Artificial Goodwill from Intra-Group Amalgamation ineligible for depreciation

 In a recent ruling, the Pune ITAT held that goodwill created pursuant to an internal restructuring, in the absence of genuine commercial benefits, constitutes a colourable device and cannot be treated as a genuine commercial asset eligible for depreciation.

Corpus Distribution from Offshore Discretionary Trusts Taxable

 Ahmedabad Tribunal Special Bench has ruled that corpus distributed on dissolution of an offshore discretionary trust to resident Indian beneficiaries constitutes taxable income under the gift tax provisions.

The Taxpayers were resident individuals and sole surviving beneficiaries of an offshore discretionary trust settled by a non-resident settlor and managed by non-resident trustees. On dissolution, the trustees distributed the accumulated corpus equally between the two Taxpayers. Notably, the trust income had never been distributed to the beneficiaries since its inception and undistributed income was instead added to the capital fund of the trust pursuant to its deed. The Taxpayers had no prior knowledge of the trust and no relationship with the settlor or trustees. The Indian tax authorities treated the receipt as taxable under gift tax provisions.

The Tribunal held the following, thereby confirming that the corpus distribution from an offshore trust is taxable under gift tax provisions:

Recent Judicial Developments in Income Tax: Key Rulings from Supreme Court, High Courts and ITAT

Recent judicial pronouncements across different forums have clarified several important aspects of Indian income tax law, particularly relating to permanent establishment, assessment procedures, and the taxation of financial instruments. A brief overview of notable rulings is provided below, beginning with the Supreme Court, followed by the High Court, and finally the Income Tax Appellate Tribunal (ITAT).

Delhi High Court Rejects "Virtual Service PE" Argument in Clifford Chance Case

In a significant ruling delivered today, the Hon’ble Delhi High Court rejected the Income Tax Department’s attempt to introduce the concept of a "Virtual Service Permanent Establishment (PE)" under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The judgment, delivered in the case of *Clifford Chance PTE Ltd*, reinforces the principle that treaty terms must be interpreted strictly and cannot be expanded through judicial fiction.

Are Interchange Fees and Payment Gateway Charges Subject to TDS?

Tax Deducted at Source (TDS) is generally not applicable to interchange fees, payment gateway charges, or the Merchant Discount Rate (MDR).** This stance has been clearly established by the Central Board of Direct Taxes (CBDT) through official notifications and has been consistently reinforced by judicial rulings.

No Permanent Establishment Unless Proven by the Revenue

The Income Tax Appellate Tribunal (Delhi Bench) recently in the case of SAIC clarified an important principle in international taxation: the tax authorities must clearly establish the existence of a Permanent Establishment (PE) before taxing a foreign company’s income in India.

Background of the Case

Supreme Court Clarifies Refund of GST Pre-Deposits

The Supreme Court of India recently provided important clarity on the legal framework governing refunds of GST pre-deposits in the case of State of Jharkhand v. BLA Infrastructure Pvt. Ltd., decided on 9 January 2026. The ruling addresses a recurring dispute in GST litigation: whether the refund of a statutory pre-deposit should follow the general refund provisions under Goods and Services Tax Act, 2017 or the specific provisions related to appeals.

Mumbai Tribunal Upholds Interest Deduction on Borrowings for Overseas Acquisition

 Mumbai Tribunal has deleted the interest disallowance in respect of borrowed funds deployed for the acquisition of an overseas company through step-down wholly owned subsidiaries, holding that the interest expenditure claimed as a deduction under Section 36(1)(iii) of the Income-tax Act, 1961 (‘the Act’)was incurred wholly and exclusively for the purposes of business and was therefore fully allowable.

Mumbai Tribunal Allows Loss due to Fair Valuation under Mark-To-Market Principle on Market-Linked Debentures as Business Deduction

The Mumbai Bench of the Income Tax Appellate Tribunal (‘Tribunal’) held that loss arising on fair valuation of Benchmark Linked Debentures (BLDs), market linked securities, cannot be disallowed merely because it represents a mark-to-market adjustment. The Tribunal observed that where financial instruments are valued in accordance with recognised accounting standards and the method is consistently applied, the resulting loss represents a legitimate business loss and cannot be treated as merely notional.

Background

Section 122(1A) penalty not imposable on employees

Facts: The adjudicating authority held that the Company wrongfully availed and passed ITC by issuing fake invoices. The authority also imposed personal penalty under Section 122(1A) of the CGST Act on Petitioners (CFO, CEO and Joint MD of the Company).

Modified Return under Section 170A Must Be Considered in Pending Assessment

 Introduction: A Landmark Ruling for Tax Certainty

In a significant and taxpayer-friendly ruling, the Hon’ble Bombay High Court in Bajaj Electricals Ltd. vs. ACIT has clarified an important issue relating to modified returns filed after business reorganization (such as amalgamation or demerger) under section 170A of the Income-tax Act (‘the Act’). The core issue before the Hon’ble High Court was whether, in a case where assessment proceedings were pending on the date of filing of a modified return pursuant to a business reorganization, the Assessing Officer (AO) could initiate a fresh scrutiny of the modified return after passing the assessment order.

ITAT Mumbai Provides Safe Harbor for Convertible Instruments: Conversion Not Taxable Under Section 56(2)(x)

 In a ruling that brings significant relief to foreign portfolio investors and venture capital firms, the Income Tax Appellate Tribunal (ITAT) in Mumbai has clarified that the conversion of optionally convertible preference shares into equity shares does not trigger taxation under the income from other sources.