February 2025

In Berger Paints India Ltd. vs. CIT, the Supreme Court ruled that share premium received on issued shares does not form part of ‘capital employed in the business of the company’ under section 35D of the Income Tax Act 1961. The Court emphasized a strict interpretation of the statutory definition, which limits ‘capital employed’ to issued share capital, debentures, and long-term borrowings. This decision reinforces the principle that tax deductions are allowable only as per explicit legislative intent, preventing assessees from broadening the scope of eligible capital. The judgment clarifies that premium, though a capital receipt, is excluded from the computation for section 35D deductions, impacting corporate tax planning for preliminary expenses.

In this landmark judgment, the Supreme Court of India clarified the scope of ‘capital employed in the business of the company’ under Section 35D of the Income Tax Act 1961. The Court held that share premium received on issued shares does not form part of capital employed for calculating deductions on preliminary expenses. The decision reinforces the principle of strict interpretation of tax statutes, emphasizing that deductions are allowable only within the explicit confines of the law. This ruling has significant implications for companies seeking to maximize deductions under Section 35D, underscoring the need to adhere to statutory definitions without expansion.

In this landmark Supreme Court judgment, the Revenue successfully appealed against the High Court’s decision allowing depreciation on land cost under the Income Tax Act, 1922. The Court held that the term ‘building’ in section 10(2)(vi) refers only to the structure, excluding the land beneath, for depreciation purposes. This ruling clarifies that depreciation is intended for assets that physically deteriorate over time, such as buildings, machinery, or furniture, and not for land, which does not depreciate. The decision reinforces the principle of consistent statutory interpretation and aligns with accounting norms for accurate income computation.

In this landmark judgment, the Supreme Court of India decisively ruled against Bengal Textiles Association, affirming the applicability of the Business Profits Tax, 1947. The Court clarified that administrative exemptions via letters do not override statutory limitations and established a critical distinction between compensatory payments for services and genuine subsidies. This precedent reinforces the principle that tax exemptions must be explicitly granted by statute and that the character of a payment—whether as consideration or bounty—is determinative for tax treatment under specific exemption clauses.

In this landmark judgment, the Madras High Court clarifies the treatment of interest income under Section 80HHC for export-oriented businesses. The Court rules that interest earned on Fixed Deposits—created by the bank from export sale proceeds as collateral for business loans—constitutes business income with direct nexus to export activities, making it includable in profits for deduction purposes. This decision reinforces the principle that income must be assessed based on its operational linkage to business, not merely its classification, ensuring equitable application of export incentives. Legal professionals should note the emphasis on factual nexus over rigid categorization, impacting future disputes on business income deductions.

In a significant ruling, the Delhi High Court quashed criminal prosecution under the Income Tax Act for alleged tax evasion and false verification, holding that proceedings become infructuous when the underlying assessment order is set aside by ITAT due to lack of incriminating evidence. The case involved allegations of undisclosed Swiss bank accounts based on unauthenticated information received via DTAA from France, which the Court found insufficient to sustain criminal charges. The decision reinforces that prosecution must be based on credible evidence, not mere surmise, and highlights the interplay between assessment and criminal proceedings in tax matters.

In this landmark Gift Tax case, the Supreme Court addressed the validity of reassessment proceedings concerning bonus shares arising from a revocable gift. The assessee had gifted 6000 equity shares with a revocation clause, and bonus shares were issued to the transferee. Upon revocation, the assessee reclaimed the original shares but not the bonus shares. The Revenue reassessed the bonus shares as a gift under Section 4(1)(c) of the Gift Tax Act for AY 1989-90. The Supreme Court remanded the case, criticizing the High Court for not interpreting Section 4(1)(c) and misapplying precedents. The decision underscores the necessity of statutory interpretation in gift tax matters and the procedural rigor required in reassessment.

In this landmark appeal, the Supreme Court of India addressed a pivotal issue in income tax jurisprudence: the eligibility for carry-forward of losses under the Income Tax Act, 1961, when returns are filed beyond the statutory deadline under Section 139(3). The Revenue challenged the High Court’s refusal to direct a reference under Section 256(2), which had relied on the precedent of CIT vs. Pratapgarh Cold Storage & Ice Factory. The Court, comprising Justices Ruma Pal and B.N. Srikrishna, conducted a rigorous analysis of statutory evolution, noting that the foundational precedent, CIT vs. Kulu Valley Transport Co., interpreted Section 22 of the 1922 Act, and the language of Sections 139(3) and (4) of the 1961 Act is not prima facie pari materia. This created an arguable legal question, compelling the Court to allow the appeal. The decision underscores the necessity for precise statutory interpretation in tax law, particularly when transitioning between old and new enactments, and reinforces the judiciary’s role in ensuring substantive questions of law receive due consideration, thereby setting a precedent for future cases involving loss carry-forwards and procedural compliance.