Penalty for under-reporting deleted for bona fide claim of 'Health & Education Cess' basis prevailing judicial precedents (claim withdrawn after retrospective amendment)

 Recently, the Hon’ble Income-tax Appellate Tribunal, Pune (‘ITAT’) in the case of Capgemini Technology Services India Ltd. (‘the Company’), has held that penalty for under-reporting and misreporting of income cannot be levied for claiming Health and Education Cess as a deductible expense when such claim was made bona fide based on prevailing judicial precedents and was later withdrawn following a retrospective amendment to the law. The Hon’ble ITAT observed that the issue was highly debatable at the relevant time and, since there was no concealment or misreporting of income and the assessee had duly complied with the prescribed legal procedure, the penalty was unsustainable.

Date of transfer to be adopted for calculation of FMV of shares in capital reduction tax calculation

 The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favour of RBS AA Holdings Netherlands B.V., holding that the relevant date for conducting valuation of unlisted shares in case of capital reduction ought to be the actual transfer date of transfer and not last adopted Balance Sheet date of the investee company. As a result, the Tribunal allowed the company’s full claim of long-term capital loss amounting to Rs.43.06 crores.

Rules Service PE cannot be constituted by mere presence of employees (with no actual service) or virtual rendering of services from abroad

 In a recent ruling, the Delhi High Court affirmed the decision of the Tribunal in Clifford Chance Pte Ltd. v. ACIT, holding that a foreign entity did not constitute a Service Permanent Establishment (“PE”) in India under Article 5(6) of the India–Singapore DTAA merely because its employees rendered services (virtually as well as physically) to India customers for more than 90 days in aggregate. The Court held that, for a service PE to arise, the relevant test is the actual number of days on which services are rendered in India by employees physically present.

Onus on assessee to prove land is agricultural for Capital Gains exemption

 In a significant ruling that underscores the importance of strict evidentiary standards in land-related tax matters, the Hon’ble Chandigarh ITAT, has recently delivered an important decision in Manjit Kaur Kamboj v. Income-tax Officer. The ruling sends a clear and cautionary message to taxpayers that mere assertions or reliance on local or non-statutory certifications are insufficient to exclude land from the ambit of capital gains taxation, unless such claims are supported by clear, authoritative, and statutory evidence.

Under the Income-tax Act, agricultural land situated beyond the prescribed distance (generally 8 kilometres aerially) from municipal limits does not qualify as a “capital asset” and, consequently, its transfer is not liable to capital gains tax. In practice, however, disputes often arise on the question of how the distance from municipal limits is to be determined and what constitutes reliable evidence for this purpose.

Delhi Tribunal holds that compensation received on relinquishment of ‘right to sue’ is a capital receipt not chargeable to tax.

 The assessee, an individual, assisted a Mexican cinema theatre operator in establishing its Indian operations in consideration of monthly remuneration and an agreed equity stake in the Indian entity. Upon the operator’s failure to honour these commitments, the assessee initiated multiple civil and criminal proceedings, which were ultimately resolved through a settlement under which the assessee received compensation of INR 33 crore for withdrawal of all pending claims. The assessee offered the said compensation to tax as long-term capital gains; however, the Assessing Officer sought to tax the amount as business income. On appeal, the assessee raised an additional ground before the CIT(A) contending that the compensation constituted a capital receipt not chargeable to tax, which was rejected, with the CIT(A) holding the receipt to be taxable as salary. The matter was thereafter carried in appeal to the Tribunal.

Kolkata ITAT holds Husband's HUF not falling in the definition of ‘Relative’ of a Wife for gift-tax purposes under Income-tax

 Kolkata Tribunal has recently ruled that HUFs cannot be treated as “relatives” under the gift-tax provisions of the Income-tax Act, thereby disallowing exemption for gifts received by individuals from an HUF.

Share sale by Passive Shareholder taxable as Long-Term Capital Gains and not Business Income irrespective of non-compete clause in the SPA

 As per Income Tax Laws, any sum received or receivable in cash or kind under an agreement for not carrying business or profession is treated as profit or gain from business or profession, thereby taxable as business income.

Karnataka HC holds that denial of excess FTC without variation in total income cannot result in levy of penalty

 This Tax Alert summarizes a recent decision of the Karnataka High Court (HC) in the case of Mr. Srinivasa Gandhi Sampath (Taxpayer) v. ACIT, wherein the HC quashed a penalty order and held that penalty for under-reporting or misreporting of income cannot be imposed merely because the Taxpayer made an excess claim of foreign tax credit (FTC).

Bombay High Court Rules DTAA Supremacy Over Dividend Distribution Tax

 In a landmark development that could have far-reaching implications for multinational groups operating in India, the Hon’ble Bombay High Court has recently delivered a transformative ruling in Colorcon Asia Pvt. Ltd. v. JCIT. For nearly two decades, companies paying dividends to foreign shareholders were required to bear a significant tax cost in the form of Dividend Distribution Tax (DDT) at an effective rate of around 20%. This was so even though India’s tax treaties with many countries such as the UK, USA, Singapore, Netherlands, Germany, etc. which capped India’s right to tax dividends at 10% or 15%. This mismatch created a long-standing dispute: Can a domestic tax collection mechanism (DDT) override the lower tax rates promised under a tax treaty? The Colorcon ruling has now brought unprecedented clarity by holding that treaty benefits cannot be denied simply because India chooses to collect the tax from the company instead of the shareholder. In doing so, the Hon’ble Bombay High Court has reaffirmed a fundamental principle - India’s treaty commitments prevail over domestic machinery provisions when they are more beneficial to the taxpayer.

Value of Redeveloped Property (including costs paid for additional area) is eligible as Capital Gains exemption u/s 54, confirms Mumbai ITAT

 The Mumbai Income-tax Appellate Tribunal (‘the Tribunal’) recently held that the cost paid by a taxpayer for obtaining additional area in a redevelopment project constitutes investment in the new residential property. As a result, the amount paid including for the optional extra built-up area qualifies for exemption from capital gains tax.

Reimbursements of Secondee salaries not Fees for Technical Services

 In a recent ruling, the Delhi ITAT held that reimbursements received by Toshiba Corporation from its Indian group companies towards salaries of seconded employees cannot be characterised as Fee for Technical Services (FTS) under the Income-tax Act, 1961 or the India–Japan DTAA. The Tribunal concluded that once the employer–employee relationship with the Indian entities is established, salary payments fall outside the ambit of FTS.

Bangalore ITAT clarifies on allowability of ‘Cost of acquisition’ and ‘Improvement costs’ expenses in a Property sale for computing Capital Gains

 In a recent ruling, the Bangalore ITAT (“Tribunal”) examined the allowability of various capital gains related deductions claimed by a non-resident senior citizen on the sale of a residential villa, specifically addressing the evidentiary requirements for cost of acquisition, classification of personal effects, and the scope of “expenditure incurred in connection with transfer” for the purposes of capital gains taxability.

Navigating Section 79: How Continuity of Beneficial Ownership Preserves Loss Carry-Forward

 A recent ruling by the Income Tax Appellate Tribunal (ITAT) in ACIT vs. Lurgi India International Services Pvt. Ltd. provides crucial clarity on the application of Section 79 of the Income Tax Act, which restricts the carry-forward of losses in closely-held companies upon a change in shareholding. The decision underscores that the provision looks at economic reality over legal form, emphasizing beneficial ownership and the timing of corporate restructuring.

Section 194Q and the Jute Aarth Crisis: When Tax Compliance Clashes with Agency Law

The introduction of Section 194Q into the Income Tax Act, 1961, via the Finance Act, 2021, was designed to widen the tax net and create audit trails for high-value business transactions. However, its mechanical application has inadvertently triggered a systemic crisis for traditional commission-based business models, most notably in the jute industry’s aarth system. This provision mandates buyers with a turnover exceeding ten crore rupees to deduct tax at source (TDS) on purchases over fifty lakh rupees. The resulting conflict between procedural tax compliance and the substantive principles of agency law reveals a critical flaw in legislative design.

MCA Relaxes Small Company Thresholds: Unlocks Compliance Benefits

 The Ministry of Corporate Affairs has recently expanded the eligibility thresholds for classification as a ‘small company’ under the Companies Act, 2013. A company will now qualify as a small company if its paid-up capital does not exceed ₹10 crore and its annual turnover in the preceding financial year does not exceed ₹100 crore.

Case Laws on HUF

 The ITAT Kolkata SMC Bench, has given a strict reading of the deemed tax provisions defining “relatives” for tax purposes and ruled that gift received by an individual member from HUF does not qualify as being from a “relative” for Gift tax provisions, making it taxable in the recipient’s hands.​ However, the matter was remanded back to the tax officer to examine whether the same was an exempt income in the hands of recipient member u/s 10(2) of the Income Tax Act.

The assessee received certain sum as a gift from her husband’s HUF (of which the husband was Karta) and claimed exemption under section 56(2) considering the same as received from 'relative' . The AO and CIT(A) treated it as taxable under section 56(2), relying on ITAT Ahmedabad’s decision, which clarified that post-Finance Act 2012 amendment (retrospective from 01.10.2009), HUF is recognized only as a Donee (not donor) in the relative definition for individual recipients. The ITAT Kolkata upheld this view, emphasizing HUF’s distinct legal entity status from its members, rejecting arguments that HUF equates to a “conglomeration of relatives”.

Navigating the New Dawn: India's M&A Landscape in 2025

The Indian mergers and acquisitions (M&A) arena in 2025 is a narrative of strategic resilience and calculated ambition. Despite global economic crosswinds, the market demonstrates robust health, driven not by reckless exuberance but by a clear focus on consolidation, capability building, and capitalizing on long-term structural growth stories. The latest landscape analysis reveals an ecosystem evolving in sophistication, where regulatory clarity, sector-specific trends, and strategic foresight are shaping deal-making’s future.

Clean scrutiny order u/s 143(3) by Assessing Officer to override Tax Adjustment from intimation order u/s 143(1) by CPC

 In Standard Castings Private Limited v. ITO, the Hon’ble ITAT Delhi allowed the assessee’s appeal and set aside a demand that had continued to stand merely because it was raised in a CPC intimation under section 143(1), despite a complete and clean scrutiny assessment under section 143(3) accepting the returned income. The dispute arose from a typographical error during e-filing, where capital gains were inadvertently entered in the wrong row of Schedule BP. The CPC, while processing the return treated the figure as ‘income from other sources,’ and raised a demand. The assessee filed a rectification application under section 154, but CPC transferred rectification rights to the Jurisdictional Assessing Officer.

Corporate Guarantees Under GST: Navigating Taxability, Valuation, and Legal Precedents

The provision of a corporate guarantee, where one company pledges to cover the financial obligations of another (often a subsidiary or affiliate), is a common business practice. However, under India's Goods and Services Tax (GST) regime, this "costly promise" has evolved into a complex area of taxability, sparking significant litigation and regulatory clarification. Understanding the current landscape is crucial for businesses to ensure compliance and mitigate potential liabilities.

No undervaluation trigger under IT Act (Section 56) when asset acquired from Government undertaking at lower value

 Recently, the Hon’ble Income-tax Appellate Tribunal, Kolkata (‘ITAT’), in the case of Kanha Villa LLP (‘the Appellant’), deleted an addition of Rs. 6.59 crore made under Section 56(2)(x) of the Income-tax act, 1961 (‘the Act’), which was based on an enhanced valuation by the District Valuation Officer (‘DVO’) for a property acquired from West Bengal Infrastructure Development Corporation Ltd. (‘WBIDCO’), a state government undertaking. The Hon’ble ITAT held that since the transaction was directly with the State Government entity, there could be no undervaluation or suppression of the purchase price. Accordingly, the addition made on the grounds of undervaluation or suppression of purchase price was deleted.