2025

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.

In this landmark judgment, the Supreme Court of India upheld the Calcutta High Court’s review order that restored a long-pending writ petition for hearing on merits, emphasizing strict adherence to procedural justice and statutory interpretation in tax recovery matters. The case revolves around a disputed 1964 auction sale of a Delhi property by the Income Tax Department, with the core issue being the High Court’s review jurisdiction under Order 47 Rule 1 CPC. The Court meticulously dissected the principles from Kamlesh Verma v. Mayawati, affirming that an error apparent on the record—such as overlooking Section 293 of the Income Tax Act, 1961 (which bars civil suits against tax authorities) and the legal implications of a 1965 court order—warrants review. This decision reinforces that review proceedings are vital to correct patent errors that prejudice parties, especially in complex tax litigation spanning decades. For tax professionals and legal practitioners, this judgment serves as a critical precedent on the interplay between tax recovery mechanisms, civil jurisdiction bars, and judicial review, highlighting the necessity for courts to address substantive legal oversights to prevent injustice.

In CENTRAL TRADING AGENCY vs. CIT, the Allahabad High Court allowed a deduction under Section 10(2)(xv) for payments termed ‘liquidated damages’ made to the Government. The Court ruled these were not penalties for breach but payments made on commercial grounds to modify and sustain a contract, thus constituting allowable business expenditure. This judgment clarifies the deductibility of payments made to preserve business continuity and contractual relationships, emphasizing the ‘commercial expediency’ test over formal labels like ‘damages’ or ‘penalty’.

In a landmark Full Bench ruling, the Kerala High Court clarified the scope of disallowance under section 37(3A) of the Income Tax Act, 1961. The Court held that car repair expenses are governed by section 31 (repairs and insurance of plant) and not by section 37(3A), which applies only to ‘running and maintenance’ costs. This decision resolves a judicial conflict by affirming that the non-obstante clause in section 37(3A) does not override specific deductions under sections 30-36, ensuring that statutory distinctions between repair and maintenance expenditures are preserved for tax purposes.

In this landmark transfer pricing ruling, the Income Tax Appellate Tribunal (ITAT) Delhi Bench overturned the TPO’s adjustments by meticulously analyzing the comparability of selected companies. The Tribunal held that TCS E-Serve Ltd. and Accentia Technology Pvt. Ltd. were incomparable for ITeS benchmarking due to functional disparities, scale, intangibles, and extraordinary events. Similarly, E-Info Chip Bangalore Ltd. was excluded for IT segment benchmarking due to lack of segmental accounts. This decision reinforces the principle that transfer pricing adjustments must be based on accurate functional comparability, safeguarding captive service providers from arbitrary adjustments. The ruling provides clarity on excluding companies with brand influence, mergers, or mixed segments, setting a precedent for future disputes.

In a significant ruling for cross-border digital services, the Mumbai ITAT held that payments by Indian entities to a Singapore-based group company for infrastructure data center hosting, referral services, and member login access are not taxable as royalty in India. The Tribunal emphasized that these are standard service fees without any transfer of copyright, technical knowledge, or exclusive use rights, falling outside the scope of royalty under the Income Tax Act and India-Singapore DTAA. This decision reinforces the principle that mere provision of IT infrastructure or referral support, without enabling the recipient to independently apply technology, does not constitute royalty, providing clarity for multinationals on the tax treatment of such intra-group service arrangements.

In this landmark judgment, the Calcutta High Court definitively ruled that a tenant’s right of tenancy qualifies as a ‘capital asset’ under the Income Tax Act 1961. The assessee, A. Gasper, received Rs. 4,50,000 from M/s Associated Battery Makers (Eastern) Ltd. for transferring his tenancy rights and leasehold interest, with the landlords’ consent. The Court rejected arguments that such rights were non-transferable under the West Bengal Premises Tenancy Act 1956, holding that with landlord consent, transfer is permissible. The extinguishment of tenancy rights through this transaction constituted a ‘transfer’ under section 2(47), and the consideration received was taxable as capital gains under section 45(1), regardless of being paid by the transferee rather than the landlord. This decision reinforces the broad interpretation of ‘capital asset’ and ‘transfer’ under tax law, impacting real estate and tenancy transactions.