licensee or lessee to the account of the buyer or licensee or lessee; or
– at the time of receipt of such amount from the said buyer or licensee or lessee in cash or by way of a cheque or a draft or any other mode, whichever is earlier.

VII) Sr. No. 5 – Interest income

This entry in section 393(1) of the New Act has essentially clubbed 2 sections – Sections 193 and 194A of the Old Act.

Upon reading of section 393(1) with 393(4) of the New Act, it is worthwhile to note that while all exemptions available are still retained under the New Act when compared to the Old Act, the exemption previously available to ‘any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)’ has been removed and accordingly if it crosses the threshold limits, then TDS ought to be deducted. This is on account of change in definition of banking company in section 402, which now does not include cooperative banks. consequently, the exemption in this aspect is now restricted to a banking company only.

VIII) TDS on certain amounts paid in cash

Section 194N of the Old Act provides for TDS higher rates of 2% / 5% with different thresholds for cash payments by banks, cooperative banks and post offices, depending on whether the recipient has or has not filed his income tax returns for the preceding three years. Under the New Act, Sl. No 5 of the Table below section 393(3) now does away with the need to verify if the tax returns of the recipient have been filed or not, and fixed the thresholds at ₹3 crore for cooperative banks, and ₹1 crore for others., i.e. banks and post offices.

CONCLUSION

The Old Act and New Act are substantially the same, except the few differences noted above. However, the users will need to get used to the new manner of the presentation of the law. Instead of the provisions relating to a particular type of deduction being available in one place earlier, now reference will need to be made to the section, the applicable table, the table for exclusions, and the definition section in the chapter. It is expected that the users will take time to comprehend the change, and will need to be careful while preparing challans, returns and the like while complying with the law. For the sake of an easy reference, an Annexure is appended to depict the corresponding provisions under both the laws.

Ready Referencer for sections applicable for TDS provisions under both Acts

A. CORE TDS SECTIONS (192 TO 196D)

Old Section	Description	New Act Section(s)
192	Salary	392
192A	PF withdrawal	392(7)
193	Interest on securities	393(1) Sl. No. in Table – 5(i); 393(4) Sl. No. in Table – 6
194	Dividends	393(1) Sl. No. in Table – 7; 393(4) Sl. No. in Table – 10
194A	Interest (other than securities)	393(1) Sl. No. in Table – 5(ii),(iii); 393(4) Sl. No. in Table – 7
194B	Lottery winnings	393(3) Sl. No. in Table – 1
194BA	Online gaming winnings	393(3) Sl. No. in Table – 2
194BB	Horse race winnings	393(3) Sl. No. in Table – 3
194C	Contractors payments	393(1) Sl. No. in Table – 6(i); 393(4) Sl. No. in Table – 8
194D	Insurance commission	393(1) Sl. No. in Table – 1(i)
194DA	Life insurance policy proceeds	393(1) Sl. No. in Table – 8(i)
194E	Payments to NR sportsmen	393(2) Sl. No. in Table – 1
194EE	NSS deposits	393(3) Sl. No. in Table – 6
194F	Repurchase of units	Omitted (already omitted in 2024)
194G	Lottery ticket commission	393(3) Sl. No. in Table – 4
194H	Commission/Brokerage	393(1) Sl. No. in Table – 1(ii); 393(4) Sl. No. in Table – 1
194-I	Rent	393(1) Sl. No. in Table – 2(ii); 393(4) Sl. No. in Table – 2
194-IA	Transfer of immovable property	393(1) Sl. No. in Table – 3(i)
194-IB	Rent by certain individuals/HUF	393(1) Sl No.in Table -2(i)
194-IC	Joint development agreement	393(1) Sl. No. in Table – 3(ii)
194J	Professional / Technical fees	393(1) Sl. No. in Table – 6(iii); 393(4) Sl. No. in Table – 9
194K	Income from units	393(1) Sl. No. in Table – 4(i); 393(4) Sl. No. in Table – 4
194L	Compensation for compulsory acquisition (old)	Omitted
194LA	Compensation for immovable property	393(1) Sl. No. in Table – 3(iii); 393(4) Sl. No. in Table – 3
194LB	Interest from infrastructure debt funds	393(2) Sl. No. in Table – 5
194LBA	Income from units of business trust	393(1) Sl. No. in Table – 4(ii); 393(2) Sl. No. in Table -s 6 & 7; 393(4) Sl. No. in Table -s 5,13
194LBB	Income of investment funds	393(1) Sl. No. in Table – 4(iii); 393(2) Sl. No. in Table – 8; 393(4) Sl. No. in Table – 14
194LBC	Securitisation trust income	393(1) Sl. No. in Table – 4(iv); 393(2) Sl. No. in Table – 9
194LC	Interest from Indian company (foreign borrowings)	393(2) Sl. No. in Table -s 2,3,4
194LD	Interest on Government securities / bonds	Omitted
194M	Payments by certain Individuals/HUFs	393(1) Sl. No. in Table – 6(ii)
194N	Cash withdrawals	393(3) Sl. No. in Table – 5; 393(4) Sl. No. in Table – 18
194-O	E-commerce payments	393(1) Sl. No. in Table – 8(v); 393(4) Sl. No. in Table – 11
194P	TDS for specified senior citizens	393(1) Sl. No. in Table – 8(iii)
194Q	Purchase of goods	393(1) Sl. No. in Table – 8(ii)
194R	Perquisite/business benefit	393(1) Sl. No. in Table – 8(iv)
194S	Virtual digital assets	393(1) Sl. No. in Table -8(vi)) 393(4) Sl.No. in Table -12
194T	Payments to partners	393(3) Sl. No. in Table -7
195	Payments to non-residents	Entirely merged into 393(2) Non-resident
195A	Net-of-tax income	393(10)
196	Payments to Govt/RBI/Exempt bodies	393(5)
196A	Units of non-residents	393(2) Sl. No. in Table – 10; 393(4) Sl. No. in Table – 15
196B	Income from units	393(2) Sl. No. in Table -s 11 & 12
196C	Foreign currency bonds/shares	393(2) Sl. No. in Table -s 13 & 14
196D	FII income from securities	393(2) Sl. No. in Table -s 15 & 16; 393(4) Sl. No. in Table -s 16 & 17

B. TDS Compliance, Certificates, and Reporting

Old Section	Subject	New Act Section
197	Lower deduction certificate	395(1)
197A	No deduction in certain cases	393(6)
197B	Lower deduction – temporary	Omitted
198	TDS deemed income of payee	396
199	Credit for TDS	390(1),(5),(6)
200	Duty of person deducting TDS	397(3)
200A	Processing of TDS statements	399
201	Failure to deduct/pay TDS	398
202	TDS is one mode of recovery	390(4)
203	TDS certificates	395(4)
203A	TAN	397(1)
206A	Statement for payments without TDS	397(3)
206AA	PAN requirement	397(2)
206AB	Higher TDS for non-filers	Omitted

C. TCS (Old → New)

Old Section	Description	New Section
206C	Procedural & other provisions for TCS	Compliance under 395(3), 397(3), 398
206C(1)	TCS on specified goods (alcohol)	394(1) –Sl. No. 1 in Table
206C(1)	TCS on sale of scrap	394(1) – Sl. No. in 4 Table
206C(1)	TCS on sale of tendu leaves	394(1) – Sl. No. in 2 Table
206C(1)	TCS on sale of Timber, etc.	394(1) – Sl. No. in 3 Table
206C(1C)	TCS on parking lot, toll etc.	394(1) –Sl. No. 9 in Table
206C(1C)	TCS on sale of minerals being coal, or lignite or iron ore	394(1) – Sl. No. in 5 Table
206C(1F)	TCS on sale of motor vehicle	394(1) – Sl. No. 6 in Table
206C(1G)	TCS on foreign remittance (LRS)	394(1) – Sl. No. 7 Table
206C(1I)	TCS on sale of overseas tour package	394(1) – Sl. No. 8 Table
206CA	TAN for TCS collectors	397(1)(a)
206CC	PAN requirement for TCS	397(2)

BCAJ Admin

DPDP Law, Cyber Security and Chartered Accountants

India’s Digital Personal Data Protection (DPDP) Law, operationalised by the 2025 Rules, establishes a privacy-centric legislative framework for managing personal data, aligning India with global standards like GDPR and affirming privacy as a fundamental right. The regime is anchored by core principles like consent, data minimization, and accountability.

The law empowers the Data Protection Board (DPB) to enforce compliance, imposing heavy fines up to INR 250 crores for violations. Data Fiduciaries must obtain explicit consent, maintain data logs, designate a DPO (for Significant Data Fiduciaries (SDFs)), and perform Data Protection Impact Assessments (DPIAs). Data Principals are granted rights to access, correct, and erase their data.

While distinct from cybersecurity (which protects all digital assets), DPDP focuses specifically on the lawful processing of personal data. Chartered Accountants (CAs) are positioned to play a vital strategic and advisory role by verifying DPDP controls, participating in DPIAs, assessing financial reporting liabilities, and guiding clients to use compliance as a strategic differentiator.

INTRODUCTION

The recent Digital Personal Data Protection (DPDP) Law, enacted by the Indian government and operationalised with the DPDP Rules of 2025, marks a significant milestone in India’s digital economy and privacy landscape. India’s DPDP Act establishes clear legislative frameworks for processing, storing, and transferring personal data, aiming to balance innovation with robust privacy rights. Enacted after years of deliberation, the DPDP Act and its 2025 Rules represent India’s alignment with global data protection standards. CA as an individual in practice or firms collectively handle massive amounts of personal financial data of their client and hence they themselves are Data Fiduciaries. This article explores the law’s context, core principles, compliance obligations, comparison with Cyber Security, and the strategic, audit, and advisory functions CAs are now expected to discharge, as well as the implications for practising CAs.

EVOLUTION AND CONTEXT OF THE DPDP ACT

India’s move toward a unified data protection law was driven by rapid digital adoption, rising cybersecurity incidents, and the Supreme Court’s affirmation of privacy as a fundamental right. Enacted in 2023 and implemented in phases starting in 2025, the DPDP Act positions India closer to global standards, such as the General Data Protection Regulations (GDPR). The Act and Rules reflect extensive stakeholder consultations and aim to promote trust, accountability, and cross-border data interoperability.

CORE PRINCIPLES AND STRUCTURE

The DPDP regime is anchored on principles of consent, transparency, purpose limitation, data minimization, accuracy, storage limitation, security safeguards, and accountability. The Data Protection Board (DPB) is empowered to oversee compliance, impose penalties, and issue operational guidance. Organisations must implement structured governance mechanisms, including impact assessments, audit trails, consent recording, and breach response controls.

RIGHTS AND DUTIES UNDER THE DPDP ACT

Data Principal Rights

entitled to obtain access to their personal data, request correction of inaccuracies, and seek erasure of such data in accordance with the Act.
designate a nominee to exercise their rights and manage their personal data in the event of their incapacity or death.
require organisations to provide clear information on how their personal data is processed and may request erasure where lawful and appropriate.

Duties of Data Fiduciaries

Obtain explicit, free, and informed consent from Data Principals before collecting or processing their personal data.
Provide easy opt-out mechanisms and ensure Data Principals can obtain access to their data upon request.
Perform Data Protection Impact Assessments and regular audits as mandated for Significant Data Fiduciaries (SDFs), to evaluate and mitigate privacy risks.
Designate a Data Protection Officer and maintain data logs for at least one year.
Implement appropriate retention and data-flow controls for personal data, recognising that the Act does not mandate blanket localisation; assess and manage retention requirements for specific categories of data.
Ensure that cross-border transfers are executed only in compliance with applicable law, targeted restrictions prescribed by the Government, and the conditions set out in the Rules.

Exemptions

Processing for research, statistical, or archival purposes provided such processing adheres to conditions that safeguard personal data and prevent misuse.
Startups and specified government functions may be granted reduced or conditional compliance requirements, subject to notifications issued by the Government, to balance regulatory burden with operational needs.

Enforcement and Penalties

Non-compliance can attract heavy fines, up to INR 250 crores, depending on severity.
Repeated violations can result in blocking access to services.
Mandatory breach notifications to both individuals and the Data Protection Board (DPB).

Data Privacy is your Business A CA's Guide to India's DPDP Act

CYBERSECURITY AND DPDP REGULATIONS

Cybersecurity and DPDP regulations share common objectives but also have distinct focuses and implications, especially for Chartered Accountants (CAs) in India.

Similarities Between Cybersecurity and DPDP Regulations

Aspect	Remarks
Protection of Data	Both aim to protect sensitive information—cybersecurity focuses on protecting all digital asset security, while DPDP targets personal data privacy and lawful processing.
Risk Management	They require organizations to assess risks, implement controls, monitor vulnerabilities, and respond to incidents or breaches effectively.
Compliance and Accountability	Both impose legal and regulatory compliance responsibilities, demanding documented policies, audits, and reporting to regulators and stakeholders.
Incident Response	Mandate timely detection, notification, and mitigation of data breaches or cyber incidents.
Governance Frameworks	Both require established governance structures, including roles such as Data Protection Officers (DPOs) and Chief Information Security Officers (CISOs).

Differences Between Cybersecurity and DPDP Regulations

Aspect	Cybersecurity	DPDP Regulations
Scope	Protects all digital information assets and IT infrastructure from cyber threats and attacks	Governs the processing, storing, and sharing of personal data in compliance with privacy rights
Focus	Ensures confidentiality, integrity, and availability of data and systems	Emphasises lawful, fair, and transparent processing of personal data with user consent
Legal Basis	Based on IT Act, sectoral cyber laws, and security frameworks like ISO 27001	Based specifically on DPDP Act, 2023 and DPDP Rules, 2025 with a privacy-centric legal framework
Primary Function	Technical controls such as firewalls, encryption, access controls, intrusion detection	Policy-based controls, data minimisation, consent management, impact assessment, and rights of Data Principals
Regulatory Oversight	CERT-In, sectoral regulators (RBI, IRDA)	Data Protection Board established under DPDP Act
Penalties	For cybersecurity breaches and IT law violations	Heavy fines for personal data breaches, non-compliance with privacy norms (up to INR 250 Cr)

Chartered Accountants’ Obligations in DPDP Compliance

Obligation	Description
Data Fiduciaries	requiring privacy and protection of their clients data
Compliance Audits	Verify implementation of DPDP-compliant data protection controls and processes.
Risk and Impact Assessments	Participate in DPIAs to evaluate data processing risks and mitigation strategies.
Financial Reporting	Ensure accurate accounting and disclosure of data protection-related liabilities and penalties.
Advisory Services	Guide organizations on policy, contractual, and procedural updates for compliance.
Collaboration with DPOs	Provide independent assurance on data protection controls and breach management.
Confidentiality & Ethics	Maintain confidentiality of client data consistent with professional standards.
AI and Technology Audits	Audit and advise on AI systems’ compliance with DPDP requirements.

LIKELY SDFs IN INDIA: SECTORS / COMPANIES

Based on the criteria in the DPDP Act / Rules (volume of data, sensitivity, risk, technology use) and expert commentary, these are the sectors / companies that are most likely to be designated as Significant Data Fiduciaries (SDFs) – 1) BFSI (Banks, Fintech, Non-bank Financial Institutions), 2) Hospitals, diagnostic labs, telemedicine platforms, 3) E-commerce / Retail Platforms, 4) Social media giants (Meta, Instagram, large content platforms), Internet Platforms, 5) Major telecommunications service providers, 6) Large IT / SaaS companies, 7) Government Contractors / Public-Private Entities, 8) Companies using AI / algorithmic profiling, biometric analytics, behavioral profiling etc.

CHARTERED ACCOUNTANT’S IN PRACTICE – A DATA FIDUCIARIES

The DPDP Act makes CAs in Practice a Data Fiduciaries. CA handles significant personal data (financials, income, etc.), making them Data Fiduciaries responsible for its protection. Processing personal data requires specific, informed, free, unambiguous consent from their clients. Clients (Data Principals) have rights to access, correct, erase data, and appoint others to exercise these rights.

To comply with the requirements, the CAs in Practice require clear Privacy Notices & explicit Consent for client data.

CA has to take updated Engagement Letters which must covers all the details – what (data), why (purpose), how (it’s protected), rights (access/erase) and complaint links necessitating proactive updates for transparency, risk mitigation, and trust, especially for employee/children’s data.

The engagement letter should be expanded and formalised as a comprehensive data protection document, incorporating sections that address the following a) Acknowledging DPDP Act, CA’s role as Data Fiduciary, b) What specific personal data (financial, Aadhaar Card details etc.) is collected, c) Clearly state why (tax filing, audit, advisory) and limit it, d) How consent is obtained (affirmative action, e.g., signed letter) and that it’s specific to purpose, e) Steps taken to protect data (access controls, encryption), f) Inform clients of their right to access, correct, withdraw consent, etc., and how to exercise them, g) Specify process for clients to withdraw consent and data erasure timelines, h) If data shared with third parties (e.g., software vendors, bankers etc.), specify and get consent, i) How to lodge complaints (Link to DPB/Internal Mechanism), j) Specific clause for parental consent if applicable.

OPPORTUNITIES FOR CHARTERED ACCOUNTANTS

New Compliance Practice Area: CAs can advise companies on DPDP compliance frameworks, audit data protection systems, and certify controls akin to financial audits. This is akin to how GST opened a new field for CAs.
Risk and Governance Advisory: mitigation strategies, and integrate privacy governance with financial and operational audits, helping organisations identify privacy risks, and recommend.
Training and Capacity Building: Delivering workshops on DPDP laws, data privacy culture, and cybersecurity basics for employees and management.
Assurance and Reporting: Conducting independent data protection audits, evaluating breach preparedness, and supporting statutory disclosures of data privacy risks.
Representation and Liaison: Representing clients in front of regulatory authorities like the Data Protection Board for compliance issues.
Cross-disciplinary Expertise: Gaining certifications in data privacy (e.g., CIPP, CIPM), cybersecurity (e.g., CISSP), or IT auditing (e.g., CISA) to strengthen advisory credibility.
Strategic Compliance: Turning Risk into Opportunity: CAs should guide companies to treat compliance not as a checkbox but a strategic differentiator, enabling trust and competitive advantage.

CHALLENGES AND EMERGING ISSUES

Phase-wise rollout with an 18-month transition period presents complexities for project planning and milestone tracking.
Balancing compliance, business agility, and cost—especially for MSMEs and startups.
Interpreting rules around algorithmic transparency and AI audits.
Navigating sectoral overlaps (financial regulations, IT Act, etc.).

IMPORTANT ASPECTS RELEVANT TO CHARTERED ACCOUNTANTS

Some important aspects of DPDP Act relevant to chartered accountants are explained below

1. Core Compliance Checklist (All Entities)

Maintain updated Privacy Policy, consent mechanism, and Record of Processing Activities.
Implement personal data lifecycle controls: collection → storage → retention → deletion.
Put in place procedures for access, correction, erasure, withdrawal and nomination requests.
Establish incident response and breach notification workflows.
Execute Data Processing Agreements with all vendors and maintain annual due-diligence records.
Retain security and system logs for the minimum period prescribed under the Rules.

2. Additional Requirements for Significant Data Fiduciaries (SDFs)

Appoint Data Protection Officer in India.
Undertake Data Protection Impact Assessments for high-risk processing.
Commission independent data audits annually.
Maintain board-level oversight on privacy, risk and incidents.

3. Key Areas for CA Engagement

Governance & Risk Advisory: data mapping, policy framework, DPIA facilitation, vendor risk.
Assurance: review of controls, log retention, breach readiness, and compliance documentation.
Financial Reporting: evaluate provisions or contingent liabilities for penalties under Ind AS/ AS; assess post-balance sheet events and impairment implications.
Contract Vetting: recommend clauses on purpose limitation, security safeguards, sub-processing and deletion.

4. The “Consent Manager” Framework – This is a new entity type in the fintech/financial ecosystem. CAs advising fintech clients need to understand this structure as it changes how financial data is shared

CONCLUSION

While cybersecurity focuses on protecting IT assets, including broader information systems from cyber attacks, DPDP regulations focus specifically on protecting individuals’ personal data privacy through lawful processing practices. Both require robust governance, risk management, and compliance mechanisms. Chartered Accountants have a significant opportunity to expand their role beyond traditional finance and audit into the emerging field of data privacy compliance and cybersecurity assurance. Achieving cross-disciplinary expertise through certifications and continuous education will position CAs as trusted advisors in India’s evolving digital privacy landscape. Chartered Accountants are pivotal in ensuring companies not only comply with the law but also strengthen governance, risk management, and public trust. Their multidisciplinary expertise will be vital as businesses transition to the new regulatory paradigm and leverage compliance for strategic growth. CAs in Practice should proactively revise the engagement letter to ensure compliance with the law and ensure robust consent management systems are in place before full enforcement.

BCAJ Admin

Place of Supply of Goods In Case Of Ex-Works Transactions

In Toyota Kirloskar Motor Pvt Ltd vs. Union of India, the Karnataka High Court clarified that Section 10(1)(a) of the IGST Act determines the Place of Supply (POS) for Ex-Works (EXW) transactions. Although EXW contracts transfer title at the factory gate, the court held that POS is where physical movement terminates for delivery to the recipient. This statutory factual test overrides private contractual terms or the Sale of Goods Act. This interpretation upholds the destination-based consumption tax principle, preventing double taxation when goods are destined for a different state.

The implementation of the Goods and Services Tax (GST) in India transitioned the indirect tax system from an origin-based model to a destination-based consumption tax. This fundamental shift mandates that the tax accrues to the state where the goods or services are finally consumed or utilized. Central to applying this principle is the accurate determination of the place of supply (POS).

In transactions involving the sale of goods, the determination of POS often centers on physical logistics. However, the commercial reality of “Ex-Works” (EXW) contracts introduces complexities that challenge the straightforward application of the statutory rules, especially when the supplier and the registered recipient are located in different states. Under an EXW contract, the supplier’s contractual liability typically ends when the goods are made available at their premises, with the recipient assuming responsibility for subsequent transit and risk.

This article details the legal framework governing the determination of the Place of Supply for goods, analyses the conflict arising specifically in the context of EXW transactions where movement of goods is involved, and outlines an interpretation established by the law, supported by administrative clarifications and judicial interpretation.

THE LEGAL FRAMEWORK FOR DETERMINING PLACE OF SUPPLY OF GOODS

For supply of goods other than imports or exports, the applicable provisions are listed in Section 10 of the Integrated Goods and Services Tax (IGST) Act, 2017.

The fundamental principle governing the Place of Supply for most transactions involving the movement of goods is defined in Section 10(1)(a) of the IGST Act:

Section 10(1)(a): where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

This provision highlights several critical elements:

Involvement of Movement: The rule applies when the supply inherently involves the physical movement of the goods.
Person Causing Movement: It explicitly specifies that the person undertaking the movement is irrelevant for determining the POS. The movement can be caused by the supplier, the recipient, or any other person.
Termination for Delivery: The determining location is where the movement of the goods ends specifically for delivery to the recipient.

AMBIGUITY OF EX-WORKS (EXW) TRANSACTIONS

The EXW contract stipulates that the seller fulfils its’ obligation to deliver when they place the goods at the disposal of the buyer (or their designated carrier) at the seller’s premises. The buyer assumes all risks and costs from that point forward.

When an EXW sale occurs between a registered supplier in State A and a registered buyer in State B, and the buyer arranges transport out of State A, an apparent conflict arises upon applying Section 10(1)(a):

Argument for Intra-State Supply (Origin-based interpretation): It can be contended that since the supplier’s legal and contractual responsibility for “delivery” ends at the factory gate in State A, the “movement of goods terminates for delivery to the recipient” at that point. If this interpretation were accepted, the Location of Supplier (StateA) and the POS (State A) would be the same, making the supply Intra-State and liable to CGST + SGST.
Argument for Inter-State Supply (Destination-based interpretation): It is countered that while the contractual term is EXW, the entire transaction involves movement intended for the final delivery address provided by the recipient (State B). The movement initiated by the recipient from State A to State B logically terminates in State B.

Ex Works GST The Landmark Ruling on Place of Supply

APPARENT CONFLICTS

In the case of Penna Cement Industries Limited 2020 (37) G.S.T.L. 463 (A.A.R. – GST – Telangana), the Telangana Advance Ruling Authority examined this question raised by the applicant. It held that in the case of EXW sales, the movement of goods does not conclude at the factory gate but terminates at the location specified as the destination in the invoice or transport documents. Accordingly, it held that the Place of Supply is to be determined with reference to this ultimate destination. Consequently, since the Location of the Supplier (State A) and the Place of Supply (State B, the destination) fell under different States, it held that the supply qualifies as inter-state supply.

In the context of timing of input tax credit claim, the Central Board of Indirect Taxes and Customs (CBIC), in Circular No. 241/35/2024-GST dated 31.12.2024, specifically clarified that in an EXW contract, the registered person (dealer) is deemed to have “received” the goods for ITC purposes at the moment the goods are handed over to the transporter at the supplier’s factory gate for onward transmission. This deemed receipt occurs because the delivery is made to another person (the transporter) on the direction of the registered person (the dealer), satisfying the Explanation to Section 16(2)(b) of the CGST Act, 2017. Accordingly, it clarified that the credit can be availed by the recipient at that point of time and need not be deferred till the time of actual physical receipt by the buyer in his warehouse/factory.

Though answering different aspects of EXW transactions, there appears to be an apparent conflict between the advance ruling and the CBIC Circular. In any case, neither of them constitute binding precedents and therefore, the issue seemed unresolved.

TOYOTA KIRLOSKAR’S CASE

Recently, the Karnataka High Court was seized with this precise issue: whether the ‘place of supply’ for inter-state transactions is governed by private contractual terms or by the explicit provisions of the IGST Act. The Court in the case of Toyota Kirloskar Motor Pvt Ltd vs. Union of India 2025-VIL-1276-KAR confirmed that the statutory test for the termination of movement of goods overrides any clauses in commercial agreements regarding the transfer of title or risk, thereby preventing a potential double taxation liability of over ₹4,456 crores for the taxpayer.

The legal challenge originated from a Show Cause Notice (SCN) issued by the tax authorities challenging the petitioner’s classification of its vehicle supplies to out-of-state dealers on an ex-works basis as inter-state transactions, contending they should have been treated as intra-state sales. Based on this single observation, the SCN demanded a substantial amount of tax amounting to ₹4,456,23,39,464/-for the period of April 2018 to March 2021. This demand was levied in addition to the IGST that the petitioner had already remitted on these same transactions, effectively subjecting the company to double taxation.

The conflict centered on a fundamental interpretative question: which legal framework—general contract law or specific tax legislation—should determine the place of a supply for GST purposes?

THE REVENUE’S POSITION (RESPONDENTS)

The tax department’s entire case was built upon the terms of the Sample Dealership Agreement and the associated Tax Invoices. Their argument proceeded as follows:

Contractual Supremacy: The respondents contended that specific clauses within the dealership agreement were determinative. These clauses established that the title and risk in goods passed from the petitioner to the dealer at the factory in Bidadi, Karnataka, at the moment the goods were placed onto a common carrier for dispatch.
Equating Title Transfer with “Delivery”: The department equated this contractual transfer of title with the concept of “delivery” under the Sale of Goods Act, 1930.
Legal Conclusion: Based on this interpretation, they argued that the movement of goods, for the purpose of the GST law, terminated within Karnataka. This, in their view, rendered the transaction an intra-state supply, making it liable for CGST and KGST instead of IGST.

THE TAXPAYER’S POSITION (PETITIONER)

The petitioner argued that the revenue’s interpretation was fundamentally flawed and contrary to the architecture of the GST laws.

Nature of Supply: The petitioner’s core defence was that the supplies were unequivocally inter-state in nature, as the goods were dispatched from Karnataka for delivery to dealers located in other states. Consequently, they had correctly paid the applicable Integrated GST (IGST) in full accordance with the law.
Prohibition of Double Taxation: An alternative argument was that compelling them to pay CGST and KGST on the very same transaction for which IGST had already been remitted would constitute double taxation, a practice that is impermissible under law.
Supremacy of GST Law: The petitioner asserted that the determination of the place of supply for GST is not governed by general commercial laws like the Sale of Goods Act or private contractual arrangements. Instead, it is dictated by the specific, overriding provisions of the IGST Act, which were enacted to deal with such situations.

HIGH COURT’S INTERPRETATION AND LEGAL RATIONALE

The High Court’s analysis establishes a clear hierarchy between GST statutes and general commercial agreements for tax purposes. The court focussed on the explicit language of the IGST Act and the core principles of taxation.
Primacy of Section 10(1)(a) of the IGST Act: The Court identified Section 10(1)(a) of the IGST Act as the sole provision governing the determination of the place of supply in this case. The text of the provision is unambiguous:

Section 10. – Place of supply of goods other than supply of goods imported into, or exported from India. – (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under:

(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

The Court observed that the place of supply is determined by a single, factual test: the location where the movement of goods terminates for delivery to the recipient. The court explicitly ruled that this termination point is not when goods are handed to a common carrier, but when they physically reach the recipient’s destination, enabling them to take actual delivery.

Rejection of Contractual Terms for GST Place of Supply Determination: The court addressed and rejected the respondents’ reliance on the Dealership Agreement and the Sale of Goods Act. It found the department’s attempt to link the contractual transfer of title to the statutory definition of “place of supply” to be erroneous. The court’s finding was that there is “no nexus or connection whatsoever” between the passing of title under a private agreement and the liability to pay IGST as determined by Section 10(1)(a). Thus, for GST purposes, the specific tax legislation provides a self-contained code that overrides general commercial law and private contractual terms. The intent of the parties regarding title transfer is irrelevant to the geographical test mandated by the IGST Act.

Principle Against Double Taxation: The court also fortified its decision by invoking the fundamental principle against double taxation. The court noted that the petitioner had undisputedly remitted the applicable IGST on the full value of the supply, which included both the goods and the freight charges. Therefore, demanding CGST and KGST on the same supply was deemed legally impermissible. The court further observed that the situation was essentially “revenue neutral,” which further weakened the rationale for the department’s aggressive and legally flawed demand.
Accordingly, the High Court allowed the writ petition and held that the place of supply will be the ultimate destination of goods in the case of EXW transactions.

CONCLUSION

Beyond resolving the specific dispute for Toyota Kirloskar, the High Court’s ruling offers critical guidance and reinforces fundamental principles of GST law. This ruling firmly establishes a critical hierarchy: for determining the place of supply, the specific criteria laid out in Section 10(1)(a) of the IGST Act supersede any conflicting terms regarding title transfer, risk, or delivery found in commercial agreements or derived from general laws like the Sale of Goods Act. This means that ‘Ex-Works’ delivery terms in a contract, which might suggest a sale concludes at the factory gate, are irrelevant for determining the nature of the supply (inter-state vs. intra-state) for GST purposes when the goods are destined for another state.

The court further clarified that the phrase “terminates for delivery to the recipient” refers to a physical event. The place of supply is the geographical location where the goods’ journey ends and the recipient is able to take possession. It is not the notional point where title or risk is contractually transferred to a carrier at the supplier’s premises. This interpretation favours a practical, fact-based assessment over a legalistic one based on contractual fine print.

The court’s condemnation of the demand as a form of double taxation reinforces a core tenet of the GST framework. It serves as a powerful reminder that a single transaction cannot be arbitrarily subjected to both IGST and CGST/SGST. This principle protects taxpayers from erroneous demands arising from misinterpretation of the law by tax authorities.

In essence, this judgement provides clear authority that for supplies involving the movement of goods, the determination of place of supply must be based on the physical termination point of the goods’ journey, as mandated by the IGST Act, regardless of contractual agreements to the contrary.

BCAJ Admin

Company Law

20. *S M & Co (Chartered Accountants) vs. Track Infoline Pvt Ltd & Ors

COMPANY APPEAL (AT) NO.214/2025

Before NCLAT, Principal Bench, New Delhi

Date of Order: 2nd December, 2025

Auditor not to render prohibited services.

Facts

RT Global Infosolutions Pvt. Ltd. (the “Company”) was the subject of a petition under sections 241 and 242 of the Companies Act, 2013 (CA 2013) filed by Track Infoline Pvt. Ltd., one of its shareholders, alleging fraud, mismanagement, and oppression by the management. S M & Co., a partnership firm of chartered accountants, was the statutory auditor of the Company and was implicated as a respondent in the NCLT proceedings.
A significant factual allegation was that the Company’s registered office was located at New Delhi, which was the residential premises of members of the M family, who were also partners in S M & Co. This was relied upon to suggest that the auditors were not independent and were acting in concert with the management (RG Group) in the alleged mismanagement. After this issue was specifically raised in the petition, the Company passed a board resolution, shortly after an earlier NCLT order, shifting its registered office from the M family residence to a commercial premises adjacent to the registered office of another related company.
The NCLT noted that the Company’s management had made inconsistent and false statements, including in board resolution extracts issued on the Company’s letterhead, which mentioned a different registered office address for a board meeting that did not match the earlier factual position. More crucially, the NCLT examined the audited financial statements and filings (AOC 4) for FYs 2016–17 and 2017–18, which were signed by S M & Co. and formed part of the proceedings. These balance sheets disclosed that the auditor had charged “management fees” and other amounts beyond the statutory audit fee, indicating that services other than audit were being rendered to the Company.
Section 144 of the Companies Act, 2013, which was quoted in the NCLT order, prohibits auditors from rendering certain services, including management services, whether directly or indirectly, to the company, its holding or subsidiary. The petitioner contended that not only had the auditor charged management fees in violation of section 144(h) of CA 2013, but that later balance sheets for FY 2018–19, 2019–20 and subsequent years had been tampered with to show a flat audit fee of ₹2,00,000, thereby removing or altering earlier disclosures of management fees. To support this, reliance was placed on a certificate, issued after arguments had progressed, which purported to explain that certain payments were for ROC filing, tax audit, ITR filing, GST and TDS returns, while omitting any reference to management services.
The NCLT concluded that the certificate referred to above demonstrated that the auditor was acting under specific instructions from the Company and was attempting to regularise or cover up prohibited payments that were earlier reflected in management fees. On these facts, the NCLT held that the auditor was guilty of tampering with records, accepting remuneration for prohibited services, and issuing a certificate contrary to the audited financial statements, and accordingly removed S M & Co. as auditor of the Company.
S M & Co. filed an appeal before the NCLAT challenging the NCLT’s order removing them as auditor. Alongside the appeal, several applications were filed including for condonation of delay in filing the appeal due to the illness (cancer) of the appellant’s father; these interlocutory applications were allowed, and the delay was condoned.

Arguments

Before the NCLT, petitioner therein argued that the auditor’s close connection with the Company’s management, evidenced by the common address and family relationship, showed a lack of independence and collusion in mismanagement. It was contended that the auditors not only failed in their duty to report wrongdoing but actively participated in it by receiving management fees and rendering prohibited services, contrary to section 144 of CA 2013. The petitioner highlighted that the audited balance sheets for FY 2016–17 and 2017–18 clearly reflected payments for “management services” to the auditor, attracting the bar under section 144(h), and giving rise to penal consequences under sections 141 and 147.
The petitioner further submitted that there was a deliberate attempt to cover up the violation and fraud by subsequently altering the financial statements for FY 2018–19, 2019–20 and later years. According to them, the later financials were modified to show a uniform audit fee of ₹2,00,000 without separately disclosing management fees, thereby removing evidence of prohibited services. The certificate issued on behalf of the Company and relied upon by the auditor, was argued to be an afterthought, issued during the pendency of proceedings to recast the nature of payments as being for ROC filings, tax audit, ITR, GST and TDS returns, and not for management services. This, the petitioner contended, demonstrated that the auditor was acting at the behest of the management and tampering with records.
On this basis, the petitioner urged that the auditor had breached statutory duties, independence, and ethical obligations, and therefore should be removed and held guilty of serious professional misconduct and contravention of the CA 2013. It was also argued that the auditor’s conduct facilitated or aided the alleged fraud and oppression, making their removal a necessary step in the reliefs under sections 241–242.
In the appeal before NCLAT, S M & Co. challenged the NCLT’s findings and the direction of removing them as auditors of the Company. The essence of the appeal was that the NCLT had erred in concluding that they had rendered prohibited services and tampered with records, and that there was no basis to hold that section 144 had been violated. The appellant sought to rely on the records and certificates to contend that the services and fees were properly accounted for and that they had not breached their statutory obligations. They also implicitly questioned whether the NCLT could, in a 241/242 petition, remove an auditor based on such findings.
The respondent (Track Infoline) opposed the appeal, supporting the NCLT’s factual findings and emphasising that the audited balance sheets themselves, as placed on record, clearly showed the charging of management fees by the auditor in earlier years, and that the later attempt to generalize the audit fee and issue a clarificatory certificate only strengthened the inference of tampering and collusion.

Conclusion of the Tribunal and the basis

The NCLAT first dealt with the interlocutory applications and allowed those, and condoned the delay in filing the appeal.
The NCLAT noted that there were audited balance sheets for FY 2016–17 and 2017–18, at specified pages of the appeal paper book, duly audited and signed by S M & Co., which showed that the appellant had charged management fees in those years. The appellate order further recorded that even in later years, the appellant continued to charge such fees, thereby contravening section 144(h) of the CA 2013, which prohibits auditors from rendering management services. Having examined the records annexed, the NCLAT agreed with the NCLT’s conclusion that the auditor had provided services other than auditing in violation of section 144 and that the findings in the NCLT’s order did not suffer from any error.
On this basis, the NCLAT held that it found no error in the impugned order. The appeal was accordingly dismissed at the admission stage, thereby affirming the removal of S M & Co. as auditors of the Company and implicitly endorsing the NCLT’s observations on tampering of records, receipt of remuneration for prohibited services, and issuance of contradictory certificates.

Principle Emanating from the Judgement

Auditor’s independence and prohibited services under section 144

The judgement reinforces that a statutory auditor must maintain strict independence and cannot render services that fall within the prohibited categories under section 144, particularly “management services” under clause (h), whether directly or indirectly to the company, its holding or subsidiary. Charging management fees or undertaking management type engagements while simultaneously acting as statutory auditor is a clear violation that can attract both regulatory and judicial consequences, including removal in proceedings under sections 241–242.

Scope of relief in oppression–mismanagement proceedings:

The case illustrates that in an oppression–mismanagement petition under sections 241–242, the NCLT’s remedial jurisdiction extends to examining the role of the statutory auditor and directing removal where the auditor’s conduct is intertwined with the alleged fraud or mismanagement. An auditor found to be non independent can thus be removed as part of the broader relief necessary to bring an end to the matters complained about.

* (Name changed)

21. The Kolhapur Steel Ltd. vs. Karad Projects and Motors Ltd.

C.P.(CAA)/76(MB)2025

NCLT – Mumbai Bench (Court IV)

Date of Order: 3rd November, 2025

The National Company Law Tribunal, Mumbai Bench (NCLT), approved the Scheme of Amalgamation between the Holding and Subsidiary companies, highlighting a bona fide business purpose—such as strategic business and financial planning, including reviving a company, preventing production losses, preserving employment, and safeguarding capital—cannot be invalidated merely because it results in a tax benefit under Section 72A of the Income-tax Act, 1961. Accordingly, the Tribunal rejected the objections raised by the Income Tax Department against the amalgamation scheme.

The key findings and upholding by the Tribunal are as follows:

The NCLT held that the Scheme complies with Sections 230–232, does not violate any law, and does not contradict the public policy. No objections from shareholders or creditors remained unresolved, and regulatory directions were complied with.

However, the Income Tax Department objected to the Scheme on the ground that it was structured to obtain a tax benefit under Section 72A of the Income-tax Act, 1961, and therefore constituted a tax avoidance arrangement.

The Tribunal held that strategic business restructuring resulting in lawful tax benefits does not amount to a colourable device.

Section 72A permits carry-forward of losses subject to stringent conditions.

NCLT accepted the applicants’ clarification that revival of the Transferor’s business, protection of employment, and operational efficiency were the objectives of the merger and not tax evasion.

NCLT also recorded that Income Tax authorities are free to examine tax liability and to take necessary action as possible under the Income-Tax Act, 1961.

The NCLT held that GAAR can be invoked only through statutory procedure under Section 144BA and cannot be used to block sanction of a merger scheme. Therefore, allegations of “impermissible avoidance arrangement” were not sustained.

Conclusion

The NCLT rejected the objections, holding that it is a well-settled principle that any benefit legitimately available to an assessee within the framework of law cannot be denied merely because it may result in a loss of revenue to the Department. The Bench further observed that strategic business and financial restructuring through mergers among group entities—undertaken to revive the business of the transferor company and to safeguard production, employment, and capital—cannot be presumed to be a colourable device merely because
such restructuring results in a tax benefit to the transferee company in accordance with statutory provisions.

Accordingly, the NCLT dismissed the objections of the Income Tax Department and approved the Scheme.

BCAJ Admin

Registration under Section 12A in Cases of an Object for Application outside India

Charitable trusts obtaining registration under Section 12ABfrom the Commissioner of Income Tax (CIT) often face rejection when a trust’s objects permit spending on charitable activities outside India.

The majority of judicial decisions have held that the mere existence of an object permitting spending outside India is not a valid ground for rejection of registration. The definition of “charitable purpose” (Section 2(15)) has no geographical limits, and Section 11(1)(c), which restricts exemption for income applied outside India (unless CBDT approved), is a computation provision relevant only after registration is granted.

However, the Mumbai Tribunal has taken a contrary view in Sila for Change Foundation’s case, upholding the denial of registration on the ground that the 2022 amendments in Section 12AB(4) and (5) permitting cancellation of registration in the event of specified violations effectively require compliance at the registration stage with all other laws material for the purpose of attainment of objects. This decision does not appear to be correct, as the none of the specified violations are attracted merely by having an object permitting spending outside India. Moreover, such an object is necessary if the trust ever intends to seek CBDT approval to spend outside India under section 11(1)(c).

ISSUE FOR CONSIDERATION

Every charitable or religious trust, society or section 8 company (for convenience referred to as “trust”) desiring to claim exemption of its income under sections 11 to 13 of the Income-tax Act, 1961 is required to be registered under section 12A with the Commissioner of Income Tax (“CIT”). The procedure for grant of registration is laid down in section 12AB.

While granting registration, the CIT is required to examine the following:
(i) the charitable or religious nature of the objects of the trust;
(ii) the genuineness of activities of the trust; and
(iii) the compliance by the trust of such requirements of any other law as are material for the achievement of its objects.

If satisfied, on examination, the CIT is required to grant registration under section 12AB. Sub-section (4) of section 12AB lists out the ‘specified violations’ for which the registration already granted can be cancelled by the CIT.

At times, a trust may have some objects in its trust deed or Memorandum of Association permitting it to spend on charitable activities outside India. Very often, at the time of application for registration, in such cases, the CIT may reject the application for registration on the ground that registration is not permissible for a trust which has an object permitting it to spend on charitable activities outside India.

While most of the benches of the Tribunal (including the Mumbai Bench) have taken the view that the existence of such an object in the Trust Deed or Memorandum of Association cannot be a ground for rejection of an application for registration under section 12A, recently, a contrary view has been taken by a couple of benches of the Mumbai Tribunal holding that such refusal to register at the initial stage itself is justified.

SARBAT THE BHALA GURMAT MISSION CHARITABLE TRUST’S CASE

The issue had come up before the Chandigarh bench of the Tribunal in the case of Sarbat the Bhala Gurmat Mission Charitable Trust vs. CIT 189 ITD 353.

In this case, the assessee, a charitable society, was in operation since December 2014. It had applied for grant of registration under section 12A. One of its objects included the opening of branches of the trust in India and abroad.

Charity without Borders The Indian Tax Registration Dilemma

After calling for information and making due enquiries, the CIT denied registration for the reason that the objects of the trust provided for operations being carried out/extended outside India also. The CIT observed that the Act ruled out grant of exemption of income applied for charitable purposes outside India. He noted that operations outside India was allowed only for limited purposes, and that too was subject to approval by the Central Board of Direct Taxes (“CBDT”). He therefore held that the activities of a trust can be treated as charitable only when its income is mandated for application within India, and not if the activities can be carried out outside India, and therefore denied the grant of registration under section 12A to the assessee trust.

Before the tribunal, on behalf of the assessee, it was contended that while denying grant of registration, the CIT had wrongly referred to the provisions of section 11 which denied exemption to incomes which were applied outside India for charitable purposes. The said provision of section 11 was applicable only while computing or determining the exempt income of entities which qualified for the exemption under the said section and that while examining the application for registration u/s 12A, the provisions of section 11 had no role to play. It was explained that for the limited purpose of grant of registration, the CIT was only required to consider the genuineness of the objects and activities of the trust and decide whether the objects listed were for “charitable purpose” as defined in section 2(15). It was pointed out that the definition of “charitable purpose” nowhere restricted the carrying out of charitable activities within the geographical boundaries of India alone. Therefore, while granting registration, the possibility of the trust carrying out activities outside India in future, could not lead to the conclusion that it was not formed for charitable purposes, and that therefore registration was not to be denied for this reason. It was argued that it was only in assessment of income, when the quantum of income exempt was to be determined, that the fact of income applied for charitable activities outside India would be relevant for the purpose of excluding such amount from exemption.

On behalf of the assessee, reliance was placed on the following judicial decisions favouring the view taken by the assessee:

MK Nambyar SAARF Law Charitable Trust vs. Union of India 269 ITR 556 (Del)

Foundation for Indo-German Studies vs. DIT 161 ITD 226 (Hyd Trib)

National Informatics Centre Inc vs. DIT 88 taxmann.com 878 (Del ITAT)

It was further submitted that in any case carrying out activities outside India was not its main object, but only incidental, and that the assessee would primarily carry out its activities in India only.

On behalf of the revenue, reliance was placed on the order of the CIT.

The tribunal noted the primary argument of the assessee against the order of the CIT contending that for the limited purpose of granting registration, the conditions mentioned in section 12AA only needed to be fulfilled; that the provisions of section 11(1)(c) were not relevant for the purpose of registration; section 11(1)(c) could be applied only while determining the income entitled to exemption under section 11 in assessment of income. According to the tribunal, what was therefore to be decided while entertaining the application for registration u/s 12A was whether the law provided for any such geographical limitation in carrying out charitable activities and whether an object clause permitting such activity outside India could lead to rejection of application for registration at the preliminary stage.

The tribunal analysed the provisions of section 2(15), 11, 12, 12A, and 12AA of the Act and observed that the definition of the term “charitable purpose” in section 2(15) listed various activities which qualified as charitable purpose and there was no restriction that required that such activities, when actually carried out, were within the geographical boundary of India. In other words, there was nothing in section 2(15) that mandated against the carrying out of activities outside India. It was only section 11 which placed a geographical restriction by limiting the exemption only to incomes applied to charitable purposes in India. But even section 11 did not completely rule out exemption to incomes applied outside India for charitable purposes, when carried out with the approval of the CBDT.

The Tribunal therefore held that the CIT’s order, denying registration to the assessee merely because its objects included application of income outside India, was not in accordance with law. It was even more so because that was not the sole and main object of the assessee, but only its ancillary and incidental object. Besides, it was not the case that there was to be no application of income within India at all as per the objects, the main object of the assessee involved carrying out charitable activities in India. Under those facts, the tribunal was of the view that, denying registration under section 12A because an incidental object entailed application of income outside India, would result in the assessee being altogether denied exemption to income applied in India, which it was otherwise entitled to in law.

Further, the tribunal observed that the provisions of section 11(1)(c), which the CIT had relied upon for holding that only activities carried out in India would qualify as charitable for grant of registration, was only for the purposes of determining the income which qualified for exemption under section 11. As per the tribunal, this section came into operation only once registration was granted under section 12A, and therefore could not be relevant for the purposes of granting registration under section 12A. As per the tribunal, the scheme of the Act was that all entities carrying out charitable activities as defined in section 2(15) qualified to be registered as charitable entities, but the exemption was provided and restricted only to the extent of income applied for charitable purposes in India.

The tribunal also noted that the issue was squarely covered by the decisions cited (supra) on behalf of the assessee. It noted that in the case of M K Nambyar SAARF Law Charitable Trust (supra), the High Court had held that the application of income outside India was not a relevant criteria for rejecting the application for grant of registration under section 12A, and the officer had to only restrict itself to the satisfaction about the objects and genuineness of the activity of the trust while granting registration, with no restriction at that stage on the activities being carried out inside or outside India.

The Tribunal therefore set aside the order of the CIT, and directed the CIT to grant registration as applied for by the assessee.

A similar view has been taken by other benches of the Tribunal in the cases of Dedhia Music Foundation vs. CIT 173 taxmann.com 394 (Mum), Odhavji Chanabhai Peraj Charity Trust vs. DCIT 177 taxmann.com 178 (Mum), International Bhaktivedanta Institute Trust vs. DIT 42 taxmann.com 330 (Hyd), Dr. T.M.A. Pai Foundation vs. CIT 175 taxmann.com 719 (Bang), TIH Foundation for IOT and IOE vs. CIT 176 taxmann.com 561 (Mum) and Shamkris Charity Foundation vs. CIT 180 taxmann.com 58(Mum).

SILA FOR CHANGE FOUNDATION’S CASE

The issue came up again before the Mumbai bench of the Tribunal in the case of Sila for Change Foundation vs. CIT 173 taxmann.com 694.

In this case, the assessee, a section 8 company, had been granted provisional registration under section 12A(1)(ac)(ii) by the CIT. When it applied for final registration, the CIT noted that one of its 18 objects was – “to provide support and other such developmental services to other organisations in India and outside India in the social sector”. He was of the opinion that this objects clause violated section 11, and therefore registration under section 12A could not be granted, since the assessee had not established the genuineness of the activities. The CIT also noted that the assessee had not established whether this object was compliant with any other law as was material for the purpose of achieving its objects. The CIT therefore rejected the application for registration under section 12AB.

On behalf of the assessee, before the Tribunal, it was submitted that subsequent to the provisional approval, the activities of the institution had commenced and were found to be genuine. It was argued that once the CIT was satisfied that activities undertaken by the institution were genuine, and in consonance with its aims and objectives, registration could not be denied. It was further submitted that the activities of the institution were bona fide, and that the assessee had not applied any income for activities outside India. It was therefore argued that the genuineness of the activities could not be doubted.

On behalf of the assessee, it was further submitted that clause 12 of the Memorandum of Association was not meant to enable the assessee to carry out charitable activities outside India. All that the clause stated was that the assessee could render support and coordinate with trusts/Institutions outside India. An example was given that if a student was granted education loan for seeking education outside India, and the assessee paid tuition fees to a university outside India of such student, it would not mean that the amount was utilised or applied for charitable activities outside India.

On behalf of the revenue, it was argued that clause 12 of the objects stated that it would provide support and carry out such development activities to other organisations in India and outside India in the social sector. Section 11 required that the activities must be carried out in India. Clause 12 of the objects was clearly in contravention of the primary requirement under section 11. It was therefore submitted that the claim of exemption was rightly denied.

The tribunal analysed the provisions of section 12A, and the changes in the registration procedure effective from 1st April 2021. It noted that at the time of application for regular registration, the CIT was required to call for such documents or information or make such inquiries as he thought necessary to satisfy himself about the genuineness of the activities of the trust and the compliances of other laws. Once he was satisfied on the above aspects, then registration would be granted.

The tribunal further noted that, as per section 12AB(4) and (5), with effect from 1st April 2022, the registration can be cancelled in the case of specified violations. The list of specified violations includes, inter alia, cases where it is found out that the activities are not genuine, or are not carried out in accordance with the objects of the institution, or the institution has not complied with the requirements of any other law as are material to the attainment of its objects. It noted that the Explanatory Memorandum explaining the provisions of the Finance Bill 2022, stated that provisional registrations were granted in an automatic manner, and that the provisions for cancellation of registration were being introduced to ensure that non-genuine trusts do not get the exemption. Therefore, the tribunal observed that merely because provisional registration had been granted, did not mean that final registration could not be denied.

The tribunal then analysed the provisions of sections 11(1)(a) and 11 (1)(c). It noted the decision of the Delhi High Court in the case of DIT vs. National Association of Software and Services Companies 345 ITR 362, where the Delhi High Court held that there was no need for a trust to apply for CBDT approval for application of income outside India under section 11(1)(c) if section 11(1)(a) granted exemption even if income of the trust was applied outside India so long as the charitable purposes were in India. It noted the Delhi High Court’s observations that it was illogical to allow expenditure paid to a student to study abroad but the same was not permissible if the payment was made directly to the foreign university. It also noted the decision of the Mumbai Tribunal in the case of Jamsetji Tata Trust vs. Jt DIT 148 ITD 388, where the tribunal held that education grant given to Indian students for studying abroad amounted to application of money for charitable purposes in India and though the final execution of the purpose may be outside India, that would not affect the satisfaction of the conditions.

According to the tribunal, the courts had always proceeded on the footing that section 11(1)(a) does not attract forfeiture of exemption of the entire income, unlike the provisions of section 13(1). In other words, if a trust was willing to pay taxes to the extent of its activities outside India, then, to that extent, it can have such activities. This supported the assessee’s contention that the provisions of section 11(1)(a) were attracted only if actual expenditure was incurred outside India, and could not be invoked only on the ground that the trust deed provided for activities outside India.

Having noted in favour of registration, the Tribunal finally rejected the application for registration by mainly relying on insertion of sub-sections (4) and (5) in section 12AB by the Finance Act 2022 which had widened the scope of violations, as specified in the explanation therein. According to the tribunal, the condition that the objects of the trust were not in violation of compliance under any other law for the time being in force towards achieving the material purposes of the objects, had now become necessary to be satisfied and established by the assessee at the time when its application was scrutinised for converting provisional to final registration. In the view of the tribunal, with such compliance required at the stage of registration, the relevant clause 12 in the Memorandum of Association of the assessee was a hurdle to grant final registration.

The Tribunal therefore rejected the appeal of the assessee, upholding the denial of registration under section 12A.

This decision was followed by another bench of the Tribunal (with one member common to both cases) in the case of Hemlata Charities vs. CIT 172 taxmann.com 649.

OBSERVATIONS

The power to refuse or reject the application for registration is strictly governed by s. 12AA of the Act. As noted earlier, the conditions that are to be examined by the CIT and in respect of which he needs to satisfy himself do not require him to reject the application on the ground that one of the objects of the trust contains a clause that permits the trust to apply its income out of India; as long as the objects behind the application are charitable and satisfy the test of section 2(15), there is no hurdle in granting registration to the trust.

At the stage of application, there may not be even any application of income. While section 11(1)(c) limits such application only where it is approved by the CBDT, that by itself is not a hurdle in registration of the trust. As long as the objects are found to be charitable within the meaning of section 2(15), the only thing that is required to be examined is whether the activities of the trust are genuine or not; they do not become non-genuine where some income is applied outside India, as long as the application is for charitable purpose.

The next condition, the non-satisfaction of which permits the refusal, is whether there was any non-compliance of requirements of ‘other law’ that is material for achieving the objects of the trust. It is beyond one’s imagination to conceive as to how a charitable object of the trust that permits application in a foreign country can be in non-compliance of some other law, and how can it be so even before the application of income is made for an overseas object. In any case it is for the CIT to demonstrate, with proof, that having such an object can and will lead to any non-compliance, that too one which can be considered to be material.

Applying or invoking the provisions of s. 11(1)( c) at the time of registration or even at the time of renewal of registration is absolutely avoidable. This provision is a computation provision and has application only while assessing the income. Even when this provision is successfully applied by the AO, that by itself cannot lead to any refusal of registration.

Applying s.12AB (4) and (5) at the time of registration is once again debatable. The provision applies to the cases of cancellation of registration and is applicable to the trust which is already registered. These provisions are not applicable to the case of a trust which is seeking registration. In any case, all of the seven situations of the Explanation to s. 12AB(4) require an act by the trust that has already taken place and has been committed, to enable the CIT to cancel registration. None of them could apply to a trust simply because it has an objects clause that permits it to apply income outside India. In our opinion, even where the income is so applied for charitable purpose outside India, there is no specific violation unless it is established by the CIT that such an application was in violation of the requirements of the other law or non-compliance thereof, which was material to the attainment of the objects.

The tribunal, in Sila for Change Foundation’s (supra) case, was perhaps justified in noting that by the amendment of law in 2022, if there was a specified violation, the CIT could reject the application for registration. However, in that case, the Tribunal really did not demonstrate as to how, by having an object permitting application outside India, there was a violation of compliance with any other law as was material for the attainment of objects of the trust. In fact, there was no such violation of compliance with any other law material for the attainment of objects of the trust. As noted by the Mumbai Bench of the Tribunal in Dedhia Music Foundation’s case (supra), the provisions of section 11(1) would not fall under the category of “any other law”, since it was only a computation provision, and that application of income for objects outside India cannot be construed to be violation of “any other law” under section 12AB(4). If there was indeed such a specified violation, then perhaps the decision of the tribunal would have been justified.

As rightly observed by the tribunal in that case, the correct position in law was that if there was actual application outside India, it was only then that the exemption was lost to the extent of such application. The 2022 amendment did not really affect this position, since none of the specified violations applied to a situation of having an object permitting application outside India. Therefore, the ratio of the decision of the Delhi High Court in the case of M K Nambyar Saarf Law Charitable Trust (supra), that application of income outside India is not a relevant factor for rejecting an application for registration under section 12A, would continue to be valid and hold good.

In fact, in Sila’s case, the tribunal failed to appreciate that unless the trust had an object permitting it to apply its income outside India, it could not even approach the CBDT for permission for application outside India, as the trust can spend only to the extent permitted by its objects. In fact, when a trust makes an application to the CBDT, one of the points on which enquiry is made is the specific object under which the trust intends to apply the money outside India. If there is no such object in the trust deed authorising the trustees to apply income or assets outside India, in law, the trust would not be able to apply any part of its income or assets outside India, and therefore there is no question of even applying to the CBDT for such permission. Therefore, existence of such a clause in the trust deed is essential, if a trust is ever to apply to the CBDT for application outside India. If a view is taken that a trust cannot be granted registration under section 12A if it has such a clause permitting spending outside India, then the provisions of section 11(1)(c), to the extent applicable to trusts set up after 01.04.1952, of taking prior CBDT approval, become redundant. That can never be the case, and therefore such an interpretation would be incorrect.

Therefore, clearly the better view of the matter is that the mere existence in the trust deed or Memorandum of Association of an object of spending outside India, cannot be a ground for rejection of registration under section 12AB (or under section 80G, for that matter).

BCAJ Admin

Assessment and Appeals under the Income Tax Act, 2025

The Income Tax Act 2025 was enacted following demands to modernize and simplify the bulky 1961 Act. Despite high expectations for structural change, the New Act is considered a disappointment because it makes very little change in substance. The stated objective was merely language simplification, which involved converting hundreds of explanations and provisos into sub-sections, and changing established terms like “notwithstanding” to “irrespective”. This linguistic revision creates an apprehension of increased litigation by disrupting settled judicial interpretation.

Procedurally, the New Act replaces the concept of “assessment year” with “tax year”. A critical transitional issue is that the Old Act (1961) will continue to apply to proceedings pending as of April 1, 2026, for previous tax years. This means taxpayers and practitioners must remain proficient in the provisions of both the 1961 and 2025 Acts for at least the next decade. Ultimately, stakeholders question whether the substantial effort was worthwhile given the minimal changes and the risk of new legal controversies.

BACKGROUND

The Income Tax Act 1961 has been around for more than six decades. The said Act had undergone innumerable changes, some on account of changes in the economic environment, some due to judicial interpretation being not in consonance with legislative intent, and some for other reasons. Consequently, the Act had indeed become bulky, and many new users found it to be cumbersome. The need for a new Income Tax legislation had been doing the rounds for more than a decade and a half. A direct tax code was put in the public domain in around 2010. Professionals spent huge amounts of time trying to analyse and dissect the provisions thereof and make representations to the government. For reasons best known to the lawmakers the direct tax code got a quick burial and is now lying only in the archives.

When a New Act was mooted, the profession and probably the taxpayer had great expectations. This was an era of massive technological development, all-round economic growth and the liberalisation of 1991, had resulted in a sea change in business environment. The government always mentioned its object of ushering in “ease of doing business.” It was hoped that the new legislation would make structural changes, conduct a complete overhaul of the cumbersome procedural issues and the New Income Tax Act, would be a forward-looking model legislation. Sadly, these expectations have not been met and to that extent the new legislation is a disappointment. The feeling is that a great opportunity has been lost.

The announcement of the new legislation was made in July 2024; the bill was tabled on 13th February 2025. referred to the Select Committee immediately thereafter. After the report of the Select Committee, which suggested a large number of changes, many of which were accepted by the Finance Ministry, the old bill was withdrawn on 8th August 2025. The redrafted legislation was placed before Parliament on 11th August 2025, passed by both houses on 11/12th August 2025 and received presidential assent on 21st August 2025. The Income Tax Act 2025 (hereafter referred to as the New Act), does not make any change in substance in the Income Tax Act 1961 (hereafter referred to as the Old Act). In its responses to the Select Committee, the Finance Ministry has made it abundantly clear that it does not intend to make any policy change and the objective was merely to ensure that the new law had language which the stakeholders could easily comprehend, was dynamic and forward-looking. Unfortunately, the objects do not seem to have been achieved. There is apprehension that, on account of the changes in language, there may be increase in litigation, unless the lawmakers take appropriate steps.

SCOPE OF THIS ARTICLE

As has been narrated in the earlier paragraphs, there is very little change in substance between the Old Act and the New Act. The tabulations comparing/ matching old sections with the new sections are already in the public domain, and in this era of complete information access, bear no repetition. Therefore the object is to point out the limited changes that have been made in the provisions relating to assessment and appeals, analyse the thought process of the Finance Ministry which has been recorded by way of responses to the suggestions of the Select Committee and put forth some suggestions wherever appropriate.

IMPACT OF CHANGE IN LANGUAGE

As an endeavour towards simplifying language, all the explanations in the Old Act {900 in number) and provisos (1200 in number) have been given a go by, and the text of the said explanations and provisos find place in the New Act by way of sub-sections. The role and ambit of explanations and provisos had been judicially interpreted for more than six decades and the law on that aspect was now well settled. Judicial fora were clear, that an explanation could not exceed the ambit of the main provision and a proviso was only an exception or carve out.

Income Tax Act 2025 A Missed Opportunity

When an explanation or a proviso is enacted as an independent provision by way of a sub-section, it would stand on the same footing as the other sub-sections in the section. As a consequence, if the two sub-sections are in conflict with each other or there is an element of difference in interpretation, it would require judicial intervention to make a rational interpretation. The most significant difference in language is the use of the word “irrespective of” instead of the word “notwithstanding”. In my humble understanding, these two words do not mean the same thing. It is also important to note that the word “notwithstanding” was a non-obstantate clause, and if it appeared at two places, the impact was judicially interpreted. Using the word “irrespective of”, may result in interpretation issues. The Finance Ministry has clarified that the change in language is only to make it simple and not to disagree with established propositions. It may be appropriate for the Finance Ministry to clearly mention that despite the use of a different word, the intent is to accept the interpretation that was placed on the word “notwithstanding”.

REPEAL AND SAVINGS – SECTION 536

While section 536(2) of the New Act has clauses (a) to (s), clauses (c), (d), (e) and (g) are of importance for the scope of this article. Clauses (c), (d) and (e) provide that in respect of any proceeding pending as at the date of the commencement of the New Act, pertaining to tax year beginning before 1st April 2026, the provisions of the Old Act would continue to apply. This will mean that in regard to any proceeding which is pending as on 1st April 2026, in regard to assessment year 2026-27(previous year 2025-26), or any year prior thereto, the Old Act will apply. Further if any proceeding is initiated after 1st April 2026 pertaining to these years, the Old Act will continue to apply. This will mean that at least for the next decade or so, tax practitioners will have to keep abreast of the provisions of the Income Tax Act 1961, as well as the Income Tax Act 2025. Of course, this was the position also at the time that the Income Tax Act 1922, gave way to the Income Tax Act 1961. The difference is that the tax compliance landscape at that point of time was far simpler than it is today. Considering the current complexities, taxpayers, tax practitioners as well as tax administrators have a daunting task ahead.

The procedures, obligations limitations provided for/prescribed under the Old Act would continue for all years commencing on before 1st April 2026. Clause (g), provides that in regard to any refund pertaining to an year prior to the commencement of the New Act or any sum due by the assessee pertaining to that year, the provisions relating to interest either payable by the Central Government or by the assessee, the provisions of the New Act will apply for the period after the commencement of the act.

DEFINITIONS / CONCEPTS PRIOR TO ASSESSMENT

The definitions pertaining to assessment, person, regular assessment, tax in the New Act are virtually identical to that of the Old Act. In the term “assessment”, the term recomputation has been included. This is only a semantic change as computation of tax was always a part of the assessment process.

In keeping with the change of replacing the concept of assessment year by a tax year, the New Act does not have a definition of assessment year, but a tax year is defined in section 3, in place of a previous year. Therefore 2026-27 will be the assessment year for previous year 2025-26 and tax year for financial year 2026-27.

The provisions of section 263 in regard to furnishing of a return of income, and section 267 pertaining to an updated return are similar to the corresponding provisions in the Old Act.

ASSESSMENT

The provisions in regard to inquiry before assessment are similar to that under the Old Act. Section 270(1) which deals with processing of a return of income corresponds to section 143(1) of the Old Act. Before the Select Committee, the stake holders had represented that after processing the return by the Centralized Processing Centre (CPC), which is a mechanical process now facilitated by artificial intelligence, the responsibility of grant of refund, rectification etc should vest with the jurisdictional assessing officer (JAO). This would solve a large number of problems, which arise on account of the absence of a human interface. To illustrate, in the case of a developer following the percentage completion method, the withholding of tax by the flat purchaser, the determination of income results in a mismatch, requiring reconciliation. In situations like this, a human interface becomes inevitable.

The Finance Ministry response to the stakeholders suggestion was that the duties of the CPC and the JAO are properly delineated. According to the Ministry, the CPC processes returns according to Taxpayer’s Charter. It also transfers the rectification rights on request. The speed of such actions and the actual situation in the field is well known to taxpayers and tax practitioners.

Section 273 of the New Act corresponds to section 144B of the Old Act. However, there is a significant difference between the New Act and Old Act. Section 144B provided for the entire process of a faceless assessment. Despite the deletion of section 144B (9), which expressly provided that the non-adherence to the procedure would result in the assessment as non-est, statutory recognition of the process resulted in protection of the assesee’s rights. Section 273 delegates the duty of prescription to the CBDT. Before the Select Committee, the stakeholders urged that the assessment process should have statutory recognition. The Finance Ministry response was that even delegated legislation has parliamentary oversight, as the rules framed have to be placed before the Parliament. One wonders whether such oversight is sufficient protection for the taxpayer. The infringement of a statute would give different rights to an assessee. The same may not be true of a violation of a rule. While delegated legislation gives the administrators flexibility, one wonders whether the powers of prescription would be fairly used.

REASSESSMENT

Section 280 corresponds to section 148 of the Old Act by virtue of which a person is called upon to file a return, if, in the opinion of the department, income has escaped assessment. Sub section (5) of the section dispenses with the requirement of an opportunity in terms of section 281 in certain circumstances. The circumstances have been expanded to include , in terms of Section 280(6)(g) and (h) two situations, namely the issue of any direction by an approving panel in respect of an impermissible avoidance agreement, and any finding or direction contained in an order passed by any authority tribunal or court in any proceeding under this Act by way of appeal, reference revision, or by a court in any proceeding under any other the law. If these circumstances exist, no opportunity mandated by section 281, is necessary before issue of notice under section 280.

Before the Select Committee, the stake holders had requested that an opportunity be provided to an assessee, in terms of section 281 even if such circumstances exist. The Finance Ministry response was that, since the finding or direction was by a higher authority, it was bound to follow it and in any event an opportunity was already afforded by the authority before it recorded a finding or issued a direction. This could have significant repercussions for two reasons. Firstly, the term “authority” has not been defined in the New Act, though an income tax authority has been defined. So, the scope of the exclusion from a prior enquiry would stand substantially expanded, Secondly the finding or direction by a court under any other law, could put an assessee to substantial inconvenience. This is because each law has a different and distinct ambit. To illustrate, in a proceeding under say the PMLA or Prevention of Corruption Act, the court may record a finding. If the reopening is based on such a finding, it could have repercussions. Another example would be the statement of parties in matrimonial dispute before a family court. In such cases, statements are made in a particular context. If the court records a finding in regard to such statements, it could cause problem to assessees.

Section 282 sets out the time limit within which notice under section 280 can be issued. At first blush, one feels that the time limit has been increased from three years to four years and from five years to six years in certain circumstances, This is however not so. Section 149 of the Old Act prescribed limits with reference to an assessment year while the New Act prescribes time limits with reference to a tax year. The actual timelines therefore remain unchanged.
Section 286, corresponding to section 153 of the Old Act, sets out the time limits within which assessments, reassessments and recomputations are to be completed. Unlike section 153, which uses the term “month”, section 286 uses the word “year”. The reason for such change is not understood. Since both these terms are not defined in either the Old Act or the New Act the definition under the General Clauses Act will apply

APPEALS AND REVISION

The appeal and revision provisions remain substantially unchanged, though there are minor differences in language. Interestingly in regard to the revisionary powers of the Commissioner under section 378, the stakeholders had requested that the intimation under section 270(1) be treated as an order for the purpose of revision. This was earlier provided in section 264 in the Old Act, but after the deletion of the explanation, conflicting views had arisen. While declining to make a change in regard to the revisionary powers of the Commissioner, the Finance Ministry has explicitly stated that there is “no bar to a Commissioner exercising his jurisdiction in regard to an intimation under section 270(1). This would be clarified by way of administrative instructions.“ Thus, at least one controversy as to whether an assessee can invoke a Commissioner’s revisionary jurisdiction in regard to an intimation appears to have been settled.

CONCLUSION

If, simplification of language and reduction in volume were the only objects of the New Act, and the government was not desirous of making any structural or policy change, one wonders whether the huge effort and cost was worth it, A major part of the objects could have been achieved by a Taxation Laws Amendment Act. It will be only in mid-2027 that the provisions which are the subject matter of this article will be put to use. Even with the restriction that no policy change is to be made, it would be appropriate to make some changes in the Income Tax Act 2025. Probably the Government is conscious of this. It is borne out by the answer by the Minister of State for Finance in reply to a question in Parliament, which mentions that the forms to be used with effect from 1st April 2026, will be notified only after the Finance Bill 2026 is passed as the said bill may make certain changes to the New Act. One hopes that the lacunae which have already come to the fore are taken care of, so that litigation pertaining to the New Act can be avoided to the extent it can!

BCAJ Admin

Allied Laws

43. K. S. Shivappa vs. K. Neelamma

AIR 2025 SC 4792

October 07, 2025

Minor’s Property – Repudiation of Voidable Transfer – Transfers held to be void ab initio. [S. 8 of the Hindu Minority and Guardianship Act, 1956; Article 60 of the Limitation Act, 1963]

FACTS

Mahadevappa owned plots in Davanagere, which were purchased in the names of the three minor sons of Rudrappa. Without obtaining the mandatory permission of the District Court under Section 8(2) of the Hindu Minority and Guardianship Act, 1956, Rudrappa, the natural guardian, sold plot no. 56 and plot no. 57 to third parties in 1971. The purchasers further transferred the plots, including a transfer of plot no. 57 in 1993 to Smt. Neelamma (Respondent). After attaining majority, the surviving minors, along with their mother, repudiated the guardian’s unauthorised sales by executing fresh sale deeds in favour of K.S. Shivappa (Appellant). Appellant thereafter combined both plots and constructed a house. The Respondent filed a suit for declaration and possession, claiming that her vendor had a good title. The Trial Court dismissed the suit, holding that the minors had validly repudiated the earlier sale through their later conveyance to Appellant. The First Appellate Court reversed the decision, holding that in the absence of a suit for cancellation, the guardian’s sale had attained finality. The High Court affirmed this view, leading to the appeal before the Supreme Court.

HELD

The Supreme Court held that a sale of a minor’s property made by a natural guardian without obtaining prior court permission under Section 8(2) of the Hindu Minority and Guardianship Act, 1956, is voidable, and it is not mandatory for the minor, upon attaining majority, to file a suit to set aside such a sale. The Court clarified that a voidable transaction may be avoided either through a formal suit or by unequivocal conduct, such as the minor subsequently selling the same property within the period of limitation. In this case, the surviving minors, after attaining majority, had validly repudiated their father’s unauthorised sale by executing a fresh sale deed in favour of the appellant, K.S. Shivappa. Consequently, the earlier sale to the respondent’s predecessor became void ab initio, and no valid title ever passed to the Respondent. Additionally, the Court held that Respondent failed to prove her title since she did not enter the witness box, and her power-of-attorney holder could not testify on matters within her personal knowledge.

Accordingly, the decrees of the First Appellate Court and High Court were set aside, and the Trial Court’s dismissal of Respondents suit was restored.

44. Dharmrao Sharanappa Shabadi & Ors vs. Syeda Arifa Parveen

2025 SCC Online SC 2155

October 07, 2025

Mohammedan Law – Oral Gift (Hiba) – Proof of Relationship – Limitation Act. [S. 50 & 73 of the Hindu Minority and Guardianship Act, 1956; Article 60 of the Limitation Act, 1963]

FACTS

The dispute pertained to agricultural land situated at Village Kusnoor, Karnataka. The original owner of the land, Khadijabee, obtained a decree of title in 1971. The Plaintiff, Syeda Arifa Parveen, claimed that she was the only daughter and legal heir of Khadijabee and that her mother had orally gifted 10 acres of the land to her, which was later recorded in a Memorandum of Gift. Upon the death of Khadijabee and her husband Abdul Basit, the Plaintiff alleged that she had become the absolute owner of the entire suit property. The Defendants, however, contended that they had validly purchased the entire land through five registered sale deeds executed by Abdul Bas (claimed to be Abdul Basit), and their names had been consistently recorded in the revenue records since then. When the Defendants allegedly interfered with her possession, the Plaintiff filed a suit seeking declaration of ownership, cancellation of sale deeds, and a permanent injunction.

HELD

The Supreme Court held that the Plaintiff failed to prove her status as the daughter of Khadijabee, as the oral testimony relied upon lacked credibility and was unsupported by any documentary evidence such as birth records, school certificates, or family documents. The Court further held that the alleged oral gift (Hiba) was not proved in accordance with Mohammedan Law, as there was no proof of actual or constructive delivery of possession to the Plaintiff at the time of the gift, and the consistent mutation entries in favour of Abdul Basit and thereafter the Defendants negated the claim of transfer of possession. Additionally, the Court ruled that the High Court had exceeded its appellate jurisdiction by enhancing the relief in favour of the Plaintiff without there being a cross-appeal. It also observed that the suit filed in 2013 challenging the sale deeds of 1995 was clearly barred by limitation. Consequently, the Defendants were held to be the lawful owners under their registered sale deeds.

Accordingly, the judgments of Trial Court and the High Court were set aside and Civil Appeal was allowed.

45. Sangita Sandip Jadhav & Ans vs. State of Maharashtra & Ors.

2025 SCC Online Bom 880

April 2, 2025

Stamp Duty – Refund – Agreement for Sale Cancelled – No Possession Handed Over – Limitation within Section 48. [S.47(c)(5) & S. 48(1) of Maharashtra Stamp Act, 1958 (MSA)]

FACTS

Petitioners entered into a registered Agreement for Sale to purchase a Flat in “Rukmini Heights”, Satara. They paid part consideration and stamp duty along with registration fees. Since loan applications were not sanctioned and they could not proceed with the transaction, the parties executed a registered Deed of Cancellation, wherein it was clearly stated that possession of the flat was never handed over. Petitioners applied for a refund of stamp duty under Section 47(c)(5) of MSA. The Collector of Stamps rejected the application, holding that possession was handed over based on a clause in the Agreement for Sale and invoked the Proviso to Section 48(1) of MSA, which bars refund where possession has passed. Appeal before the Chief Controlling Revenue Authority was also dismissed, leading to the present petition.

HELD

The Bombay High Court held that there was no conclusive evidence of possession having been delivered on execution of the Agreement for Sale, especially when only 15% of the total consideration was paid. The covenant relied upon by authorities was contradictory to the clause requiring execution of a Sale Deed only after payment of full consideration. The Cancellation Deed explicitly recorded non-delivery of possession, which further negated the conclusion of conveyance-like transfer. Even assuming possession was deemed to have been handed over, the Court held that the refund application was filed within six months from execution of the Agreement for Sale, thus satisfying Section 48(1) of MSA. Since the intended transaction had completely failed, the case squarely fell under Section 47(c)(5) of MSA. Retaining stamp duty in such circumstances would amount to unjust enrichment by the State. Therefore, the impugned orders were quashed, and the Respondents were directed to refund to the Petitioner.

Accordingly, rejection orders of the Collector and Chief Controlling were set aside and a refund was directed.

46. Varinder Kaur vs. Daljit Kaur & Ors.

2025 SCC Online Del 6212

September 26, 2025

Cancellation of Gift Deed – Neglect of Senior citizen – Maintenance is an Implied Condition. [S.23, Maintenance and Welfare of Parents and Senior Citizens Act, 2007]

FACTS

Respondent No. 1, Smt. Daljit Kaur executed a gift deed dated 05.05.2015 in favour of her daughter-in-law, the Appellant, transferring her residential property. Later, alleging neglect and maltreatment, she invoked Section 23 of the Senior Citizens Act, seeking cancellation of the gift deed on the ground that the Appellant had refused to provide basic amenities, care, medicines, and had even threatened her with confinement and harm. The Maintenance Tribunal refused cancellation on the basis that the gift was not shown to be conditional. However, on appeal under Section 16, the District Magistrate set aside the Tribunal’s decision and directed cancellation of the gift deed. The Appellant challenged said order before the High Court in a writ petition, which was dismissed by the learned Single Judge. The Appellant then filed the present Letters Patent Appeal under Clause X of the Letters Patent before the Division Bench.

HELD

The Delhi High Court held that for senior citizens gifting property to children or close relatives, “love and affection” inherently implies the condition of receiving care in return. Thus, an express condition in the deed is not mandatory for invoking Section 23. The Court further noted ample material in the form of letters and complaints showing that the Appellant had denied Respondent No. 1 basic necessities, medicines, and personal belongings, and had subjected her to threats and ill-treatment soon after obtaining the transfer. In such circumstances, the deeming fiction under Section 23(1) becomes operative, rendering the transfer voidable, and justifying cancellation of the gift deed. The Court endorsed the beneficial and purposive interpretation adopted by the District Magistrate and Single Judge, consistent with the statutory objective of protecting the dignity, security, and welfare of senior citizens.

Accordingly, the appeal was dismissed and cancellation of gift deed was upheld.

Editor’s Note: Readers may note that the subject matter of this dispute was covered in detail in the feature “Laws and Business” in the September 2025 Edition of BCAJ. Those who are interested may read the said feature for a more comprehensive view covering multiple cases.

47. Rama Bai vs. Amit Minerals through Incharge Officer & Anr.

2025 SCC Online SC 2067

September 24, 2025

Motor Accident Compensation – Driver without Valid License – Insurer Liable on ‘Pay and Recover’ Principle. [S.149(2)(a)(ii), Motor Vehicles Act, 1988]

FACTS

The Appellant is the mother of the deceased Nand Kumar, who was working as a conductor in a truck. The truck collided with a tractor-trolley, causing his death. The Motor Accident Claims Tribunal awarded ₹3,00,000/- as compensation and fastened liability on the driver and owner, as the driver’s driving licence had expired on 20.06.2010 and was only renewed from 03.11.2011 to 02.11.2014 — thus the driver did not hold valid licence on the date of the accident. In appeal, the High Court enhanced the compensation to ₹5,33,600/- with 7% interest, but absolved the Insurance Company from the liability due to breach of policy conditions. The Appellant approached the Supreme Court seeking application of the ‘pay and recover’ principle so that immediate compensation is not delayed.

HELD

The Supreme Court held that although the driver did not possess a valid driving licence on the date of accident giving the Insurance Company a valid defence under Section 149(2)(a)(ii) and justifying avoidance of liability, the beneficial object of the Motor Vehicles Act requires that victims are first compensated promptly. The Court applied the doctrine of “Pay and Recover”. The Insurance Company must first satisfy the award and thereafter recover the amount from the vehicle owner through appropriate legal proceedings.

Accordingly, the appeal was allowed and insurer was directed to ‘Pay and Recover’.

BCAJ Admin

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