June 2025

In a landmark ruling, the Supreme Court upheld the constitutional validity of clause (f) of Section 43B of the Income Tax Act, 1961, which mandates that deduction for leave encashment liability is allowable only upon actual payment. The Court reversed the Calcutta High Court’s decision that had struck down the clause as arbitrary. The judgment reinforces the legislature’s prerogative to enact tax disincentives to curb potential abuses, such as claiming deductions without actual disbursement. It clarifies that Section 43B operates as an exception to the general mercantile accounting system, imposing a condition of actual payment for specified deductions. This decision provides certainty to taxpayers and the Revenue, affirming that fiscal legislation enjoys a presumption of constitutionality and broad latitude in classification.

In this landmark judgment, the Supreme Court clarified the implications of prospective overruling in tax matters, specifically regarding the levy of vend fee on industrial alcohol under the U.P. Excise Act, 1910. The Court held that following the prospective declaration of unconstitutionality in Synthetics and Chemicals Ltd. (1990), the State cannot collect unpaid vend fee for periods prior to 25th October 1989, as the restraint on enforcement applies from that date forward. However, amounts already collected or paid under interim orders (except those kept in separate accounts) are not refundable to maintain equity and avoid unjust enrichment. The decision underscores the Court’s discretion under Article 142 to mould relief, balancing legal invalidity with practical consequences, and reinforces that prospective overruling does not revive collection rights for unpaid dues predating the declaration.

In a landmark ruling on religious trust exemptions, the Supreme Court allowed Radhasoami Satsang’s appeal, holding its income exempt under sections 11 and 12 of the Income Tax Act, 1961. The Court emphasized that properties were held under a legal obligation for religious purposes, despite the trust’s revocable nature, as revocation would not benefit the Satguru personally. Critically, the Court applied the doctrine of consistency, ruling that the Revenue cannot arbitrarily reopen settled issues without material change, thereby upholding the Tribunal’s decision and reversing the High Court. This judgment reinforces the exemption framework for religious institutions while cautioning against its broad application beyond the case’s unique facts.

In a landmark ruling, the Supreme Court settled a 44-year-old tax dispute involving the National Cooperative Development Corporation (NCDC), holding that interest income earned from investing idle funds is taxable as business income under the Income Tax Act 1961, and grants disbursed from such income qualify as deductible revenue expenditure under Section 37(1). The Court emphasized that NCDC’s core function of channeling funds as loans/grants makes interest generation integral to its business, rejecting the Revenue’s characterization as ‘income from other sources.’ Crucially, the Court distinguished grants (irretrievable outgo) from loans, allowing deduction for grants as they serve business purposes without creating enduring assets for NCDC. This judgment reinforces the principle that statutory corporations’ business income and related expenditures must be assessed based on functional integration, not mere accounting treatment.

In this landmark judgment, the Delhi ITAT overturned the Revenue’s additions for bogus purchases, reinforcing the principle that mere suspicion cannot override documented evidence. The Tribunal meticulously examined the transaction trail, supplier credibility, and precedents, ruling that the assessee’s purchases were genuine and the enhancements arbitrary. This decision underscores the necessity of concrete proof over conjectural assessments in tax litigation.

In a significant ruling clarifying the scope of Section 12AA registration proceedings, the Pune ITAT ‘B’ Bench has allowed an appeal by Shree Alibag Kutchi Visa Oswal Jain Sangh. The Tribunal categorically held that the CIT(Exemption) cannot deny registration based on non-payment of tax on corpus donations, as registration and assessment are distinct processes. The decision reinforces that during registration, authorities must only verify charitable objects and genuineness of activities, not tax compliance issues. This judgment provides crucial protection for charitable trusts against premature tax scrutiny during registration.

In a significant ruling on characterization of income, the Delhi ITAT in Dy. CIT vs. M/s Arham IT Infrastructure Pvt Ltd (ITA No.5300/DEL/2016) upheld that common area maintenance charges collected by a property owner under separate cost-plus agreements constitute ‘Business Income’, not ‘Income from House Property’. The Tribunal emphasized the organized nature of services (security, lift maintenance, utilities) and distinguished precedent where only rental income existed. Consequently, lease rental paid to Noida authority was allowed as revenue expenditure. This judgment clarifies that ancillary services beyond mere letting can transform receipt nature, impacting tax planning for real estate entities.

In this landmark transfer pricing ruling, the Income Tax Appellate Tribunal, Bangalore, upheld the eligibility of voluntary transfer pricing adjustments made under an Advance Pricing Agreement (APA) for deduction under section 10AA. The Tribunal decisively rejected the revenue’s contention that such adjustments are barred by the proviso to section 92C(4), clarifying that the proviso only applies to adjustments mandated by the Transfer Pricing Officer. This judgment reinforces the principle that APA-driven adjustments, being voluntary and scientifically determined, enhance the ‘profits of the business of the undertaking’ and thus qualify for SEZ benefits, providing crucial certainty for multinational enterprises operating in India’s special economic zones.