In 2024, landmark rulings fundamentally transformed corporate law, competition regulations, and constitutional principles. These pivotal judgments addressed urgent contemporary challenges and established innovative legal doctrines poised to shape future governance and jurisprudence. From the Supreme Court's decision on the Electoral Bonds Scheme to key rulings on corporate governance, competition policies, and regulatory compliance, each case highlights the growing complexities of our legal landscape. This article curates the Top 25 Landmark Corporate Law Cases of 2024, providing valuable insights into decisions that have significantly influenced legal and business practices. Whether you are a legal professional, academic, or enthusiast, these cases offer a comprehensive understanding of the evolving dynamics in corporate and constitutional law.

In 2024, the legal landscape witnessed several landmark decisions that reshaped corporate, constitutional, and competition laws. From this impactful year, we have carefully curated this document, focusing on judgments that left a lasting impression on legal jurisprudence. This compilation highlights transformative rulings across diverse areas such as constitutional validity, corporate governance, competition law, and regulatory compliance.

Table of Contents

1. SC Strikes Down Electoral Bonds Scheme as Unconstitutional
2. SC Quashes HC’s Denial of Bail to K Kavitha, Citing Misapplication of Proviso to Sec. 45(1) of PMLA
3. Advocates Can’t Be Held Liable for Deficiency in Services under the Consumer Protection Act, 1986: SC
4. App Developers Can’t File a Civil Suit against Google for Abuse of Dominance and Payment Violations Under PSS Act; CCI & RBI Have Jurisdictions: HC
5. Civil Suit for Recovery of Money from a Sick Company Wasn’t Hit by Section 22(1) of 1985 Act: SC
6. Maximum Stamp Duty on AoA Alteration is a One-Time Measure, Refund Order for Subsequent Capital Increase to Be Upheld: SC
7. Prior sanction u/s 197(1) of CrPC is Required to Take Cognizance of PMLA Offences Against Accused Public Servants: SC
8. DDA’s Demand for ‘Unearned Increase’ in Value of Leased Plots Transferred by Lessee Under M&A Was Lawful: SC
9. SC Upholds HC’s Ruling Allowing Pre-Arrest Bail for an Applicant Already in Custody for Another Case
10. SC Extends Delhi CM Kejriwal’s Interim Bail Awaiting Decision on ‘Need & Necessity to Arrest’ u/s 19 of PMLA
11. Use of a Wheelchair or Human Support by the Bail Applicant Can’t Be a Valid Ground for Granting Bail u/s 45(1) of PMLA: HC
12. SC Overturns NCDRC Orders Refusing Execution of a Decree for Homebuyers against Developer’s Promoters During Moratorium
13. The Phrase ‘Any Person Aggrieved’ in Sec. 62 of IBC Means There is No Rigid Locus Standi Requirement to File an Appeal: SC
14. Section 32-A of IBC Shields Corporate Debtor from Prior Liabilities but Not Its Directors: HC
15. Claim of Bank-Secured Creditor Would Prevail Over Claim of Sales Tax Dept.: HC
16. Limitation Period for Appointing an Arbitrator Starts after a Valid Notice is Issued & the Other Party Fails to Appoint: SC
17. HC Overturns Acquittal; Cheque Issued in 2015 Deemed Valid Acknowledgement of Debt Under Limitation Act
18. SC Grants Bail to Manish Sisodia in PMLA Case, Emphasises That “Bail Can’t Be Withheld as Punishment”
19. Failure to Register or Submit MSME Memorandum Prior to a Contract Doesn’t Forfeit Benefits of Sec. 15-19 of the Act: HC
20. WhatsApp’s Updated Privacy Policy Mandating Data-Sharing for Non-Service Purposes Violates Section 4: CCI
21. Regulatory Intervention without Evident Competition Hampers Exhibitors’ Autonomy: CCI
22. NCLAT Rightly Upheld NFRA’s Order Imposing Minimal Penalty on DHFL and Barring Auditors from Practicing for 1 Year: SC
23. SAT Rightly Dismisses Penalty on Co. for Not Using Preferential Issue Funds as Intended as Shareholders Ratified Object: SC
24. SC Declines to Transfer Adani-Hindenburg Probe from SEBI to SIT and to Revoke SEBI’s Amendments to FPI & LODR Norms
25. Google Violated Sherman Act by Maintaining Monopolies in Search Services and Ads via Exclusive Agreements, Rules US Dist. Court

1. SC Strikes Down Electoral Bonds Scheme as Unconstitutional

Association for Democratic Reforms v. D.K. Gandhi PS National Institute of Communicable Diseases [2024] 159 taxmann.com 383 (SC), [15-02-2024]

In the present case, the petitioners challenged the constitutional validity of the Electronic Bond Scheme, which introduced anonymous financial contributions to political parties.

The petitioners argued that the anonymity associated with electronic bonds undermines transparency in political funding and encroaches upon voters’ right to information. They further contended that the scheme facilitates contributions through shell companies, raising concerns about accountability and integrity in electoral finance.

In defence of the scheme, the Union of India had asserted its role in promoting the use of legitimate funds in political financing, ensuring transactions occur through regulated banking channels. They cited the need for donor anonymity to shield contributors from potential retribution by political entities.

The Supreme Court observed that the infringement of the right to information does not satisfy the proportionality standard concerning the purpose of curbing black money. Even if the argument that the Electoral Bond Scheme fulfils the purpose is accepted, non-disclosure of information on political funding is not the least restrictive means to achieve this purpose.

Further, the Supreme Court observed that the infringement of the right to information does not satisfy the proportionality standard concerning the purpose of guaranteeing informational privacy, as protecting donor privacy is not a legitimate purpose. Even if donor privacy is necessary, on balance, the public interest in free and fair elections trumps the private interest in confidentiality.

The right to information on political funding, traceable to Article 19(1)(a), can only be restricted on the grounds stipulated in Article 19(2). The purpose of curbing black money and recognising donor privacy is not traceable to the grounds in Article 19(2). Even if the purposes are traceable to Article 19(2), the Scheme is unreasonable and disproportionate to the purpose of increasing political funding through banking channels and reducing political funding through non-banking channels.

The Supreme Court also observed that the amendment to section 182 of the Companies Act 2013 must be read along with other provisions on financial contributions to political parties under the RPA and the IT Act. Neither the RPA nor the IT Act places a cap on the contributions that can be made by an individual. The amendment to section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike, (b) permitting the unregulated influence of companies in the governance and political process, violating the principle of free and fair elections, and (c) treating contributions made by profit-making and loss-making companies to political parties alike.

The Supreme Court held that the Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act 1951 (as amended by Section 137 of the Finance Act, 2017), Section 182(3) of the Companies Act (as amended by Section 154 of the Finance Act, 2017), and Section 13A(b) (as amended by Section 11 of the Finance Act, 2017) are violative of Article 19(1)(a) and unconstitutional.

The deletion of the proviso to Section 182(1) of the Companies Act, 2013, permitting unlimited corporate contributions to political parties, is arbitrary and violative of Article 14. Further, SBI must stop the issuance of Electoral Bonds. SBI must submit details of the Electoral Bonds purchased since the interim order of this Court dated April 12 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased;

SBI must submit the details of political parties that have received contributions through electoral bonds since the interim order of this court, dated April 12, 2019, to the ECI. SBI must disclose details of each Electoral Bond encashed by political parties, which shall include the date of encashment and the denomination of the Electoral Bond;

Also, the SBI must submit the information to the ECI within 3 weeks from the date of this judgment, i.e. by March 6, 2024. The ECI must publish the information shared by the SBI on its official website within 1 week of the receipt of the information, i.e. by March 13, 2024.

Electoral bonds that are within the validity period of 15 days but have not been encashed by the political party yet must be returned by the political party or the purchaser, depending on who is in possession of the bond to the issuing bank. The issuing bank, upon their turn of the valid bond, must refund the amount to the purchaser’s account.

2. SC Quashes HC’s Denial of Bail to K Kavitha, Citing Misapplication of Proviso to Sec. 45(1) of PMLA

Kalvakuntla Kavitha v. Directorate of Enforcement [2024] 165 taxmann.com 794 (SC), [27-08-2024]

The Supreme Court set aside the order passed by the Single Judge of the Delhi High Court, whereby the Single Judge had refused to grant bail to K Kavitha (the appellant) under the first proviso to Section 45(1) of the PMLA, 2002, citing that the appellant could not be equated to a ‘vulnerable woman’ as she was a highly qualified and accomplished person.

In the instant case, the appellant filed an appeal before the Supreme Court challenging the order passed by the learned Single Judge of the High Court of Delhi. The Single Judge of the High Court dismissed her bail plea under the first proviso to Section 45(1) of PMLA, 2002.

The appellant was arrested in a money laundering case. She filed an application seeking bail on the ground that she was a woman and, therefore, entitled to special treatment under the first proviso to Section 45(1) of the PMLA, 2002. However, the Single Judge vide. the impugned order refused to grant bail to the appellant.

While denying the benefit of proviso to Section 45(1) of PMLA, the Single Judge came to the ‘heartening conclusion’ that it was bound to keep in mind the observation of the Supreme Court in Saumya Chaurasia v. Directorate of Enforcement [2023] 157 taxmann.com 326/182 SCL 139wherein it was held that the proviso to Section 45(1) of PMLA applied only to a ‘vulnerable woman’ and since the appellant was a well-educated and accomplished woman, who had remained a Member of Parliament, Member of Legislative Council, etc., she could not be equated to a ‘vulnerable woman’.

The proviso, which confers discretion on the Court to grant bail where the appellant is a woman or belongs to any of the other categories mentioned, states that –

“Provided that a person, who is under the age of sixteen years, or is a woman or is sick or infirm, or is accused either on his own or along with other co-accused of money-laundering a sum of less than one crore rupees, may be released on bail, if the Special Court so directs:”

It was noted that the Supreme Court, in the case of Saumya Chaurasia [2023] 157 taxmann.com 326/182 SCL 139, had observed that Courts need to be more sensitive and sympathetic towards the category of persons included in the first proviso to Section 45(1) of PMLA as persons of tender age and women who were likely to be more vulnerable might sometimes be misused by unscrupulous elements and made scapegoats for committing such crime. This was vastly different from saying that the proviso to Section 45(1) of the PMLA applies only to ‘vulnerable women’.

The Supreme Court noted that the Single Judge of the Delhi High Court had ‘totally misapplied’ the ratio laid down in the Saumya Chaurasia case.

Further, it was observed that nowadays, educated and well-placed women in society engage themselves in commercial ventures and enterprises and advertently or inadvertently engage themselves in illegal activities. The Court, therefore, cautions that Courts, while deciding such matters, should exercise discretion judiciously and use their prudence.

Moreover, the Supreme Court in the said case did not say that merely because a woman was highly educated or a Member of Parliament or the Legislative Assembly, she was not entitled to the benefits of the proviso to Section 45(1) of the PMLA.

The Supreme Court held that the Single Judge had totally misdirected herself while denying the benefit of proviso to section 45(1) of PMLA. Therefore, the impugned order of the Single Judge was to be quashed, and the appellant was to be released immediately on bail upon furnishing bail bonds in the sum of Rs.10 lakhs.

Further, the Supreme Court directed the appellant to deposit her passport and not to make any attempt to tamper with evidence or influence the witnesses.

3. Advocates Can’t Be Held Liable for Deficiency in Services under the Consumer Protection Act, 1986: SC

Bar of Indian Lawyers v. D.K. Gandhi PS National Institute of Communicable Diseases [2024] 162 taxmann.com 461 (SC), [14-05-2024]

In a significant ruling, the Supreme Court clarified that lawyers’ services are not covered under the Consumer Protection Act. This decision revisits a 2007 ruling by the National Consumer Disputes Redressal Commission (NCDRC), which had previously held that legal services fell under the Consumer Protection Act (CP Act).

The Respondent/client hired the services of the appellant/Advocate for filing a Complaint in the Court; however, the appellant failed to pay the full amount of compensation to the respondent.

The Respondent filed a complaint before the District Consumer Disputes Redressal Forum (DCDRF), and the appellant raised an objection that DCDRF had no jurisdiction to adjudicate the dispute raised in the complaint as Advocates were not covered under the provisions contained in the Consumer Protection Act. However, the DCDRF rejected the said objection.

Thereafter, the appellant filed an appeal against the said order, and the State Commission negated the holding of DCDRF. The Respondent preferred a revision application against the order of the State Commission, and the NCDRC passed the impugned order affirming the order of DCDRF. The appellant then filed an instant appeal challenging the impugned order before the Supreme Court.

It was noted that the very purpose and object of the CP Act is to protect consumers from unfair trade/business practices, and the Legislature never intended to include Professions or services rendered by Professionals like Advocates, Doctors, etc., within the purview of the CP Act.

The Supreme Court observed that the legal profession is different from other professions as what Advocates do affects not only an individual but the entire administration of justice, which is the foundation of a civilised society. Therefore, with regard to the role, status, and duties of Advocates as professionals, the legal profession is sui generis, i.e., unique in nature, and cannot be compared with any other profession.

The Supreme Court held that a service hired or availed of an Advocate is a service under “a contract of personal service” and would stand excluded from the definition of ‘service’ contained in section 2(42) of the CP Act. Therefore, a complaint alleging “deficiency in service” against advocates practising the legal profession would not be maintainable under the CP Act. Accordingly, the impugned judgment passed by the NCDRC was to be set aside.

4. App Developers Can’t File a Civil Suit against Google for Abuse of Dominance and Payment Violations Under PSS Act; CCI & RBI Have Jurisdictions: HC

Info Edge (India) Ltd. v. Google India (P.) Ltd. [2024] 158 taxmann.com 580 (HC), [19-01-2024]

In the instant case, the High Court ruled that an app developer cannot file a civil suit against Google for abuse of dominance and payment terms violating the Payment and Settlement System Act, 2007, as the CCI and RBI can deal with these issues.

The appellants were application developers. They instituted the plaint seeking a declaration that Google Payments Terms of Service-Seller (IN), posted on 2-6-2022, along with Payment Policies, Policies relating to Service Fees, Terms and Conditions, posted by Google on its websites/portals/web pages on various dates, including Blog-post-dated 17-5-2023, were illegal and unenforceable. These terms were related to the implementation of the Google Play Billing System (GPBS)/User Choice Billing (UCB)/Consumption-Based Model vis-a-vis Mobile application owned and operated by appellants in the Google Play Store in India.

A further declaration was sought to declare that any charges levied by Google under the Google Play Billing System and/or Alternate Billing System/User Choice Billing System are illegal, void and unenforceable vis-a-vis mobile applications owned and operated by appellants in the Google Play Store.

The Single Judge rejected the plaint purportedly on the ground that the plaint was barred by section 61 of the Competition Act, 2002 and the Payment and Settlement Systems (PSS) Act, 2007. Thereafter, an appeal was made before the High Court.

It was noted that the grievance of appellants that Google violated the PSS Act, 2007 could be redressed by the expert regulator, viz., the RBI, pursuant to the power and jurisdiction bestowed under the PSS Act, 2007.

The High Court observed that some of the appellants had approached the CCI on a similar premise, claiming that Google was exercising its dominant position and its payment/billing terms were unconscionable. In this regard, the CCI had passed exhaustive orders. Similar averments were made in that plaint also.

The High Court held that considering the nature of the reliefs claimed and the earlier order of CCI, it was appropriate that the dispute between parties was dealt with by the authorities constituted under the Competition Act, more particularly when they had already approached the said authority.

In view of that, the High Court further held that if further terms were executed, the same ought to be tested by the CCI and not by other fora. Consequently, the appeal against the order of the Single Judge was to be dismissed.

5. Civil Suit for Recovery of Money from a Sick Company Wasn’t Hit by Section 22(1) of 1985 Act: SC

Fertilizer Corporation of India Ltd. v. Coromandal Sacks (P.) Ltd. [2024] 162 taxmann.com 20 (SC), [26-04-2024]

In the instant case, the appellant company placed certain orders with the respondent company for the supply of high-density polyethylene (HDPE) bags, which were manufactured by the respondent as per the specifications and duly supplied periodically.

The purchase orders were amended from time to time to account for the increase in number of bags, which were required by the appellant.

It was a case of the respondent that in pursuance of communications exchanged with the appellant, it supplied 42,000 bags over and above the quantity mentioned in purchase orders to meet the urgent requirements of the appellant, on the understanding that a subsequent purchase order would be issued to account for extra supply.

However, when the appellant subsequently issued a formal purchase order to account for extra bags supplied, the price per bag mentioned in the order fell short of the price agreed upon between the parties.

To recover the amount due, the respondent instituted a Civil Suit. The Trial Court decided the suit in favour of the respondent and allowed interest at the rate of 12% on the amount due. The High Court, however, was of the view that the respondent, a small-scale industrial undertaking, was entitled to claim interest at the rate of 24% from the appellant.

It was a case of the appellant that they had been declared to be a sick company and, thus, if a suit was brought against a sick company during the pendency of proceedings before BIFR or AAIFR, then such a suit would be hit by Section 22(1) which puts an embargo on initiation or continuation of proceedings for execution or distress without permission of BIFR or the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).

It was noted that adjudication and determination of a contested liability under a contract is undoubtedly the domain of a Civil Court or an Arbitral Tribunal and not that of BIFR or AAIFR. Further, it was noted that the suit for recovery was not of a nature that could have proved to be a threat to the properties of the appellant-sick company or would have adversely impacted the scheme of revival.

The Supreme Court observed that the instant suit was a simple suit for recovery of money towards dues arising under alleged illegal deductions under contract. This could not be said to be a proceeding in the nature of execution, distress or like. Thus, the suit was not hit by section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

The Supreme Court held that the High Court committed no error in awarding 24% interest to the respondent as per the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. However, the period during which the appellant was a sick company should be excluded for the purposes of calculation of interest.

Thus, the impugned order of the High Court was to be upheld subject to modification of the period for which interest would be granted.

6. Maximum Stamp Duty on AoA Alteration is a One-Time Measure, Refund Order for Subsequent Capital Increase to Be Upheld: SC

State of Maharashtra v. National Organic Chemical Industries Ltd. [2024] 161 taxmann.com 324 (SC), [05-04-2024]

In the instant case, an appeal was filed challenging the order of the Bombay High Court, whereby the High Court allowed the writ petition of the respondent company.

The Respondent Company was incorporated with an initial share capital of Rs. 36 crores. In the year 1992, the respondent company increased its share capital to Rs 600 crores and accordingly paid a stamp duty of Rs. 1.12 crores as per Article 10 of Schedule I of the Bombay Stamp Act, 1958.

Thereafter, the appellant – State of Maharashtra, amended Article 10 of the Bombay Stamp Act, 1958 and introduced a maximum cap of Rs. 25 lakhs on stamp duty, which would be payable by a company. Subsequently, the respondent passed a resolution for a further increase in its share capital to Rs. 1200 crores and paid Rs. 25 lakh as stamp duty.

However, according to the respondent company, this was done inadvertently as it was soon realised that the stamp duty was not liable to be paid by them since the maximum stamp duty, which was of Rs. 25 lakhs, had already been paid by them in the year 1992.

Consequently, the respondent wrote a letter to the appellant seeking a refund of the payment of stamp duty of Rs. 25 lakhs. However, this request was turned down by the appellant on the ground that whenever the authorised share capital of a company was increased, stamp duty was payable on each such occasion, and it was not a one-time measure. However, the Writ Court directed the appellant to refund stamp duty.

Aggrieved by the order of the Writ Court, the respondent company filed a writ petition before the Bombay High Court challenging the aforesaid order and seeking a refund of stamp duty of Rs 25 lakhs along with an interest.

The High Court allowed the writ petition and directed the appellants to refund the stamp duty of Rs 25 lakhs along with an interest @ 6% p.a. to the respondent company. Thereafter, an appeal was made to the Supreme Court.

The Supreme Court observed that the maximum cap of Rs. 25 lakhs would be applicable as a one-time measure and not on each subsequent increase in the share capital of the company was fortified directly by the Maharashtra Stamp (Amendment) Act, 2015, which amended the charging section for Article of Association, i.e., Article 10 of the Stamp Act.

Further, it is true that the amendment does not have a retrospective effect. However, since the instrument, i.e., ‘Articles of Association’ remained the same and an increase was initiated by the respondent after the cap was introduced, duty already paid on the same instrument would have to be considered.

The Supreme Court held that it was not a fresh instrument that had been brought to be stamped but only the increase in share capital in the original document, which had been specifically made chargeable by the Legislation.

Therefore, the order of the High Court was to be upheld. Accordingly, the appellant was directed to refund Rs 25 lakhs paid by the respondent along with an interest.

7. Prior sanction u/s 197(1) of CrPC is Required to Take Cognizance of PMLA Offences Against Accused Public Servants: SC

Directorate of Enforcement v. Bibhu Prasad Acharya [2024] 168 taxmann.com 155 (SC), [06-11-2024]

In the instant case, the appellant – Enforcement Directorate filed complaints against the respondents and others under section 44(1)(b) of the Prevention of Money Laundering Act, 2002. The complaint was for an offence under section 3 of the PMLA, which is punishable under section 4. Both private respondents were accused in the complaints. They were B i.e .respondent No.1 and A i.e .respondent No.2.

The Special Court took cognisance of the complaints and issued summons to the respondents and other accused persons. Both of them filed writ petitions before the High Court challenging the cognisance taken by the Trial Court and inter alia prayed for quashing the complaints on the ground that both of them were public servants and, therefore, it was necessary to obtain prior sanction under sub-section (1) of section 197 of the Code of Criminal Procedure, 1973.

The High Court, by the impugned judgement, upheld the respondents’ contentions and quashed the orders of taking cognisance passed by the Special Court on the complaints only as against the said respondents. Thereafter, an appeal was made before the Supreme Court.

The Supreme Court observed that the object of Section 197(1) of CrPC, which corresponds to Section 218 of Bhartiya Nagrik Suraksha Sanhita, 2023, must be considered here. The object is to protect public servants from prosecution. It ensures that public servants are not prosecuted for anything they do in the discharge of their duties. This provision is for the protection of honest and sincere officers. However, the protection is not unqualified. They can be prosecuted with a previous sanction from the appropriate government.

There are two conditions for applicability of section 197(1). The first condition is that the accused must be a public servant removable from his office by or with the Government’s sanction. The second condition is that the offence alleged to have been committed by the public servant while acting or purporting to act in the discharge of his duty.

The Supreme Court held that Section 65 is a prior section that specifically makes provisions of the CrPC applicable to PMLA, subject to the condition that only those provisions of the CrPC will apply that are not inconsistent with those of PMLA. Therefore, when a particular provision of the CrPC applies to proceedings under PMLA by virtue of section 65 of PMLA, section 71(1) cannot override the provisions of the CrPC that apply to PMLA.

Further, the Supreme Court held that in view of section 65 of PMLA, the provisions of section 197(1) of CrPC apply to a complaint under section 44(1)(b) of PMLA. Therefore, prior sanction under section 197(1) of the CrPC was required for taking cognisance of an offence under PMLA against accused public servants.

8. DDA’s Demand for ‘Unearned Increase’ in Value of Leased Plots Transferred by Lessee Under M&A Was Lawful: SC

Jaiprakash Industries Ltd. v. Delhi Development Authority [2024] 161 taxmann.com 720 (SC), [05-04-2024]

In the instant case, the Respondent-Authority executed perpetual lease deeds in favour of company ‘JAPL’ in respect of the subject plots. Later on, the High Court sanctioned a scheme of amalgamation of JAPL with Jaypee Rewa.

The said plots were included in the schedule of properties to the scheme of amalgamation and, therefore, there was the transfer of leasehold properties. After amalgamation, the name of Jaypee Rewa was changed to Jaiprakash Industries and subsequently to Jaiprakash Associates, which was the appellant in the instant case.

Thereafter, the appellant made an application to the respondent for a grant of permission to mortgage said plots in favour of the bank. The Respondent demanded an unearned increase value of Rs.2.13 crore.

Being aggrieved by the said demand, representations were made by the appellant, which were not favourably considered by the respondent. Therefore, the appellant filed a writ petition before the Single Judge of the High Court.

However, the Single Judge dismissed the said petition relying upon the decision of the High Court in the case of Indian Shaving Products Ltd vs Delhi Development Authority [2022] 40 SCL 447 (Delhi). The Division Bench, by the impugned order, dismissed the appeal against the order of the Single Judge.

The Supreme Court held that there was nothing illegal about the impugned judgment, and accordingly, an instant appeal against the order of the High Court was to be dismissed.

9. SC Upholds HC’s Ruling Allowing Pre-Arrest Bail for an Applicant Already in Custody for Another Case

Dhanraj Aswani v. Amar S. Mulchandani [2024] 167 taxmann.com 564 (SC), [09-09-2024]

In the instant case, the Respondent was arrested in connection with the ECIR. While in custody, he apprehended arrest in connection with the criminal case under sections 420, 406, 409, 465, 467, 468, 471 and 34 of the Indian Penal Code registered against him at the instance of the appellant.

In such circumstances, he prayed for anticipatory bail before the High Court. The appellant intervened in the proceedings of the said anticipatory bail application and raised an objection that as the respondent was already in custody in connection with ECIR, he could not pray for anticipatory bail in another complaint.

The High Court overruled the objection raised by the appellant. It was noted that under section 438 of the CrPC, the pre-condition for a person to apply for pre-arrest bail is a ‘reason to believe that he may be arrested on an accusation of having committed a non-bailable offence’.

It was noted that custody in one case does not affect the apprehension of arrest in a different case. Further, while a person already in custody in connection with a particular offence apprehends arrest in a different offence, then a subsequent offence is a separate offence for all practical purposes.

This would necessarily imply that all rights conferred by the statute on the accused, as well as the investigating agency in relation to subsequent offences, are independently protected. The Investigating agency, if it deems it necessary for the purpose of interrogation/investigation in an offence, can seek remand of the accused whilst he is in custody in connection with a previous offence so long as no order granting anticipatory bail has been passed in relation to the subsequent offence.

The Supreme Court observed that if an order granting anticipatory bail in relation to a subsequent offence is obtained by the accused, it shall no longer be open to the investigating agency to seek remand of the accused in relation to the subsequent offence.

Similarly, if an order of police remand is passed before the accused is able to obtain anticipatory bail, it would thereafter not be open to the accused to seek anticipatory bail, and the only option available to him would be to seek regular bail.

The Supreme Court held that an anticipatory bail application filed at the instance of an accused who is already in judicial custody for a different offence would be maintainable under the scheme of CrPC. However, the competent courts will decide each such application on its own merits.

10. SC Extends Delhi CM Kejriwal’s Interim Bail Awaiting Decision on ‘Need & Necessity to Arrest’ u/s 19 of PMLA

Arvind Kejriwal v. Directorate of Enforcement [2024] 164 taxmann.com 318 (SC), [12-07-2024]

In the instant case, the CBI registered an FIR alleging that top leaders of the political party ‘AAP’ hatched a conspiracy to introduce a new excise policy for 2021-22 to benefit liquor manufacturers who had given advance kickbacks to ‘AAP’.

The allegation against the appellant, Arvind Kejriwal, was that he, being the Chief Minister of the State of Delhi, was not only the brain behind ‘AAP’ but also involved in drafting the 2021-22 Excise policy. Thereafter, summons were issued, and the appellant was arrested for an offence under section 3 of the PMLA and consequently remanded to judicial custody by the Special Judge.

The appellant claimed that his arrest was in violation of section 19 of the Act and, thus, was illegal, which made an order of remand to the custody of the respondent also illegal. According to the appellant, ‘reasons to believe’ did not mention and evaluate ‘all’ or ‘entire’ material but selectively referred to implicating material and ignored exculpatory material.

It was also contended that statements relied upon by the Directorate of Enforcement (DoE) had been extracted under coercion. It was noted that arrest is based on the opinion of such an officer, whose opinion is open to judicial review but does not merit review in terms of well-settled principles of law.

Further, arguments raised by the appellant, which tended to dent material relied upon by the DoE in ‘reasons to believe’, though worthy of consideration, were in nature of propositions or deductions. They were a matter of discussion as they intended to support or establish a point of view based on inferences drawn from the material.

The Supreme Court observed that given the limited power of judicial review, ‘reasons to believe’ could not be set aside as accepting the appellant’s argument would be equivalent to undertaking a merits review. Thus, the question regarding the legality of the appellant’s arrest was referred to a Larger Bench.

The Supreme Court, further observed that the right to life and liberty is sacrosanct, and the appellant had suffered incarceration for over 90 days. As the larger bench would take time to decide the issue, the appellant was to be released on interim bail on furnishing a personal bond with a surety in the sum of Rs. 50,000 to the satisfaction of the Jail Superintendent.

The Supreme Court held that arrests under section 19 of PMLA cannot be made arbitrarily and on the whims and fancies of authorities. They must be made based on valid ‘reasons to believe’, meeting parameters prescribed by the law.

Further, the Supreme Court held that the production of ‘reasons to believe’ before the Special Court/Magistrate cannot be construed and is not the same as furnishing or providing ‘reasons to believe’ to an arrestee who has a right to challenge his arrest in violation of section 19(1) of PMLA.

11. Use of a Wheelchair or Human Support by the Bail Applicant Can’t Be a Valid Ground for Granting Bail u/s 45(1) of PMLA: HC

Amar Sadhuram Mulchandani v. Directorate of Enforcement [2024] 167 taxmann.com 565 (HC), [09-08-2024]

In the instant case, the applicant was accused of an offence punishable under section 4 of the PMLA. He preferred a bail application on medical grounds. It was noted that the applicant required assistance for his daily activities. However, it was also noted that he had been provided treatment as an indoor patient for almost four months, and his health condition had improved.

The High Court observed that the prayer for bail on the count that the applicant required assistance for his daily routine activities could not be considered. Further, in light of the applicant’s health condition on other parameters, namely cardiac, nephrology, and ophthalmology, the applicant seemed to be relatively stable, and what he now required was diabetes management and physiotherapy.

The High Court held that the requirement of assistance, either in the form of physical aids like a wheelchair or walker or human support, cannot be construed to be such infirmity as to warrant release on bail by invoking the proviso to section 45(1) of the PMLA.

Therefore, an appropriate direction to the Superintendent of Central Prison, Mumbai, to provide requisite assistance, whenever necessary, would meet the exigency of the situation. Thus, the applicant was to be re-lodged in Central Prison, Mumbai.

12. SC Overturns NCDRC Orders Refusing Execution of a Decree for Homebuyers against Developer’s Promoters During Moratorium

Ansal Crown Heights Flat Buyers Association (Regd.) v. Ansal Crown Infrabuild (P.) Ltd. [2024] 158 taxmann.com 592 (SC), [17-01-2024]

In the instant case, the CIRP was initiated against the corporate debtor. Thereafter, the homebuyers filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC) against the corporate debtor and against the individual directors seeking a refund of the amount paid towards the purchase of apartments along with interest.

The NCDRC, by the order, directed the developer to complete the project in all respects and hand over possession of the allotted flats/apartments to the members of the Association of Homebuyers within the time specified.

The NCDRC, further held that the decree could not be executed against the corporate debtor due to the operation of moratorium under section 14 and in view of the same, it would not be appropriate to proceed in the same execution against respondents, i.e. directors/officers of the corporate debtor.

The appellants, decree-holder, filed an instant appeal before the Supreme Court seeking to execute the said directions of the National Commission not only against the respondent but also against several individuals on the ground that there was no prohibition on proceeding against the directors/officers of the corporate debtor, which was the subject-matter of moratorium under section 14.

The Supreme Court held that only because there was a moratorium under section 14 against corporate debtor, it could not be said that no proceedings could be initiated against directors/officers of corporate debtor for execution.

The Supreme Court further held that the protection of moratorium would not be available to directors/officers of the corporate debtor. Therefore, the impugned orders passed by the NCDRC were to be set aside, and execution would continue against the directors/officers of the corporate debtor.

13. The Phrase ‘Any Person Aggrieved’ in Sec. 62 of IBC Means There is No Rigid Locus Standi Requirement to File an Appeal: SC

GLAS Trust Company LLC v. BYJU Raveendran [2024] 167 taxmann.com 619 (SC), [23-10-2024]

In the instant case, respondent No. 2 – the operational creditor, filed a petition under section 9 against the corporate debtor. The NCLT admitted the application and initiated the CIRP against the corporate debtor.

Meanwhile, the NCLT’s order was challenged by the suspended director of the corporate debtor on the ground that he had transferred a sum of Rs 50 crores to the account of respondent no. 2 through RTGS as part of the settlement and respondent no. 2 accepted the statement to be correct.

In the exercise of its powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, the NCLAT approved a settlement in relation to the dues payable to respondent no. 2 by the corporate debtor and set aside the order of the NCLT.

The appellant, who claimed to be a financial creditor, filed an instant appeal contending that NCLAT should not have exercised its discretionary power under Rule 11 of the NCLAT Rules because there was a prescribed procedure for withdrawal and settlement under section 12A and Regulation 30A.

It was noted that an application for withdrawal had to be moved through IRP before the NCLT for approval, however, none of these requirements had been made.

Further, it was noted that since no formal application was instituted to seek withdrawal of CIRP, the request to approve settlement had been moved before the NCLAT during appellate proceedings instead of being placed before the NCLT.

The Supreme Court observed that the NCLAT had not provided any reasons for deviating from this procedure or urgency in approving the settlement without following the procedure. Further, Regulation 30A of the CIRP Regulations, 2016, provides a detailed procedure to deal with withdrawal or settlement at both stages post admission before and after the CoC is constituted.

Therefore, the requirement to invoke discretionary power such as Rule 11 of the NCLT Rules, Rule 11 of the NCLAT Rules or even the power of the Supreme Court under Article 142 no longer arises.

The Supreme Court held that the use of the phrase “any person aggrieved” in section 62 indicates that there is no rigid locus requirement to institute an appeal challenging an order of the NCLT before the NCLAT or an order of the NCLAT or before this Court. Thus, any person aggrieved by the order may institute an appeal, and nothing in the provision restricts the phrase to only the applicant creditor and the corporate debtor.

Further, the Supreme Court held that once the CIRP is initiated, the proceedings are no longer restricted to the individual applicant creditor and the corporate debtor but rather become collective proceedings, where all creditors are necessary stakeholders.

14. Section 32-A of IBC Shields Corporate Debtor from Prior Liabilities but Not Its Directors: HC

Vasan Healthcare (P.) Ltd. v. India Infoline Finance Ltd. [2024] 165 taxmann.com 237 (HC – Madras)[24-07-2024]

In the instant case, the petitioner company borrowed a loan from the respondent finance company, IIFL, to purchase medical equipment. To discharge the liability, the Managing Director/Authorised Signatory of the petitioner company issued cheques.

The cheques, on the presentation for collection, returned stating the reason’ funds insufficient’. Therefore, a complaint under section 138 of the Negotiable Instruments Act, 1881 was filed against the accused company and its directors.

The petitioner, vide the instant petition under section 482 of the Cr.PC, sought to quash the complaint under section 138 of the Act.

According to the petitioner, as per the resolution plan approved by the NCLT vide order dated 3-2-2023, the successful resolution applicant had taken over the company. Further, the creditors’ claims were settled under the approved resolution plan on the condition that all civil and criminal litigations, investigations, claims, disputes, and regulatory proceedings against the corporate debtor pending, present, or future would stand extinguished.

It was noted that after the insertion of section 32A of IBC by way of amendment with effect from 28-12-2019, the liability of the corporate debtor for prior offences is restricted. As per the law laid in Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation of India Ltd., [2023] 148 taxmann.com 280/178 SCL 401, it was clear that the corporate debtor cannot be prosecuted for the prior liability after the approval of the resolution plan.

However, protection under section 32A is restricted only to the corporate debtor and not its directors who were in charge of the company’s affairs when the offence was committed or signatory of the cheque.

The High Court held that since only the corporate debtor sought to quash the criminal complaint, an instant petition under section 482 of Cr. PC was to be allowed.

15. Claim of Bank-Secured Creditor Would Prevail Over Claim of Sales Tax Dept.: HC

Madhaviben Jitendrabhai Rupareliya v. State of Gujarat [2024] 159 taxmann.com 642 (Gujarat), [04-01-2024]

In this significant ruling, the High Court held that banks that are secured creditors and have charge over the subject property would have priority over unsecured creditors, i.e., the Sales Tax Department (referred to as Crown’s debt). Thus, the claim of a secured creditor would prevail over a claim of an unsecured creditor.

The company ‘Helios’ availed various financial facilities from respondent No. 4 – bank (R4) by mortgaging the subject property, and a charge was created in favour of R4, and the same was recorded in the revenue record.

Upon Helios having defaulted on repayment of the loan and being declared an NPA, the bank initiated proceedings under the SARFAESI Act before the Debt Recovery Tribunal (DRT).

As Helios also did not make any payment towards the liability of the ‘Sales Tax Department’ (i.e. Respondent no 3 department (R3), a charge over the subject land was registered. According to the petitioner, the charge was registered by the Sales Tax department after a period of 6 years and 6 months after the charge of respondent No. 4 bank was registered as back as in the year 2000.

Pursuant to a public auction conducted by the bank in respect of the subject land, the petitioner participated in the bidding and as she was the highest bidder, the bank issued a certificate of sale in her favour in respect of movable and immovable property lying inside the property.

Subsequently, the bank executed a registered sale deed in favour of the petitioner. The petitioner applied before Mamlatdar to mutate her name in the revenue record. However, the Mamlatdar rejected the said application on the two grounds that the seller’s name did not tally and that over the land in question, there was already a charge registered in favour of Respondent No. 3 department.

The High Court observed that when the property was purchased pursuant to an auction carried out by the order passed by DRT, the auction was held to recover dues of the secured creditor, i.e., the bank, under an order passed by DRT in relevant proceedings before the DRT. Therefore, being a secured creditor, the bank enjoyed priority under section 26E of the SARFAESI Act.

The High Court ruled that the charge of the secured creditor would precede the charge of an unsecured creditor (crown debt). This decision allows the instant petition to direct the respondent authorities to mutate the petitioner’s name in revenue records by quashing and setting aside any charge over property in question by the State or its authorities as there was a first charge of the respondent bank.

16. Limitation Period for Appointing an Arbitrator Starts after a Valid Notice is Issued & the Other Party Fails to Appoint: SC

Arif Azim Co. Ltd. v. Aptech Ltd. [2024] 167 taxmann.com 250 (SC), [01-03-2024]

In the instant case, the petitioner, a company based in Afghanistan, was engaged in the business of providing training in computer education, information technology, English language. The Respondent Company based in India entered into franchise agreements with the petitioner/franchisee.

As per the terms of the said agreements, the petitioner, as a franchisee, was granted a non-exclusive license to execute a short-term English training course for students from its centre in Kabul.

Thereafter, disputes arose between the parties regarding the renewal and payment of royalties, and the respondent issued a recovery notice. Pursuant to the said notice, the petitioner raised the issue of non-payment for the course conducted by the petitioner. After several rounds of failed communications and mediation, the petitioner issued a notice for the invocation of arbitration to the respondent on 24-11-2022.

The Respondent denied all claims raised by the petitioner in the said notice. The petitioner, thus, filed a petition under section 11(6) of the Arbitration and Conciliation Act, 1996, to appoint an arbitrator. The Respondent submitted that the said petition by the petitioner was barred by limitation.

It was noted from a perusal of communication that the petitioner’s right crystallised only on 28-3-2018 when the respondent clearly showed unwillingness to continue the discussion on payment related to the course.

The Supreme Court observed that the mere failure to pay may not give rise to a cause of action; however, once the applicant had asserted its claim and the respondent had either denied such claim or failed to reply to it, a cause of action will arise after such denial or failure.

In the instant case, the limitation period would have come to an end after the expiry of three years, i.e. 27-3-2021; however, the period from 15-3-2020 to 28-2-2022 was to be excluded due to Covid for the purpose of computation of limitation, and thus, the limitation period would come to an end on 13-3-2023.

The Supreme Court, further observed that for making an application under section 11(6) of the Act, the right to apply accrues only after a valid notice invoking arbitration has been issued by one party to the other party and there has been either a failure or refusal on the part of the other party to make an appointment as per appointment procedure agreed upon between the parties.

The Supreme Court held that since notice for invocation of arbitration was received by the respondent on 29-11-2022, which was within a three-year period from the date on which the cause of action for the claim had arisen, claims could not be said to be ex-facie dead or time-barred on the date of commencement of arbitration proceedings.

Thus, an instant petition filed by the petitioner on 19-4-2023 was well within the limitation period as provided by Article 137 of the Limitation Act, 1963.

17. HC Overturns Acquittal; Cheque Issued in 2015 Deemed Valid Acknowledgement of Debt Under Limitation Act

Rajeev Kumar v. State NCT of Delhi [2024] 166 taxmann.com 700 (HC), [11-09-2024]

In the instant case, the father of the complainant advanced a loan of Rs. 3.50 lakh to the accused, and in the discharge of his liability, the accused issued a cheque for the same amount in the name of the complainant’s father.

However, the complainant’s father passed away before presenting a cheque for encashment, after which the accused issued a new cheque of the same amount in the name of the complainant for repayment of the loan amount.

The Cheque in question, on presentation, was dishonoured with the remark’ funds insufficient’. Thereafter, a complaint was lodged under section 138 of the Negotiable Instruments Act, 1881. The Trial Court dismissed the complaint vide the impugned order and acquitted the accused of an offence by holding that the debt was not legally recoverable due to limitation.

According to the Trial Court, the date of the loan was 30-04-2012, and the cheque in question was issued on 31-12-2015, i.e. after three years of period limitation.

The High Court noted that the presentation of the cheque to the complainant’s father was 5-6 months before the death of his father, i.e. in the months of January/February 2014.

On that basis, even though the loan was allegedly taken in the year 2012 as per the finding of the Trial Court, an earlier cheque presented in 2014 would amount to an acknowledgement in writing of liability and, therefore, a fresh period of limitation would commence as per section 18 of the Limitation Act, 1963.

The High Court held that furnishing of the cheque in question on 31-12-2015 would still be for a legally enforceable debt or liability. Therefore, the impugned order acquitting the accused was to be set aside.

18. SC Grants Bail to Manish Sisodia in PMLA Case, Emphasises That “Bail Can’t Be Withheld as Punishment”

Manish Sisodia v. Directorate of Enforcement [2024] 165 taxmann.com 323 (SC), [09-08-2024]

In the instant case, the appellant’ Manish Sisodia’ was arrested for an offence under PMLA. On the ground of delay in trial, the appellant approached the Supreme Court for a grant of bail.

However, in view of the assurance given at the bar by the Solicitor General appearing for the Directorate of Enforcement (ED) that the trial would be concluded within the next ‘6-8 months’, the Supreme Court rejected the appellant’s bail application.

The appellant was free to move a fresh application for bail in case of a change in circumstances or in case the trial was protracted and proceeded at a snail’s pace in the next three months.

It was aforesaid observations that had triggered or prompted the appellant to approach the Supreme Court for a grant of bail. ED opposed the instant appeal on the ground that the investigation would be concluded, and the final complaint/charge sheet would be filed expeditiously, and at any rate on or before 03.07.2024, and immediately thereafter, the Trial Court would be free to proceed with the trial.

Further, if the appellant was released on bail, there was every possibility of him influencing witnesses or tampering with evidence. It was noted that the trial had not even yet commenced. Further, the case involved thousands of pages of documents and over a lakh pages of digitised documents.

Also, there was not even the remotest possibility of a trial being concluded in the near future, and keeping the appellant behind bars for an unlimited period of time in the hope of speedy completion of the trial would deprive his fundamental right to liberty under Article 21 of the Constitution.

The Supreme Court held that prolonged incarceration before being pronounced guilty of an offence should not be permitted to become punishment without trial.

Insofar as the possibility of tampering with evidence was concerned, it was to be noted that the case largely depended on documentary evidence that had already been seized by the prosecution; thus, there was no possibility of tampering with evidence.

The concern about influencing witnesses could be addressed by imposing stringent conditions upon the appellant. Thus, the instant appeal was to be allowed, and the appellant was directed to be released on bail.

19. Failure to Register or Submit MSME Memorandum Prior to a Contract Doesn’t Forfeit Benefits of Sec. 15-19 of the Act: HC

Mangalore Refinery & Petrochemicals Ltd. v. Micro & Small Enterprises Facilitation Council [2024] 165 taxmann.com 809 (HC), [05-07-2024]

In the instant case, the appellant, i.e. Mangalore Refinery and Petrochemicals Ltd. invited tenders for a comprehensive DM water and CPU plant package for its refinery project. The Respondent no.2-claimant was awarded a contract through a Letter of Acceptance (LOA), with a completion deadline of March 31, 2011.

The project was completed by 11-3-2013, and a completion certificate was issued. Thereafter, disputes arose over payments, and the claimant filed a claim before respondent no.1-Micro and Small Enterprises Facilitation Council, leading the Council to refer the matter to arbitration.

Aggrieved by the said order, the appellant filed an appeal before the High Court on the ground that the Council lacked jurisdiction as the respondent was not a small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006. The High Court upheld the Council’s referral to arbitration, dismissing the appellant’s petition challenging the order. Thereafter, the appellant filed an instant appeal.

It was noted that the appellant and claimant entered into an agreement on 01.12.2009 but the claimant submitted a memorandum to register itself as a small enterprise on 09.12.2011, concededly, the claimant completed its work and obtained a certificate from the appellant after registration under Section 8 i.e., only on 11.03.2013.

The Court held that since the claimant had been awarded a turnkey contract, work would have continued even after it filed a memorandum. Further, monies/amounts claimed by the Claimant became due only after registration, i.e., in 2016, and, therefore, the council had jurisdiction to entertain claims.

20. WhatsApp’s Updated Privacy Policy Mandating Data-Sharing for Non-Service Purposes Violates Section 4: CCI

Updated Terms of Service and Privacy Policy for WhatsApp Users, in re [2024] 168 taxmann.com 482 (CCI), [18-11-2024]

The CCI held that WhatsApp’s updated privacy policy, which mandated the sharing of data of its users for purposes other than providing WhatsApp services, without offering any choice to its users to opt-out from same, disregarded legitimate expectations of users to decide as to how their data would be collected and used.

This conduct was deemed prima facie violative of Section 4 of the Competition Act. Consequently, WhatsApp was directed to cease and desist from such practices, as they were found to contravene the provisions of the Act.

In the instant case, WhatsApp had updated its privacy policy and terms of service for WhatsApp users. It was inter alia reported that the new policy made it mandatory for users to accept terms and conditions in order to retain their WhatsApp account information and provided as to how it would share personalised user information with Facebook (later renamed as Meta) and its subsidiaries. Consequently, the commission, decided to take suo-motu cognisance of the matter.

The CCI observed that WhatsApp was dominant in the relevant market for Over the Top (OTT) messaging apps through smartphones in India. Later, users were made to accept the 2021 update, which mandated sharing of data for purposes other than providing the WhatsApp services, without offering any choice to opt out from same, this imposition disregards legitimate expectation of users to decide as to how their data would be collected and used.

The CCI noted that by compelling all users to accept data-sharing conditions, WhatsApp reduces the level of privacy (an important non-price parameter of competition in digital markets) that users expect, thus diminishing consumer welfare. Additionally, this would result in increasing entry barriers for rivals and, thus, potentially leading to their exclusion from the market.

The CCI held that the impugned conduct of data-sharing by WhatsApp with Facebook apparently amounted to the degradation of non-price parameters of competition, ultimately constituting an abuse of market power.

The CCI, further held that WhatsApp had prima facie contravened the provisions of section 4 through its exploitative and exclusionary conduct in the garb of the policy update. Accordingly, in terms of Section 27(a) of the Act, WhatsApp was directed to cease and desist from indulging in such practices, which had been found to violate the provisions of the Act.

21. Regulatory Intervention without Evident Competition Hampers Exhibitors’ Autonomy: CCI

Yogesh Pratap Singh v. PVR Ltd. [2024] 158 taxmann.com 138 (CCI), [03-01-2024]

In the instant case, the Informant filed present information u/s 19(1)(a) of the Competition Act, 2002, alleging contravention of the provisions of sections 3 and 4 of the Act by PVR Ltd. (“OP”).

The Informant was a novelist, script-writer, lyricist and filmmaker. OP was engaged in the business of the exhibition of films in India through multiplexes and was also engaged in the production, promotion and release of films. The Informant, being a filmmaker, alleged discriminatory treatment by OP in the allocation of screens for the exhibition of movies.

The informant had alleged that OP allocated almost all of its screens to films produced by large production houses, which left no place for films produced by independent filmmakers, including the informant.

It was noted that allocation of screens was being done following criteria such as revenue-generating potential of the movie, excitement/buzz around the film, marketing, advertising and promotions done, historical data (admission/box office revenue) of films of similar genres, previous review of filmmaker, selection team’s estimate of box office collection, language of film and cast and crew etc.

Further, OP had submitted evidence of exhibiting the informant’s film titled ‘Kya Yahi Soch Hai’ alongside the blockbuster commercial movie ‘Don 2’. The Informant’s film earned a collection of merely Rs. 3 lakh in 90 allocated shows across 11 different locations.

The CCI observed that the commercial wisdom of exhibitors is largely governed by consumer demand, and unless harm to competition is apparent, any intervention will only lead to undesirable consequences by taking away the autonomy of such undertaking and substituting the decision of such entity by the decision of the regulator.

The CCI held that in view of the foregoing, prima facie, there appeared to be no discernible competition concern in the market, and, thus, it would not be appropriate to delve into allegations of abuse of dominant position, which required delineation of the relevant market.

Thus, no case of contravention of provisions of the Act was made out against OP, and the matter was ordered to be closed immediately under section 26(2) of the Act.

22. NCLAT Rightly Upheld NFRA’s Order Imposing Minimal Penalty on DHFL and Barring Auditors from Practicing for 1 Year: SC

CA Sam Varghese v. National Financial Reporting Authority [2024] 161 taxmann.com 246 (SC), [22-03-2024]

In the instant case, DHFL, a housing finance company (listed on both NSE and BSE), operated through a network of branches and was involved in the fraud of Rs. 31,000 crores.

The Respondent-NFRA suo motu initiated an audit quality review to probe into the role of Statutory Auditors for the financial year 2017-18, on suspected frauds by the promoters and directors of DHFL and alleged that the appointment of ‘H’ on branch auditor was done without following due procedures as prescribed in Companies Act, 2013 as well as violation of certain SAs and therefore the appellant was charged with professional misconduct.

The NFRA applied the principle of proportionality and imposed a minimal permissible penalty, i.e., a monetary fine of Rs. 1 lakh and barred auditors from practicing for a period of one year, which was 10% of the maximum penalty permissible.

Thereafter, ‘H’, one of the engagement partners of the DHFL, challenged the NFRA’s order before NCLAT on the ground that he had already deposited 10% of the penalty and the appeals had been made well in time.

The NCLAT vide the impugned order held that the penalty imposed by the NFRA could not be considered excessive and the mere filing of the appeal with a 10% deposit of penalty did not affect the order on debarment. Aggrieved by the NCLAT’s order, ‘H’ filed an instant appeal before the Supreme Court.

The Supreme Court held that there was no error in the impugned order passed by the NCLAT and, thus, the instant appeal was to be dismissed.

23. SAT Rightly Dismisses Penalty on Co. for Not Using Preferential Issue Funds as Intended as Shareholders Ratified Object: SC

Securities and Exchange Board of India v. Alps Motor Finance Ltd. [2024] 159 taxmann.com 422 (SC), [05-02-2024]

In the instant case, the Respondent Company made six preferential allotments and made necessary disclosure on the stock exchange platform. Subsequently, an investigation was made and the stock exchange submitted a report indicating the possibility of mis-utilization of proceeds.

Based on this report, SEBI carried out further investigation and issued a show cause notice (SCN) alleging that the respondent company had deviated from the object of the issue and had not utilised proceeds from the preferential issue as per objects and, thus, violated clause 43 of the Listing Agreement/Regulation 32 of LODR Regulations and regulations 3 and 5 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

Thereafter, SEBI issued a show cause notice and imposed penalties. The SAT, by the impugned order quashed the order passed by the SEBI on the ground that there was an inordinate delay in the issuance of the adjudication proceedings.

Even otherwise, prior to the issuance of show cause notice, alleged deviation by the company was ratified pursuant to a special resolution passed by the shareholders of the company. Then, an appeal was made before the Supreme Court.

The Supreme Court held that there was no good ground and reasons to interfere with the impugned judgment. Hence, the appeal against the same was to be dismissed.

24. SC Declines to Transfer Adani-Hindenburg Probe from SEBI to SIT and to Revoke SEBI’s Amendments to FPI & LODR Norms

Vishal Tiwari v. Union of India [2024] 158 taxmann.com 85 (SC), [03-01-2024]

In the instant case, an activist short seller, ‘H’, published a report about the financial transactions of the ‘A’ group of companies, alleging that ‘A’ manipulated its share prices and failed to disclose transactions with related parties and other relevant information in violation of the regulations framed by the SEBI and provisions of the securities legislation.

The SEBI was directed to investigate the said allegations. An expert committee was constituted, and both the SEBI and the said committee submitted a status report.

The petitioners/investors of ‘A’ filed an instant writ petition under Article 32 of the Constitution of India, raising concerns over the precipitate decline in investor wealth and volatility in the share market due to a fall in the share prices of ‘A’, seeking a direction to transfer the SEBI investigation to Special Investigation Team (SIT).

Further, the petitioners submitted that based on the report of ‘H’, the FPIs investing in stocks of ‘A’ in the stock market were the shell companies outside India owned by the brother of the chairperson of ‘A’, which would boost the value of ‘A’ stocks in the market and expose the market and investors to huge losses.

The petitioners contended that SEBI had received a letter alerting them about possible stock market manipulation being committed by ‘A’ by the overvaluation of the import of equipment. However, the SEBI did not take adequate action based on this letter.

Accordingly, the petitioners prayed that the SEBI be directed to revoke the amendments to the SEBI (Foreign Portfolio Investments) Regulations, 2014 (FPI) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), which had altered the definition of ‘related party’ and removed the mandatory requirement of disclosing ownership of the FPIs or make suitable changes.

It was noted that the power to transfer an investigation from an authorised agency i.e. SEBI to CBI or SIT, is exercised when the competent authority portrays a glaring, wilful and deliberate inaction in carrying out an investigation, and since, in the instant case, SEBI’s status report and details of investigations did not indicate deliberate inaction or inadequacy in an investigation by SEBI, the threshold for transfer of investigation was not demonstrated to exist. Thus, such a transfer was not warranted.

The Supreme Court held that there was no valid ground raised to interfere by directing the SEBI to revoke its amendments to Regulations, which were made in the exercise of its legislative powers. Further, a Regulation may be subject to judicial review if it is ultra vires the parent legislation or the Constitution. However, none of these grounds were pressed in the instant case. Therefore, the prayer seeking directions to the SEBI to revoke its amendments to the FPI and LODR Regulations was rejected.

Further, the Supreme Court directed the SEBI and investigative agencies of the Union Government to investigate whether the investors suffered a loss and consider the recommendations of an expert committee regarding creating an appropriate legal framework to implement the recommendations.

25. Google Violated Sherman Act by Maintaining Monopolies in Search Services and Ads via Exclusive Agreements, Rules US Dist. Court

United States of America v. Google LLC [2024] 165 taxmann.com 394 (USDC)[05-08-2024]

In the instant case, the U.S. Department of Justice, supported by 11 states (Plaintiffs) filed lawsuits against Google in October 2020, accusing the company of violating Section 2 of the Sherman Act. The case focused on allegations that Google unlawfully maintained its monopoly in three product markets viz. general search services, search advertising and search text advertising.

After a trial that lasted over nine weeks, the Court found that Google held a dominant position in these markets, supported by significant barriers to entry and had engaged in anticompetitive practices via exclusive agreements.

It was noted that Section 2 of the Sherman Act makes it unlawful for a firm to ‘monopolise’. Further, the parties agreed that the US is the relevant geographical market. The Court observed that Google held a substantial market share in the ‘general search services’ market, with a dominance of 89.2%, increasing to 94.9% share on mobile devices.

The Court identified significant barriers to entry, individually and collectively, that protect Google’s market dominance in general search. These include high capital costs, control over key distribution channels, substantial brand recognition, and Google’s scale. Therefore, it was concluded that Google monopolised the ‘general search services’ market.

The Court acknowledged that Google and its advertisers recognise search text advertising as a distinct product sub-market. The Court also took note of the plaintiff’s submission, stating that Google has maintained a large and durable market share in this market, further safeguarded by significant entry barriers.

Further, the Court highlighted that the exclusive agreements Google secured for default distribution on nearly all desktop and mobile devices effectively slow the competition. Due to the lack of viable competitors, these agreements solidified Google’s monopolistic hold on the ‘general search services’ market.

Google’s monopoly in general search has shown remarkable durability over time. The company’s market share, nearly 80% in 2009, grew to approximately 90% by 2020. This historical consistency in market dominance supports the conclusion that Google’s competitive practices have effectively hindered other players from gaining a significant market presence.

The Court held that Google had violated Section 2 of the Sherman Act by unlawfully maintaining its monopoly in general search services and general search text ads by entering into exclusive agreements to secure default distribution on nearly all desktop and mobile devices in the United States.

Further, the Court also found that Google had exercised its monopoly power by charging competitive prices for general search text ads, which has allowed Google to earn monopoly profits.

The post [Analysis] Key Corporate Law Rulings of 2024 | A Review of Top 25 Case Laws appeared first on Taxmann Blog.

The year 2024 has been transformative for indirect tax laws in India, marked by groundbreaking judicial pronouncements that have reshaped GST interpretations and practices. Taxpayers and revenue authorities alike witnessed pivotal decisions addressing a wide array of critical issues, from input tax credit eligibility and GST refunds to procedural complexities and compliance challenges.

At Taxmann, our editorial team meticulously analysed over 3,000 reported cases from 2024, identifying the most impactful rulings that provide clarity on contentious matters and set significant legal precedents. In this article, we present a curated list of the Top 25 Landmark Indirect Tax Judgments of 2024, offering insights into these decisions and their implications for businesses, professionals, and policymakers.

In 2024, several landmark decisions were made, significantly impacting taxpayers and revenue authorities. Our editorial team carefully examined and analysed the year’s judgments and orders, culminating in over 3,000 meticulously reported cases on taxmann.com. These cases span a wide array of critical aspects within indirect tax laws, with a focus on highlighting favorable outcomes. From this comprehensive collection, we have curated the top 25 cases of 2024, as featured on taxmann.com and the roster for 2024 is outlined below.

1. Construction of Immovable Property May Be Considered as ‘Plant’ for Claiming ITC If It is Critical to Business Operation: SC

Chief Commissioner of Central Goods and Service Tax & Ors. vs. M/s Safari Retreats Private Ltd.& Ors. [2024] 167 taxmann.com 73 (SC)

In the present case, the petitioner had constructed a shopping mall in which huge quantities of materials were purchased and CGST and SGST were paid on such purchases. The petitioner let out different units of the mall to different persons on rental basis and claimed benefit of input tax credit on GST paid by it on purchases of input materials and services which had been used in construction of shopping mall for set off, against GST payable on rent received from tenants. The authorities denied benefit of ITC in view of section 17(5)(d).

The Orissa High Court had read down section 17(5)(d) to give benefit of ITC to taxpayer on goods and services consumed in construction of shopping mall against GST payable on rentals received from tenants of shopping mall. But the department filed SLP against the order before the Apex Court.

The Honorable Supreme Court noted that the expression ‘plant or machinery’ used in Section 17(5)(d) cannot be equated with the term ‘plant and machinery’ as defined by the explanation to Section 17 of the CGST Act. These terms must be interpreted distinctly in the context of their specific use under the law.

Moreover, a ‘functionality test’ is necessary to determine whether a building qualifies as a ‘plant’ under clause (d) of Section 17(5). This test involves assessing the specific facts of each case in light of the building’s purpose and utility in the registered person’s business. Thus, the Court held that if the construction of the immovable property is critical to the business’s operation, it may be considered a plant for the purposes of input tax credit under the CGST Act.

2. No Interest Liability If Assessee Deposited GST Amount Within Due Date but Filed Returns Belatedly: HC

Eicher Motors Ltd. v. Superintendent of GST and Central Excise, Range-II [2024] 158 taxmann.com 593 (Madras)

In the instant case, the petitioner was not able to file the monthly return in Form GSTR 3B within the prescribed time limit since the amount of transitional credit was not reflect in Electronic Credit Ledger. However, the petitioner had deposited the tax amounts in the Electronic Cash Ledger (ECL) within the due dates, discharging the GST liability for the period from July 2017 to December 2017. Subsequently, the department demanded the payment of interest for the alleged belated payment of GST. It filed writ petition and challenged the demand.

The High Court observed that the GST amount was routinely deposited into the ECL within the due date by the petitioner. The Court further noted that once the amount is paid by generating GST PMT-06, the said amount would be initially credited to the account of the Government immediately upon deposit, at which point, the tax liability of a registered person would be discharged to the extent of the deposit made to the Government.

Thereafter, for the purpose of accounting only, it would be deemed to be credited to ECL as stated in Explanation (a) to section 49(11) of the CGST Act. Thus, the Court held that the petitioner would not be liable to pay interest on GST amount which was routinely deposited into ECL within due date and the writ petition was allowed.

3. Interest Liability Arises Automatically on Delayed Filing of Returns Even If Payment Made From Credit Ledger: Patna HC

Sincon Infrastructure (P.) Ltd. v. Union of India [2024] 161 taxmann.com 616 (Patna)

The petitioner received a notice for the recovery of interest on the belated payment of tax. The interest was charged for the tax paid from the Electronic Credit Ledger (ECL) for the financial year 2018-19 and order was passed. Aggrieved by the order, the petitioner filed a writ petition to the High Court of Patna.

The High Court noted that the payment of tax and furnishing of return have to occur simultaneously. The Court further noted that the input tax credit and the resultant payment of tax from the Electronic Credit Ledger occurs only when a return is furnished. If there is a delay in furnishing of returns then obviously there is a delay in the input tax credit coming into the Electronic Credit Ledger and a resultant payment being made to the Government as tax, interest, penalty or other amounts due under the Act.

Therefore, the claim of the petitioner that the proviso of Section 50(1) mandates a levy of interest only when there is a delayed furnishing of return and debit made and payment effected from the Electronic Cash Ledger was rejected. The Court also held that interest shall be payable on the delay occasioned in the payment of tax and as per section 50(1) interest liability would arise automatically on delayed filing of returns, irrespective of whether payment is made from Electronic Credit Ledger or Electronic Cash Ledger.

4. HC Placed Matter Before Division Bench to Decide Whether State Tax Authority Can Issue SCN Under CGST Act

Pinnacle Vehicles and Services (P.) Ltd. v. Joint Commissioner, (Intelligence and Enforcement) [2024] 169 taxmann.com 177 (Kerala)

The petitioner was a registered person under the CGST/SGST Acts, allocated to the jurisdiction of the Central Tax Authorities. The petitioner challenged the show cause notice issued by the State Tax Authority without jurisdiction and without any notification as contemplated by the provisions of Section 6(1) of the CGST Act.

The Kerala High Court noted that a reading of Section 6(1) of the CGST Act makes it clear that the officers appointed under the State Goods and Services Tax Act are authorised to be proper officers for the purposes of the Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify. Unaided by authority, a reading of the provision suggests that the officers appointed under the State Goods and Services Tax Act are proper officers for the purposes of the Central Goods and Services Tax Act. It is only when any restriction or condition has to be placed on the exercise of power by any officer appointed under the State Goods and Services Tax Act that a notification as contemplated by the provisions of Section 6(1) of the CGST Act has to be issued.

Since the issue raised in this writ petition will affect several proceedings, and taking note of the view expressed by the Madras High Court in case of Tvl. Vardhan Infrastructure [2024] 145 taxmann.com 1/66 GST 1 (Mad.), which is contrary to the prima facie view that the Court has taken, the Court was of the opinion that this issue requires an authoritative pronouncement by a Division Bench of this Court.

5. Telecom Towers Are Movable Properties as They Do Not Meet the Test of Permanency and ITC on Same Cannot Be Denied: HC

Bharti Airtel Ltd. v. Commissioner, CGST Appeals-1, Delhi* [2024] 169 taxmann.com 390 (Delhi)

In the present case, the writ petition was filed to challenge the proceedings under GST in which the department raised demand of tax along with interest and penalty on the ground that input tax credit was denied on inputs and input services used for setting up passive infrastructure i.e. telecommunication towers. It was contended that telecommunication towers would not fall within ambit of Section 17(5)(d) and hence, denial of input tax credit would not sustain.

The Honorable High Court noted that the Supreme Court in case of Bharti Airtel Ltd. v. Commissioner of Central Excise [2024] 168 taxmann.com 489 has conclusively held that telecommunication towers cannot be construed as immovable property. The Court further noted that telecommunication towers would not qualify as immovable property as they neither qualify test of permanency nor can be said to be attached to earth. The mobile towers can be dismantled and moved and they were never erected with an intent of conferring permanency. Their placement on concrete bases was only to enable those towers to overcome vagaries of nature. Thus, the denial of input tax credit on telecommunication towers would not sustain.

6. Transfer of Development Rights of Land by Way of JDA Should Not Be Treated as Sale of Land by Land Owners: HC

Prahitha Contruction (P.) Ltd. v. Union of India [2024] 159 taxmann.com 437 (Telangana)

The petitioner was engaged in construction activities and entered into joint development agreement (JDA) with land owners. It filed writ petition seeking declaration that transfer of development rights of land by land owners to petitioner by way of JDA should be treated as sale of land and execution of agreement should not be subjected to levy of GST.

The Honorable High Court noted that as per JDA, there was no automatic transfer of ownership given to petitioner at time of execution of JDA. The petitioner would get right to sell property only after completion of project and issuance of completion certificate. Therefore, it was held that transfer of development rights to petitioner would be amenable to GST and can’t be brought within purview of Entry 5 of Schedule-III of GST Act. The Court also noted that the notification issued by Government to clarify aspect of transfer of development rights being attracted to GST would be valid.

7. Claiming of ITC Under Wrong Head is Only a Technical Mistake Committed by Assessee: HC

Rejimon Padickapparambil Alex v. Union of India [2024] 169 taxmann.com 152 (Kerala)

The assessee was a registered dealer and received various inwards supplies of goods, both inter-state and intra-state. For the inter-state inward supplies, on which IGST was paid by the supplier, the assessee had to avail input tax credit. While filing Form GSTR-3B, instead of showing the IGST component in the eligible credit details, the assessee inadvertently showed the IGST component as nil and added the bifurcated CGST and SGST components of IGST to the existing figures showing eligible CGST and SGST credit.

This resulted in a mismatch between Form GSTR-2A and Form GSTR-3B. The Assessing Authority (AA) contended that the mismatch had resulted in the assessee utilising ‘unavailable credit’ towards payment of CGST and SGST on outward supplies. Further, the authority issued a notice demanding the return of the CGST/SGST amounts allegedly utilised in excess by the assessee.

The Kerala High Court held that Section 73 of the GST Act was attracted only when it appeared to a proper officer that any tax had not been paid or short paid or erroneously refunded, or where input tax had been wrongly availed or utilised for any reason. In the instant case, there had been no wrong availment of credit, and the only mistake committed by the assessee was an inadvertent and technical one. The mistake was also insignificant because there was no outward supply attracting IGST that was effected by him. Therefore, the Court set aside the order of AA and allowed the writ petition by quashing the demand order.

8. Disallowing ITC for Late Returns is Arbitrary as Late Fees and Interest Serve as Sufficient Deterrents: HC

Anand Steel v. Union of India [2024] 169 taxmann.com 105 (Madhya Pradesh)

During the financial year 2018-19, the petitioner filed GST returns from April 2018 to March 2019 in FORM GSTR-3B along with the GST liability and late fee on outward supplies. The petitioner availed input tax credit correctly as per their inward supplies for the relevant period. Subsequently, a notice was issued by the Assistant Commissioner of COST to the petitioner proposing to disallow the ITC for the tax period 2018-19. The disallowance was proposed on the ground of late filing of return in FORM GSTR-3B. Aggrieved by the order, the petitioner filed a writ petition to the Madhya Pradesh High Court and contended that Section 16(4) puts arbitrary restrictions/limitations on the right to avail input tax credit.

The Madhya Pradesh High Court held that the provision of Section 16(4) of the CGST Act, which restricts the claim of ITC only on the ground that a return is filed after the date prescribed, is arbitrary. The tax payer who is claiming the ITC has already made the payment of tax to the supplier from whom the foods and services have been received. The payments include both the cost of service or goods and the amount of Tax. Thus, the taxpayer cannot be deprived of his right to claim ITC. The imposition of a time limit through Section 16(4) would supersede or override the scheme of the statute.

The operation of Section 16(4) makes the non-obstante Section 16(2) meaningless since Section 16(2) has overriding effect on Section 16(4), and Section 16(2) has been drafted in a manner which shows clear legislative intent that it is not subject to Section 16(4). Moreover, the payment of late fees and interest are already there as deterrents for the taxpayers forcing them to be disciplined. Under such circumstances, saddling with double payment of tax by way of Section 16(4) is arbitrary and capricious.

9. Initiation of an Enquiry or Summons Under CGST Cannot Be Considered as Initiation of Proceedings: HC

K.T. Saidalavi v. State Tax Officer [2024] 168 taxmann.com 211 (Kerala)

In the present case, the CGST department had initiated enquiry regarding non-payment of GST and had directed the production of certain records. This was followed by summons issued under Section 70 of the CGST Act leading to the recording of certain statements. The petitioner filed writ petition to challenge the action by contending that State Authority had already initiated proceedings under Section 74 read with Section 122(1) of the CGST/SGST Acts.

The Honorable High Court noted that the term ‘initiation of any proceedings’ is a reference to the issuance of a notice under the provisions of the CGST/SGST Acts and the initiation of an enquiry or the issuance of summons under Section 70 of the CGST/SGST Acts cannot be deemed to be initiation of proceedings for the purpose of Section 6(2)(b) of the CGST/SGST Acts.

In the present case, the Central Authority had only initiated an enquiry and the proceedings were initiated by the State Authority by the issuance of notice under Section 74 of the CGST/SGST Acts. Therefore, it was held that the petitioner was not entitled to any relief and the writ petition was liable to be dismissed.

10. Rule 96(10) is Ultra Vires to Section 16 of IGST Act and Unenforceable on Account of Being Manifestly Arbitrary: HC

Vinayaka Cashew Company v. Union of India [2024] 167 taxmann.com 760 (Kerala)

In the instant case, the petitioner challenged the validity of Rule 96(10) of the CGST Rules, 2017. The Rule 96(10) was inserted with effect from 23-10-2017 by Notification No. 53/2018-Central Tax, dated 9-10-2018.It provided that persons claiming a refund of IGST on the export of goods or services, should not have received supplies on which the benefit of certain notifications was availed. However, the concept of zero-rated supply in the provisions of Section 16 of the IGST Act, 2017, indicate that there is to be no export of taxes and on the goods being exported the exporter is entitled to a refund of the IGST paid on the export of goods.

The High Court noted that Section 16 of the Integrated Goods and Services Tax Act, 2017 does not impose any restriction on the right of the exporter to claim a refund of IGST paid on the export of goods or tax paid on input services or input goods used in the export of goods or services. The Court also noted that the provisions of Rule 96(10) of CGST Rules have undergone a series of amendments and the Rule as it presently stands imposes certain restrictions in the matter of refund of IGST.

Thus, the Court held that Rule 96(10) is ultra vires section 16 of the IGST Act and unenforceable on account of being manifestly arbitrary as it produces absurd results not intended by the legislature. The High Court also directed that any action that was initiated or had culminated in an order against the petitioner on the basis of provisions contained in rule 96(10) would stand quashed.

11. Single SCN Covering Multiple FYs Under GST is Bad in Law; Each FY to Be Treated Independently: HC

Chimney Hills Education Society v. Additional Commissioner of Central Tax [2024] 168 taxmann.com 12 (Karnataka)

The petitioner was an educational institution which received a show cause notice (SCN) from the department for tax period July 2017 to 2023. It filed writ petition to challenge the SCN on the ground that the department issued consolidated notice covering multiple assessment years in single SCN.

The Honourable High Court noted that the practice of issuing single consolidated SCN for multiple assessment years contravenes provisions of CGST Act and each assessment year must be treated independently. Therefore, the Court held that the impugned notice was liable to be quashed with liberty to department to issue separate notice for each assessment year.

12. DGGI Has No Power to Transfer Case Pending Before State GST Authority to Itself: HC

Stalwart Alloys India Private Limited v. Union of India [2024] 167 taxmann.com 93 (Punjab & Haryana)

The petitioner was a manufacturer of Lead alloys, Lead pure in shape of ingots, lead sub-oxide and red lead in power form and an enquiry was initiated by the State Tax Department with regard to wrongful availment of Input Tax Credit (ITC) against the petitioner. The DGGI, Headquarters had accorded permission to office of DGGI, Meerut Zonal Unit to conduct centralized investigation against petitioner for period after 2019 and State Tax Officer transferred proceedings. The petitioner filed writ petition against the transfer of proceedings to DGGI and contended that the action was in violation of provisions of Section 6(2)(b) of the Central Goods and Services Tax Act, 2017.

The Honorable High Court noted that the State and Central Government have same powers under CGST and if one of officers has already initiated proceedings, the same could not be transferred to another. In the instant case, the State authorities initiated proceedings for the period from 01.07.2017 to 22.07.2019 alone. However, the DGGI passed order to conduct investigation for period from July 2019 to March 2022.

But the word ‘subject matter’ used in Section 6 means ‘nature of proceedings’ and in present case, it meant proceedings initiated for wrongful availment of ITC by fraudulent means. Thus, if state had already initiated proceedings by issuing notice under Section 74 for same subject matter, DGGI could not be allowed to initiate from 28.07.2019 to 20.01.2022. Therefore, the Court held that the action of transferring proceedings to DGGI was not sustainable in law and liable to be set aside.

13. No Interest is Payable on Refund of Amount Deposited During Search by Way of Adjustment of Credit Amount in ECL: HC

Sushil Kumar v. Delhi State GST Govt. NCT of Delhi [2024] 163 taxmann.com 419 (Delhi)

The petitioner was engaged in business of manufacturing and trading of ferrous and non-ferrous metals. It was subjected to search and during search operation, the amount towards alleged stock variation and alleged wrongful input tax credit was recovered without statutory demand. The petitioner filed writ petition and contended that deposit was involuntary and amount to be refunded with interest.

The Honorable High Court noted that the deposit was made at 3 AM during ongoing search operation and it could not be termed as voluntary. The Court also noted that as per Board instruction, no recovery can be made during search and requires deposit post search.

The Court further noted that no interest would be liable to be paid on the amount deposited by way of an adjustment of the credit amount standing in the Electronic Credit Ledger, unless an appropriate application had already been made, prior to the alleged non-voluntary deposit, claiming refund or as an adjustment towards tax due. Therefore, the Court held that deposit was involuntary and directed to refund amount towards alleged stock variation with interest and towards alleged wrongful input tax credit without interest.

14. ITC Refund Cannot Be Denied If Export Service Payment is Received in Another Branch’s Bank Account: HC

Cable And Wireless Global India Private Limited v. Assistant Commissioner, CGST [2024] 167 taxmann.com 288 (Delhi)

The petitioner is engaged in providing Business Support Services to Vodafone Group Services Limited (VGSL). It filed an application for a refund of the unutilized ITC. The department rejected the refund application on the ground that payment for services was routed to the Bangalore branch’s bank account instead of the Delhi branch. It led the department to conclude that the ‘supplier’ of services (Delhi branch) had not received the payments, thus invalidating refund under Section 2(6) of IGST Act, 2017, which defines ‘export of services’.

It filed writ petition against the rejection order and contended that the denial of refund was unjustified as the department had no power to deny refund on the ground that payment was made in different bank account.

The Honorable High Court noted that the Section 2(6)(iv) of IGST Act does not specify particular bank account where payment must be received but rather that it should be received by the supplier. Merely because payment of service provided by petitioner was received in a bank account at Bangalore, the same would neither warrant location of supplier identified in accordance with Section 2(15) being altered nor impact determination of actual supplier of service. The Court further noted that the department’s objections based on bank account remittance were overly technical and unsustainable. Therefore, the Court held that the impugned order rejecting refund was to be quashed.

15. Refund Rejection Order Passed Merely Due to Absence of Bank Realization Certificates to Be Set Aside: HC

Rajiv Sharma HUF v. Union of India [2024] 165 taxmann.com 215 (Delhi)

The petitioner was engaged in business of trading and export of automotive spare parts, automobile components and other allied products. It filed application for refund of accumulated ITC but the same was rejected on ground of non-submission of BRCs and incomplete bank statements and ledger accounts of suppliers. It filed appeal against the rejection order but the appeal was also rejected. Therefore, it filed writ petition against the rejection of refund.

The Honorable High Court noted that the first reason for rejection of refund was that the petitioner had not provided Bank Realization Certificates (BRCs) for relevant period. As per Circular No. 125/44/2019-GST dated 18.11.2019, furnishing BRCs is not a necessary condition for claiming refund in case of export of goods. Therefore, the claim for refund of ITC could not be rejected by proper officer on ground of non-furnishing of BRCs.

The Court also noted that the second reason of rejection of refund was that ledger accounts provided by petitioner were incomplete and hence, payments against inward supplies could not be verified with bank statements. The Court held that this issue was required to be examined and therefore matter was remanded back to adjudicating authority for fresh decision.

16. Assessee’s Tax Liability for a Prior Period Could Not Be a Ground for Refusing Cancellation of GST Registration: HC

Sanjay Sales India v. Principal Commissioner of Department of Trade and Taxes [2024] 165 taxmann.com 350 (Delhi)

The petitioner was registered with the GST authorities and it discontinued his business. It filed application for cancellation of registration with effect from 13.06.2024. However, the Proper Officer issued a notice proposing to reject petitioner’s application stating that it was required to pay due tax and penalties. It filed writ petition against the rejection of application.

The Honorable High Court noted that the cancellation of GST registration would not impinge upon the liability of the petitioner to pay the outstanding tax and penalties, if any. The scrutiny as to petitioner’s tax liability for a prior period could not be a ground for refusing cancellation of GST registration. Therefore, it was held that the impugned notice was liable to be quashed and the department was directed to process application for cancellation of GST registration.

17. ITC Can’t Be Denied Merely Due to Supplier’s Retrospective GST Cancellation Without Providing Opportunity to Prove Receipt of Goods: HC

APN Sales and Marketing v. Union of India [2024] 164 taxmann.com 789 (Delhi)

The petitioner received a notice from the department proposing demand of Rs. 17,43,356 along with interest and penalty. It was alleged that the petitioner had availed excess Input Tax Credit. It submitted response to the notice along with invoices of supplier in question.

The Adjudicating Authority passed an order and raised demand of Rs.18,30,522. It filed writ petition against the demand and contended that the order was passed merely on the ground that supplier’s registration was cancelled retrospectively.

The Honorable High Court noted that the petitioner submitted invoices along with response which were issued by the supplier in question. The Authority was required to examine the documents submitted by the petitioner and opportunity of being heard was also required to be given before passing the order. However, the impugned order was passed without giving any reasoned finding and the same was liable to be set aside. The Court also directed the Authority to decide the matter afresh after giving opportunity of being heard to the petitioner.

18. Appeal Against Penalty Can’t Be Rejected Merely Because Tax Wasn’t Challenged: HC

Aatral Associates v. State Tax Officer [2024] 166 taxmann.com 141 (Madras)

In the present case, the department issued show cause notice (SCN) to the petitioner and thereafter, the impugned assessment order was passed by imposing tax and penalty. The petitioner paid the tax but challenged the imposition of penalty by filing appeal. However, the Appellate Authority rejected appeal on ground that penalty alone could not be challenged. Therefore, the petitioner filed writ petition against it.

The Honorable High Court noted that in the instant case, the petitioner had already paid the entire tax amount and filed an appeal only against the penalty imposed. It was not proper for the Appellate Authority to reject the said appeal merely because tax wasn’t challenged. Therefore, the Court directed the Appellate Authority to take the appeal on record and pass appropriate orders on merits and in accordance with law.

19. Notification No. 56/2023 Which Extended Time to Pass Order u/s 73 Wasn’t in Consonance With Provisions of Section 168A: HC

Jawahar Singh v. Union of India [2024] 166 taxmann.com 547 (Gauhati)

In the present case, the petitioner has challenged the action on part of the Central Board of Indirect Taxes and Customs in issuance of Notification No. 56/2023-CT dated 28.12.2023. The petitioner contended that the said notification which extended time limit for passing of order under section 73(9) for Financial Year 2018-19 and 2019-20 was issued without recommendation of GST Council which was mandatory requirement under Section 168A.

The Honorable High Court noted that Notification No. 56/2023 was not in consonance with provisions of Section 168A since the GST Council has not made any recommendation to extend the time limit for passing of order. Therefore, the Court held that if said notification could not stand scrutiny of law, all consequential actions taken on basis of such notification would also fail. Thus, the Court granted interim protection and directed that no coercive action shall be taken on the basis of impugned assessment order.

20. Uploading of SCN Under Heading ‘Additional Notices’ Was Not Sufficient Service in Terms of Section 169 of CGST Act: HC

Neeraj Kumar v. Proper Officer SGST Ward-19 Zone-2 [2024] 164 taxmann.com 685 (Delhi)

The petitioner was the sole proprietor of a concern and it filed writ petition to challenge the order passed under Section 73 of the CGST Act, 2017. It was contended that the show cause notice (SCN) was uploaded on the portal in the category of ‘Additional Notices and Orders’ which were not easily accessible.

The Honorable High Court noted that the uploading of a notice under heading ‘Additional Notices’ would not be sufficient service in terms of Section 169 of the CGST Act. However, the Court noted that the GST Authorities have since addressed issue and have redesigned portal to ensure that ‘View Notices’ tab and ‘View Additional Notices’ tab was placed under one heading.

Since, the impugned SCN was issued before GST portal was re-designed, the Court held that the impugned order was liable to be set aside. The Court also remanded the matter to adjudicating authority for consideration afresh.

21. Matter Be Remanded Since GST Demand on Discount for Facilitating Increase in Volume of Supplier Was Erroneous: HC

Tvl. Shivam Steels v. Assistant Commissioner (ST)(FAC) [2024] 164 taxmann.com 156 (Madras)

The petitioner received a show cause notice calling upon it to show cause with regard to reversal of ITC in respect of credit notes issued by supplier. It submitted that the value of supply would not include a discount only if conditions prescribed in Section 15(3) were satisfied. However, the department rejected the reply and passed order to reverse ITC. The petitioner filed writ petition against the order and contended that in impugned order, discount offered by supplier was erroneously construed as service provided by purchaser to supplier.

The Honorable High Court noted that the assessing officer while passing order concluded that taxable person was providing a service to supplier while taking benefit of discount by facilitating an increase in volume of such supplier. The Court held that the conclusion was ex facie erroneous and contrary to fundamental tenets of GST law. Therefore, it was held that the impugned order was to be set aside only in so far relating to reversal of ITC for volume of credit notes issued by supplier and matter was to be remanded for reconsideration by original authority.

22. HC Remanded Matter Since Petitioner Didn’t Monitor GST Portal After Cancellation of GST Registration

Venew Decors v. Deputy State Tax Officer [2024] 162 taxmann.com 590 (Madras)

The petitioner was a registered taxable person and GST registration was cancelled by the department. It filed writ petition against the order and contended that it didn’t monitor GST portal in view of cancellation of GST registration.

The Honorable High Court noted that the petitioner had stated categorically in the affidavit that the GST registration was cancelled on 25.09.2019. In those circumstances, it was reasonable that petitioner would not monitor GST portal continually. However, the notice and order were also communicated by e-mail and by text message on the mobile but it would be just and appropriate that petitioner should be provided with an opportunity to contest tax demand on merits.

Thus, the Court remanded matter and also directed the petitioner to remit 10% of disputed tax demand and department was directed to provide reasonable opportunity to petitioner.

23. Payment of Tax Made Before Completion of Search Could Not Be Retained by Revenue Without Proper Acknowledgment: HC

ATR Malleable Casting (P.) Ltd. v. Inspector of Central Taxes [2024] 164 taxmann.com 78 (Calcutta)

The assessee made a payment of tax during course of search but there was no intimation given to assessee regarding non-payment or short payment of taxes. The assessee submitted that it was compelled to pay a sum of Rs. 30,00,000/- under threat of arrest, coercion and undue influence during the course of search. It filed writ petition for refund of amount paid during search but the petition was dismissed on ground that there was proper authorization in INS-01. It filed appeal against the order of dismissal of petition.

The Honorable High Court noted that, as per instructions issued by the Commissioner (GST-Inv.), CBIC, there may not be any circumstances necessitating recovery of tax dues during course of search or inspection or investigation proceedings. So far as voluntary payment by taxpayer is concerned, it should be against an ascertainment of their liability on non-payment/short payment.

In the instant case, such ascertainment had not taken place, and there was no intimation given to the assessee regarding non-payment or short payment of taxes. Therefore, it was held that the payment of Rs. 30,00,000/- during course of search could not have been stated to be voluntarily made and the same was required to be refunded as the amount could not be retained by revenue without proper acknowledgment.

24. Audit Notice is Valid Even If Issued After GST Cancellation; HC Denied Relief to Petitioner Who Fraudulently Availed ITC: HC

Ashoka Fabricast (P.) Ltd. v. Union of India [2024] 162 taxmann.com 719 (Rajasthan)

The petitioner was served with a notice for conducting audit after cancellation of registration. It filed a writ petition to challenge the audit notice issued after the cancellation of GST registration & subsequent assessment order and submitted that Section 65 of CGST Act, 2017, applies only to registered persons. It was also contended that since the foundation of the proceedings was contrary to the mandate of the CGST Act, any assessment order passed in pursuance thereof, deserves to be quashed.

The Honorable High Court noted that Section 29(3) of CGST Act, 2017 provides that the cancellation of registration shall not affect the liability of the person to pay tax and other dues under this Act. Also, Section 65 of CGST Act, 2017 authorizes the Authority to undertake audit of any registered person for such period.

Therefore, the Court observed that the audit notice and subsequent assessment order for period when petitioner was GST registered were valid even if issued after cancellation of registration. Thus, the Court held that the petitioner was not entitled to relief after fraudulently availing ITC and cancelling registration.

25. HC Set Aside Penalty Order Issued Merely on Ground That Vehicle Was Not on Its Normal Route

Vishal Steel Supplier v. State of U.P. [2024] 164 taxmann.com 609 (Allahabad)

The petitioner was engaged in the business of trading of steel goods. The goods were being transported from Muzaffarnagar to Ghaziabad and intercepted at Hapur by the department. The goods were detained on the pretext that it was not on its normal route and the driver of the truck was having mobile number of a dealer of Hapur. Therefore, an inference was drawn by authorities that goods would be unloaded at Hapur without proper document. The petitioner filed writ petition and contended that goods were detained only on the basis of surmises and conjunctures.

The Honorable High Court noted that no discrepancy had been pointed out at time of detention or seizure of goods with regard to quality or quantity of goods. Moreover, the Court observed that the authorities had also not recorded any finding with regard to mens rea to avoid payment of tax. It was also not case of the department that under GST Act, dealer was required to disclose specific route of its journey for movement of goods. Therefore, the Court held that the impugned order was to be set aside and any amount deposited by the petitioner in the present proceeding shall be refunded.

The post [Analysis] Key Indirect Tax Rulings of 2024 | A Review of Top 25 Case Laws appeared first on Taxmann Blog.

The year 2024 marked a transformative chapter in India's taxation landscape, with several pivotal rulings under Direct Tax Laws redefining legal interpretations and procedural frameworks. These landmark judgments, delivered by various courts and tribunals, tackled complex issues ranging from reassessment notices under the new tax regime to exemptions, procedural compliance, and the taxation of unique transactions.
This article highlights the top 20 rulings of the year, offering concise summaries of each case and their broader implications. Whether you're a tax practitioner, a legal expert, or a taxpayer, this comprehensive overview is your gateway to understanding the key judicial developments that shaped India's direct taxation in 2024.

Table of Contents

1. Reassessment Notices Issued Under New Provisions Within Time Limit Extended by TOLA are Valid: SC
2. Delhi HC Upholds Reassessment Initiated by Jurisdictional AO; Distinguishes With Hexaware Ruling
3. CBDT Directed to Extend Due Date for e-Filing of ITR Due to Issues With New Utility Affecting Section 87A Rebate: HC
4. Delhi HC Quashes CIC’s Order Directing I-T Dept. to Provide Info Related to PM CARES Fund
5. SC Waives Interest on Tax Dues on Telcos Resulting From Its Decision Classifying Licence Fee as Capital Exp.
6. Compensation Received From ‘Flipkart’ for Loss in Value of ESOP Due to Disinvestment Not Taxable as Perquisite: ITAT
7. HC Justified Invoking GAAR as Issuance of Bonus Shares Was an Artificial Arrangement to Avoid Tax Obligations
8. Property Not Eligible for Section 54F Relief If It Was Predominantly Being Used for Religious Purposes: ITAT
9. Madras HC Upheld the Constitutional Validity of Section 194N; Said It is a Worthy Move to Reduce Cash Transactions
10. Loose Sheets Found in House of 3rd Party Can’t Be Considered as Evidence Without Producing Corroborative Evidence: HC
11. No Section 194H TDS on Income of Franchisee/Distributor From Sale of Prepaid Coupons/Starter-Kits: SC
12. Exemption Under Section 10(26) Not Available to Firm Even If All Partners are Members of Scheduled Tribe: ITAT
13. Sum Received From Employer on Account of Out-of-Court Settlement isn’t Taxable as Profit in Lieu of Salary: ITAT
14. Receiving Gifts Through Banking Channels Does Not Establish Genuineness of Transaction: HC
15. Supreme Court Upholds ICAI’s Limit of 60 Tax Audits Per CA; Makes It Effective From 01.04.2024
16. Section 50C Not Applicable on Transfer of Leasehold Rights in Land and Building: ITAT
17. Set-off of STCL on Which STT Was Paid Against STCG Not Subject to STT is Valid: ITAT
18. Section 54G Relief Available Even If New Undertaking Was Set Up in Name of Firm in Which Assessee Was Partner: ITAT
19. Properties Acquired in Name of Wife & Sons Using Unaccounted Amount to Be Treated as Benami
20. Trust Not Liable to Pay Surcharge Just Because Its Income is Taxable at Maximum Marginal Rate: ITAT

The year 2024 brought several landmark rulings under Direct Tax Laws, significantly reshaping India’s tax landscape. These judgments resolved intricate legal ambiguities and established precedents that will influence the future interpretation and enforcement of tax laws.

From upholding reassessment notices issued during the transition to a new tax regime to defining the boundaries of exemptions, capital gains taxation, and procedural compliance, these decisions carry profound implications for taxpayers, legal professionals, and tax authorities alike.

This article highlights the top 20 rulings of various courts and tribunals, concisely summarising each. As we enter 2025, these judgments will serve as cornerstones for practice and litigation, fostering greater clarity and equity in direct taxation.

1. Reassessment Notices Issued Under New Provisions Within Time Limit Extended by TOLA are Valid: SC

In the case of Ashish Agarwal [2022] 138 taxmann.com 64 (SC), the Supreme Court addressed whether reassessment notices issued under the old regime were valid after the new, more favourable reassessment regime came into effect. The Court ruled that all reassessment notices post 01-04-2021 should comply with the new reassessment regime. However, notices under Section 148 of the old regime were deemed to be under Section 148A(b) of the new regime.

In the Ashish Agarwal ruling, the Supreme Court did not address whether or not the reassessment notices were issued within the time limits prescribed under the provisions of the Income Tax Act, read with the relaxations provided under TOLA.

This was the primary issue for consideration before the Supreme Court in the instant appeal. The Supreme Court held that as under:

• TOLA extended the deadlines for certain actions under specified Acts that were due during the COVID-19 period. Section 3(1) of TOLA uses “any” to indicate that the relaxation applies to all actions due between 20-03-2020 and 31-03-2021. This section is concerned with the completion of actions under the specified Acts, and any amendment or substitution of provisions does not impact TOLA’s application as long as the action falls within the specified period.
• Section 2(1)(b)(ii) of TOLA defines a ‘specified Act’ as including the Income Tax Act, and after 01 April 2021, it must be read as the Act amended by the Finance Act 2021. The substitution of Sections 147 to 151 does not impact TOLA’s purpose, which is to relax time limits for actions due between 20-03-2020 and 31-03-2021. TOLA remains applicable to the Income Tax Act after 01 April, 2021 if actions under the substituted provisions fall within this period.
• Section 3(1) of TOLA applies to the issuance of reassessment notices under Section 148 of the Income Tax Act. While TOLA did not amend the four- and six-year time limits under the Act, it provided a relaxation for issuing reassessment notices during the COVID-19 period.
• TOLA does not apply if the time limit under Section 149 expires before 20-03-2020. When issuing a reassessment notice, the Revenue must check both the Section 149 time limit and TOLA’s relaxation period. For example, the six-year limit for AY 2013-14 expired on 31-03-2020, but TOLA extended it to 30-06-2021.
• Accordingly, after 01 April, 2021, the Income Tax Act has to be read along with the substituted provisions. TOLA will continue to apply to the Income Tax Act after 01 April, 2021, if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20-03-2020 and 31-03-2021.
• TOLA will extend the time limit for the sanction grant by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20-03-2020 and 31-03-2021, then the specified authority under Section 151(i) has extended time till 30-06-2021 to grant approval.
• In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20-03-2020 and 31-03-2021, then the specified authority under Section 151(2) has extended time till 31-03-2021 to grant approval;
• Thus, Assessing Officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time-barred and liable to be set aside.

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2. Delhi HC Upholds Reassessment Initiated by Jurisdictional AO; Distinguishes With Hexaware Ruling

The instant writ petition was filed questioning the validity of the reassessment action initiated under Section 148 by the Jurisdictional Assessing Officer (JAO). The question before the High Court was:

“Whether a notice issued by the JAO would be valid and compliant with the Faceless Scheme of Assessment, which had come to be adopted by virtue of Sections 144B and 151A?”

The Delhi High Court that the provisions of the Faceless Reassessment Scheme 2022, supported by the extensive material presented by the respondents, bolsters the clear intent underlying each phase of the faceless assessment process. The scheme clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment facelessly. It divides the reassessment process into two stages. When viewed in that light, it is manifest that it strikes a just balance between the obligation of the JAO to scrutinise information and the conduct of assessment itself through a faceless allocation.

The functions of the JAO and NFAC are complementary and concurrent, as contemplated under the various schemes and statutory provisions. This balanced distribution underscores the legislative intent to create a seamless integration of traditional and faceless assessment mechanisms within a unified statutory framework.

Section 144B, which provides for the faceless assessment, cannot be viewed as the solitary basis for the initiation of reassessment. The statute conceives various scenarios where the case of an individual assessee may be selected for examination and scrutiny based on information and material that falls into the hands of the Jurisdictional Assessing Officer (JAO) directly or is otherwise made available with or without the aid of the Risk Management System (RMS).

The faceless system of assessment does not nullify the JAO’s role in conducting assessments. The Court held that the JAO retains powers that do not conflict with, but rather complement, the objectives of neutrality and efficiency. The faceless assessment scheme centralises processes under the Faceless Assessing Officer (FAO) to reduce direct interaction.

However, this structure does not diminish the JAO’s authority. Instead, the JAO’s retained jurisdiction is vital for ensuring continuity and accountability, acting as a complementary element to the faceless assessment framework. The JAO’s retention of original jurisdiction provides a critical balance, ensuring that human oversight remains available within the faceless assessment structure when needed. Importantly, the Court highlighted that the JAO’s authority is not merely residual but an active, complementary role that reinforces the flexibility of the assessment system.

In Hexaware Technologies [2024] 162 taxmann.com 225 (Bombay), the Bombay High Court ruled that the JAO lost jurisdiction to issue reassessment notices after the introduction of the Faceless E-Assessment Scheme 2022. The Court concluded that there could be no concurrent jurisdiction between the JAO and the FAO.

However, the judgment did not refer to the notification dated 13 August, 2020, which gave NFAC officers concurrent powers with the AO. The Delhi High Court disagreed with Hexaware Technologies, considering multiple information sources that could aid a JAO in determining if income escaped assessment.

Accordingly, it was held that JAO could not be entirely stripped of the authority to assess or reassess solely due to the introduction of Section 144B and the Faceless Reassessment Scheme.

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3. CBDT Directed to Extend Due Date for e-Filing of ITR Due to Issues With New Utility Affecting Section 87A Rebate: HC

The Department of Income Tax annually releases utilities for filing income tax returns online. The department published a change in utility with effect from 5-7-2024; said modification unilaterally disabled assessees from claiming rebates under section 87A. As a result, taxpayers, despite being statutorily eligible, were effectively deprived of their entitlements solely due to technical modifications introduced by the department.

The Chamber of Tax Consultants (petitioner) had filed the writ petition before the Bombay High Court seeking a direction to modify the system developed and put in place by the Tax Department for filing income-tax returns for the assessment year 2024-2025 so as to allow the assessees at large to take complete benefit of the rebate available under section 87A.

The issue in the present writ petition was whether the utility in the form of software could take away the statutory right to claim a rebate as per the proviso to section 87A and whether it is necessary for an assessee to make a claim for seeking a rebate under section 87A.

The issue involved in the present petition required a detailed examination by giving an opportunity for a hearing to both sides to make detailed submissions. However, at this stage, the matter was being considered for the purpose of granting interim relief and whether the petitioner made a case for granting interim relief.

Therefore, for considering a prima facie case, it is necessary to note that under the Income-tax Act, 1961, there is a concept of self-assessment wherein an assessee is required to compute his own income, determine his tax liability, and pay such tax, and then file a return declaring his income. However, due to the change in the utility with effect from 5-7-2024, the assessees at large were not able to compute rebates under section 87A under the new regime with respect to income taxable at special rates. As a result, the assessees may have to pay additional tax to the extent that the rebate is not allowed to be claimed by the assessee. The petitioner is entitled to file a revised return computing rebate under section 87A, which would enable such an assessee to compute a refund in the revised return. Undisputedly, the last day to file a belated return in terms of section 139(4) is 31-12-2024, which allows even those assessees who have not filed their return within normal due dates.

The rebate under section 87A is inherently linked to the total income and taxpayer’s tax liability. The responsibility lies with the tax authorities to ensure proper implementation of the rebate as long as the taxpayer fulfils the statutory criteria. Procedural changes, such as those in utility software or instructions issued by the tax department, cannot override the substantive right to the rebate. Any action or inaction on the part of the tax authorities that limit the ability of taxpayers to avail of this statutory benefit is arbitrary and violative of the rule of law. Taxpayers should not bear the consequences of administrative inefficiencies or unilateral executive actions that undermine the legislative intent behind section 87A.

It is well-settled that statutory benefits must be extended in a manner that aligns with the objectives of the legislature. In this regard, procedural changes that deprive taxpayers of such benefits warrant judicial intervention to rectify the anomaly and ensure justice. Tax authorities must act as facilitators to help taxpayers comply with the law rather than creating impediments through technical or procedural hurdles. Ensuring fairness, equity, and transparency in tax administration is crucial for upholding public confidence in the system.

Based on the above discussion by way of interim relief, the Central Board of Direct Taxes was directed to forthwith issue requisite notification under section 119 extending the due date for e-filing of the income-tax returns in relation to the assessees who are required to file a return of income by 31-12-2024, at least to 15-1-2025. This extension was to ensure that all taxpayers eligible for the rebate under section 87A are afforded the opportunity to exercise their statutory rights without facing procedural impediments.

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4. Delhi HC Quashes CIC’s Order Directing I-T Dept. to Provide Info Related to PM CARES Fund

An application under the RTI Act was filed seeking the procedure followed in granting exemption under section 80G of the Income-tax Act (IT Act) to the PM CARES Fund by the Income Tax Department (I-T Dept.). It was contended that he wanted to know the exact procedure followed by the Income Tax Department in granting such a swift approval and to see whether any rules or procedures were bypassed in granting such approval.

The Central Information Commission (CIC) ordered the I-T dept. to grant information as demanded by the applicant. Aggrieved by such an order, the I-T Dept filed a writ petition before the Delhi High Court.

The High Court held that section 138(1) of the IT Act provides that when a person makes an application in the prescribed form for any information relating to an assessee, the respective authority may if he is satisfied that it is in the public interest to do so, furnish or cause to be furnished the information asked for.

Further, sub-section (2) to section 138 contains a non-obstante clause which states that notwithstanding anything contained in sub-section (1) or any other law for the time being in force, direct that no information or document shall be furnished or produced by a public servant in respect of such matters relating to such class of assessees or except to such authorities as may be specified in the order.

The RTI Act also has a non-obstante clause in the form of Section 22, which says that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 and any other law.

A reading of both Acts shows that there is an inconsistency between the provisions of the RTI Act and the IT Act. Therefore, the question which arises for consideration is which Act will prevail.

The Income Tax Act focuses on specific provisions and laws concerning income tax. At the same time, the RTI Act is a general law that addresses providing information to citizens, facilitating their Right to Information.

Ordinarily, if there are two non-obstante clauses, the latter prevails over the former. At the same time, the applicability and overriding effect of an Act over other statutes cannot be decided merely by when the concerned Act comes into force. It is for the Courts to discern and interpret which Act will prevail over the other.

Thus, the Delhi High Court held that the IT Act, which is a special Act governing all the provisions and laws relating to income tax and super-tax in the country, will prevail over the RTI Act, which is in the nature of a General Act.

Further, the petitioner sought information from the Income Tax Department, not from the PM CARES Fund. As the requested information pertains to a third party, the PM CARES Fund should have been given an opportunity to be heard according to Section 11 of the RTI Act. The CIC should have followed the prescribed procedure under Section 11 before ordering the release of information.

Accordingly, the CIC lacks the authority to instruct the release of information under Section 138 of the IT Act. Even if it had such jurisdiction, the failure to notify PM CARES of the hearing would invalidate the decision.

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5. SC Waives Interest on Tax Dues on Telcos Resulting From Its Decision Classifying Licence Fee as Capital Exp.

The Supreme Court, in the case of CIT v. Bharti Hexacom Ltd. [2023] 155 taxmann.com 322 (SC), overruled the Delhi High Court’s ruling and held that payment of license fee to DoT under Telecom Policy, 1999 was capital in nature.

It was argued that this judgment necessitates new orders on interest payments for tax demands post-1999 Telecom Policy. This places a heavy burden on assessees from the 2000-2001 assessment year onwards, prompting them to seek a waiver of interest for this period.

Revenue objected to this submission by contending that now that the tax demand would have to be met by the Assessees, it is logical that the interest on the said demand would also have to be paid.

The Supreme Court observed that since the judgment of this Court was dated 16.10.2023, and having regard to the Telecom Policy, which commenced from the year 1999, the payment of interest for the period for which the tax demand is now to be met in respect of these cases stands waived.

The Supreme Court held that this order shall not be a precedent in any other case as this order has been passed, bearing in mind the peculiar facts of this case and having regard to the lapse of time in litigation before the Delhi High Court and Supreme Court.

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6. Compensation Received From ‘Flipkart’ for Loss in Value of ESOP Due to Disinvestment Not Taxable as Perquisite: ITAT

The petitioner, Sanjay Baweja, was an ex-employee of Flipkart Internet Private Limited (FIPL), a wholly-owned subsidiary of Flipkart Marketplace Private Limited (FMPL). FMPL was a wholly-owned subsidiary of Flipkart Pvt. Ltd., Singapore (FPS). In 2012, FPS rolled out an Employee Stock Option Plan (ESOP) called the Flipkart Stock Option Plan (FSOP).

The petitioner was granted 1,27,552 stock options from 01.11.2014 to 31.11.2016 with a vesting schedule of 4 years. On 23.12.2022, FPS announced the disinvestment of its wholly-owned subsidiary called PhonePe. Thereafter, the value of FPS’s stock options fell, and FPS decided to grant the option holders a payment of USD 43.67 per option as compensation for the loss in the value of the options. It was also stated that the FPS would be withholding tax on the compensation, considering it to be a perquisite under Section 17(2)(vi). The petitioner filed an application under Section 197 seeking a ‘Nil’ deduction certificate.

The Assessing Officer (AO) rejected the application, and the matter reached the Delhi High Court.

The High Court held that the amount in question could not be considered as a perquisite under Section 17(2)(vi) as the stock options were not exercised by the petitioner, and the amount in question was a one-time voluntary payment made by FPS to all option holders in lieu of the disinvestment of PhonePe business.

The most crucial ingredient of the inclusive definition of perquisite is the determinable value of any specified security received by the employee by way of transfer/allotment, directly or indirectly, by the employer. As per Explanation (c) to Section 17(2)(vi), the value of specified security could only be calculated once the option is exercised. A literal understanding of the provision would provide that the value of specified securities or sweat equity shares is dependent upon the exercise of option by the petitioner. Therefore, for an income to be included in the inclusive definition of “perquisite”, it is essential that it is generated from the exercise of options, by the employee.

In this case, the petitioner had merely held the stock options without exercising them, so they do not constitute taxable income for the petitioner since none of the contingencies specified in Section 17(2)(vi) have occurred.

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7. HC Justified Invoking GAAR as Issuance of Bonus Shares Was an Artificial Arrangement to Avoid Tax Obligations

In the given case, the assessee sold the shares of a company to a private limited company. Before the sale, the company issued bonus shares to its shareholders. Due to the issuance of bonus shares, the face value of each share of the company was reduced. The sale of shares resulted in a short-term capital loss to the assessee.

The assessee set off the short-term capital loss against the long-term gains made on another transaction of the sale of shares. The Assessing Officer (AO) treated said transaction as an impermissible avoidance arrangement as per the General Anti-Avoidance Rules (GAAR) under Chapter X-A starting from Section 95-102 of the Income Tax Act.

Assessee filed writ petition before the Telangana High Court.

Assessee contended that the transactions resulting in bonus stripping were subject to the specific provisions of Section 94(8), which is a Specific Anti Avoidance Rule (SAAR). Any loss incurred on account of the purchase and sale of shares, resulting in bonus stripping, must be computed as per Section 94(8). However, the AO sought to treat the transactions as impermissible avoidance arrangements as per the GAAR.

Assessee also relied upon 2012 Shome Committee Report. It was submitted that the Committee recommended that where SAAR is applicable to a particular transaction, then GAAR should not be invoked to look into that element.

The High Court held that the assessee’s argument was rooted in the belief that the Specific Anti Avoidance Rules (SAAR), particularly Section 94(8), should take precedence over the General Anti Avoidance Rule (GAAR). This contention, however, was fundamentally flawed and lacked consistency.

Given the multiple transactions that the taxpayer had undertaken, the case should fall under the umbrella of Chapter X-A and not Chapter X. Section 94(8) might be relevant in a simple, isolated case of the issuance of bonus shares, provided such issuance has an underlying commercial substance. However, this provision did not apply to the current case, as the issuance of bonus shares here was evidently an artificial avoidance arrangement that lacked any logical or practical justification.

It was clear that the assessee’s arrangement was primarily designed to sidestep tax obligations in direct contravention of the principles of the Act. The landmark Vodafone judgment provides crucial insight into this issue. The judgment implies that the business intent behind a transaction could be strong evidence that the transaction isn’t a deceptive or artificial arrangement. The commercial motive behind a transaction often reveals the true nature of the transaction.

The GAAR chapter, which comprises sections 95 to 102, provides a detailed account of various types of transactions that could be considered illegal tax avoidance arrangements. This Chapter lists these transactions and provides an extensive definition of conditions that render a transaction or arrangement devoid of commercial substance.

Furthermore, Section 100 of this Chapter clarifies that this Chapter is applicable in addition to or as a substitute for any other existing method of determining tax liability. This provision emphasises the legislative intention that the GAAR provisions should act as an all-encompassing safety net. It’s designed to capture all illicit arrangements, ensuring that tax on these arrangements is calculated using the provisions of this Chapter.

Further, the Committee’s stance that SAAR should generally supersede GAAR mainly pertains to international agreements, not domestic cases. This stand, as per the report, is further substantiated by the Finance Minister’s declaration, made on 14 January, 2013. During this announcement, the Minister stated that the applicability of either GAAR or SAAR would be determined on a case-by-case basis.

Therefore, the assessee’s contention that the case should have otherwise fallen under Section 94(8) was not acceptable. It was clear and convincing that the entire arrangement was intricately designed to evade tax. Assessee, on his part, hadn’t been able to provide substantial and persuasive proof to counter this claim. Accordingly, the writ petition was dismissed, and AO was allowed to proceed.

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8. Property Not Eligible for Section 54F Relief If It Was Predominantly Being Used for Religious Purposes: ITAT

The assessee filed his return of income offering long-term capital gains for the relevant assessment year and claiming exemption under section 54F for a building constructed in a specific area of Hyderabad. Subsequently, the case was selected for scrutiny, and the notice was issued to the assessee.

Assessing Officer (AO) contended that the assessee claimed deduction in respect of the property in the nature of a Mosque. The nature of the usage of the property was mentioned in the application filed by the assessee before the GHMC as “Madrasa activities and Mosque” only. The assessee was required to construct the residential house as per section 54F.

Dissenting with the assessee’s claim, AO disallowed the deduction claimed under section 54F, and the matter reached the Hyderabad Tribunal.

The Tribunal held that the Income-tax Act does not define the term residential house. Judicial precedents and various dictionaries define the residential house as a house constructed for residence having a provision for a kitchen and toilet, etc. The assessee mentioned that the property consisted of Mosque, Orphanage School, and Staff Quarters in the application before GHMC.

Further, during the proceedings, the assessee did not provide evidence of raising any construction in the premises. Various inspections carried out by the Department officials led to a conclusion that the property was predominantly being used for religious purposes, namely Mosque, Orphanage School, and Staff quarters.

In addition, the report suggested that the 3rd floor was residential, but it was contrary to the statement of the assessee filed before the GHMC seeking regularisation of the property. The statement clearly showed that the assessee had not used the property for residential purposes within the time granted by the statute. Therefore, the assessee was not entitled to any relief under section 54F.

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9. Madras HC Upheld the Constitutional Validity of Section 194N; Said It is a Worthy Move to Reduce Cash Transactions

The instant writ petition was filed before the Madras High Court seeking a declaration that Section 194N of the Income Tax Act, 1961 is unlawful, arbitrary, violates fundamental rights under Articles 14 and 19(i)(g), and is unenforceable and unconstitutional.

Petitioner contended that the deductor under Chapter XVII is required to deduct/collect from any payments made to a deductee. Such a requirement is only in cases where the receipt or some portion constitutes taxable income. Since the cash withdrawal is not taxable, the question of deduction/collection does not arise.

The High Court held that the contention that Section 194N was a charge of tax on the amount withdrawn in cash was unsustainable as there could be no charging provision other than Sections 4 or 5 of the Income Tax Act. It was pointed out that the very placement of Section 194N in Chapter XVIIB would show that it was not a charging provision, and several cases have been cited to establish that the sections under Chapter XVII B are only machinery provisions, not intended to fasten any charge.

The power of the Legislature to tax is set out under Article 265 of the Constitution, and such power is wide, subject to the conditions and tests that have been laid out over the years to provide for reasonable restrictions in this regard. Article 265 states that no tax shall be levied or collected except by ‘authority of law’. What constitutes such ‘authority’ and what vests such power in the State would depend on the levy itself.

In deciding whether the levy is intra or ultra vires, the circumstances in which such levy has been introduced, the overall features of the levy as well as the attendant circumstances leading to the same, will have to be considered.

There have been several measures over the years to discourage and limit cash transactions, both under the Income Tax Act and other enactments. The challenge is now restricted to the modus operandi that the provision follows, as one hardly questions the legitimacy of the move to discourage cash transactions. We find that the object of Section 194N, as a measure to reduce cash transactions and gravitate towards an economy which is run in a transparent and accountable fashion, is laudable.

Further, the Legislature has provided for a situation where a payee, on the ground that the receipt is not amenable to tax, could seek and obtain a certificate from the Assessing Officer under Section 197. Such a certificate may be sought only in stipulated situations. Section 194N is not part of the list.

However, an alternative method is available under Section 194N, allowing the Central Government, in consultation with the Reserve Bank of India, to issue a Gazette Notification specifying recipients exempted or subject to a reduced rate under this section. Thus, the recipient is not left remediless.

Accordingly, the writ petition was dismissed.

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10. Loose Sheets Found in House of 3rd Party Can’t Be Considered as Evidence Without Producing Corroborative Evidence: HC

The Assessing Officer (AO) filed the instant writ petition challenging the order passed by the single Judge of the Karnataka High Court. The case involved AO searching at the premises of one Rajendran in New Delhi and recovering certain diaries/loose sheets, which purportedly consisted of certain entries relating to the assessee.

Based on Rajendran’s statement during the investigation, AO initiated action against the assessee. The assessee challenged the action taken by AO, and the single Judge of the High Court set aside the initiation of proceedings by setting aside the notice issued to the assessee under Section 153C.

It was contended by the AO that single Judge was not right in referring to Section 34 of the Evidence Act and then holding that loose sheets cannot be considered as evidence. The single Judge failed to appreciate one more aspect: Section 132 refers to not only books of accounts but also other documents. Even if it is to be assumed that the loose sheets would not fall within the ambit of books of accounts, undoubtedly, the same would fall within the ambit of documents.

The Karnataka High Court held that the entire allegation was made based on loose sheets of documents, which do not come under the ambit and scope of ‘books of entry’ or as ‘evidence’ under the Indian Evidence Act.

The Hon’ble Supreme Court, in the case of Common Cause And Others v. Union of India [2017] 77 taxmann.com 245 (SC), has ruled that a sheet of paper containing typed entries in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence.

Thus, the action taken by AO against the assessee based on the material contained in the diaries/loose sheets was contrary to the law declared by the Hon’ble Apex Court.

Accordingly, notices issued under Section 153C, based on the loose sheets/diaries, are contrary to law, which is required to be set aside in these writ appeals, as the same is void and illegal.

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11. No Section 194H TDS on Income of Franchisee/Distributor From Sale of Prepaid Coupons/Starter-Kits: SC

The assessee is a cellular mobile telephone service provider. The assessee provides starter kits (SIM Cards) and prepaid coupons of a specified value at discounted prices to its distributors. Further, such SIM cards are sold by distributors to end users. The Assessing Officer (AO) considered that the difference between the discounted price and the actual sale value is commission or brokerage. Accordingly, the AO contended that the assessee failed to comply with the provisions of tax deduction under section 194H.

The High Courts of Delhi and Calcutta have held that the assessee was liable to deduct tax at source under Section 194H. In contrast, the High Courts of Rajasthan, Karnataka and Bombay have held that Section 194H is not attracted.

The Supreme Court held that Explanation (i) to Section 194H defines that “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

The expression “direct or indirect” used in Explanation (i) to Section 194H is no doubt meant to ensure that “the person responsible for paying” does not dodge the obligation to deduct tax at source, even when the payment is indirectly made by the principal-payer to the agent payee. However, tax deduction at source in terms of Section 194H is not to be extended and widened in the ambit to apply to true or genuine business transactions, where the assessee is not responsible for paying or crediting income.

In the present case, the assessee neither pays nor credit any income to the person with whom it has contracted. The word “indirectly” does not regulate or curtail how the assessee can conduct business and enter into commercial relationships. Neither does the word “indirectly” create an obligation where the main provision does not apply.

The legal position of a distributor is generally regarded as different form that of an agent. The distributor buys goods on his account and sells them in his territory. The profit made is the margin of difference between the purchase price and the sale price. The reason is that the distributor is an independent contractor in such cases. Unlike an agent, he does not act as a communicator or creator of a relationship between the principal and a third party. The distributor has rights of distribution and is akin to a franchisee.

Further franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacturer, i.e. a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franchisee’s operations are closely regulated, and this possibly is a distinction between a franchise agreement and a distributorship agreement.

Franchise agreements are extremely detailed and complex. They may relate to distribution franchises, service franchises and production franchises. Notwithstanding the strict restrictions placed on the franchisees – which may require the franchisee to sell only the franchised goods, operate in a specific location, maintain premises which are required to comply with certain requirements, and even sell according to specified prices – the relationship may in a given case be that of an independent contractor.

An independent contractor is free from control on the part of his employer and is only subject to the terms of his contract. However, an agent is not entirely free from control, and the relationship to the extent of tasks entrusted by the principal to the agent is fiduciary. The distinction is that independent contractors work for themselves, even when they are employed to create contractual relations with third persons. An independent contractor is not required to render accounts of the business, as it belongs to him and not his employer.

Thus, the term ‘agent’ denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. However, servants and independent contractors are parties to relationships in which one person acts for another and thereby possesses the capacity to be involved in liability. Yet, the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency.

In other words, the term’ agent’ should be restricted to one who has the power of affecting the legal position of his principal by the making of contracts or the disposition of the principal’s property, viz., an independent contractor who may, incidentally, also affect the legal position of his principal in other ways.

Accordingly, it was held that the assessee would not be under a legal obligation to deduct tax at source on the income or profit component in the payments received by the distributors or franchisees from the third parties or customers or while selling or transferring the prepaid coupons or starter-kits to the distributors.

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12. Exemption Under Section 10(26) Not Available to Firm Even If All Partners are Members of Scheduled Tribe: ITAT

The assessee partnership firm was running a hotel business under the name and style of M/s Hotel Centre Point at Shillong. It consisted of two partners, and both the partners were brothers and belonged to the Khasis tribe, which is enlisted as a Scheduled Tribe in the State of Meghalaya and is covered under Clause (25) of Article 366 of the Constitution of India

The assessee claimed that because partners are individually exempt under section 10(26), a partnership firm comprised of those same partners should also be exempt. However, the Assessing Officer (AO) rejected the assessee’s claim.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) allowed the claim of exemption under section 10(26) and the matter reached before the Tribunal.

The Tribunal held that a partnership firm is considered a separate entity for tax purposes under the Income Tax Act. This means it is subject to its own set of rules regarding tax rates, deductions, and allowances, distinct from those applicable to individuals. Deductions or exemptions available to individuals cannot be transferred to or used by the firm, and vice versa.

Section 5 of the Indian Partnership Act clarifies that a partnership is formed through a contract between partners, not by their status as members of a Hindu Undivided Family (HUF) or the same family. Therefore, even if the partners of a firm are siblings or spouses, their relationship does not impact the firm’s status or tax liability.

The exemption under section 10(26) has been specifically conferred on members of the Scheduled Tribe residing in the specified area. This exemption cannot be extended to another separate and distinct person.

The advantages and disadvantages conferred under the Income-tax Act on separate classes of persons are neither transferrable nor inter-changeable. The scope of the beneficial provisions cannot be extended to a different person, even after liberal interpretation, as it may defeat the mechanism and process provided under the Income Tax Act for the assessment of different classes/categories of persons.

Therefore, the benefit of exemption under section 10(26) as available to the individual members of the Khasi tribe cannot be extended to the firm.

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13. Sum Received From Employer on Account of Out-of-Court Settlement isn’t Taxable as Profit in Lieu of Salary: ITAT

The assessee, an individual, received Rs. 2 Crore from his employer, INX Media, after his termination from service. The assessee voluntarily settled the case as his reputation was diminished due to extreme harassment and ill-treatment caused by the employer.

Assessing Officer (AO) added said amount along with Rs. 13,08,444 as perquisites in the assessee’s income. The AO treated the receipt as profits in lieu of salary. On appeal, CIT(A) deleted the additions made by AO. Aggrieved-AO filed the instant appeal before the Tribunal.

The Tribunal held that the payment of ex-gratia compensation was voluntary in nature without the employer having any obligation to pay further amount to the assessee in terms of any service rule. Thus, it would not amount to compensation in terms of section 17(3)(i).

The AO relied upon various Madras High Court judgments wherein it was held that the amount received for encashment of leave salary would be a profit in lieu of salary and taxable under the “voluntary Separation Programme”.

He also relied upon the decision of the Hon’ble Delhi High Court in the case of Deepak Verma (2010) 194 taxman 265 (Delhi) wherein it was held that if the payment is made ex gratia or voluntarily by an employer out of his own sweet will and is not conditioned by any legal duty or legal obligation, either on sympathetic grounds or otherwise, such payment is not to be treated as profit in lieu of salary under sub-clause (i) of section 17(3).

In the present case, the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of the employer to pay further amount to the assessee in terms of any service rule. Therefore, it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned additions were rightly deleted by the CIT(A).

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14. Receiving Gifts Through Banking Channels Does Not Establish Genuineness of Transaction: HC

The assessee, an individual, received gifts from six individuals, aggregating to Rs. 14,50,000. During the assessment proceedings, the Assessing Officer (AO) asked the assessee to furnish the details of the gift and the donor. In response, the assessee furnished the confirmation from the donors along with their PAN, acknowledgement of having filed the return of income, and the bank statement showing the gift amount credited to the assessee’s bank account.

Unsatisfied with the Explanation, the AO treated the gift as unexplained income under Section 68. On appeal, the Tribunal upheld the order of AO and confirmed his addition. Aggrieved by the order, the assessee filed an appeal before the Allahabad High Court.

The High Court held that the assessee was well-to-do, whereas the donors were persons of modest means. In the absence of any relationship shown or basis disclosed for the generation of the gift, the Tribunal disbelieved the Explanation furnished by the assessee on the preponderance of probability emerging from the evidence led by the parties.

Insofar as the income tax assessment is purely a civil proceeding, the test of preponderance of probability applied by the Tribunal cannot be faulted. In the context of the gift set up by the assessee, merely because the assessee may have been able to establish such a gift was received through the bank channel and merely because the donors may not have disputed the gift made may never have been enough to establish the genuineness of the transaction.

The High Court held that slight differences in test may continue to exist in cases involving gifts and deposits that are to be repaid by the recipient. Insofar as the gift claimed by the petitioner amounted to a change of title in the money, the High Court did not find any defect in the course adopted by the Tribunal in disbelieving the claim based on holistic consideration of the material before the Tribunal.

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15. Supreme Court Upholds ICAI’s Limit of 60 Tax Audits Per CA; Makes It Effective From 01.04.2024

In the given case, the petitioners, who were Chartered Accountants, challenged the validity of Clause 6 of Guidelines No.1 – CA(7)/02/2008 dated 08.08.2008 issued by the Institute of Chartered Accountants of India (ICAI) under powers conferred by the Chartered Accountants Act, 1949 (Act) on the ground that the same is illegal, arbitrary and violative of Article 19(1)(g) of the Constitution of India.

The petitioners challenged the mandatory ceiling on the number of tax audits a Chartered Accountant can accept under Section 44AB of the Income Tax Act, 1961, as per Clause 6.0, Chapter VI of the Guidelines. They also seek to quash the disciplinary proceedings initiated by the Institute in line with these guidelines.

The Apex Court held that the Council of the ICAI had the legal competence to frame the Guideline restricting the number of tax audits a Chartered Accountant could carry out. The Court held that the ICAI was established to regulate the profession of chartered accountants, ensuring that the profession in the country maintains high professional ethics and renders quality service.

The power of the Council to regulate the profession of Chartered Accountants is not only in the interest of the Chartered Accountants but also in the interest of the public at large. As the Parliament may not always be able to amend the Schedules to the Act to incorporate newer professional misconducts, the Parliament has delegated the power to the Council to make any regulation or Guideline, the breach of which would amount to misconduct. Therefore, the regulation or Guideline issued by the Council, the breach of which would result in professional misconduct, being a part of clause 1 of Part II of the Second Schedule, must be read as part and parcel of the Act itself.

Accordingly, the Council of the Institute had the legal competence to frame the Guideline restricting the number of tax audits that a Chartered Accountant could carry out, which was initially thirty and later raised to forty-five and thereafter to sixty in an assessment year.

Further, the restriction on the number of tax audits that could be undertaken by practicing Chartered Accountants doesn’t violate the right to practice the profession by a Chartered Accountant. It is a reasonable restriction and is protected under Article 19(6) of the Constitution. The Court observed that the power to control and impose taxes is a cornerstone of State sovereignty.

The restriction imposed by the ICAI on the number of tax audits that can be undertaken by a Chartered Accountant is not violative of Article 19(1)(g) of the Constitution. The restriction was imposed by the ICAI after taking into account the letter of CBDT and the CAG Report No. 32/2014. The restriction was imposed to eliminate the possibility of conducting tax audits in an insincere, unethical or unprofessional manner. The restriction was also supported by concerns and suggestions shared by experts and practitioners over a span of thirty years. It was imposed as the best conceivable and practical measure to rectify the targeted mischief and ensure the quality of tax audits conducted by the Chartered Accountants, which is in the general public’s interest.

The idea of compulsory tax audits was neither an inherent part of the practice of a Chartered Accountant nor an essential function that could be claimed as a fundamental right under Article 19(1)(g). As carrying out compulsory tax audit under Section 44AB of the Income Tax Act, 1961 is a ‘privilege’ & not a ‘right’ of a CA, the limit of 60 tax audits imposed by ICAI on every CA is to be upheld as it does not curtail the fundamental right of a CA to practice his profession.

If the Parliament, in its wisdom, at a certain future date, due to technological developments or any other reason, finds that expeditious and accurate assessments can be ensured without imposing on assessees the burden of additional requirements of the tax audit report and thereby deletes Section 44AB from the IT Act, 1961, it could not be possibly argued that the right under Article 19(1)(g) has been abridged.

Accordingly, the Court concluded that the limit of the maximum number of tax audits is valid and is not violative of Article 19(1)(g) of the Constitution as it is a reasonable restriction on the right to practise the profession by a Chartered Accountant and is protected or justifiable under Article 19(6) of the Constitution. However, the Guidelines dated 08.08.2008 and its subsequent amendment are deemed not to be effective until 01-04-2024.

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16. Section 50C Not Applicable on Transfer of Leasehold Rights in Land and Building: ITAT

Assessee, an individual, was a salaried employee. He filed his return of income for the relevant assessment year and declared income. The return of income was processed under section 143(1). Subsequently, the Assessing Officer (AO) reopened the assessee’s case based on AIR information that the assessee sold a right in a leasehold property for Rs. 60,00,000 but did not offer the capital gains tax.

Reassessment was completed at an income of Rs. 75,94,850 for stamp duty purposes against the actual sale consideration of Rs. 60,00,000. On appeal, the CIT(A) upheld the reassessment proceedings, and the matter reached before the Delhi Tribunal.

The Tribunal held that the leasehold right in a plot of land is neither ‘land or building or both’ as such nor can be included within the scope of ‘land or building or both’. The distinction between a capital asset being ‘land or building or both’ and any ‘right in land or building or both’ is well recognised under the Act.

Section 54D of the Act deals with certain cases in which capital gains on the compulsory acquisition of land and buildings are charged to tax. Section 54D(1) opens with: “Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking…..”. Thus, it is palpable from section 54D that ‘land or building’ is distinct from ‘any right in land or building’.

Section 50C states that the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted for stamp valuation authority in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

Relying upon the decision of the Hon’ble Supreme Court in the case of Amarchand N. Shroff [1963] 48 ITR 59 (SC), the Tribunal held that a deeming provision could be applied only in the scope of the law and not beyond the explicit mandate of the section. Hence, the provisions of Section 50C of the Act are applicable only with respect to ‘land or building or both’. If the capital asset under transfer cannot be described as ‘land or building or both’, then Section 50C will not apply.

Accordingly, the provisions of Section 50C do not apply to the transfer of leasehold rights in land.

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17. Set-off of STCL on Which STT Was Paid Against STCG Not Subject to STT is Valid: ITAT

Assessee, a Mauritius-based company, was registered with the Securities and Exchange Board of India as a foreign portfolio investor (FPI). During the relevant assessment year, the assessee earned short-term capital gain that was not subject to securities transaction tax (STT) and was taxable at the rate of 30 percent. The assessee also incurred short-term capital loss subject to STT and was in the 15% tax category.

While furnishing the return of income, the assessee had set off short-term capital losses against the short-term capital gains. During the assessment proceedings, the Assessing Officer (AO) contended that the set off of losses having lower taxability with gains of higher taxability was not in order. Thus, the AO computed set-off of short-term capital loss covered under section 111A against short-term capital gains chargeable to tax at the rate of 15% and did not grant any set-off short-term capital gain which was chargeable to tax at the rate of 30%.

On appeal, the Dispute Resolution Panel (DRP) also confirmed the action of the AO. Aggrieved by the order, the assessee preferred an appeal to the Mumbai Tribunal.

The Tribunal held that Section 70(2) provides that where the assessee suffers a short-term capital loss, the assessee shall be entitled to set off such losses against capital gain computed similarly as under sections 48 to 55 of the Act. According to section 70(3), where the assessee suffers long-term capital loss, the assessee shall be entitled to set off such losses against the long-term capital gains computed similarly as provided under sections 48 to section 55.

Sections 48 to 55 do not provide for the tax rate on capital gain. It specifically lays down the computation mechanism of capital gain and certainly not tax on such capital gains. It is not the case that either in the computation of short-term capital gains or short-term capital loss, there is any difference in the manner of computation. Therefore, short-term capital gain and short-term capital loss arising during the year are computed similarly as provided under sections 48 to 55 of the Act.

Thus, there was no reason to deprive the assessee of set-off of short-term capital losses suffered by the assessee for the same year against the short-term capital gains earned by the assessee. Such a claim was in accordance with the provisions of section 70(2) of the Act.

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18. Section 54G Relief Available Even If New Undertaking Was Set Up in Name of Firm in Which Assessee Was Partner: ITAT

The assessee was engaged in the business of manufacturing and job work of CI Casting, as a proprietor. While furnishing the return of income the assessee claimed deduction under section 54G on the ground that he had invested in a firm (new industrial undertaking in rural area) in which he was a partner and the said firm had invested the said amount in Factory Building and Plant & Machinery.

However, the Assessing Officer (AO) rejected the assessee’s contention and held that the assessee was an individual who shifted the undertaking from urban to rural areas to a partnership firm, which was a different entity under the Income Tax Act. Therefore, the AO made additions to the income of assessee and disallowed the assessee’s claim under section 54G.

On appeal, CIT(A) upheld the action of AO. Aggrieved by the order, the assessee filed an appeal to the Rajkot Tribunal.

The Tribunal held that the object of section 54G is to promote decongestion of urban areas and balanced regional growth. This section exempts capital gains on the transfer of plant, machinery, land, building, etc., used for the purpose of the business of industrial undertaking as a consequence of shifting the industrial undertaking from an urban area to a non-urban area. The capital gain would be exempt to the extent, it is utilised within a period of one year before or three years after the date of transfer.

The assessee has complied with and satisfied the following conditions, namely: (i) shifting the existing undertaking from urban to rural area, (ii) transferring and installing the existing plant machinery, and other equipment in the rural area, (iii) making investment in the new undertaking for expansion and investment in business, (iv) MoU was made for expansion and investment in shifting the business, and (v) new investment in the firm was made in which the assessee was a partner. Therefore, the assessee had total right in the investment of the firm.

The firm name is only a compendious name given to the partnership for the sake of convenience. The firm’s assets belong to and are owned by the firm’s partners. Any property owned by it is really the property of the partners, and the use of the expression ‘firm’ is only a compendious mode to designate the persons who have agreed to a joint venture. What is called the property of the firm is really the property of the partners. The partnership property will vest in all the partners, and in that sense, every partner has an interest in the property of the partnership. The interest of a partner in a partnership firm belonged to him and would be includible in his ‘assets’ and will have to be taken into account while computing his net wealth.

The primary condition is that the assessee should have made an investment in the undertaking shifted to a rural area. Section 54G does not state that the asset should be acquired in the assessee’s name.

The assessee shifted the existing plant and machinery, along with all important business plans, goodwill to rural area and therefore, the whole manufacturing undertaking has been shifted to rural areas. Therefore, the assessee was eligible for exemption under section 54G.

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19. Properties Acquired in Name of Wife & Sons Using Unaccounted Amount to Be Treated as Benami

The assessee was found to have acquired various immovable properties illegally in the name of his two sons and his wife while working in the agriculture department office. Many immovable properties were purchased at the time when both the sons of the assessee were minors, and they had no source of income. Apart from that, bank deposits and residential plots or agricultural land in the assessee’s name were far higher than income from his known sources, and he was the only earning member of this family.

After inquiry and investigation, the Initiating Officer concluded that the assessee did not have sufficient income to make such an investment. Accordingly, a notice was issued to the benamidaar and beneficial owner regarding the acquisition of property to disclose the sources.

The immovable and movable properties acquired in the names of two sons and the assessee’s wife were attached. The matter was reached before the Appellate Tribunal Safema.

The Tribunal held that the finding had been recorded even going against the definition of ‘benami transaction’ given under section 2(9)(A) despite the satisfaction of both the limbs of the definition. It was a case where the property was transferred or held by a person for which consideration was provided or paid by another person. It was the case where the wife and sons did not have sufficient means to acquire properties of the value given by the appellant and also that the acquisition of property was for the immediate or future benefit of the persons who provided consideration, i.e., the father.

It was found that the assessee could earn a salary while in service, and if no part of it was spent on his livelihood, he could not have acquired the property in the name of his wife and son.

If the total income of all the appellants was also considered, it did not come to the amount of property purchased. After deducting 30 percent of the income, the net earnings were not sufficient to acquire the property. The property was acquired for a value more than the earnings.

It was out of the assessee’s illicit income while in service of the agriculture department. The unaccounted amount was used to acquire the property in the name of his wife and sons for his own benefit, and therefore, it becomes a case of ‘Benami transaction’

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20. Trust Not Liable to Pay Surcharge Just Because Its Income is Taxable at Maximum Marginal Rate: ITAT

The assessee was a private discretionary trust registered under the Indian Trust Act. The assessee filed its return of income for the relevant assessment year. The return of income was processed under section 143(1), and the assessee was entitled to a refund of Rs. 1,80,670.

However, the Assessing Officer (AO) assessed the income of the assessee at Rs. 6.73 lakhs and levied a surcharge at the rate of 37 per cent as against nil computed by the assessee. The assessee contended that the surcharge was levied despite the total income being less than Rs. 50 lakh.

The matter was carried to the CIT(A), wherein the surcharge was upheld. The assessee preferred an appeal to the Mumbai Tribunal.

The Tribunal held that the only issue that required adjudication was whether a surcharge could be levied where the total income was less than Rs. 50 lakhs. CIT(A) contended that since the assessee’s tax liability would fall under the maximum marginal rate, a surcharge would be applicable in the assessee’s case as per section 2(29C). The contention of the CIT(A) was incorrect.

The relevant provisions of the Finance Act 2022 stated that the surcharge was applicable only when the assessee, in the case of an Individual, Hindu Undivided Family or Association of Persons or Body of individuals, had a total income exceeding Rs. 50 lakh of such income tax.

Thus, the surcharge was leviable only if the total income exceeded Rs. 50 lakh. During the year under consideration, the assessee’s income was assessed at Rs. 6,73,590 less than Rs. 50 lakh. Therefore, levying a surcharge would not be applicable.

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