Supreme Court
Affirming the findings of the Authority For Advance Rulings (AAR), the Supreme Court put an end over the dispute of treaty benefits vis-à-vis tax evasion & tax avoidance, and ruled that once the unlisted equity shares of a foreign entity (Flipkart Pvt Ltd, Singapore), on the sale of which the non-resident taxpayer entity (respondent) derived capital gains, were transferred pursuant to an arrangement impermissible under law, the respondent entity is not entitled to claim exemption under Article 13(4) of the respective Double Tax Avoidance Agreement (DTAA).
Since the Revenue Department has proved that the transactions in the present case are impermissible tax-avoidance arrangements, and the evidence prima facie establishes that they do not qualify as lawful, the Apex Court applies Chapter X-A of the Income Tax Act.
The Apex Court found that the applications preferred by the respondent before the AAR relating to a transaction designed prima facie for tax avoidance were rightly rejected as being hit by the threshold jurisdictional bar to maintainability, as enshrined in proviso (iii) to Section 245R(2) of the Income Tax Act. Accordingly, the Court concluded that the capital gains arising from the transfers effected after the cut-off date, i.e., April 01, 2017, are taxable in India under the Income Tax Act read with the applicable provisions of the DTAA.
A Two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed that the statutory amendments to the Income Tax Act, particularly the introduction of Chapter X-A (GAAR), and the 2016 Protocol amending the India-Mauritius DTAA, have fundamentally altered the legal framework for assessing tax avoidance and treaty eligibility. Precedents and circulars from the pre-amendment era cannot be relied upon without considering these changes.
The Bench also observed that a Tax Residency Certificate (TRC) is not conclusive evidence of residence for claiming treaty benefits, and the Tax authorities are empowered to “look through” a transaction and deny benefits if it is established to be an impermissible avoidance arrangement lacking commercial substance.
The Supreme Court has relieved Adani Power Limited (appellant) of the levy on power generated at its Mundra plant, and ruled that the customs duty cannot be imposed on electricity supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA). Essentially, the Apex Court negated the levy of customs duty on electrical energy cleared from the thermal power plant to the DTA, in the absence of any lawful charging event under Section 12 of the Customs Act.
The Court clarified that the electrical energy generated within India and wheeled into the Domestic Tariff Area is not an incidence of import into India. If, on actual import, electrical energy attracts no customs duty, then, by force of Section 30 of the SEZ Act, no customs duty must follow for SEZ clearances of electrical energy.
The Court also explained that Section 25 of the Customs Act confers the power to exempt, and using it as an instrument of levy transgresses the limits of delegated legislation and amounts to the usurpation of legislative function. Once the court of competent jurisdiction has struck down the foundation of the levy as ultra vires, that declaration renders all successive and derivative attempts to enforce the same levy equally unenforceable. Thus, the Executive cannot, by subordinate instrument, enlarge the field of taxation under the pretext of tailoring an exemption.
A Two-Judge Bench comprising Justice Aravind Kumar and Justice N.V. Anjaria observed that the 2015 judgment of the Gujarat High Court was not confined, in principle, to a single notification or to a particular cut-off date. Rather, the declaration of law extended to the very authority to levy customs duty on electrical energy cleared from an SEZ to the DTA in the statutory setting then prevailing.
Emphasising that the function of an exemption notification is to relax or remit a duty already otherwise attracted by law, the Bench pointed out that what Notification No. 25/2010-Cus. did, however, was precisely the reverse, and it purported to declare, for the first time, that electrical energy cleared from an SEZ to the DTA would be subjected to customs duty at the rate of 16% ad valorem. The Bench said that this instrument was dressed in the garb of an exemption, but its true operation was to create a duty where none existed, to quantify that duty, and to apply it retrospectively, and called it a classic instance of a colourable exercise of delegated power.
While deciding the customs classification of “aluminium shelving for mushroom growing”, the Supreme Court explained that a surface supports an object but does not become a part of it. Accordingly, the Court ruled that the aluminium shelves merely serve as a surface for the devices to perform their functions, and the same is correctly classifiable under CTI 7610 9010 as ‘Aluminium Structures’ and not under CTI 8436 9900 as a ‘part’ of any agricultural machinery.
Emphasising the governing principles for applying the common or trade parlance test in classification disputes, the Court clarified that the test’s function is restricted to ascertaining the common or commercial meaning of a term when the statute provides no explicit definition or clear criteria. It can only be invoked if the tariff heading does not use scientific or technical terms and its application does not contradict the statutory framework.
The Court also clarified that in the HSN-era, it is not a measure of first resort and should only be used after a thorough review confirms the absence of statutory guidance. Further, the test cannot be used to reclassify a good that is clearly identifiable under a specific heading, merely because it is marketed or known by a different name in trade parlance.
A Two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed that “Use” can be a relevant factor only if the tariff heading refers to ‘use’ or ‘adaptation’, either explicitly or inherently. Further, the classification must be based on the ‘intended use’ which is inherent in the goods and discernible from their objective characteristics (function, design, composition) at the time of import.
The Supreme Court has ruled that where the shares of an amalgamating company, held as stock-in-trade, are substituted by shares of the amalgamated company pursuant to a scheme of amalgamation, and such shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income within the meaning of Section 28 of the Income Tax Act. The Court clarified that charge under Section 28 is attracted only upon the allotment of new shares, and at earlier stages namely, the appointed date or the date of court sanction, no such benefit accrues or is received. Thus, the receipt of shares of the amalgamated company in substitution of stock-in-trade can give rise to taxable business profits under Section 28.
The Court explained that Section 28 is of wide import and encompasses all profits and gains arising in the course of business, even when such profit is realised in kind. The statutory substitution of shares of the amalgamating company by shares of the amalgamated company is not a mere neutral replacement; where the new shares are freely marketable and possess a definite commercial value, the event constitutes a commercial realisation giving rise to taxable business income.
A Two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed that Section 28 is a comprehensive charging provision with deliberately wide language. Unlike Section 45 (Capital Gains) of the Income Tax Act, it does not require a “transfer” to be triggered. It is sufficient if there is ‘income’ arising from the business, which can be realised in cash or in kind.
The Bench emphasized that for income to be taxable, it must be a real and presently realisable commercial profit. Hypothetical or illusory benefits cannot be taxed. The Bench established a fact-sensitive test to determine if a taxable event has occurred upon amalgamation for shares held as stock-in-trade, and explained that taxability arises if the following conditions are met: (i) the old stock-in-trade (shares in the amalgamating company) has ceased to exist; and (ii) the new shares received in the amalgamated company possess a definite and ascertainable value.
The Supreme Court clarified that in view of the language employed in Entry 57 of List II of Seventh Schedule of the Constitution of India, no authority is authorized to levy or collect tax on vehicles which are not suitable for use on roads and have been designed for off-road use in factory or enclosed premises. The Court thus held that the construction equipment vehicles meant for use within defined enclosed premises and not on public roads, are excluded from the definition of “motor vehicle” under Section 2(28) of the Motor Vehicles Tax Act, 1958.
The Court emphasised thar the vehicles of the kind used by the appellant which are special vehicles i.e., construction equipment vehicles may be suitable for plying upon roads are essentially meant to be used in a factory or an enclosed premises and as such are not chargeable to tax under the Gujarat Tax Act. This ruling came after considering the distinction between normal motor vehicles and the motor vehicles of special kind such as heavy construction equipment or special type of vehicles which are meant to be used within a specified area and not on public roads.
A Two-Judge Bench of Justice Pankaj Mithal and Justice Prasanna B. Varale observed that under Article 265 of the Constitution, no tax can be levied without the authority of law. It read this with Entry 57 of List II of the Seventh Schedule, which grants States the power to levy taxes on “vehicles suitable for use on roads”, and held that this power is restricted to vehicles that are suitable for use on roads.
The Bench scrutinized the definition of ‘motor vehicle’ under Section 2(28) of the 1958 Act, and found that while the appellant’s vehicle might fall under the inclusive part i.e., “any mechanically propelled vehicle adapted for the use upon roads”, they are expressly excluded by the exclusive part, i.e., “but does not include a vehicle of a special type adapted for use only in a factory or in any other enclosed premises”.
Emphasising that technology is only meant for assistance and data processing, and not for adjudication of cases, the Supreme Court said that the directions of the High Court have nothing to do with the case on merits and will not affect the taxpayer (respondent). Accordingly, the Court quashed the direction issued by the High Court for making changes in the software.
The judgment was passed in an appeal by the Revenue Department challenging the directions given by the High Court while granting relief to the taxpayer (respondent) on merits, whereby the Central Board of Direct Taxes (CBDT) was directed to make changes in the software so that no demand is raised in future in similar cases.
A Two-Judge Bench comprising Justice Rajesh Bindal and Justice Vijay Bishnoi observed considered the arguments by the Additional Solicitor General that unless the Assessing Officer comes to know about the facts of the case regarding deduction of Tax Deducted at Source (TDS) by the person paying the amount to the taxpayer, the liability cannot be waived of. The Bench also considered the argument that it is only in case any TDS has been deducted from the payments made to a taxpayer that he gets credit, despite the fact that the amount may not have been paid to the Department by the person who deducted the TDS.
All High Courts
Broadcast Rights Limited to Live Telecast; Payments to Sri Lanka Cricket Not ‘Royalty’: Delhi HC
The Delhi High Court has clarified that “royalty” presupposes “enduring benefits”, and in case the licensee has a right to record or preserve the feed and he continues to derive benefit of that recording and has right to re-telecast or show those matches in future, beyond the period or event(s) other than such event, then only, the payment made to the licensee in appropriate case, can be treated as royalty.
Since the right to show cricket matches was confined to live telecast and the payment made was only for the matches held in the series (within 12 months) and not subsequent matches, the Court ruled that such amount paid to the Sri Lanka Cricket (respondent) cannot be considered as a royalty.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar, therefore, observed that that the Income Tax Appellate Tribunal (ITAT) did not commit any error in concluding that the fees received by the respondent for live transmission could not be classified as royalty income under Section 9(1)(vi).
The Bench clarified that the live broadcast is not a ‘work’ and lacks the requisite creativity to be protected by copyright. Further, the broadcast reproduction rights are distinct from copyright, and the payment does not create an ‘enduring benefit’ for the licensee, which is a prerequisite for a payment to be considered royalty.
Emphasising that the provisions of the India-UK Double Taxation Avoidance Agreement (DTAA) and the India-Singapore DTAA, relevant to the constitution of a Service Permanent Establishment (PE), are pari materia, the Delhi High Court has clarified that the phrase “within a Contracting State” has a distinct territorial connotation, which mandates a physical footprint of the non-resident enterprise’s employees or personnel within India for services to be furnished “within” India.
The High Court observed that in the absence of personnel physically performing services in India, there can be no furnishing of services “within” India, and consequently, a service PE cannot be constituted. A DTAA must be interpreted strictly, and concepts that are not expressly provided for in the treaty, such as a “virtual service permanent establishment”, cannot be read into its provisions by way of judicial fiction.
The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar reiterated that the words “within a Contracting State” and “through employees or other personnel” contemplates rendition of services in India by the employees of the non-resident enterprise, while mandating a fixed nexus; a physical footprint within India.
The Bombay High Court (Nagpur Bench) has clarified that the assignment of long-term leasehold rights of a plot of land, allotted by a State Industrial Development Corporation (like MIDC), by a lessee to a third-party assignee for consideration constitutes a sale or transfer of benefits arising out of an “immovable property”.
The High Court, therefore, ruled that such a transaction is not a “supply of services” under the CGST Act, 2017, and therefore is not subject to the levy of GST. Accordingly, the Court quashed the show cause notice No.47/AC/GST/NGP-I/2024 dated 20-12-2024, issued by the Assistant Commissioner (Anti-Evasion), CGST.
The Division Bench comprising Justice Anil L. Pansare and Justice Nivedita P. Mehta observed that the transaction in question is an assignment of leasehold rights, which is not a lease or a sub-lease, a fact the show cause notice itself mentioned. It noted that classifying the assignment of leasehold rights under “other miscellaneous services” alongside petty services like washing, cleaning, and dyeing is incorrect.
The Bench found that the transaction pertains exclusively to the transfer of benefits arising out of an immovable property and has “no nexus whatsoever with the business of the petitioner company”. Consequently, the essential element of a supply of service “in the course of business or in furtherance of business” is completely absent.
The Bombay High Court (Goa Bench) has held that the eligibility for the Vivad Se Vishwas Scheme should be interpreted broadly to promote dispute settlement, and hence, the term ‘dispute’ under the Scheme is not restricted to appeals against assessment orders but includes any pending appeal, such as an appeal against a penalty order. Therefore, a pending appeal against a penalty order is sufficient to meet the Scheme’s requirement of a pending dispute.
Furthermore, the Court pointed out that in cases governed by Section 5A of the Income Tax Act, where income is treated as a single community income, the settlement of a tax dispute for one spouse should extend to the other spouse for the same disputed income. Hence, denying the benefit to one spouse while granting it to the other for the same income is unjustifiable.
Accordingly, the Court quashed the impugned order and directed the Department to consider the Petitioner’s Forms 1 and 2 under the Scheme within four weeks and to pass an appropriate order, including the issuance of Form 3, within two weeks thereafter. The Petitioner (taxpayer) was also directed to pay the determined tax amount within two weeks of the issuance of Form 3, following which the 1st Respondent must issue Form 5 within two weeks.
The division Bench comprising Justice Suman Shyam and Justice Amit S. Jamsandekar observed that the impugned order rejecting the Petitioner’s application was passed without providing an opportunity for a hearing and lacked any detailed reasoning. It was noted that the Petitioner and her husband are governed by Section 5A, which creates a statutory fiction treating their income as a single community income that is mechanically apportioned.
The Kerala High Court (Ernakulam Bench) has ruled that the exemption from GST as per notification No.16/2025- Central Tax (Rate); G.S.R. 666(E) dated 17.09.2025 is intended to cover individual policies alone and not the group insurance policies issued based on the understanding reached between the Indian Banks’ Association and the Insurance Company through collective bargaining.
The Court clarified that since the IRDAI Regulations does not contemplate for a policy in respect of a group which is formed solely for the purpose of insurance coverage, the policies which are the subject matter in these petitions, cannot be construed as policies, that are issued for a group, which are solely constituted for the purpose of insurance coverage.
A Single Judge Bench of Justice Ziyad Rahman A.A. meticulously examined Clause 36D of the notification, which grants the exemption to an insured who is “not a group”, and an accompanying explanation clarifying its application to contracts where the insured is an “individual, or an individual and family of the said individual”.
The Bench noted that the recommendations of the 56th GST Council meeting explicitly aimed to make insurance more affordable for the common man by exempting individual health insurance policies, reinforcing the legislative intent to exclude group policies.
The Madras High Court has clarified that the Tax Recovery Officer (TRO) lacks the jurisdiction to adjudicate the validity of a mortgage and declare it void ab initio. Essentially, the Second Schedule to the Income Tax Act is a procedural mechanism for tax recovery and does not confer judicial power upon the TRO to decide the rights of third parties.
The Court said that a mortgage created after the service of a notice under Rule 2 of the Second Schedule to the Income-tax Act, without the TRO’s permission is, under Rule 16(2) of the Second Schedule, void only as against the claims enforceable under the tax attachment. It is not void ab initio, and the mortgagee’s rights over any surplus proceeds from a tax sale remain intact, subject to determination by a competent court or arbitrator.
A Single Judge Bench of Justice Senthilkumar Ramamoorthy, therefore, partly set aside the TRO’s order to the extent that it declared the mortgage in favour of the petitioner void ab initio. The Court also permitted the TRO to proceed with the sale of the attached immovable property to recover the tax arrears in accordance with the Second Schedule of the Income Tax Act.
Emphasising that the scope of writ interference under Section 260A of the Income Tax Act is confined to substantial questions of law, the Patna High Court clarified that to discharge the burden under Section 68 of the Income Tax Act, the taxpayer must establish the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor.
The Court pointed out that the ITAT’s order does not indicate consideration of the remand report in its proper perspective, nor does it address why the banking trail accepted by the appellate authority was insufficient to establish the genuineness of transactions, for the purposes of determining additions under Section 68. As the ITAT had applied an incorrect legal approach in reassessing the evidence and in effectively placing an enhanced burden upon the appellant/ taxpayer beyond what is contemplated under Section 68, the Court overturned the findings of the ITAT and deleted the additions made under Section 68.
A Division Bench of Justice Bibek Chaudhuri and Justice Dr Anshuman observed that, though the ITAT had accepted that the identity of the creditor was established, the ITAT’s decision to reverse the CIT(A)’s order was primarily based on the fact that the creditor had not filed an income tax return for the relevant assessment year. The Bench opined that while the filing of a return is a relevant circumstance, it cannot be the sole determinative factor, especially when the transaction is routed through banking channels, and the creditor’s identity is not in dispute.
The Andhra Pradesh High Court (Amaravati Bench) has clarified that the supply of electricity between the petitioner and Power Trading Corporation India Ltd. (PTC), for onward supply to Bangladesh Board, which happened in India itself, can only be called a ‘supply for export of goods’ and not, per se, an ‘export of goods’.
As the supply of electricity, by the petitioner, to PTC is not an ‘export of supply of goods’ and is a supply within India, the Court directed the petitioner, to resubmit it’s applications for refund of ITC, relating to the supply made by the petitioner to the Bangladesh Board directly, by treating the supply of electricity to PTC, as domestic supply of electricity, in the formula set out in Rule 89 of the CGST Rules.
The Division Bench comprising Justice R Raghunandan Rao and Justice Subhendu Samanta observed that the PTC had entered into a contract with the Bangladesh Board to supply electricity, and that agreement specifically mentioned that the electricity would be sourced from the petitioner, for which a separate agreement was executed between PTC and the petitioner.
Under the agreement between PTC and the petitioner, the Bench found that the electricity would be loaded into the Grid at the interconnection point, in Andhra Pradesh, to be wheeled to the Delivery point, which is the Bohronpur sub-station, in West Bengal. Thus, the electricity would stand transferred from the petitioner to PTC and from PTC to the Bangladesh Board.
Whether a claim for compensation for seized jewellery could not survive, if the seizure was carried out as an exercise of sovereign power, and upon completion of the investigation, was not returned to the owner? The Andhra Pradesh High Court (Amaravati Bench) ruled that since silver seized from the bullion dealer (petitioner) was stolen by the staff from the police station itself, the petitioner would be entitled to compensation for the loss suffered on account of the sheer negligence on the part of the officials in protecting the property.
Emphasising the doctrine of public law compensation and the constitutional tort, the Court asserted that the loss of a large amount of silver and cash would absolutely impinge on the right of the petitioner, under Article 19(1)(g), to carry on his trade or business. Accordingly, the Court held that the petitioner is entitled to compensation for the loss of silver, which was only attributable to the negligence of the respondents, as the silver was stolen from the police station itself.
The Division Bench comprising Justice R Raghunandan Rao and Justice TCD Sekhar observed that the Court can only take into account the shortfall of silver as the difference between 105 kgs of silver seized from the petitioner and 81.567 kgs of silver returned to the petitioner. This would mean there was a shortfall of 23.433 kgs of silver.
Further, the Bench found that the cash of Rs. 2 lacs has been seized from the son of the petitioner and the cash of Rs.10 lakhs has been returned to the petitioner. It is stated that the aforesaid Rs. 10 lakhs was the cash recovered from the persons who had stolen the silver, as these persons had sold away some part of the silver and some of the proceeds of such sale were recovered from these accused persons.
Referring to the specific observations made in the 37th GST Council Meeting, the Karnataka High Court (Bengaluru Bench) has clarified that it was resolved to clarify the GST liability in relation to foreign recipients for Research & Development (R&D) services provided by Indian pharmaceutical companies. The clarification came in reference to the fact situation where the petitioner was involved in the activity of conducting clinical trials, which would amount to export of services, in terms of Section 13(2) of the IGST Act, since the place of the recipient of the services was situated outside the territory of India.
The Court pointed out that all amendments which are beneficial in nature, which are elucidatory and clarificatory, would operate retrospectively when they seek to clarify and elucidate certain existing facts and situations. Accordingly, the High Court ruled that since the place of the recipient of the services provided by the petitioner is in the USA, which is outside the territory of India and in a non-taxable territory, consequently, by virtue of the Notification No.04/2019 – Integrated Tax dated September 30, 2019, the petitioner could not have been saddled with the liability to pay GST.
A Single Judge Bench of Justice S.R. Krishna Kumar extensively reviewed the recommendations from the 37th GST Council Meeting held on September 20, 2019, where the Council had specifically discussed the challenges faced by the Indian pharmaceutical sector, where R&D services (including clinical trials) provided to foreign clients were being subjected to 18% GST. This was because the place of supply was considered to be in India under Section 13(3)(a) of the IGST Act, as the services were performed in India.
In a dispute concerning capital gains arising from the sale of a residential property, which was demolished prior to the execution of the transfer/ sale, the Madras High Court granted an exemption under Section 54, holding that the execution of the JDA and permissions to the Developer to enter the premises were only for the limited purpose of development, and in such circumstances, the Department cannot expect that the house must stand in the same condition till such time the transfer/sale was executed.
The High Court clarified that the date of the Joint Development Agreement transfer cannot be considered as the ‘date of transfer’ and, rather, the transaction must be seen as a ‘continuous sequence of events’. The Court explained that the incident of transfer, for the purpose of capital gains, ought to be taken as the date on which the sale deeds for the transfer of the undivided interest were executed by the transferor (appellant).
The Division Bench comprising Justice Anita Sumanth and Justice K. Govindarajan Thilakavadi observed that the transaction must be seen in a “wholistic conspectus”. Although the house was demolished in 1995, this was a consequence of the JDA to facilitate development. Also, the property was residential, and its income was assessable under the head ‘house property’, satisfying the condition under Section 54.
The Karnataka High Court (Bengaluru Bench) ruled that the receipt of compensation by way of liquidated damages arising out of the contract entered into between an NBFC and a Lending Service Provider falls outside the purview of GST. Holding that the said damages are not subject to GST, the Court quashed the show cause notice issued by the Department, which had demanded GST on such damages.
A Single Judge Bench of Justice S.R. Krishna Kumar found from a perusal of the impugned show cause notice that the Additional Director, DGGI, has imposed GST on the Non-banking financial company (NBFC-petitioner) in relation to the liquidated damages received by the petitioner.
However, the Bench observed that the term ‘liquidated damages’ is clearly covered by Paragraphs No.7.1 and 7.1.6 to the Board’s Circular No. 178/10/2022 dated August 3, 2022, whereby these payments are mentioned as not taxable. Hence, the Bench concluded that the Department is wrong in claiming GST on liquidated damages.
Putting an end to the debate over the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, the High Court of Tripura (Agartala Bench) clarified that Section 16(2)(c) of the GST Act ought not to be interpreted to deny ITC to purchasers in a bona fide transaction, and the petitioner being a bona fide purchaser cannot be penalised for the mistake of another person, i.e., the seller.
The Court emphasised that the fact that there is no mechanism with the recipient of goods to verify whether the supplier has discharged its liability to the Government, or not, is not disputed. In view of this, it is impossible for the purchaser to check whether the supplier has deposited the tax paid by him to the Government and then avail Input Tax Credit (ITC).
Also, the Court pointed out that the supplier is not normally under the control of the purchaser, and it is not possible for a purchaser to keep a check on the activities of its supplier or ensure that the latter makes over to the Government. Thus, by denying the purchaser the availment of ITC and making the purchaser pay the tax to the Government again amounts to double collection when he has already paid to the supplier, and it violates Article 265 of the Constitution of India.
The Court opined that there is a failure by the Parliament, while enacting Section 16 (2)(c) of the Act, to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the Act and those that have not. Therefore, there is a need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers.
The Division Bench comprising Justice M S Ramachandra Rao and Justice S Datta Purkayastha observed that if the law seeks to visit disproportionate consequences on a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution. The Bench said that reading down a provision is undoubtedly an accepted method to save it from the vice of unconstitutionality, and it would be appropriate in the instant case too to adopt the said principle.
The Orissa High Court (Cuttack Bench) has held that the power conferred under Section 119(2)(b) of the Income Tax Act is a benevolent provision intended to mitigate “genuine hardship” of the taxpayer, and it should be exercised liberally so as to facilitate the taxpayer to avail the legitimate benefit as entitled to, but not in a pedantic or hyper-technical manner.
The Court stated that the Authorities under the IT Act are obligated to act in accordance with law, and tax can be collected only as provided under the Act. If a taxpayer, under a mistake, misconception, not being properly instructed or due to certain intervening circumstances beyond its control, is over-assessed, the Authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected.
The Court found that the petitioner (taxpayer society) is not in default for not being able to furnish its returns along with the audit report(s) within the period specified, because the statutory authority has failed to assist the petitioner in getting its accounts audited as required under the Odisha Cooperative Societies Act, 1962 (OCS Act). Accordingly, the Court quashed the order passed by the PCCIT, refusing to condone the delay in exercise of power under Section 119(2)(b), and issued a mandamus to the authority concerned to allow the petitioner to file return(s) of income along with audit report(s).
The Division Bench comprising the Chief Justice Harish Tandon and Justice Murahari Sri Raman emphasized that the term “genuine hardship” under Section 119(2)(b) must be construed liberally. It recognized that the inability to claim a rightful deduction under Section 80P, which would lead to paying more tax, constitutes a “genuine hardship”. Thus, when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred.
The Bench found that the delay was not attributable to the petitioner but to the failure of a statutory authority, the AGCS, to appoint an auditor. The petitioner was dependent on the performance of this statutory authority, and the delay was a result of circumstances beyond its control.
The Madras High Court has clarified that the character of a transaction (whether capital gains or business income) is determined by the cumulative effect of all facts and circumstances, not by a single abstract rule. The Court ruled that where a taxpayer holds an asset for a very long period without undertaking any development activity and maintains a clear distinction in its accounts between fixed/investment assets and stock-in-trade, then profit from the sale of the former is to be treated as capital gains.
The mere fact that a taxpayer is aware of the commercial potential of its asset and sells it at a favourable price does not, by itself, convert the transaction into an “adventure in the nature of trade”, explained the Court, while holding that the profit earned by the respondent (taxpayer – developer) from the sale of the land should be assessed under the head ‘Capital Gains’ and not as ‘Business Profits’.
The Division Bench comprising Dr. Justice Anita Sumanth and Justice Mummineni Sudheer Kumar observed that that the respondent clearly maintained two separate portfolios: one for fixed assets (including the subject freehold land) and another for inventories (land for development acquired post-amalgamation). The Bench, therefore, found no reason to integrate the two, as it would be contrary to the respondent’s accounting treatment and conduct.
The Madras High Court has asserted that although a firm is not a juristic person, a partner could not be liable unless one of the twin requirements as stipulated under Section 62 of the Benami Property Transactions Act, 1988 (PBPT Act), to make him/her vicariously liable is satisfied. The Court explained that, to fasten vicarious criminal liability on a partner for an offence committed by a firm under the PBPT Act, the complaint must contain specific averments that the partner was, at the time of the offence, in charge of and responsible for the conduct of the business of the firm.
Therefore, the High Court ruled that merely being a partner of the firm is insufficient to establish criminal liability, and the primary responsibility lies with the complainant to plead and prove the partner’s active role. In contrast, a Managing Partner’s role, evidenced by signing financial documents, prima facie establishes their involvement and responsibility, making them liable to face prosecution for the firm’s actions.
As far as the role of the Firm and the Managing Partner is concerned, a Single Judge Bench of Justice Sunder Mohan observed that the petitioners’ defence regarding the genuineness of the income cannot be adjudicated at the discharge stage, especially given the allegations of bogus bills and the firm’s low income in previous years. The Bench noted that under Section 2(9)(D) of the PBPT Act, a ‘Benami Transaction’ can include a transaction where the person providing the consideration is not traceable. Therefore, the failure to identify the beneficial owner is not a valid ground for discharge.
ITAT/ CESTAT/ AAR
Emphasising that the correct classification of the goods must be determined by the General Rules of Interpretation (GRI), the New Delhi Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the ‘Newland NLS Handheld Barcode Scanners’ imported by the IT Solution Provider cannot be classified as ‘mobile phones’.
Since the mobile phone functionality in the impugned gadget is ancillary and the specific function is that of a scanner, the CESTAT clarified that the imported goods in the present case are to be classified as ‘scanners’ (8471) CTH instead of ‘mobile phone’ (8517) CTH. Accordingly, the CESTAT quashed the differential customs duty liability.
The Division Bench comprising Dr Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) referred to Note 3 to Section XVI, which stipulates that composite machines designed to perform two or more complementary or alternative functions are to be classified as if consisting only of the component that performs the principal function.
The Tribunal explained that for a device to be classified under CTH 8471, it must satisfy the requirements of an “automatic data processing machine” as laid out in Note 6(A) to Chapter 84. Further, Note 6(E) states that a machine performing a specific function other than data processing is to be classified in the heading appropriate to that function.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has allowed the appeal by setting aside service tax demands aggregating to ₹45.31 crore, along with interest and penalties, holding that the appellant was not rendering Business Auxiliary Service or intermediary service, but was providing end-to-end transportation of goods by air on a principal-to-principal basis, which was either exempt prior to July 1, 2012, or not taxable thereafter as the place of provision was outside India.
While examining the appeal, the Bench comprising Ms. Binu Tamta (Member-Judicial) and Mr. P.V. Subba Rao (Member-Technical) noted that although the GSSA agreement described Delmos as an agent of Aeroflot, the actual manner of business was materially different. The Tribunal found that Delmos issued single airway bills, charged exporters a consolidated amount for transporting cargo from the exporter’s premises up to the final overseas destination, bore domestic transportation costs, and paid Aeroflot and other airlines on its own account. There was no direct relationship between exporters and Aeroflot, and Delmos neither earned commission from Aeroflot nor acted as an intermediary.
The Chandigarh Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that revenue sharing arrangements between the health care service provider (Fortis Healthcare) and the diagnostic services providers are not subject to service tax. As the issue involved in the present case was related to the interpretation of a statutory provision, the extended period cannot be invoked, as the issue was pan-India.
The only issue involved in the present case is whether the appellant is liable to pay service tax under the category of ‘Support Service of Business or Commerce’ as defined under Section 65(104c) read with Section 65(105)(zzzq) of the Finance Act, 1994, to the DSPs by providing them infrastructure, equipment, facilities and administrative support.
The Division Bench comprising S S Garg (Member Judicial) and P Anjani Kumar (Member Technical) observed from a perusal of the agreements between the parties that the contracts between the appellant and various DSPs are on a principal-to-principal basis and are in the nature of sharing-revenue.
As per the contracts, the Bench found that the appellant is required to provide infrastructure and DSPs are required to install their equipment; and the revenue earned from the patients is shared between the appellant and the DSPs, and no taxable service is being provided by the appellant to DSPs.
The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) ruled that both the personal relationship as well as economic relationship must be considered together to determine the “centre of vital interest” of an individual close to a particular state. The Tribunal clarified that for determination of economic relationship, more credential be given to active involvement in the commercial activities then passive investments.
Generally, the ITAT explained that the investments in securities, mutual funds, banks move not necessarily with residence of the taxpayer but on the basis of rate of return in particular state. Thus, for determination of economic relationship, place of business, place of Administration of property and place of earning wages (remuneration) (profit) is of importance.
Therefore, while adjudicating the residential status under the Income Tax Act, the Tribunal reasoned that the appellant (taxpayer) satisfied the conditions of Section 6(1)(c) of the Income Tax Act, having stayed in India for 141 days in the relevant year and over 365 days in the four preceding years. The Tribunal, however, denied the benefit of Explanation 1(b) because the phrase “being outside India” was interpreted to apply only to individuals who are already non-residents, which the taxpayer was not.
The Tribunal also denied the benefit of Explanation 1(a) as the appellant had left India for employment in the financial year 2018-19, and the relaxation applies only for the specific year an individual leaves India for employment.
The Division Bench comprising Prashant Maharishi (Vice President) and Keshav Dubey (Judicial Member) applied the Double Taxation Avoidance Agreement (DTAA) Tie-Breaker Test under Article 4(2) sequentially, and found that the appellant had a permanent home available in both India (owned properties) and Singapore (rented accommodation).
In determining the “centre of vital interests”, the Bench observed that the appellant’s economic relations were closer to India, considering his substantial immovable assets, historical investments, and business ventures in India, which outweighed the recent shift of his family and new investments in Singapore. As the appellant is an Indian national, the cumulative effect of the tie-breaker tests resulted in him being deemed a resident of India.
The West Bengal Authority for Advance Ruling (AAR) has ruled that amounts paid towards foreign patent filing services, including sums described as reimbursement of overseas patent attorney fees, attracts GST under the reverse charge mechanism (RCM), while clarifying that such payments constitute import of legal services taxable under the GST law.
The AAR clarified that the applicant, a business entity in India, is the direct recipient of legal services from patent attorneys located outside India, and hence, such transaction constitutes an “import of services” under the GST Act. The AAR explained that the place of supply for such services is the location of the recipient (India), making it a taxable event within the jurisdiction of Indian GST law.
The service is not exempt, as the exemption for legal services under the relevant notification is restricted to advocates practicing under Indian law and does not cover foreign attorneys. Consequently, the supply is taxable, and as per Section 9(3) of the CGST Act read with Notification No. 13/2017-Central Tax (Rate), the recipient (the applicant) is liable to pay GST on a reverse charge basis, added the AAR.
While examining the questions, the Authority comprising Shafeeq S. (Joint Commissioner, CGST & CX) and Jaydip Kumar Chakrabarti (Senior Joint Commissioner, SGST) held that the conditions of a “pure agent” under Rule 33 of the CGST Rules were not satisfied, as there was no contractual agreement establishing Seenergi IPR as a pure agent and the payments were made in advance by the applicant. The Authority further held that the services were in fact rendered by foreign patent attorneys, and therefore amounted to import of legal services received by the applicant in India.
The Authority rejected the plea of exemption under Notification No. 12/2017–Central Tax (Rate), clarifying that the exemption for legal services applies only to services provided by advocates enrolled under the Advocates Act, 1961, and does not extend to foreign lawyers. Applying Section 13 of the IGST Act, the place of supply was held to be the location of the recipient in India, making the transaction taxable. Consequently, GST was held payable under RCM in terms of Notification No. 13/2017–Central Tax (Rate).