July 2025

In this landmark Excess Profits Tax case, the Supreme Court affirmed the authority of tax officers to disallow business expenditures under discretionary powers, even when based on pre-existing contractual agreements. The Court ruled that the EPTO’s discretion under Rule 12(1) of the EPT Act, 1940, to deem expenses ‘unreasonable and unnecessary’ takes precedence over contractual obligations to pay employee bonuses. The decision emphasizes that tax authorities may scrutinize the reasonableness of payments relative to business needs and industry standards, with evidence showing disproportionate bonuses justifying disallowance. This reinforces the principle that contractual arrangements do not automatically guarantee tax deductibility if they result in excessive expenditures.

In this landmark ruling by the Income Tax Appellate Tribunal, Mumbai, the appeals of IPSOS Research Private Limited for AYs 2010-11 and 2011-12 were allowed. The Tribunal quashed the final assessment orders as invalid, having been passed on a non-existent entity post-amalgamation, a critical legal flaw that vitiates the entire proceeding. On substantive issues, the Tribunal overturned the Transfer Pricing adjustment of Rs.5.80 crores for shared resources fees, holding that the assessee adequately demonstrated receipt of services and benefits, and the ALP could not be set at Nil without proper evidence. It also deleted disallowances u/s 40(a)(i) for non-deduction of TDS on reimbursements, ruling these were not taxable payments, and u/s 43B for PF/ESIC contributions, as payments were made before the return due date. This decision reinforces principles of legal validity in assessment proceedings and evidentiary standards in Transfer Pricing disputes.

In a landmark ruling, the Supreme Court clarified that for depreciation under Section 32 of the Income Tax Act, ownership is a matter of legal rights under the lease agreement, not registration under the Motor Vehicles Act. A leasing company can claim depreciation on assets leased out, as leasing constitutes ‘use for business purposes.’ The Court upheld the assessee’s entitlement to both normal and higher depreciation rates, reinforcing that the essence of ownership lies in control and title, not mere physical possession or registration.

In this landmark judgment, the Supreme Court of India clarified the interplay between substantive tax legislation and annual finance acts. The case involved the Kerala Finance Act, 1987, which amended the Kerala Plantations Tax Act, 1960, by substituting Schedule-I with revised rates and tariff categories effective from 1st July, 1987. The Court held that where a finance act introduces not merely a rate change but alters the tariff structure and categories, such revision falls within the ambit of section 3(2) of the principal Act. Consequently, the revision cannot be applied mid-financial year (1987-88) as it would result in two assessments for the same year, violating the scheme of the Act. The revised rates were thus applicable only from the next financial year, 1988-89. This decision reinforces the principle that procedural or machinery provisions in finance acts cannot override the substantive charging provisions of the principal tax statute, ensuring predictability and fairness in tax administration.

In Kamala Mills Ltd. vs. State of Bombay (1965), the Supreme Court delivered a landmark ruling on the interpretation of ouster clauses in tax statutes. The case centered on whether Section 20 of the Bombay Sales Tax Act, 1946, which bars civil suits challenging assessments, applies to assessments alleged to be without jurisdiction due to constitutional violations (here, taxing ‘outside sales’ under Article 286). The Court, in a comprehensive analysis, held that the phrase ‘assessment made under this Act’ encompasses all assessments made by tax authorities in the exercise of their statutory powers, including those that are erroneous or based on misapplication of law. It emphasized that tax authorities have jurisdiction to determine the taxability of transactions, and such determinations are not collateral facts. Consequently, civil suits are barred even if the assessment is constitutionally invalid. The Court also upheld the constitutionality of Section 20, reinforcing the legislature’s power to exclude civil court jurisdiction in tax matters. This judgment underscores the primacy of statutory remedies in tax disputes and limits judicial intervention through civil suits.