Section 7 deals with Scope of Supply. For the purpose of GST Act, it includes:

All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Thus, under GST regime, the inclusion of words, “license, rental, lease” are covered within the definition of supply itself. Thus, the intention of the Government seems to be clear to levy tax on commercial rentals and short-term accommodation (subject to threshold limits) at the same time to exempt residential rentals.

There are two fold tests to determine the eligibility of exemption in case of residential rentals under GST regime – viz., ( i) the nature of property test, i.e., the property should a residential building, i.e., “residential dwelling” and secondly the property should be used as a residence. Other factors are not material such as registration of the lessor or lessee.

If such spaces are rented through commerce operators then such operators are required to pay under Section 9(5) of the CGST Act. In cases where the supplier is unregistered, where the supplier is registered, tax shall be paid on forward charges basis but may attract “Collection of tax at source” under Section 52 of the CGST Act, 2017.

The above tax provisions apparently look very simple on paper, but various structures emerged which necessitated specific addressal by the Government. For example, a structure where residential properties are rented and used as residence but managed by third parties as part of their commercial operations. For example, a residential property with many units is taken on rent by a commercial operator and run as managed paying guest accommodations or hotels. Further, erratic and irregularities in these structures may exist whereby the commercial operator in turn sub-lets to the tenants, i.e., sub-let model or the property is directly rented by land owner to the tenants with commercial operators taking their share by service fees charged to tenant or land owner or existence of such multiple operators or managing properties for educational institutions etc. Further, the commercial operator may be running rental through e-commerce operator.

Under GST Act, various rulings of Authority for Advance Rulings were pronounced wherein some of these structures were evaluated. Particularly, ruling of Karnataka High Court in case of Taghar Vasudeva Ambrish Vs. Appellate Authority for Advance Ruling 91 GST 750 ( Karn.) wherein the Hon’ble High Court held that the exemption notification does not require the lessee itself to use the premises as residence and hence, GST on renting of Immovable Property as long as the dual conditions of residential dwelling and use for residential purposes are fulfilled, the service remains exempt.

Amendment effective from 18th July, 2022

The  Government  has  made  series  of amendments effective from 18th July, 2022 which are summarized as under:

  1. A new condition has been laid down to the exemption notification for residential rentals, whereby apart from the nature of dwelling and end- use conditions, which existed earlier, exemption from GST is not available where the residential dwelling is rented to a registered person such residential rental services not covered under the exemption notification and now taxed at 18%.
  2. The exemption limit of Rs. 1000/- per day is removed in the case of hotels, inns, composites etc. and such services are now taxed at 12% (where declared tariff per day is more than Rs. 7,500/- per day, applicable tax rate remains unchanged at 18%).
  3. Services by way of renting of residential dwelling to a registered person is now covered under reverse charging mechanism where the lessee will be the person responsible to remit tax, irrespective of end I now try to simplify the understanding of GST implications on property in general. Specific implications have to be evaluated appropriately in accordance with applicable law.

Taxpayers may look out for the following implications and ambiguities which prevails:

RCM applies even when residential dwelling is used for commercial purposes by lessee who is a registered person. In other words, if “residential dwelling” is taken on rent as a commercial office by any registered taxpayer, GST is now payable under RCM even if the Landlord is registered (RCM is not optional).

Where the managed properties such as hotels are directly rented to end customers, the agreement between the landlord and the operator needs to be checked for implied “renting” between landowner and managed service operator, based on substance and conduct of the parties.

Corporates taking residences on rent for providing rent free accommodation to employees or as hotels etc. may be required to remit GST under RCM.

“Residential dwelling” is not under GST laws. Guidance may be taken from records of Municipal office and other authorities, categorization for the purposes of electricity, water, utilities, property tax rates etc.

Input Tax Credit will not be available in cases where output tax is paid under RCM basis by the recipient or output tax is exempt.

Where residential dwelling is taken on rent by registered person, GST shall be payable under RCM in both the cases of the rentals. Thereby, the GST paid under RCM by the first lessee shall not be creditable and will become a cost. Thus, the credit chain would be broken.

Lessor and Lessee should have concurrence on the nature of property and its end-use. It is suggested to include the same expressly in the rental agreements to avoid future disputes relating to facts.

Other implications on rentals affecting charitable trusts, long term rentals, rental from government etc. are not covered in this article and the same has to be considered separately in the light of facts available. Rental of residential dwellings taken by GST on renting of Immovable Property educational institutions, hospital etc. for use as a residence such as hotels, paying guests etc. may become taxable if such educational institution / hospital is required to obtain GST registration for any tax purpose place of supply in case of rentals would be where the property is located. Hence, for payment of tax under RCM, the registered person would be required to remit tax from the state where the property is located.


From the above, it can be seen that taxability person liable to pay tax, rate of tax, input credit and other implications vary based on several permutations and combinations involved.

The implications also vary based on certain key words and phrases such as “residential dwellings” and use as “residence” which are not expressly covers or defined under the law. Government may take note of it and clarify the scope and ambit of the vagueness in order to avoid endless litigations. Law must be simple, easy to understand, no vagueness and clarity is most essential


Approval of Resolution Plan under IBC: A Raging Controversy on Tax Assessments of earlier years

  1. Raj Shipping Agencies Barge Madhwa & Anr., and other connected matters, 2020 SCC OnLine Bom 651.
  2. CIT v. Monnet Ispat and Energy Limited (2018) 18 SCC 786.
  3. Sundaresh Bhatt, Liquidator of ABG Shipyard Central Board of Indirect Taxes and Customs [2022] 141 47 (SC).
  4. See Statements of Objects and Reasons of
  5. Kridhan Infrastructure Private Limited Venkatesan Sakaranarayan & Ors. 2020 SCC OnLine SC 889.
  6. Mohanraj and Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258.
  7. Binani Industries Bank of Baroda & Anr. 2018 SCC OnLine NCLAT 521 – confirmed by the Supreme Court in 2020 SCC OnLine SC 1185.
  8. See Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,
  9. Ghanashyam Mishra & Sons Pvt. Ltd. (supra), Karad Urban Cooperative Bank Limited v. Swwapnil Bhingardevay & Ors (2020) 9 SCC 729, K. Sashidhar v. Indian Overseas Bank & Ors (2019) 12 SCC 150, Committee of Creditors of Essar Steel India Limited Satish Kumar Gupta & Ors. (2020) 8 SCC 531, Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors. (2020) 11 SCC 467, Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr. (2021) 10 SCC 401.
  10. Swiss Ribbons Ltd. and Ors. v. Union of India (UOI) and Ors. (2019) 4 SCC 17.
  11. Committee of Creditors of Essar Steel India Limited Satish Kumar Gupta & Ors. (supra).
  12. (2022) 6 SCC
  13. 2021 SCC OnLine Bom 6187 : [2022] 441 ITR 8 (Bom.).
  14. MANU/TL/0061/2022.
  15. ITA 832 of 2017 and 2014 of 2018 (Order dated 25th October 2021 passed by the Bombay High Court).
  16. 2021 SCC OnLine Mad
  17. Writ Appeal 1849 of 2021.
  18. Judgement dated 6th September 2022 in Civil Appeal 1661 of 2020.
  19. [2022] 139 com 493 (Mad.).
  20. Order dated 15th September 2021 passed by the Supreme Court in Civil Appeal 3290 of 2017.
  21. See Rajya Sabha debates on 29th July 2019 when the Bill for amending IBC came up for
  22. Ibid.
  23. [2022] 445 ITR 15 (Bom.).

 Liability in special cases

  1. Effective from 10.1975
  2. Yeshwant Raghunath Bhide ITO (1974) 94 ITR 0370
  3. UOI & v. Manik Dattatreya Lotlikar (1988) 172 ITR 1, Cf. Ratanlal v. ITO 130 ITR 797
  4. [(1979) 118 ITR 57]
  5. Memorandum to Finance Bill, 2022
  6. Gadadhar Dey & v. Tax Recovery Officer & Ors. (1974) 96 ITR 543
  7. Ebrahim & Ors. v. DCIT 332 ITR 122, Pravinbhai M. Kheni v. ACIT 353 ITR 585
  8. Arvind Kumar Gupta 276 ITR 373
  9. Darshan CIT 222 ITR 608
  10. V. Reddy & anr. v. ACIT & Anr (1998) 232 ITR 306; Dipak Dutta v. UOI & Ors. (2004) 268 ITR 302; Indubhai T. Vasa (HUF)
  11. Income-Tax Officer (2006) 282 ITR 120
  12. Writ Petition 1122 of 2018, High Court of Bombay, Date of Decision: 26.04.2018
  13. [(2017) 394 ITR 0 321 (Guj)]
  14. Rajendra Singh versus Assistant Commissioner of Income Tax and Ors. [WP/3590/2019 date- 26th July 2022

 Substantive Rights of Taxpayers in an International Context

  1. R Avi-Yonah, ‘International Tax as International Law’ (2004) 57 Tax L Rev
  2. ICJ, Nottebohm (Liechtenstein v Guatemala), Rep 1955, [1955]; cf also S Gad o, ‘The Principle of “Nexus” or “Genuine Link” as a Keystone of International Income Tax Law: A Reappraisal’ (2018) 46 (3) Intertax 194 and ff. S Gad o, ‘The Principle of “Nexus” or “Genuine Link”’ 206; see generally, C Ryngaert and D Hora Siccama, ‘Ascertaining Customary International Law: An Inquiry into the Methods Used by Domestic Courts’ (2018) 65 Netherlands International Law Review 1–25.
  3. Article 25 of the OECD/UN model convention, Action 14 of the BEPS convention
  4. Mutual Agreement Procedure
  6. Adam Smith : Wealth of Nations 1776
  7. With the notable exceptions of some Middle Eastern and South American schools of
  8. Karen Steyn (1997) Consistency – A Principle of Public Law?, Judicial Review, 2:1, 22-26
  9. See for example Press Release from the German Supreme Court : Press Release 9/2016 of 12 February 2016, Case: BVerfG, Order of the Second Senate of 15 December 2015 – 2 BvL 1/12 -, paras. 1-26, For the contrary viewpoint see Sanofi Pasteur Holdings SA vs Department of Revenue , Ministry of Finance ([2013] 30 222 (Andhra Pradesh)/[2013] 213 Taxman 504 (Andhra Pradesh)/[2013] 354 ITR 316 (Andhra Pradesh)/[2013] 257 CTR 401 (Andhra Pradesh)[15-02-2013] ), Despite both being dualist nations.
  10. Inland Revenue Commissioners Duke of Westminster [1936] A.C. 1; 19 TC 490.
    247 CTR 1 (SC)[20-01-2012]
  11. Concentrix Services Netherlands B. V. v. ITO [2021] 127 43/434 ITR 516 (Delhi), Deccan Holdings BV v. ITO ([2021] 133 94 (Delhi)/[2022] 284 Taxman 300 (Delhi)/[2022] 445 ITR 486 (Delhi)[25-10-2021]), Steria (India) v. CIT [2016] 72 1/241 Taxman 268/386 ITR 390 (Delhi) (para 8), Apollo Tyres Ltd. v. CIT International Taxation [2018] 92 166 (Kar.) (para 8), EPCOS Electronic Components S.A v. Union of India [2019] 107 taxmann. com 227/266 Taxman 23 (Delhi) (para 8), Corocraft Ltd. v. Pan American Airways Inc. [1968] 3 W.L.R. 1273 (CA) (para 18), Fothergill v. Monarch Airlines [1980] 3 W.L.R. 209 (para 18)
  12. Hon’ble Supreme Court in Union of India Ashish Agarwal [2022] 138 64(SC) dated [04-05-2022]
  13. Definition of intermediary as per Art3(21) of EU Council Directive 2011/16 (Amended)
  14. Vodafone Intl Holdings BV v. UOI [2012] 17 com 202 (SC)/[2012] 204 Taxman 408(SC)/ [2012] 341 ITR 1 (SC)/[2012]
  15. Also see OECD BEPS Multilateral Instrument Article , Art 6 & 7
  16. High Court of South Africa, Pienaar Brothers (Pty) Ltd v Commissioner for the South African Revenue Service, case 87760/2014, 20 ITLR 284 [2017], CJEU, judgment of 26 April 2006, Goed Wonen, case C-376/02, ECLI:EU:C:2005:251 [2006]
  17. Starr International Co Inc v. USA (20 ITLR 94), Alta Energy Luxembourg SARL v R (2018) TCC 152, Mitsubishi Corp India Pvt Ltd vs DCIT ITA 5041 of 2011 (Del), Petition of Bayerische Beamtenkrankenkasse AG(DTA No 824762, 20 ITLR 357), Saint Gobain C-307/97 , Memec PLC v. CIR [1998] STC 754 etc….
  18. Japanese Taxation of Internet Sales [2016] 19 ITLR 346, DIT E-Funds IT Solutions [2017] SLP no 27494 of 2017
  19. Luxembourg and Amazon State Aid [SA 38944V], Maruti Suzuki India v. ACIT [2013], PCIT vs Mphasis Ltd[2021] 133 com 275 (SC)/[2022] 284 Taxman 458 (SC)[20-09-2021]
  20. Boake Allen Ltd vs Revenue and Customs Commissioners [2007] UKHL 27 (House of Lords)
  21. Circular no. 3/2022 [F.NO. 503/1/2021-FT&TR-I], dated 3-2-2022, clarification regarding the most-favoured-nation (MFN) clause in the protocol to INDIA’S DTAA’S with certain countries issued by the CBDT, inter alia ; Sanofi Pasteur Holdings SA vs Department of Revenue , Ministry of Finance ([2013] 30 222 (Andhra Pradesh)/[2013] 213 Taxman 504 (Andhra Pradesh)/[2013] 354 ITR 316 (Andhra Pradesh)/[2013] 257 CTR 401 (Andhra Pradesh)[15-02-2013], Concentrix Services Netherlands B. V. v. ITO [2021] 127 43/434 ITR 516 (Delhi) , Deccan Holdings BV vs ITO ([2021] 133 taxmann. com 94 (Delhi)/[2022] 284 Taxman 300 (Delhi)/[2022] 445 ITR 486 (Delhi)[25-10-2021]), Steria (India) Ltd. v. CIT [2016] 72 com 1/241 Taxman 268/386 ITR 390 (Delhi) (para 8), Apollo Tyres Ltd. v. CIT International Taxation [2018] 92 taxmann. com 166 (Kar.) (para 8), Also See Treaty of Functioning of the European Union : Non-Discrimination Article 18.
  22. Ibid 21 above…
  23. Ram Jethmalani v UOI and Ors [2011] 13 com 189 (SC)/[2011] 202 Taxman 115 (SC)[23-09-2011]
  24. Intergovernmental Agreements, FATCA, The Information Exchange Agreement, Article 26 OECD and UN Model Conventions, OECD BEPS MLI Article 6
  25. Alexandru Bittner, Petitioner United States (20-40597)
  26. Ram Jethmalani vs UOI [2011] 13 189 (SC)/[2011] 202 Taxman 115 (SC)[23-09-2011], CCT v. Shukla Brothers 2010 (4) SCC 785 , New India Assurance Co. Ltd. v. Nusli Neville Wadia [2008] 3 SCC 279, State of Kerala v. K.T. Shaduli Grocery Dealer [1977] 2 SCC 777, Tribunal (TM) in Sunil Agarwal v. Asstt. CIT [2002] 83 ITD 1 (Delhi) (TM), CIT v. Virgin Securities & Credits (P.) Ltd. [2011] 332 ITR 396/[2012] 20 681 (Delhi) , CIT v. SMC Share Brokers Ltd. [2007] 288 ITR 345/159 Taxman 306 (Delhi), Vasantlal & Co. v. CIT [1962] 45 ITR 206 (SC), CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103 (Cal.).
  27. State of UP Sudhir Kumar Singh, 2020 SCC OnLine SC 847

History of ADR Legislation in India Since around 1772, conflicts could be referred to arbitration at either the parties’ request or at the court’s discretion. The Code of Civil Procedure was then passed in 1859, with sections 312 to 327 mentioning arbitration. However, in 1882, the parts relating to arbitration were repealed.

The Indian Arbitration Act, 1899 was passed in 1899 to implement an alternative dispute resolution process in India. The law was modelled on English law.

The CPC was then once more changed in 1908, and section 89 with the second schedule granted the courts broad authority to submit conflicts to ADR mechanisms. Then, upon reading Section 89 of the Indian Arbitration Act of 1899 and the 2nd schedule of the Code of Civil Procedure, 1908 both were found to effectively deal with arbitration.

After that, India ratified the Geneva Convention in 1937, and concurrent legislation in the shape of The Arbitration (Protocol and Convention) Act, 1937, was introduced. The Arbitration Act, 1940 was passed in place of The Indian Arbitration Act, 1899 and section 89 with the 2nd schedule of the CPC.

In force then, in India were the Arbitration (Protocol and Convention) Act, 1937 for the enforcement of foreign awards, and the Arbitration Act, 1940 for the referral of disputes to ADR mechanisms. Later, The Foreign Award (Recognition and  Convention) Act,  1961 was passed, as India entered the New York Convention.

In the 1981 case M/s. Guru Nanak Foundation Rattan Singh & Sons, the Supreme Court provided an off-quote description of the Arbitration Act, 1940. Legal philosophers have wept and lawyers have laughed over how the processes under the statute are conducted, according to the statement. The act’s proceedings have grown increasingly complicated and prolix, offering a legal trap to the unwary at every stage, as evidenced by experience and several legal reports.

India ratified and accepted the UNCITRAL model legislation on international commercial arbitration in 1985. The Arbitration and Conciliation Act, 1996, which was modelled after the UNCITRAL model law, eventually repealed and consolidated The Arbitration (Protocol and Convention) Act, 1937; The Arbitration Act, 1940; and The Foreign Award (Recognition and Convention) Act, 1961. Section 89 with Order X (Rules 1A to 1C) was reintroduced in CPC in 2002 to improve the effectiveness and efficiency of the legislation. In 2015 and 2019, there were two amendments to the Act of 1966. However, we had a consolidated, single, effective, efficient, and good piece of legislation to deal with the ADR system.

Implications  of  Arbitration  and Conciliation (Amendment) Act, 2021

On March 11th, 2021, the Central government passed  the Arbitration  and  Conciliation(Amendment) Act, 2021, and on November 4th, 2020, it took force. The following are some of the key changes made by the Arbitration and Conciliation (Amendment) Act of 2021:

1. Automatic Stay on Awards

In cases where it is prima facie established that (a) the arbitration agreement or contract that serves as the basis for the award; or (b) the decision-making process itself, was motivated by, affected by, or related to fraud or corruption, Section 36 of the Act has been expanded to include that the court shall stay the award unconditionally.

The 2021 Amendment provided that the parties to the arbitration could approach the court by submitting an application contesting such award under Section 34, which includes, among other things, evidence of the arbitration agreement’s invalidity. However, Section 36(2) of the statute prohibits doing so unless the court finds it appropriate to do so. It was made clear in the 2015 Amendment Act that simply because a request to set aside an arbitral award has been made to the court, the arbitral award will not necessarily be automatically stayed.

The amendment to the proviso of Section 36(3) essentially helps parties in side- stepping the extra proceedings which have to be undergone to review and set aside an arbitral award and enables early detection of fraud.

2. Widening  the Scope of Qualifications for Arbitrators

The Act’s section 43J has been replaced, and the new section stipulates that the regulations must describe the qualifications, experience, and norms for accrediting arbitrators. The Act’s Schedule VIII has been left out. These requirements were primarily focused on the arbitrator’s background as a lawyer, chartered accountant, cost accountant, or company secretary. Among other conditions, an officer of the Indian Legal Service who has had a law degree for more than ten years was required. The Schedule also set forth eight general standards that an arbitrator was required to abide by in order to qualify under the Act. They used to be ineligible under the Act if they didn’t fulfill one of the requirements mentioned in the Schedule.

The Amendment Act has increased the range of qualifications to include those with strong knowledge in a particular field by deleting the Eighth Schedule.

Moreover, the substitution of Section 43J specifies that the qualifications of arbitrators would be determined by “regulations,” which, as defined by Section 2(1)(j), include regulations set by the Arbitration Council of India. By giving the Council this authority rather than specifying requirements for arbitrators, it is possible to designate arbitrators who have expertise in a wider range of subjects than law, chartered accounting, etc.

On a global scale, each nation has its own requirements for arbitrators. There are a few common guidelines that must be observed, though. The qualifications of arbitrators in some circumstances must be based on the person’s nationality, according to the United Nations Commission on International Trade Law’s (UNCITRAL) 1985 Model Law on Arbitration, which also describes the role of various involved stakeholders in arbitration proceedings. The Amendment Act also grants the Commission the discretion to take the provisions of the UNCITRAL Model Law into consideration when appointing foreign arbitrators by substituting Section 43J.


The growth of the Indian ADR system is very clear from the yearly notification of back-to-back modifications. Over the past few years, a number of measures and amendments have been put out to make our nation more and more arbitration- friendly. Scholars have both praised and criticized these new adjustments from various perspectives. Others see it as a simple desire to address the objectives of alternative dispute resolution. Some regard these modifications as improvements for improved international support and involvement.

The Amendment creates a new stage for the award to demonstrate its power while, on the one hand, preventing compromise of the arbitrator appointment process. India needs to make the process of enforcing an award simpler by lessening the likelihood that the parties will employ delay strategies. It cannot be disputed that a country’s enforcement system directly affects its ease of doing business and, as a result, the inflow of foreign capital.

Insofar as it corrects the 2019 Amendment’s inconsistencies, the Amendment will be beneficial, however, it might not be well received by international investors. Foreign investors will still prefer to have the seat elsewhere due to their concern that the award may join the long list of ongoing legal cases.

Mediation Bill 2021

In July 2021, the Chief Justice of India Justice V. Ramana while giving a speech at the India- Singapore Mediation Summit, said that “Mediation should be made mandatory as a First Step in Dispute Resolution and that a Law should be framed in this regard.

The Ministry of Law and Justice circulated the Draft Mediation Bill, 2021 on November 5th, dated October 29, 2021 (Draft Bill), available for public discussion, and requesting input from all parties.

The Draft Bill seeks to enable and advance mediation in India, notably institutional mediation for conflict resolution, to promote community mediation, and to make online mediation a respectable and affordable procedure. As India is a party to the Singapore Convention on Mediation, it wants to create an independent law on mediation and takes into account the international practice of using the terms “conciliation” and “mediation” interchangeably.

Key Elements of the Mediation Bill 2021

  • Pre-litigation mediation: Before  going to court or some tribunals, parties must attempt to resolve their civil or business disputes through mediation. The court or tribunal may refer the parties to mediation at any time if they desire it, even if pre- litigation mediation fails to result in a settlement.
  • Conflicts unsuited to mediation: The Bill includes a list of conflicts that are unsuited to mediation. These include conflicts involving claims made against juveniles or people who are not of sound mind, criminal prosecution, and third-party This list may be changed by the national government.
  • Applicability: The Bill will be applicable to mediations held in India if they (i) involve only Indian parties, (ii) involve at least one foreign party and are related to a commercial dispute (i.e., international mediation), and (iii) if it is explicitly stated in the mediation agreement that the Bill will apply to the mediation. The Bill will apply to (a) business disputes and (b) other disputes as notified if the federal or state governments are parties.
  • Process of mediation: The mediation will be private and must be finished in 180 days (may be extended by 180 days by the parties). After two sessions, a party may leave the mediation. The rules established by the Supreme Court or High Courts must be followed when conducting court- annexed mediation.
  • Mediators: Mediators may be chosen by I the parties in a written agreement or (ii) a provider of mediation services (an institution administering mediation). Any conflict of interest that would cast doubt on their objectivity must be disclosed. The mediator may then be replaced by the parties.
  • Indian Mediation Council: The Indian Mediation Council will be established by the national government. A chairperson, two full-time members (with mediation or ADR expertise), three ex-officio members (including the Law Secretary and the Expenditure Secretary), and a part-time member from an industry association will make up the Council. The Council’s duties include: (i) registering mediators; (ii) recognising mediation service providers and institutes; and which train, educate, and certify mediators.
  • Agreement reached through mediation: Other than community mediation, agreements reached through mediation will be final, binding, and enforceable in the same way that court judgements are. They could be contested for the following reasons: (i) fraud; (ii) corruption; (iii) impersonation; or (iv) relating to issues that are unsuitable for mediation.
  • Community mediation: Attempts at community mediation may be made to settle disagreements that could have a negative impact on the peace and harmony among local residents. A panel of three mediators will oversee it (may include persons of standing in the community, and representatives of resident welfare associations).

Missing Pieces of Legislation

  1. Public Policy Issue  An international mediated settlement may be contested under the Bill on various grounds, one of which is that it violates India’s “public policy.” The Bill then clarifies that one of the grounds under which the settlement agreement may be held to be in conflict with the public policy of India is if it is in contravention with the “fundamental policy of Indian law,” borrowing language from the Arbitration and Conciliation Act (“Arbitration Act”). The phrase “basic policy of Indian law” has not been defined in the Bill, similar to the Arbitration Act, leaving the interpretation of the phrase to the discretion of the Courts. The public policy ground has been routinely abused by the parties in an arbitration to postpone the implementation of an award, despite the Courts’ efforts to put some clarification on the phrase in recent years. The exact boundaries of the word also remain ambiguous. Similar issues are expected to arise when international mediated agreements are enforced, so further clarification is needed in this area.

II. Ambiguity

Many of the provisions in the aforementioned Bill are ambiguous and need to be clarified. For instance:

  • If a party has more than one place of business, the one with the closest ties to the mediation agreement is the party’s primary place of business, according to Explanation 1 to Subsection (1) of Section 2. The aforementioned explanation is ambiguous and poorly written. The definition of the phrase “closest relationship to the mediation agreement” is not made explicit in the Bill. Such misconception may imply and lead to a variety of additional legal disputes.
  • Without attempting to define or clarify the parameters of “gross impropriety,” the Bill states that a domestic mediated settlement may be contested. The parties may have a lot of room to reject the implementation of a settlement agreement if there is a lack of clarity by claiming that any and all challenges are motivated by “gross “
  • Even though the Bill has notably offered a list of disagreements that may not be appropriate for mediation, it is imperative to add other tests, rules, or criteria that may be used to determine if a dispute is appropriate for The terminology used in Schedule II of the Bill, which is related to Section 7 and gives the list of disputes not suitable for mediation, and Section 7 of the Bill, which provides the substantive provision relating to instances not suitable for mediation, are inconsistent. Schedule II lists “disputes which may not be suitable for resolution through mediation under Part 1,” contrary to Section 7 that “mediation under this Part shall not be conducted for resolution of any dispute.” A clarification of the legislative intent by harmonising and using the same terminology for the said section and Schedule would lead to a lesser degree of confusion and provide the much-needed clarity, even though there are precedents that show that Section 7 of the Bill would prevail as against Schedule II.

III. Lack of Refinement

  • What rules would apply to an international mediation that takes place in India but deals with non-commercial disputes that have arisen under foreign law and is not covered by either Part I or Part III of the Draft Bill is not specified in the legislation.
  • The Bill makes no mention of the repercussions of failing to register a mediated settlement agreement.
  • The Bill omits some of the crucial details pertaining to secrecy under the Civil Procedure Mediation Rules because it fails to recognise the layers linked to confidentiality in mediation. For instance, Rule 20(2) of the Civil Procedure Mediation Rules, among other things, states that “when a party gives information to the mediator subject to a specific condition that it be kept confidential, the mediator shall not disclose that information to the other party” The Bill makes no reference to the aforementioned premise. Instead, a less nuanced, more universal principle has been incorporated into the Bill.


In India, there has never been a specific piece of legislation passed with the intention of mediating disputes. Therefore, the initiative to codify the legislation on mediation is a wise move because it will greatly reduce the backlog of cases in the Indian judicial system and ensure that the people receive justice promptly.

In conclusion, the Bill is undoubtedly a step in the right direction for the acknowledgment and development of mediation and includes a fair share of beneficial aspects. In addition to fostering more confidence and trust in the mediation process, a stand-alone law on mediation will facilitate the resolution of conflicts between enterprises and commercial entities in India. At the same time, it is crucial that the drafters solve the shortcomings and issues mentioned above in order to guarantee that the Mediation Act, once it is passed, contains detailed rules that, in actuality, make the ADR mechanism of mediation more convenient.

(Source: This article is published in souvenir of National Tax Conference which was held on 6th & 7th August, 2022 at New Delhi)


The Supreme Court in UOI v. Ganpati Dealcom (P) Ltd [2022] 141 389 (SC) considered the retroactive application of the provisions dealing with prosecution and confiscation under the Benami Transactions (Prohibition) Amendment Act, 2016 [for short the ‘2016 Act’]. While deciding with the same, the Supreme Court also decided the legality and constitutional validity of the provisions dealing with the prosecution and confiscation under the Prohibition of Benami Property Transactions Act, 1988 [for short ‘the 1988 Act’] i.e. after nearly 34 years. The reason for deciding the constitutional validity of a provision after a period of 34 years is explained hereinafter. An attempt is made to explain the ratio of the Supreme Court , reason for deciding the constitutional validity of provisions dealing with prosecution and confiscation under the 1988 Act and the ramifications of the Supreme Court decision in a simplified manner.

Relevant legislative Scheme of the 1988 Act and the 2016 Act, it’s interplay and it’s implementation by the Government


Under the 1988 Act, Section 3 sub-Section (3) provided that “Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.” However, till 2016 no prosecution was ever launched by the Government.

Under the 2016 Act, Section 53 provided that “where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami shall be guilty of the offence of benami transaction.” and that such person was punishable with rigorous imprisonment for a term which shall not be less than one year but which may extend to seven years and will also be liable to fine which may extend to 25% of the fair market value of the property.

Thus, the maximum period of imprisonment prescribed u/s 53 by the 2016 Act was more than that prescribed under Section 3 of the 1988 Act. As a result, the Government purportedly started or desired to prosecute the benamidars and the beneficial owners of a benami transaction u/s 53 of the 2016 Act even if the Benami transaction took place prior to 2016 under the pretext that the 2016 Act has retroactive application as same is only an Amendment Act and procedural in nature. The action of the Government in initiating action under the 2016 Act was challenged before various High Courts, majority of which ruled that the 2016 Act cannot apply retrospectively.

At this Juncture it is important to note that the 2016 Act did not delete Section 3 sub-section Ramification of Recent Supreme Court Decision . . .

(3) of the 1988 Act but it was renumbered as Section 3 sub-section (2). Thus after the 2016 Act, punishment for entering into the benami transaction was provided u/s 3(2) as well as Section 53. Thus, to overcome the issue of retrospectivity, the Government in several cases contended that prosecution was launched or will be launched u/s 3(2) and not under Section 53 as Section 3(2) existed since 1988 and thus if a Benami transaction has taken place prior to 2016, still prosecution can be launched.

Thus, the controversy before the Supreme Court was not limited to retrospective applicability of Section 53 of the 2016 Act but also extended to legality and validity of Section 3(2) of 1988 Act as amended by the 2016 Act.


Under the 1988 Act, Section 5 provided that “all properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure, as may be prescribed”. However, no authority, manner or procedure was prescribed till the 2016 Act was brought in force. Thus, till 2016 no confiscation/ acquisition proceedings had ever taken place. The 2016 Act substituted Section 5 and provided that “Any property, which is subject- matter of benami transaction, shall be liable to be confiscated by the Central Government”. Further Section 27 to 29 provided for the procedure of confiscation.

The Government contended that confiscation is a civil punishment and thus confiscation provisions introduced by the 2016 Act would apply even to benami transactions entered into prior to 2016 as power to confiscate was available even under the 1988 Act. Thus, the controversy before the Supreme Court was not limited to retrospective applicability of confiscation provisions introduced by the 2016 Act but also extended to legality and validity of Section 5 of the 1988 Act as amended by the 2016 Act.

Other Provisions

Apart from the provisions concerning prosecution and confiscation, the 2016 Act also brought into effect certain substantive changes in the law such as it provided definition of beneficial owner which was not there in the 1988 Act. Under the 1988 Act only a tripartite benami transaction was recognised whereas under the 2016 Act the gamut of benami transaction also included bi-partite transaction. Under the 2016 Act even proceeds from a benami property was a benami property. The definition of benami property as well as benamidar was widened. Hence the issue arose whether such expanded definition of benamidar, beneficial owner and benami transaction could be applied to transactions undertaken prior to the enactment of the 2016 Act.

Findings of the Supreme Court.

The findings of the Supreme Court can be summarised as under :

  1. Section 3(3) of the unamended 1988 Act was declared as unconstitutional for being manifestly Further, Section 3(2) of the 2016 Act was also declared unconstitutional as it was violative of Article 20(1) of the Constitution. In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was held to be unconstitutional for being manifestly arbitrary. In rem forfeiture provision under Section 5 of the 2016 Act was held to be punitive in nature and thus could only be applied prospectively and not retroactively. It was held that the 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.
  2. It was held that the concerned authorities under the 2016 Act cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed.
  3. The Court left open the question of constitutional validity of forfeiture proceedings contemplated under the 2016 Amendment Act.


The decision of the Supreme Court is a well reasoned order considering each and every argument of the Government as well as that of the purported benamidars and beneficial owners. However, the decision will have many unintended consequences as it has weakened the fight of the Government against corrupt politicians, bureaucrats and various businessman who have purchased properties with dubious means after obtaining accommodation entries and a mechanism of an Amendment Act was thought off by the Government to bring them under the ambit of Benami Law and to prosecute them and confiscate their benami properties. Empirically it was seen that the action under the 2016 Act was initiated mostly on the basis of various investigations carried out by Income tax department and other investigation agencies prior to 2016 wherein details of various benami transactions were unearthed.

The changes in the 1988 Act were made as part of the government’s assault on black money and was one of the harshest steps taken by it along with the demonetisation of high-value bank notes with this intent. The Finance Minister, Nirmala Sitharaman, on July 02, 2019 in Rajya Sabha said, till May 31, 2019, show cause notices under the Prohibition of Benami Property Transactions Act, 1988, was issued in over 2,100 cases involving benami properties valued at over Rs. 9,600 crores. All these actions, majority of which were against benami transactions entered into prior to 2016 will be nullified now.

However, it is surprising that the Government did not produce (as nothing is mentioned in the order) any statistics about the nature of actions initiated under the 1996 Act and the consequences it will have on the fight against black money. Also, no stress appears to have been given by the Government in it’s arguments on the jurisprudence on economic offences. In State of Gujarat v. Mohanlal Jitamali Porwal & Ors (1987) 2 SCC 364 it was held as under :

“The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to book. A murder may be committed in the heat of movement upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequences to the community”.

In Ram Narain Popli v. CBI (2003) 3 SCC 641 (SC) it was held as under :

“… Unfortunately the last few years, the Country has seen an alarming rise in white-collar crimes which has affected the fibre of the Country’s economic structure. These cases are nothing but private gain at the cost of public, and lead to economic disaster.”

The above arguments which go to the root of the matter could have convinced the Supreme Court to consider the phrase “Better Late than never”.

The decision of the Supreme Court on retroactive application of the benami law will also put the Government on the back foot in the hotly contested issue of the retroactive application of ‘Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’.

The taxpayer in any taxing ecosystem is the most underrated but yet the most valuable part. He is the salt, which is the most unassumed part of the tax monetary chain, without whom no fiscal satisfaction can be derived. He is the unpaid worker of the central government, who pays to work for the government, without necessarily having to have any criteria for the qualification, and neither does he ask for any.

But, ask any professional or the authority, and the taxpayer always comes out to be the most problematic part of the equation, consciously suppressing the fact that without the taxpayer, neither the professional nor the authority survive. Taxpayers finance the operations of authorities, are responsible for the subsidies and prestige of institutions like the IIT’s and IIM’s, or the medicinal studies, but, they are seldom given credit for their contribution towards financing the national or international ecosystem. Indisputably, taxpayers are to each jurisdiction, what sugar is to sweets. But, have we ever heard about the taxpayer being celebrated on a large scale? No, but authorities are and professionals are.

At the end of it all, tax is but a cost of survival in a society that is borne by the taxpayer. Better arranged societies have a general higher incidence of “such cost” as opposed to societies where social and economic quality of life is inferior to those.

Which begs the question, if the taxpayer, is so underrated and vulnerable, and possibly “exploited”, what do taxing ecosystems offer in terms of the rights of the taxpayer, what are the protections that are in place, so that the “cost” of survival doesn’t outperform the “exploitation”. Which in all fairness are the substantive hallmarks of an effective taxing ecosystem?

The following are a series of thoughts by the present author on the largely unexplored domain on taxpayers’ rights in an international arena, where soft law prevails over hard law, for much of the area, and diplomatic interests override even soft law. A key area of the present discussion would arrange itself within the tax ecosystem around independent, private persons. Arranged in a two-part series, the first part (present) deals with principally what the author conjures, a concoction of relevant principles on international tax payer rights, and the second would deal with how those principles are dealt with in principal jurisdictions in Africa, Asia, Australia, Europe, and North and South America respectively with a particular review of Taxpayer’s Charters.

Public International Law has long been an exclusive forum for largely salt and pepper International Law practitioners who do not regard tax as a pure subject of law and much less for any rights. But international tax law poses a peculiar matrix, more so, with the intertwining of public and private international law, owing to the public nature of tax law and its interposition by its public authorities, with its private interaction with the taxpayer, in some cases, and also sometimes as an extension of soft law, (producing effects on taxpayers as if it were a mere exercise of sovereignty of the state concerned) and in other cases, forming a totally public interaction within states concerned directly.

Any taxing jurisdiction, in the international arena, is putatively within its rights to tax subjects within its defined domain, however, this is subject to co-operation of a defined nexus. Although there is some disagreement between scholars and practitioners alike, but by and large, there is now a generally positive answer to the very famous question by Avi-Yonah “Is there a customary International Tax Law”?1. The view espoused 2comes out that there is (and the same has been supported judicially as well as in administrative practice), and within the ambit of which no domestic taxing system would be applicable to any taxpayer unless there is by and large either a personal or a territorial or quasi functional-territorial nexus (POEM et al.). Also pertinent to note is the fact that all across the spectrum, a general consensus exists on treaty based taxing systems in that they and their interpretations and commentaries are mostly based on either of the three most popular (OECD, UN, US) models, so as to provide some sort of consonance of analogy across the board, especially in matters of tax set- off, anti-abuse, fighting aggressive tax planning and avoidance, lending credence to the fact there is a coordinated effort leading towards customary law. This enhancement has gained more momentum during the fin de siècle and the earlier part of the 21st century, owing to the reactionary measures of jurisdictions, towards aggressive tax planning of MNE’s.

However, this entire sphere of co-ordination for protection of the tax bases of jurisdictions, has by and large been confined to public international law, so much so that states have generally assumed that taxes and thus rights emanating from them are by and large subjects between themselves, and that any consequence arising from such co-ordination are only for the benefits of the states. By and large there seems to be no interest, or maybe a perceived reluctance of states to put the interests of taxpayers when discussing or negotiating respective public international tax law. Or maybe just maybe, upholding taxpayers interests might be their Achilles’ heel.

Protection of taxpayers from abuse has been by and large a domestic phenomenon. The regulation of taxpayers rights has historically been a sovereign subject, so much that any attempts to regulate the same by way of private international law has not gathered any steam whatsoever. It would thus be painfully excruciating to point out a complete absence of substantive rights of a taxpayer in the international tax law arena.

Although, there have been attempts3 by some jurisdictions to allow for and conduct MAP4 proceedings (for in order to protect taxpayer’s) by and large attempts have proved unsuccessful, like for instance, the colossal failure of the Glaxosmithkline case5, in which due to the failure of the United States IRS and the United Kingdom HMRC to come up to an agreement over a corresponding adjustment, Glaxo had to cough up a princely US$ 1Bn, to buy peace with the IRS.

Over the course of the past four decades or so, owing to arising and rising complexities in tax laws and the frameworks, allegiance to substantive rights of taxpayers have slowly been gaining traction, especially over situations, wherein despite the presence of the more effective soft law, the rights of the administration trump over remedies to the taxpayer.

For to delve into what could be substantive rights of taxpayers in an international context, it is necessary to take a detour and go back to the founding father of modern taxing systems Adam Smith [6][7] which forms the very basis of almost all. To quote him “All nations have endeavored to the best of their judgement, to render their taxes as equal as they could continue: as certain; as convenient to the contributor, both in the time and in the mode of payment, and in proportion to the revenue, which they brought to the prince, as little burdensome to the people”. Of course, his text was with allegiance to the British Crown, but, the message goes through. Emphasizing the importance of his “canons” from the days of foundation of modern taxation, or at least the system which is mostly in practice.

With the advent of the modern-day digital economy, as with all things, the canons of an efficient taxation system have undergone a sea change, and in an age wherein access to the tax payer has become relatively easy, it becomes pertinent that rights of the taxpayer are protected in an international as well as a domestic context.

It is of course undisputed, that the protection as afforded should have some defined principles or guidelines, which should be unambiguous.

In the opinion of the author the foremost legal principles, that should be adhered to while designing anything for legal rights in fiscal matters, should at its very basic be backed by the following

  1. Consistency of fiscal law8: Although a subject of common law jurisdictions, it is nonetheless expected, that in all fairness, laws should be applied equally and without unjustifiable differentiation. Unless the statue provides for differentiation on treatment on account of special factors, like natural or legal origin, statute should provide for no other discrimination (for example gender, race or status), which renders, one person in unfair state of fiscal obligations as to the other bearing similar Furthermore, while designing any fiscal system, it must be borne in mind that, the person subject to the fiscal laws, should be aware of what is the reason for fiscal action, and what might be the consequences of his responses to such actions, both by law as well as I fiscal terms, at the time of action by the taxpayer. Although there are multiple cases of ambulatory treaty interpretation in soft fiscal law9, but, the approach should be avoided altogether, in taxpayer interest, as it leaves the taxpayer vulnerable to arrange his affairs, which should be the first and foremost right10. For the sake of discussion, it is important to distinguish between, consistency over a singular taxpayer over a number of years, and between different taxpayers in the same year. While the former may take the form of evolution of fiscal systems, the latter is the focus of this discussion on protection against any sort of discrimination11. It is vital that there be consistency in approach towards the taxpayer in private international law, as any inconsistency in approach for example in the case of corresponding adjustments, might lead to absurd results, and results which might lead to unfair discrimination leading to usurpation of rights of the taxpayer, and in fact hamper the very intention with which soft law was devised.
  1. Precise definitions and context: Economic activities are the very essence from which fiscal systems draw their survival. While in the dynamically changing world of today, with particular reference to fiscal abuse and avoidance, it is literally impossible for fiscal structures to adhere to a strict construction as per defined proverbs in law12, it is nonetheless, in the interest of taxpayers in particular, the majority of whom do not engage in fiscally abusive practices, that precise definitions be afforded so that they can be aware of fiscal outcomes, when they engage in Precision also allows professional13 and economic interpreters, to predict outcomes of fiscal predicaments with a reasonable certainty and to advise non-technical people in the aforementioned matters and also create an atmosphere to healthy fiscal compliance. The broad distinction that could lead to a bridging of this gap, would possibly come from the intent of the people entering into the transaction. If inherently abusive from its construction, then possibly leeway’s from precise context might be justified, however, invocation of an omnibus provision like a GAAR, without elements of abuse from the taxpayer might not be justified. In this context, we would be looking at provisions from different jurisdictions angle in the coming part, however, essential safe guards have to be in place to protect the taxpayer from such provisions, and taxpayers would be well within their rights to agitate against omnibus provisions in case of non-abusive practices.
  1. No retrospective/retroactive application of law: This has to be the bane of all things in fiscal outcomes. The most famous Vodafone14 case and its fallout in the international arena, gives an inkling at how the international fiscal community abhors retrospective amendments and that too of these Legal certainty being a basic principle of fiscal statutes, retrospective amendments tend to overturn the very basic premise. It delves to attempt to alter the very framework in which the taxpayer had taken the decision and manner in which to perform particular tasks. Very often larger businesses, which take strategic calls, often take years to implement them, and in those cases the consequences can be disastrous for the business. So unless, the very strategy involves abuse of fiscal structure of a jurisdiction, or abuse of a treaty network, with the intent to obtain unfair and/or unintended treaty benefits, as one of the principal objectives15, taxpayer interests should be protected. It emanates principally from the doctrine of legitimate expectation whereby a judicial review in administrative law can be made to protect a procedural or substantive interest when a public authority rescinds from a representation made to any stakeholder in an international/ domestic arena. It again emanates from the principles of natural justice, and it’s principal purpose is to prevent authorities from abuse of power. Although some retrospective application cannot be ruled out16 in order to combat fiscal abuse, however, this practice is by and large not to be looked favourably upon, and should be principally avoided considering the primacy of natural justice.
  1. Tax Rulings : Judicial ruling on items of fiscal interest and controversy, provide the taxpayer with certainty regarding his affairs. Quite frequently17, they are used to provide answers to vexed issues between taxpayers and fiscal authorities. Taxpayers from more or less in almost all jurisdictions, take comfort from the fact that judicial rulings provide a finality to disputes and the resultant is generally accepted by authorities. Frequent issues in an international context could be related to PE issues18, Arm’s length price acceptance19, Corresponding adjustment implications, non-discrimination20, and also with relation to certainty of interpretation of bilateral and multilateral conventions etc. It also provides confidence to the taxpayer, that unlike the relative reluctance of administrative authorities to accept international soft law principles, Higher judicial tax rulings generally provide for acceptance of the same. Even the oft disputed ALP concept although might lead to a different results from different jurisdictions, but still there is a semblance of a perfect answer, which settles a dispute.  Although the author at this instance would be reluctant to comment personally on the certainty of tax rulings as binding on authorities21, and acceptance by authorities, it goes without saying that unless this aspect is followed as a religion, by both taxpayers and authorities, the whole fiscal system would collapse like a pack of cards. Of particular interest as in contemporaries is the conflict between the position of the CBDT22 and Article 18 of the Treaty of Functioning of the European Union, (which your author would be making a comment of in a short sphere of time, please watch this space).
  1. Application of soft law over hard law : Soft Law and hard law are two of the most debatable issues as far as taxpayer rights are Soft law is what are voluntary obligations that are submitted to by a jurisdiction in either matters of international law, for e.g. the Vienna Convention, disputes before the Permanent Court of Arbitration, the Geneva Convention, United Nations Resolutions etc. India, though not a signatory and thus not ratified, for the Vienna Convention on Law of Treaties, has accepted it judicially as soft law for interpretation of treaties23. In contrast hard law refers generally to legal obligations that are binding on the parties involved and which can be legally enforced before a court. In monistic jurisdictions like Belgium, treaty law automatically becomes part of municipal law, but in dualist jurisdictions like Germany or India, treaties have to be incorporated into domestic law. India exhibits a more complex situation Tax treaties that India enters into has to be ratified by the Parliament, since treaty law is not automatic municipal law in India and the same can be incorporated into the legal framework only once it is ratified, thereby exhibiting dualistic tendencies. However, section 90(2) of the Income Tax Act portrays a monist nature of the Tax law in India. According to section 90(2) , treaty law if more beneficial to the assessee is automatically given precedence over Tax Law, thereby exhibiting a superior nature of treaty law over municipal law. It is in the interest of the taxpayer, that he be allowed to choose from either the hard law or the soft law on what could be beneficial to him. However, controversies remain, and pending decisions.
  1. Stabilization Agreements : Referred to as Advance Pricing Agreements, provides the taxpayer with a regime of certainty with regards to taxes, particularly like that of India for a previous period and also a foreseeable five year period. These could be for any matter related to the parties ALP adjustments, Royalty agreements, FTS agreements. However, as has been witnessed in the Indian context, the program has not met with a desired degree of success, primarily owing to the reason of revenue wanting to protect its interests, rather than being forward looking and encourage investments. We shall be looking at this aspect in much more detail in part 2. However, having said, this is an important regime for the revenue to consider and would entail and instilling of confidence in investors, particularly when we are having controversies like Concentrix, Sofina SA, Sanofi, Vodafone, Deccan Holdings etc gathering the eye of the globe. Recently there has been rumors of global giants issuing guidance to their staff on what to avoid for the purpose of not having a deemed PE in India.
  2. Privacy of information of the taxpayer : This possibly is the most conflicting of all domains when considering the rights and protections of taxpayers. The data protection domain, taxpayer information sharing, is a conflict, that is a pandora’s box. On one hand we have we have the taxpayer who wants his data confidential which is his right, on the other had we have the revenue which wants to share information, under information sharing agreements24, to gauge on data to impose more taxes on the taxpayer. Although this is largely an unexplored domain, but automatic data exchanges have started under CRS(Common Reporting Standard) between various jurisdictions, and thus notices are being issued in escaped income and capital world over. There was a recent judgement25 by the SCOTUS on FBAR penalties in the United States, which is all about information exchange. More on this on a by jurisdiction basis.
  1. Audi Alteram Partem: The right of a taxpayer to be heard in a cause against him, is a primary feature of any taxing statute26, and is a must for any taxpayer in an international context. Although a breach of this on its singularity27 might not in itself be a cause for unfairness, but for protection of the taxpayer from any arbitrary unfairness it is imperative that proper notice be issued and care should be taken that considerations of the taxpayer are taken into consideration. On his part the taxpayer also needs to be aware of his rights and obligations, and needs to take steps to make necessary objections before the appropriate authority as per law in order to be a subject.


Buy Back of Shares means the purchase by the Company of its own shares. Buy Back of equity shares is an imperative mode of capital restructuring. It is a corporate financial strategy which involves capital restructuring and is prevalent globally with the underlying objectives of increasing Earnings Per Share (EPS), averting hostile takeovers, improving returns to the stakeholders and realigning the capital structure. Buy Back is an alternative way of Reduction of Capital.

Section 68 of the Company’s Act deals with the instance of buy back of its own shares by a company. The most important point to be considered under the Companies’ Act is that the buy back by a company can be made out of:

  • its free reserves;
  • the securities premium account; or
  • the proceeds of the issue of any shares or other specified securities: No buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
  • The buy-back has to be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company. But in case of Equity Shares, the same shall be taken as 25% of paid up equity capital only. Debt equity ratio should be 2:1. Where: Debt is aggregate of secured and unsecured debts owed by the after buy- back Equity is aggregate of the paid- up capital and its free reserves;
  • All the shares or other specified securities for buy-back are fully paid-up;
  • The buy-back in respect of unlisted shares or other specified securities is in accordance with the Share Capital and Debentures Rules, 2014.
  • No offer of buy-back shall be made within a period of one year from the date of the closure of the preceding offer of buy-back, if any.

The Companies’ Act as such does not prescribe the rate at which the buy back has to be done. In this context, the provisions of Section 115QA of the Income Tax Act would be relevant, which reads as under:

115QA. Tax on distributed income to shareholders.– (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income.

Provided that the provisions of this sub- section shall not apply to such buy-back of shares (being the shares listed on a recognised stock exchange), in respect of which public announcement has been made before 5th day of July, 2019 in accordance with the provisions of the Securities and Exchange Board of India (Buy-back of Securities). Regulations, 2018 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) as amended from time to time.

Explanation.-For the purposes of this section,-

  1. “buy-back” means purchase by a company of its own shares in accordance with the provisions of any law for the time being in force relating to companies;
  2. “distributed income” means the consideration paid by the company on buy- back of shares as reduced by the amount, which was received by the company for issue of such shares, determined in the manner as may be prescribed .
  1. Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on the distributed income under sub-section (1) shall be payable by such
  2. The principal officer of the domestic company and the company shall be liable to pay the tax to the credit of the Central Government within fourteen days from the date of payment of any consideration to the shareholder on buy-back of shares referred to in sub-section (1).
  3. The tax on the distributed income by the company shall be treated as the final payment of tax in respect of the said income and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid.
  4. No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the income which has been charged to tax under sub-section (1) or the tax

The government introduced the concept of buyback tax under Sec 115QA vide the Finance Act 2013, wherein tax at the rate of 20 per cent is to be levied on the amount of income distributed by unlisted companies. It is pertinent to note that this tax was initially applicable to income distribution by unlisted companies and not listed companies. Since the government was of the view that a similar practice should be adopted for listed companies given that there was also a tax arbitrage and, hence, the buyback tax was later extended to listed companies as well. This provision was made effective in respect of buyback undertaken from July 5, 2019. However, by the Finance (No.2) Act, 2019, w.r.e.f. 05.07.2019, by deleting the phrase ‘not being shares listed in a recognized stock exchange’.

The rationale for the introduction of the provision was that the companies resorted to buyback of shares in order to avoid dividend distribution tax. As the buyback was charged as capital gains in the hands of the shareholder, while dividend distribution tax was charged to the company. Therefore the amendment was introduced as an anti-tax avoidance measure.

The said amendment now brings at par both the methods of income distribution that is dividend payout and buyback of shares.

In fact, companies will now show a greater preference for the dividend payout as the buyback rules are more relatable to unlisted companies. The computation of “amount received by the company for the issue of shares” will lead to absurd results for listed companies.

Another concern that the amendment raises is that the shares of listed companies being tradeable pass through many hands. Every time a shareholder sells his shares, he will incur short term or long term capital gains on the differential price (Market price – Purchase price).

Now when the company buys back the shares, it again incurs tax on the differential price (Market Price – Issue Price). Therefore there is a possibility of double taxation. The same occurrence is less likely in the case of Unlisted Companies.

The company that has surplus funds and no viable investment opportunity to invest in will look to distribute the surplus. While dividend payout and buyback both result in payouts, buyback warrants a smaller shareholding and higher Earnings Per Share also compact ownership.

With this amendment, the tax implications under both methods stand at par and hence companies will have to consider all the factors before distributing its surplus either through buyback or dividend payout.

Rule 40BB prescribes the determination of Cost of acquisition to be deducted for computation of Income Tax Liability under Sec. 115QA. The said Rule covers various scenarios of buy back, however in normal scenario to calculate Income Tax of Buy Back of Shares, Amount received by the company is to be deducted from the Buy- Back price. This is because, the intention of Income tax Act is to tax INCOME distributed by the Company. Hence, if a Company buy backs its shares from secondary market, the Income component in the Buy Back price = Buy Back price – Issue price of shares.

Though, there is no restriction on the price of buy back from the Company’s Act point of view, however in order to reduce the Income Tax implications, it is to be taken care of that the buy back is not done at a rate more than the original issue price.


In my opinion, the shares received by the company pursuant to buyback for cancellation has no value and cannot be regarded as less than fair market value. We draw strength from the supreme Court judgement in the case of CTO v. State Bank of India (Civil Appeal No. 1798 of 2005), wherein the issue was replenishment of certain Exim Scrips by the State Bank of India from the original purchaser. The view of the Apex Court was that the SBI is not getting any property in such replenishment. The observation of the Apex Court reads as under:

“the replenishment licences or Exim scrips would, therefore, be “goods”, and when they are transferred or assigned by the holder/owner to a third person for consideration, they would attract sale tax. However, the position would be different when replenishment licences or Exim scrips are returned to the grantor or the sovereign authority for cancellation or extinction. In this process, as and when the goods are presented, the replenishment licence or Exim scrip is cancelled and ceases to be a marketable instrument. It Page becomes a scrap of paper without any innate market value. The SBI, when it took the said instruments as an agent of the RBI did not hold or purchase any goods. It was merely acting as per the directions of the RBI, as its agent and as a participant in the process of cancellation, to ensure that the replenishment licences or Exim scrips were no longer transferred. The intent and purpose was not to purchase goods in the form of replenishment licences or Exim scrips, but to nullify them. The said purpose and objective is the admitted position. The object was to mop up and remove the replenishment licences or Exim scrips from the market.

34. Be it noted that the initial issue or grant of scrips is not treated as transfer of title or ownership in the goods. Therefore, as a natural corollary, it must follow when the RBI acquires and seeks the return of replenishment licences or Exim scrips with the intention to cancel and destroy them, the replenishment licences or Exim scrips would not be treated as marketable commodity purchased by the grantor. Further, the SBI is an agent of the RBI, the principal. The Exim scrips or replenishment licences were not “goods” which were purchased by them. The intent and Page 41 41 purpose was not to purchase the replenishment licences because the scheme was to extinguish the right granted by issue of replenishment licences. The “ownership” in the goods was never transferred or assigned to the SBI. the replenishment licences or Exim scrips would, therefore, be “goods”, and when they are transferred or assigned by the holder/owner to a third person for consideration, they would attract sale tax. However, the position would be different when replenishment licences or Exim scrips are returned to the grantor or the sovereign authority for cancellation or extinction. In this process, as and when the goods are presented, the replenishment licence or Exim scrip is cancelled and ceases to be a marketable instrument. It becomes a scrap of paper without any innate market value. The SBI, when it took the said instruments as an agent of the RBI did not hold or purchase any goods. It was merely acting as per the directions of the RBI, as its agent and as a participant in the process of cancellation, to ensure that the replenishment licences or Exim scrips were no longer transferred. The intent and purpose was not to purchase goods in the form of replenishment licences or Exim scrips, but to nullify them. The said purpose and objective is the admitted position. The object was to mop up and remove the replenishment licences or Exim scrips from the market.

34. Be it noted that the initial issue or grant of scrips is not treated as transfer of title or ownership in the goods. Therefore, as a natural corollary, it must follow when the RBI acquires and seeks the return of replenishment licences or Exim scrips with the intention to cancel and destroy them, the replenishment licences or Exim scrips would not be treated as marketable commodity purchased by the grantor. Further, the SBI is an agent of the RBI, the principal. The Exim scrips or replenishment licences were not “goods” which were purchased by them. The intent and purpose was not to purchase the replenishment licences because the scheme was to extinguish the right granted by issue of replenishment licences. The “ownership” in the goods was never transferred or assigned to the SBI.”

From the above, in my understanding, by buying back the shares, the company is not acquiring any ‘property’. The provisions of section 56(2) (x) starts with the terminology ‘where a person receives……. Any property’. In my understanding buy back does not result in company receiving any property. Shares are never “received” by company since they may as one option be deemed to be cancelled without company receiving them. Property is not in existence post the transfer. Section 56(2)(x) is therefore, in our opinion, not applicable.

This proposition has also been held by Mumbai bench of the Tribunal in the case of Vora Financial Services P. Ltd. [2018] 171 ITD 646 (Mum). It may also depend on the circumstances under which the shares are bought back, as in the case of Fidelity Business Services India (P.) Ltd. [2017] 164 ITD 270 (Bangalore – Trib.), Bangalore Bench of the ITAT held that payment in the name of buy back of shares made by the assessee, to its related party, in excess of FMV of the share of the assessee company would fall in the ambit of Section 2(22)(e), i.e. Deemed Dividend. ITAT in the said case held that in case the buy back price is not based on the real valuation and it is “artificially inflated” by the parties then it is certainly a device for transfer of the reserves and surplus to the holding company by avoiding the payment of tax and therefore it will be treated as a colorable device. Aforementioned judgment of ITAT, Bangalore Bench, has been subsequently affirmed by the Karnataka High Court [[2018] 257 Taxman 266 (Karnataka)]


Section 115QA provides for taxation of capital gain arising to a company on buy back of its own shares. This provision was inserted in the Act by Finance Act 2013. However taxability of such transactions in the hands of the shareholders was provided in section 46A, which was inserted in the statute by the Finance Act 1999, w.e.f. 01.04.2000. The provisions of section 46A reads as under:

“Capital gains on purchase by company of its own shares or other specified securities.

46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company.

Explanation.—For the purposes of this section, “specified securities” shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956).”

However with the insertion of section 115QA, another Clause (34A) was added to section 10 from the Finance Act, 2013, w.e.f. 01.04.2014, giving exemption to such income in the hands of a shareholder. The provision reads as under:

“(34A) any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA.”

This section thus provides for removal of double taxation both in the hands of the company as well as the shareholders. Incidence of tax in the transaction of buy back now shifts to the company. As per Section 115QA, read with Section 10(34A), incidence of tax on buy back of shares by the company arises at the company level and thereafter no tax is required to be paid by the shareholder. Thus, shareholder need not calculate any income under the head Capital Gains, in accordance with Section 46A, read with 48, of the ITA.


Earlier, the declared dividend was chargeable as Dividend Distribution Tax (DDT) to the company and not the shareholder. Whereas the amount distributed as buy-back of shares was chargeable to the shareholder and not the company. The rationale for the introduction of Sec 115 QA was that companies would resort to buyback of shares in order to avoid dividend distribution tax. However, by the Finance Act 2020 the company is no longer liable to pay tax on dividends. Instead, dividends would be taxable in the hands of the shareholder. From the shareholder’s perspective, this means that income from buybacks is now more tax efficient compared to income from dividend.


In view of the above, a company while buying back its own shares has also to take into consideration the tax component which it may have to bear as provided under section 115QA of the Act, however in the hands of shareholders no tax would be exigible on the same transaction.

(Source: This article is published in souvenir of National Tax Conference which was held on 6th & 7th August, 2022 at New Delhi)

As per Section 28(i) of the Income Tax Act, it is a primary condition for determination of income under the head “Profits and Gains of Business or Profession”that the assessee should carry on business during the year. In case, no business is carried on by an assessee, provisions of the Income Tax Act relating to computation of taxable income under the head “Profits and Gains of Business or Profession” will not be applicable and any income earned during the relevant year will be taxable in any other head of income and expenses will also be deductible as per provisions of that head of income. In other words, computation under the head “Profits and Gains of Business or Profession” will not be made and no expenditure will be deductible as business expenditure. This position of law is quite clear from the language of Section 28(i) of the Act. Courts have confirmed this position in various judgements. Therefore, this legal proposition is not being elaborated further and no case law in support thereof is being referred.

An important legal aspect regarding the matter is that in case an assessee is not carrying on the business for certain period/years on account of specific circumstance but the assessee has intention to carry on the business, what will be the status? Courts have taken a consistent view that in such a circumstance it will be assumed that the assessee has been carrying on the business. Accordingly, notwithstanding that during the relevant period the assessee was not able to carry on actual activities of the business but for the purpose of Income Tax Act, it will be considered that the assessee has been carrying on the business and any income earned during this period will be considered to be business income and all the expenses incurred during the relevant period are allowable as business expenditure. Case law on this aspect is given hereinafter at later stage.

Still another aspect of the matter is that in case an assessee has been carrying on the business for part of the year but at the end of the year the assessee was not carrying on the business, what would be the legal position? On the basis of Section 28 of the Act it will be assumed that assessee has been carrying on the business. In regard to this legal proposition the Hon’ble Supreme Court in the case of Commissioner of Income Tax v. Bangalore Transport Company Limited (1967) 66 ITR 0373 (SC) while considering the issue has held that there is nothing in the Income Tax Act which supports the argument that business should be actively carried on for whole of the previous year or till the end of the previous year. In other words, the Hon’ble Supreme Court has taken a view that even if the business was being carried on for part of the year, it will be assumed that the assessee has carried on the business and accordingly, taxable income will be determined under the head “Profits and Gains of Business or Profession” for the relevant year. In this regard the Hon’ble Supreme Court observed as under: –

“4. There is no warrant for his argument in the scheme of the IT Act. Under s. 10(1) of the IT Act, 1922, tax is payable by an assessee under the head “Profits and gains of business, profession or vocation” in respect of the profits or gains of any business, profession or vocation carried on by him. There is nothing in the Act which supports the argument that for profits of the business to be taxable, the business must be actively carried on for the whole of the previous year, or till the end of the previous year. Under the scheme of the IT Act, whenever an assessee receives in the course of his business money or money’s worth, income embedded therein accrues or arises to him, and becomes subject to an ambulatory charge. If at the end of the previous year, on making up accounts, there is no overall income, the charge does not crystallize because there is no income on which the charge of tax may settle.”

In regard to the legal proposition that when the operations of the company have been suspended for various reasons but there was no intention to close down the operations, assessee will be considered to have been carrying on the business and income/expenses for the relevant period have to be determined as per provisions of Income Tax Act under the head “Profits and Gains of Business or Profession” reference can be made to following decisions. Observations made in each of following decisions by Hon’ble Appellate Authorities have also been reproduced in support of the legal proposition.

– Commissioner of Income-Tax versus Vellore Electric Corporation Ltd. (2000) 243 ITR 529 (Mad)

“The assessee is a private electric company. Its undertaking vested with the State Government by reason of the enactment of the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1973. After the unsuccessful attempt to challenge the validity of that Act in the High Court it had filed appeals before the Supreme Court which were pending during the relevant years. The assessment years are 1975-76 to 1979-80.

The Assessing Officer held that the assessee was not carrying on any business and limited the salary paid to the employees of the assessee to ten per cent. and the audit fee was limited to fifteen per cent. That was affirmed by the appellate authority. The Tribunal, however, held that the assessee was carrying on business and was entitled to the deductions claimed by the assessee.

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Here, it cannot be said that there was a permanent closure, as the validity of the Act was yet to be finally settled by the Supreme Court. In the event of the Act being struck down, the assessee could resume business. The fact that it had continued to maintain an establishment is the indication of its intention to resume business, if an opportunity for it arises by reason of the apex court holding in its favour. The expenses incurred by it while awaiting the decision of the apex court cannot altogether be regarded as unconnected with the business. that it had been carrying on by supply of electricity and that business was interrupted only by reason of the Act; the possible resumption of the business was dependent on the outcome of the appeal pending before the Supreme Court. The amounts claimed were also not very substantial. The Tribunal has taken a broad view of the matter and has held in favour of the assessee. We do not see any good grounds to differ.”

– Commissioner of Income Tax versus M/S. Kriti Resorts Pvt. Ltd. [2011] 243 CTR 341

“2. Briefly stated, the facts of the case are that the assessee was running a hotel at Manali till September 1995. On the night intervening 6th/7th September 1995 heavy floods took place in the river Beas and the hotel building was washed away in the floods. The assessee did not carry out any hotel business thereafter and advanced the surplus funds available with it to its sister concern on interest.

3. The assessee filed return for the year 1998-99 on 23.11.1998 and the interest income received by the assessee was declared to be income under the head ‘profits and gains’ of business and against this income the assessee claimed deduction of various expenses and depreciation on furniture and depreciation on vehicles against the income earned by way of interest. The assessee also claimed set off of unabsorbed deprecation brought forward from the assessment year 1996-

4. The Assessing Officer held that since the assessee had discontinued its business since 1995 the income was not income from business but income from other sources and therefore the expenses claimed and depreciation brought forward could not be set off against the said

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12. The first question which arises is whether the assessee can still be said to be in business or not. No doubt the hotel of the assessee was washed away and in that respect it can be said that it has not conducted any hotel business thereafter. However, the Company does not cease to exist. The Company is a juristic entity and incorporated under the Indian Companies Act. It will have to fulfill its obligations imposed upon it by the Companies Act till it is wound up. Therefore, some staff will have to be maintained. It cannot be said that the business has come to an In this behalf reference may be made to the judgment of the Madras High Court in Commissioner of Income-Tax v. Vellore Electric Corporation Ltd., (2000) 243 ITR 529 and a judgment of the Calcutta High Court reported in Commissioner of Income Tax v. Karanpura Collieries Ltd. (1993) 201 ITR 498.

13. Therefore, once the Company is in existence the assessee can seek Reliance placed by the Revenue on the first proviso of Section 32(2) is totally misplaced. Therefore, as far as question No.1 is concerned the same is answered in favour of the assessee and against the Revenue.

Hindustan Fertilizer Corporation Ltd. v. DCIT, T.A. No.-409/Del/2013 decided on 25.04.2014 – ITAT Delhi. A.Y.2009-10

“2. Brief facts of the case are that the assessee company was earlier engaged in the business of manufacturing and marketing of fertilizers. However, since the year 2002,the company was not manufacturing any fertilizers and Government of India had ordered for closure of the company and winding up the same. The return was filed, declaring total loss of Rs. 380,78,34,033/-. The AO noticed that assessee had claimed huge amount of depreciation amounting to Rs. 2,51,51,000/-.

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4. The ld. CIT (A) confirmed the AO’s action inter alia observing that in the case of assessee, the business had been ordered to be closed forever and the building were not put to use during the year.

5. We have considered the rival submissions and have perused the record of the There is no dispute that assessee had only been ordered to be closed down by the Government of India but had not gone into liquidation. It is pertinent to note that claim in respect of voluntary separation scheme expenses of Rs.12,87,200/- had been allowed by ld. CIT (A). Therefore, it cannot be denied that for implementing the scheme necessary infrastructure must have been maintained by assessee. Hence, merely on the ground that the company was directed to be closed down, it could not be inferred that till the time of final closure, no activities were being carried out by the assessee.

6. From the submissions of the assessee, as noted earlier, it is evident that minimal staff had to be kept for proper survival and security of all the assets of the company. The assessee company being a juristic entity incorporated under the Companies Act, did not cease to exist, merely on passing of the order by Government of India for closure of the company. It had to fulfill all the obligations imposed by the Companies Act till it was finally dissolved. Necessary staff had to be maintained. Under such circumstances, depreciation had to be allowed though assessee had discontinued its business. We find that this issue is covered by the decision of Hon’ble, H.P. High Court in the case of CIT v. Kirti Resorts (P.) (2011) 60 DTR 138/243 CTR 341 wherein it has been held that as long as the company is in existence, it is entitled to depreciation though it has discontinued its business.

7. In view of above discussion, we direct the AO to allow assessee’s claim of ”depreciation.”

 MulaPravara Electric Co-op. Society Ltd.v.DCIT, ITA No. 1776/PUN/2016 decided on 28.09.2018 – ITAT Pune.

“3. Briefly stated relevant facts of the case are that the assessee is a society engaged in the business of Distribution of Electricity-a service provider. Assessee filed the return of income declaring loss of Rs. 16.23 crores (rounded off). Subsequently, the return was revised by revising the loss at Rs. 43.04 crores (rounded off). During the scrutiny proceedings, AO noticed that the assessee reflected the rental income of Rs. 1,59,831, scrap sales of Rs. 5,29,950/- and miscellaneous receipts of Rs. 22,630/- totaling to Rs. 7,12,411/-. Against this income, assessee claimed various expenses including VRS expenditure of Rs. 41.90 crores (rounded off). As such, no income on account of the core activity of “distribution of electricity” is reported by the assessee in the year under consideration.

3.1 Regarding the electricity distribution business, assessee was engaged in the business for the past 20 years under the license issued by Government of Maharashtra under the provisions of Indian Electricity Act, 1910. The license was renewed from time to time. Eventually, the said license granted to the assessee expired on 31-01-2011. The Maharashtra Electricity Regulatory Commission (MERC)issued license to the Maharashtra State Electricity Distribution Company Limited(MSEDCL) for distribution of electricity to the specified areas. Thus, the assessee was ordered to hand over the infrastructure and database of clientele etc. of the assessee to MSEDCL.”

After detailed discussion in the order recording the arguments of both sides and the case law, the Hon’ble Tribunal concluded the issue regarding continuance of business as under:

“Summary: Therefore, to sum up, it is a settled legal proposition that the existence of“intention” to continue business and its demonstration by the assessee assumes significance in matters relating to decision on the cessation of business. The judgment in the case of Lahore Electric Supply Co. Ltd. (supra) is relied. In this regard, we considered the undisputed facts of (i) demonstration by way of passing of Resolution by AGM of assessee for continuation for fighting for renewal of license (ii) approaching the State Govt. MERC, APTEL, Supreme Court etc. for renewal of license, (iii) opposing the takeover bid of the MERC for MSEDCL with or without consideration; (iv) compliance to the legal orders of Supreme Court/ APTEL without prejudice to the demand for renewal of license; (v) assessee never entertained the idea of sale of assets and infrastructure to MSEDCL, (vi) assessee did not entertain the idea of lease of assets too; (vii) assessee did not resort to liquidation or insolvency, (viii) assessee receives compensation ofRs. 1 crore plus every month from MSEDCL and reports to income tax office every year; (ix) no authority/ executive/judiciary ever rejected the demand for renewal of license till date. Further, various committees recommended for grant of renewal of license to the assessee along with MSEDCL along with subsidy if any.

Therefore, all these undisputed facts, in our view, support the existence of “intention”to do business of power distribution. Unlike in the case of Lahore Electric Supply Co. Ltd. (supra) where mere clearing of outstanding liabilities is only defense from ‘Revenue’ in support of intention for continuation of business activity, the case on hand and its facts distinguishes the facts of other case. Further, we find the judgment in the case of Vellore Electric Corpn. Ltd. (supra) is very close to the facts of the present one under consideration so long as the takeover decision of the Court is concerned. But the basis of actions of the present assessee keeps the assessee on a different pedestal. Therefore, the business of the assessee cannot be held to be discontinued one. All the administrative expenses have to be allowable as business expenditure.

Therefore, we find it difficult to conclude that the assessee does not have any intention to continue the business of power distribution. Accordingly, the Ground No.1 raised by the assessee is allowed.”

On the issue regarding allowability of expenses incurred by the company and also for set off of loss of earlier years the Hon’ble Tribunal remanded the matter to AO as specific findings had not been given.

-Chase Bright Steel vs. Income Tax Officer (2009) 25 DTR 0049 (Mum.)

“9. In the annual report for asst. yr. 2001- 02, directors have mentioned that there was no production and related business activity during the assessment year of the assessee for 2002-03. The assessee however had declared business income and has been assessed on such business income. The AO has also allowed carry forward loss for asst. yrs. 1994- 95 till 2001-02. Thus, even according to the Revenue business of the assessee continued to carry on business even in asst. yr. 2002-03. In the director’s report for year ending 2002-03, directors have acknowledged the fact that there was no production in the company’s plant and that the company’s property at Thane was sold to discharge debts due to the Allahabad Bank. Background under which, the assessee decided to sell its property at Thane, where it was carrying on manufacturing activity was explained by the assessee as follows. The assessee wanted to shift its factory from Thane and did not seek permission for closing factory at Thane. Fact that the assessee wanted to shift his factory also goes to show its intention not to abandon its business totally. The assessee has explained that shifting of factory was necessary to sell land and liquidate liability of the assessee and locate its factory in another area so that it can continue its business. Later event of the assessee shifting its factory to Navi Mumbai and starting its manufacturing activities also shows that the assessee never intended to close down its business.”

-Assistant Commissioner Of Income Tax-(2) (2) Versus New Era Mercantile Private Ltd. and Vice Versa I.T.A. No.3033/ Mum/2017, CO. No. 40/Mum/2019

“2.1 Fact in brief are that the assessee being resident corporate entity stated to be engaged in manufacturing of soaps and detergents was assessed in scrutiny assessment u/s 143(3) of the Income Tax Act, 1961 on 24/03/2015 by Ld. Deputy Commissioner of Income Tax, Circle- 7(3) (1), Mumbai [AO] wherein the income of the assessee was determined at Rs. 3.11 Lacs as against loss of Rs. 79.28 Lacs filed by the assessee on 28/09/2012.

2.2 During assessment proceedings, it transpired that the assessee has not carried out any manufacturing activity during the year. The assessee reflected other income of Rs. 6.42 Lacs in the profit & loss which consisted of profit on sale of assets, interest on FDRs, misc. income, insurance premium refund and sundry balances written-off. The misc. income of

Rs. 1.25 Lacs and insurance premium refund for Rs. 0.75 Lacs treated by the assessee as Business Income was treated as Income from Other Sources for want of details.

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5. e have carefully heard the rival submissions and perused relevant material on The undisputed position that emerges is that the assessee has not carried out any business activity during the impugned AY but claimed expenditure in the nature of employees’ expenses, depreciation and other expenditure which has been disallowed by Ld. AO for want of business activities / business receipts. In our considered opinion, so long as the assessee’s business is in existence, actual business receipts in not a sine qua non to claim the business expenditure. The assessee was a corporate entity and its business could come to an end only upon its being wound up as per due process of law. The corporate entity has to incur expenditure so as to maintain its corporate personality and day-to-day existence. Other notable feature is the fact that the assessee has claimed depreciation which demonstrate that its fixed assets were in existence and were not sold- off during impugned AY. The perusal of other expenses as placed on record reveal that the same are in the nature of electricity, water charges, rent, duties & taxes, travelling,telephone expenses, legal expenses & other routine expenditure. So far as the treatment of misc. income and insurance premium refund is concerned, the complete details of the same was already filed by the assessee before Ld.

AO and the same were found to be arising out of liquidation of old stock and refund of excess premium paid by the assessee and therefore, the same were clearly business income in nature. The revenue is unable to rebut the factual matrix as well as case laws being relied upon by first appellate authority. This being the case, no infirmity or perversity could be found in the impugned order. Accordingly, the revenue’s appeal stands dismissed which makes assessee’s cross-objections infructuous.

6. The appeal as well as cross-objection stand dismissed.”

Assistant Commissioner of Income Tax vs. Master Stores (2002) 75 TTJ 0452 (Kol. )

“5. The crux of the problem seems to be whether there was a permanent closure of the business of the assessee and in that way the payments to the workers were made after the said closure. The evidence on record and as discussed in detail by the learned CIT(A) in his appellate order as well as by us also as above, clearly show that there was merely a temporary cessation of business and not a permanent closure of the same. The business of milling wheat continued in the two subsequent years. Even during the year under consideration also milling operations were there and sale of already milled flour was there even after discontinuance of the milling operations. In view of these positions, we are of the opinion that the expenditure must be considered to have been incurred during the course of the business of the assessee. There cannot be any doubt about the fact that the expenditure had to be incurred wholly and exclusively for the purpose of the business of the assessee, inasmuch as, no personal element can be considered to have crept in. By being able to retrench a large section of the work-force of the assessee, it was, no doubt, in a position to get some benefit of enduring nature, so far as its business operations were concerned. That by itself, however, cannot lead to the conclusion that the nature of expense was capital. The judgments as cited above clearly go in favour of the propositions that what the assessee secured by incurring the expense was running of the business in a smooth and perhaps healthier manner. Therefore, we agree with the learned CIT(A) that the expenses under consideration are required to be allowed as deductible business expenditure. We uphold the order of the learned CIT(A) in deleting the disallowance.”

General Corporation  v. Commissioner Of Income Tax (1935) 3 ITR 0350 (Mad.)

“2. The facts are these: The assessee is a company incorporated under the Indian Companies Act. The company carried on business in motor accessories at Madras, Bombay, Coimbatore and Ootacamund, and in mica mine at Nellore. In this reference before us we are concerned with a sum of Rs. 5,420 which the company claims it is entitled to deduct for expenses incurred in carrying on the mica business. The mining business was started at Nellore in 1926. It was worked till Nov. 1927 when the production was stopped on account of a cyclone. With a view to resume the production the company did some prospecting work and incurred an expenditure of Rs. 5,420 in 1928-29. The amount was made up of the expenses on account of salary, wages, legal expenses, depreciation etc. It may be mentioned here that production was not resumed by the company. Till 1930-31 the company was assessed to income tax by the ITO of Bombay as it had its principal place of business at Bombay. In that year the principal place of business was changed to Madras and the duty of assessing the company to income tax for 1930-31 fell to the ITO in Madras. In 1928-29 the Bombay ITO allowed the sum of Rs. 5,420 being the loss of the mica business at Nellore against the profits of the company’s other business. When the assessment for the year 1930-31 was taken up the Madras ITO took action under s. 34 of the IT Act and assessed the company for a total income of Rs. 18,932 disallowing the sum of Rs. 5,420 on the ground that the loss was of a capital nature and not loss incurred in the course of business as the company did not do any business in the year of account. This order was confirmed by the Asstt. CIT.

3. On the previous occasion when this Court was moved under s. 66(3) of the IT Act, a finding was called for on the point with what intention the assessee company incurred the expenses during the year of assessment? The finding returned was that ‘the company intended to resume the business of the mica mining if conditions and prospects proved favourable and that the expenditure had been incurred with that intention’. After the receipt of this finding this Court directed the CIT to refer the point stated at the beginning of this

4. The question for decision is whether the assessee in the circumstances of the case may be said to have been carrying on the business of the mica mining, during the year in question, for it is clear that the loss to be allowable must result from the carrying on of a business (s. 10). It is argued on behalf of the CIT that the mica mining business originally carried on by the company as one of its businesses came to an end in 1927, that it was not resumed at all, and that in the circumstances the expenses incurred with a view to resume the business must be considered to be loss of a capital nature incurred by the company and not a loss incurred in the course of business as the company had admittedly not done any business in 1928-29. In our opinion this argument cannot be accepted. According to its memorandum one of the objects of the company was to search for, win, work and get mica. When production was stopped by a cyclone, the company started prospecting to find out whether the business can be carried on, and incurred, the expenses in question, with a view to resume production. How can it then be said that the business had stopped? It is admitted that the old staff of the company doing the mica business was maintained by it on a reduced scale, the work of prospecting was done by that staff, and that the expenses were incurred in trying to see whether the production can be resumed. It appears to us that the fact that there was some period of inactivity in the carrying on of the business does not really affect the question, nor is the question affected by the consideration that the business was not resumed after the expenses had been incurred. The case relied on, Mahalakshmi Textile Mills Ltd., In re 6 ITC 83 in the CIT’s reference is not to the point, for in that case, the company started a new business altogether. Expenses incurred in connection with the restarting of an old business as in the present case though it was not resumed afterwards, should be treated on a different footing. It is not necessary to discuss the various illustrative cases brought to our notice as the decision whether the business was being carried on must depend in each case on its own facts and not on any general theory of law. Having regard to the circumstances of the present case we think the expenditure incurred by the company in 1928-29 was with respect to the carrying on of the mica business which it carried on along with its other business and the amount is therefore allowable as a deduction against the profits and gains of the assessee’s other business. We answer the question accordingly. The assessee will get Rs. 250 for his costs and he will also get refund of the Rs. 100 deposited by him.”

–  L.VE. Vairavan Chettiar v. Commissioner of Income Tax (1969) 72 ITR 0114 (Mad.)

“8. It is common case that, after the assessee became the sole proprietor of the two businesses, he was maintaining two separate sets of accounts, one for the rice mill and the other for the areca nut business. It is also common case that he obtained an import licence for doing areca nut business. He also borrowed large sums of money for doing areca nut business. But due to adverse conditions in the market, he temporarily suspended the areca nut business for the assessment year in question. Nevertheless, he was maintaining the establishment and was waiting for improved market conditions in areca nuts. There is nothing on record to show that he completely abandoned or closed the business for ever. On the other hand, his books of account revealed that he was meeting the establishment charges and interest payments as detailed in the accounts in the year of account. In such circumstances, is the Tribunal right in giving a finding that the assessee had closed his areca nut business and that the loss claimed by the assessee had not been proved?

9. The question whether the business is being carried on must depend in each case on its own facts and not on any general theory of Jessel M. R. in Erichsen Last (1881) 8 QBD 414: 4 TC 422 has observed:

“(I do not think) There is not, I think, any principle of law which lays down what carrying on a trade is. There are a multitude of things which together make up the carrying on of a trade, but I know of no one distinguishing incident . . . . it is a compound fact made up of a variety of things.”

In IRCs v. South Behar Railway Co. Ltd.(1925) 12 TC 657, Lord Sumner observed:

“Business is not confined to being busy; in many businesses long intervals of inactivity occur . . . . . . .The concern is still a going concern though a very quiet one.”

10. In Kirk and Randall Ltd. v. Dunn (1924) 8 TC 663, a company was formed to take over “contractors” business which was not in good circumstances. Though they did not get business all the time, the directors drew their fees and the secretary drew his fees and they also paid the typing bill and the bill for legal services. The question was whether the company was carrying on business or not. Justice Rowlatt observed:

“I do not think that could be said for a moment. Because in the middle of a great career a company, or still more an individual professional man, might have a year when he was holding himself out for business, or the company was holding itself out for business, but nothing came, yet that would not effect a break in the life of the company for income-tax purposes.”

11. In our own High Court, a similar question had to be considered in General Corporation Ltd. v. CIT (1935) 3 ITR 350 (Mad). The assessee in that case carried on business in motor accessories and also in mica mining. The mica business was stopped on account of a cyclone. With a view to resume the production, the company did some prospecting work in the year of account keeping a reduced staff and incurred some expenses. The question for decision was whether the assessee, in the circumstances of the case, might be said to have been carrying on the business of mica mining, during the year in question. The learned judges observed:

“When production was stopped by a cyclone, the company started prospecting to find out whether the business can be carried on, and incurred the expenses in question, with a view to resume production. How can it then be said that the business had stopped?             It

appears to us that the fact that there was some period of inactivity in the carrying on of the business does not really affect the question, nor is the question affected by the consideration that the business was not resumed after the expenses had been incurred.the decision whether the business was being carried on must depend in each case on its own facts and not on any general theory of law.”

12. The company may not obtain or be able to execute a single business contract for months and yet it may be deemed to carry on its business, if during the period of lull and inactivity it is kept alive and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern, though it may for some time be quiet and dormant. The mere fact that a businessman has not been able to obtain a contract and the business has for some time been in that sense dormant would not mean that it has ceased to exist, if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carry on his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business: see Inderchand Hari Ram v. CIT (1953) 23 ITR 437.

13. Thus, on a review of these authorities, we think that the ITO was right in allowing the loss of Rs. 13,559.

-Commissioner of Income Tax v. Cachar Native Joint Stock Ltd.(1993) 109 CTR 0291/ (1992) 198 ITR 0289 (Gau.)

“3. The assessee is a company incorporated in the year 1876 with various subjects including acquiring of land for tea plantation, manufacturing of tea, etc., having 3 tea estates. The assessee-company suspended its manufacturing operation of tea due to unavoidable market condition and also financial condition of the company from the accounting year 1974, although it continued to maintain tea plantation and other assets including plants and machineries for manufacturing of tea. Subsequently, in the Annual General Meeting of the company held on 30th June, 1977 it was decided to resume manufacturing operation, but could not do so till the accounting year 1977. The assessee claimed for setting off of earlier unabsorbed loss for tea manufacturing business which was disallowed by the ITO. However, the Commissioner(A) noted that the company had godown for storing manufactured tea and garden stores, etc., and the company let out some of the commercial assets for having an additional source of business income and the company was also assessed to income-tax on aggregate income of different branches of business. According to Commissioner, letting of commercial assets, viz., godown, office, etc., was assessable as income from business and mere suspension of manufacturing of tea for various reasons did not mean that the company has discontinued its business. The Commissioner also noted that the plants and machineries of the company had to be maintained, so also the employees for starting manufacturing of finished tea in future. It was also noted that the company was running its tea garden by selling green leaves and maintaining its plants and machineries. On these facts the Commissioner held that the company had neither abandoned nor discontinued its business as recorded by the ITO. Relying on the decision of the apex Court it was also held that mere substituted use of commercial assets does not change or alter the nature of that assets. According to Commissioner, the assessee was entitled to get unabsorbed previous losses and the depreciation to be determined as per the Acts and the Rules.

4. The Tribunal accepted the views of the Commissioner and on facts and materials on records was of the opinion that the Commissioner was justified in accepting the claim of the assessee. Hence, the present reference.

5. We have heard D.K. Talukdar, learned counsel for the Revenue and Mr. N.M. Lahiri, learned senior advocate for the assessee.

x————————-x——————————- x—————————- x—————————- x———————-

For the reasons stated above, we hold that the provisions of s. 72(1) were fully satisfied in the case in hand and that there was no discontinuance of business of the company. We, therefore, answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.”


In view of above legal position the conclusion is that facts of each case have to be examined to determine whether assessee is carrying on the business or not. On the basis of facts intention of an assessee to carry on the business or closed down the business has to be gathered. If intention is to carry on the business but assessee is not able to carry on the same on account of circumstances which are of temporary nature and may not exist in future, it will be assumed that business is being carried on. In case facts lead to a conclusion that assessee has intention not to resume business, it will be assumed that he has closed down the business.

(Source: This article is published in souvenir of National Tax Conference which was held on 6th & 7th August, 2022 at New Delhi)

“To give pleasure to a single heart by a single act is better than a thousand heads bowing in prayer.”

— Mahatma Gandhi

1. Introduction

Section 179 (‘the section’) of the Income-tax Act, 1961 (‘the Act’) provides for recovery of tax from the directors of a private company in an exceptional circumstance when the same is not recoverable from the company itself. The non-recovery has to be on account of any gross neglect, misfeasance or breach of duty on the part of the director in relation to the affairs of the company. The section places joint and several liability on the directors of a private company unless he is able to prove that non- recovery cannot be attributable to his actions. The section was first introduced in the 1961 Act. The section creates a unique situation where limited liability accorded to a company is set aside by the department who has been given wide powers under the Act to lift the corporate veil of a company directly without involvement of a court. Thus even though the Act and the Companies Act 2013 recognise the concept of a company being a separate legal entity with limited liability, those who are actually running the show behind the corporate shield are not allowed to get away with fraud, misconduct and non-compliance of legal provisions, etc leaving the government remedy-less against any potential loss of revenue.

2. Background and amendments made till date

Section 179 was introduced for the first time in the Income tax Act, 1961 effective for the Assessment Years (AY) commencing from 1st April, 1962 onwards. There was no corresponding provision for recovery of tax in the Income-tax Act, 1922. Section 179 underwent major changes by way of the Income-tax (Amendment) Act, 19751 (hereinafter referred to as ‘the 1975 amendment’ for the sake of brevity) wherein the section was substituted by sub- sections (1) & (2) as they stand at present. Prior to the amendment, section 179 was applicable only in case of a private company undergoing liquidation and it would not apply even in case of a private company being dissolved or struck off by the registrar of companies under section 560 of the Companies Act, 19562. Post the 1975 amendment, the language of the section was changed to include all the private companies from whom tax due for any AY(s) had become unrecoverable and those public companies which were functioning as private companies during the relevant Previous Years (‘PY’). Thus notwithstanding the misleading heading of section 179, the directors of a private company though not under liquidation, may be held liable for the dues outstanding against the company if they were found guilty of misconduct, negligence, etc. in conducting the affairs of the private company. These amendments were given retrospective application by the legislature which were effective for AYs beginning from 1st April, 1962.3 The Hon’ble Supreme Court in case of Hardip Singh4 has held that ‘the section will be attracted if any one or more of the three events (stages of winding up) occurred after the commencement of the Act even though the first or the first and second events had happened earlier.’

Subsequently, vide the Finance Act, 2013, an explanation for the expression “tax due” was inserted after sub-section (2) of section 179 which became effective from 1st June, 2013 onwards. “Tax due” has been defined to include “penalty, interest or any other sum payable under the Act”. As per the memorandum explaining the Finance Bill of 2013, the amendment was introduced to clear the position as to what is included within the term “tax due” as some courts interpreted the phrase to hold that it does not include penalty, interest and other sum payable under the Act.

In spite of the 1975 amendment to section 179 of the Act, where the section became applicable to all private companies from whom tax was non- recoverable irrespective of a liquidation process being undertaken, the words “in liquidation” continued to exist in the marginal heading to the section. This position was corrected by the Finance Act, 2022 through which the words “in liquidation” were deleted. Also the explanation to the section was amended to include “fees” within the meaning of the term “tax dues” under the section to avoid any unnecessary litigation and to provide further clarity5. These amendments are effective from 1st April, 2022 onwards. Therefore, language of section 179 has been expanded and scope for recovery of tax due is widened under this latest amendment.

3. Analysis of the section

Now that we are up to date with the latest provisions of section 179 of the Act, let us proceed to analyse the said provisions as they stand today. For ease of reference section 179 is reproduced below:

“Section 179- Liability of directors of private company:

  1. Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non- recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
  2. Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962. Explanation.—For the purposes of this section, the expression “tax due” includes penalty, interest [,fees] or any other sum payable under the Act.
    1. First of all the section starts with a non- obstante clause, which means that even though under Companies Act 1956 (now replaced with Companies Act, 2013) the director of a company is not personally liable to pay any tax due by the company, under the Act the directors of a private company shall be held liable in case the tax dues are non-recoverable from such private company.6
    2. Sub-section (1) can be broken down into two parts

Part-1- “(1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered,…”

Thus, tax recovery proceedings can be initiated against the directors under this section only in case of private companies and private companies who were subsequently converted into public companies in respect of income of AYs where such a public company was a private company.

Part 2- “…then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non- recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.”

The section fixes joint and several liability to pay unrecovered outstanding taxes on all the individuals who were directors of the Company during the relevant Previous Year (PY). It is necessary that the non-recovery of the tax can be attributed to the actions of the director i.e. gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company during the relevant PY. Therefore, the primary onus is on the concerned director to prove his innocence in the manner of conducting the affairs of the company.7

4. Position held by Courts

It naturally follows that a director can be held liable for unrecoverable taxes only from that AY from which he assumed the directorship of the company8. But if a director resigns from the directorship during a PY in which taxes were unrecoverable from the company it will not absolve him from all the liabilities incurred during the period he was a director of the company.9

Even if the primary onus is on the directors to prove that non-recovery of taxes cannot be attributed to his actions, it does not discharge the Assessing Officer (AO) from his duty of ascertaining that tax for the relevant AYs could not be recovered from the company in the first place. It is expected that the AO has taken effective steps to recover the outstanding tax due from the company but has not been able to recover the entire tax liability. In other words the AO is required to record a categorical finding that tax due for the PY cannot be recovered from the company, in absence of which assumption of jurisdiction by the AO under this section is invalid10. The AO has to satisfy the preconditions before proceeding against the director. The Hon’ble Bombay High Court in case of Jaison S. Panakkal v. PCIT & Anr11 has relied upon its earlier decisions in Madhavi Kerkar v. ACIT (WP. No.567 of 2016 dated 05/01/2018 and Mehul Jadavji Shah v. DCIT (WP. No. 291 of 2018 dated 05/04/2018) to reinforce the precondition that the directors of the private company against which it intends to initiate proceedings under this section should be issued a notice under this section and such notice should indicate what steps had been taken to recover the dues from such delinquent company and the failure thereof. Thus two preconditions are to be satisfied viz. (a) to take substantial steps to recover outstanding taxes from the private company (b) to issue proper notices to the directors before taking any steps of recovery under this section.

It is also important to discuss that, department is empowered to lift the veil to look into the actual running of the company. In exercise of powers under this section, the department can lift the corporate veil of a public company if it is able to prove that the affairs of the company were arranged in a manner of a private company so as to defraud the revenue. This was the situation before the Hon’ble Gujarat High Court in case of Ajay Surendra Patel v. DCIT12. In this case the Hon’ble Court held that sufficient material was placed on record by the revenue to show that the Company which was a public limited company was actually functioning as a private limited company and that a hypertechnical interpretation should not be given to statutory provisions which frustrates the very object for which it was it has been included in the statute. Subsequently the Petitioner i.e. Ajay Surendra Patel moved an application for review of the order passed by the Hon’ble Gujarat High Court, wherein it was pointed out that the Hon’ble Court had inadvertently held that no substantial business was carried out by the company after resignation of director (Petitioner) and also sufficient opportunity was not provided to the Petitioner before passing the order under section 179 of the Act. Accordingly the order was recalled by the High Court and it is pending disposal.

It is important that a reasonable opportunity of hearing is given to the directors of such delinquent private companies before continuing with recovery proceedings under the section. Recently, the Hon’ble Bombay High Court has held that exercise of jurisdiction by the revenue department was violative of principles of natural justice when the director of the delinquent private company were not given an opportunity of hearing before applying the principle of lifting of the corporate veil13.

5. Remedies available to directors under section 179

An order passed under this section is not an appealable order under section 246 of the Act and therefore, a person aggrieved by proceedings initiated under section 179 has to approach the court with a writ petition. Though the courts have allowed the writ petitions and quashed the notices issued and orders passed under the section, on several occasions the issue of proceedings under the section are set aside to the officer of the department to re-initiate such proceedings when jurisdictional conditions were not satisfied by the departmental officer. The aggrieved director also has a right of revision under section 264 of the Act. Such an application shall be filed within a period of one year from the date the order under this section was communicated to the applicant or the date on which he otherwise came to know of it, whichever is earlier.

6. Conclusion

Though directorship is a position of power, it is a double edged sword where they are the first persons to be held accountable in respect of any misconduct or non-compliance by the company. The directors of a company have to be mindful of their actions. Even though the section places joint and several liability on the directors of a private company, a window is available to the director to prove that there was no misconduct, misfeasance or gross neglect on his part in conducting his duties. Even though the primary onus is on the accused director to prove his innocence the department is not given unbridled powers to arbitrarily proceed under the section. It is only when the department has taken considerable steps for recovery against the company and failed can they proceed against its directors.

  1. The Insolvency and Bankruptcy Code, 2016 (IBC) has a very important provision – in the form of section 238 – which gives this law an overriding effect over all other laws. Obviously, this provision can be invoked only if the other law is inconsistent with the provisions of the IBC and all attempts to harmoniously interpret the two laws fail1. In case of any conflict between the IBC and the provisions of the Income-tax Act, 1961 (IT Act), the Supreme Court has already held that the provisions of IBC shall prevail2. Similarly, in case of conflict between the provisions of IBC and the Customs Act, 1962, the former shall prevail3.
  1. Approving its Division Bench judgement in Monnet Ispat and Energy Limited and relying inter alia on section 238 of IBC, the Full Bench of the Supreme Court in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and (2021) 9 SCC 657 held that upon approval of the resolution plan under the provisions of IBC by the Adjudicating Authority viz. the National Company Law Tribunal (NCLT), all past tax dues which do not form part of the approved resolution plan shall stand extinguished and no proceedings in respect of those can be continued.
  1. But, does that enunciation bring an end to all controversies that can arise from the interplay between IBC and the IT Act?

Background of enactment of IBC

  1. Prior to the enactment of IBC, there was no single law in India that dealt with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies were be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, These statutes provided for creation of multiple fora such as Board of Industrial and Financial Reconstruction, Debt Recovery Tribunal and NCLT and their respective Appellate Tribunals. Also, liquidation of companies was being handled by the High Courts. Individual bankruptcy and insolvency was dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and was dealt with by civil Courts. Thus, the existing framework for insolvency and bankruptcy was found to be inadequate and ineffective that resulted in delays in resolution4.
  1. IBC was enacted with a view to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals for maximization of value of assets of such persons in a time bound manner. While judicial delays was one of the factors for inefficiencies in the previous regimes, IBC separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. IBC gives primacy to resolution of corporate insolvencies rather than directly putting companies into liquidation. It recognizes a wider public interest in such resolution where the assets of companies undergoing resolution are put to value-generating use under a new management rather than liquidating those assets under a process of liquidation. Since the object of IBC is not the mere recovery of dues, it envisages liquidation to be matter of last resort only after attempts of finding a resolution fail5.

 Broad scheme of resolution process under IBC

  1. An unpaid lender or financier (known as a financial creditor under IBC) or an unpaid seller of goods or services (known as an operational creditor under IBC) is empowered to file an application before the NCLT for initiation of corporate insolvency resolution proceedings against a defaulting company or limited liability partnership (known as the corporate debtor under IBC) if the amount of default is Rs. 1 crore or above. A defaulting company or limited liability partnership is also entitled to suo motu file such proceedings with respect to itself. The NCLT adjudicates upon the existence of a debt and default, and based on parameters prescribed under IBC and evolving through judicial precedents from time to time, either admits the application or rejects it.
  1. Corporate insolvency resolution process commences with the admission of the While admitting the application, an insolvency professional is appointed as an interim resolution professional in whom the powers of the board of directors or partners, as the case may be, vest and the powers of such board of directors or partners stand suspended. The corporate insolvency resolution process is a time-bound process and the process must be completed within a period of 330 days. Throughout the period of corporate insolvency resolution process, the interim resolution professional (and later the resolution professional) is required to make every endeavor to protect and preserve the value of the property of the corporate debtor and manage its operations as a going concern, while the corporate debtor awaits prospective suitors (known as resolution applicants under IBC) to submit their proposal for its revival (known as a resolution plan under IBC). During the corporate insolvency resolution process period, a moratorium or a ‘calm period’ is in force during which no suits can be filed or other legal action taken against the corporate debtor. The purpose of this moratorium is to protect the corporate debtor from pecuniary attacks against it in the moratorium period so that it gets breathing space to continue as a going concern in order to ultimately rehabilitate itself6.
  1. Upon commencement of the corporate insolvency resolution process, the interim resolution professional issues a public announcement in this regard inter alia inviting claims from creditors. All claims must be submitted to and are required to be decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order to take over and run the business of the corporate debtor. Based on claims collated by the interim resolution professional / resolution professional, a committee of creditors is constituted by him. While in the earlier regimes, the management of the insolvent company continued to be possession of the assets of such company, under IBC, this committee of creditors takes decisions pertaining to the manner of resolving the insolvency. The decisions of the committee of creditors are taken by a vote of not less than 51% of voting share (except in matters of special significance such as the approval of a resolution plan which requires a vote of not less than 66% of the voting share of the committee of creditors). Unless the corporate debtor does not have any financial creditors, operational creditors are excluded from the committee of creditors. The voting share assigned to a financial creditor depends on the proportion of the financial debt owed to such a financial creditor in relation to the total financial debt owed by the corporate Thus, IBC marks a paradigm shift in the efforts towards insolvency resolution making a radical departure from the ‘creditor-in-control’ model to the ‘debtor-in-possession’ model. This has fundamentally reset the power balance between corporate debtors and its creditors in the face of a default by corporate debtors.
  1. Based on parameters prescribed under IBC, its regulations and criteria as determined by the committee of creditors based on commercial considerations, prospective resolution applicants prepare and submit their resolution plans which are put to the vote of the committee of A prospective resolution applicant completely relies on the claims so collated by the resolution professional. Based on these claims, the resolution plans submitted by the prospective resolution applicants propose payments to the creditors towards their debts (either in full or in part). This phase of corporate insolvency resolution is usually coupled with extensive negotiations between the committee of creditors and the prospective resolution applicants.
  2. It is important to note that a resolution plan is not a sale. A resolution applicant does not buy the corporate It is, on the other hand, resolution of the corporate debtor as a going concern7. A resolution plan must inter alia mandatorily contain the term of the plan, its implementation schedule, management & control of the business during its term, adequate means of supervising the implementation and demonstrate its feasibility & viability and the capability of the resolution applicant to implement the resolution plan8. The committee of creditors then votes on the resolution plans, and if the resolution plan is approved by a vote of not less than 66% of the voting share, such a resolution plan is submitted before the NCLT for its approval. In the absence of the committee of creditors approving the resolution plan with the requisite votes, a corporate debtor is required to be put into liquidation.
  1. The Supreme Court has consistently held that the scope of judicial review by the NCLT of a resolution plan duly approved by a committee of creditors is limited to the parameters prescribed under section 30(2) of IBC and that the ‘commercial wisdom’ of the committee of creditors is paramount9. This is how IBC seeks to separate commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The same is on the basis that the financial creditors (which in most cases constitute the committee of creditors) are typically understood to be better equipped to go into the viability of corporate enterprises, both at the stage of grant of the loan and at the stage of default10.
  2. Once a resolution plan is approved by the NCLT, by virtue of section 31(1) of IBC, it is binding on the corporate debtor & its employees, members, creditors including the Central Government to whom a debt is owed, guarantors and other stakeholders involved in the resolution Due to the binding nature of a resolution plan, any liability or debt which is not included in the resolution plan by virtue of a creditor not submitting a claim in respect of its dues before the interim resolution professional / resolution professional gets extinguished. The Supreme Court has held that because the successful resolution applicant takes over the business of a corporate debtor on a fresh slate, he cannot suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw the amounts payable by him into uncertainty11.

Status of past tax dues after approval of resolution plan

  1. Many times the Income Tax Department (IT Department) (and even other tax departments) do not file claims in respect of pending tax dues (IT dues) before the resolution professional during the corporate insolvency resolution process and yet pursue their claims against the corporate debtor after it has successfully emerged out of corporate insolvency. The corporate debtor now is obviously the company in a new avatar under a new management.
  1. It is in light of the scheme of IBC that the Supreme Court in Ghanashyam Mishra and Sons Private Limited (supra) held that upon approval of the resolution plan under the provisions of IBC by the NCLT, claim towards pending IT dues and other tax dues not filed before the resolution professional and consequently not forming part of the resolution plan or those pertaining to periods prior to the approval of the resolution plan stand extinguished. A similar view has been reiterated by the Supreme Court in the case of Ruchi Soya Industries Limited & Ors. UoI & Ors.12
  1. The judgement of the Supreme Court prompted many corporate debtors – through their new managements – to file Writ Petitions before High Courts challenging notices under the IT Act for periods prior to the approval of the resolution In one such case viz. Murli Industries Limited v. ACIT & Ors.13, a Division Bench of the Bombay High Court quashed notices under section 148 of the IT Act on the ground that the notices pertained to assessment years falling prior to the date of approval of resolution plan. Similarly, in The Sirpur Paper Mills Limited and Ors. v. Union of India and Ors.14, a Division Bench of the Telangana High Court quashed notices under section 143(2) of the IT Act for an assessment year prior to the date of the approval of the resolution plan. In other words, the Telangana High Court was of the view that the IT Department could not even undertake scrutiny of a return of income pertaining to a period prior to the date of the approval of the resolution plan.
  2. Based on the judgement in Ghanashyam Mishra and Sons Private Limited (supra), in Jet Airways (India) Ltd.15, the IT Department even withdrew its appeals against the orders of the Income-tax Appellate Tribunal (ITAT) before the Bombay High Court presumably since the claim in respect of the IT dues were not submitted before the resolution professional and the same did not form part of the approved resolution In many cases, the ITAT has dismissed pending appeals of the IT Department upon approval of a resolution plan in respect of the assessee.
  1. However, in the context of customs duty claimed by the Customs Department to be payable by a corporate debtor for a period prior to the approval of the resolution plan, a Single Judge of the Madras High Court in Ruchi Soya Industries v. Union of India and Ors.16 has held that though it was never the intention of the Parliament to enact IBC to have such far reaching impact on the tax administration, the decision of the Supreme Court in Ghanashyam Mishra and Sons Private Limited (supra) has held it otherwise. The relevant portion of the judgement of the Madras High Court is as follows:

“69. Though it was also never the intention of the Parliament to enact Insolvency and Bankruptcy Code 2016 (IBC, 2016) to have such far reaching impact on the tax administration, the decision of the Hon’ble Supreme Court has held it otherwise.

70. The entire tax administration of the country is now in a pell-mell. All the tax authorities will have to make a beeline before the National Company Law Tribunal every time to recover tax dues if under any circumstances proceedings are initiated against corporate debtor under the IBC, 2016. This was not the intention when the Act was enacted. …

81. The corporate applicant has indirectly taken over the petitioner in their “Corporate Resolution Plan” before the said Tribunal. It is for the petitioner to prove that the “customs duty” payable to the respondent under the subject Bill of Entry was factored by the Corporate Applicant in the Corporate Resolution Plan submitted before the National Company Law Board.”

  1. A Writ Appeal against the above judgement has been admitted and is pending before a Division Bench of the Madras High Court17. In State Tax Officer (1) v. Rainbow Papers Limited18, the Supreme Court has observed that there was no obligation on the part of the tax authorities to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated and a resolution plan which does not factor in the same is not binding on the tax authorities. Furthermore, in Dishnet Wireless Ltd. v. ACIT19, the Single Judge of the Madras High Court has also held that approval of a resolution plan cannot impinge on the rights of the IT Department to pass any fresh assessment order under section 148 read with sections 143(3) and 147 of the IT In a pending Civil Appeal filed by the IT Department in the case of Jet Airways (India) Limited, the Supreme Court has, in an interim order, observed that the pendency of an appeal would amount to a claim by the IT Department20. In this case, it was the further submission of the IT Department before the Supreme Court that approval of a resolution plan would not extinguish “ramifications on the criminal side”. The Civil Appeal is pending final adjudication.

 Consequences of quashing notices and precluding assessment

  1. Under the IT Act, usually the starting point for any proceeding that can result in adverse consequences for any person is the issuance of a communication from the IT Department to the assessee (except a search and seizure or a survey proceeding). The communication may be a notice under section 142(1) making an inquiry before assessment, or an intimation under section 143(1) with a tax demand, or a notice under section 143(2) proposing a scrutiny assessment of the return of income, or a notice under sections 147 read with 148A (followed by issuance of notice under section 148). The principles of natural justice are ingrained in the provisions of the IT Act inasmuch as without the issuance of a valid notice, the IT Department cannot proceed ahead to verify whether the assessee has made correct claims with respect to its income, paid the taxes due thereon, whether any interest or penalty ought to be levied and whether any prosecution ought to be initiated.
  1. An assessment order making an addition or disallowance then becomes a starting point for further proceedings such as penalty proceedings for misreporting / underreporting of income or underpaying taxes in any manner or for launching prosecution in appropriate cases. Penalty and prosecution provisions in the IT Act are meant to fix culpability for, and act as a deterrent against, committing fiscal By quashing the above notices – which are starting points not only for imposing income-tax liability but also for initiating appropriate action for misreporting / underreporting of income or underpayment of taxes against persons responsible for these acts – effectively the Courts have granted reprieve to persons responsible for these acts.
  1. Viewing the notices issued by the IT Department as an attempt to recover income-tax from the company under the new management for periods prior to the date of the approval of the resolution plan is looking at the matter through one side of the legal prism, the other side being that these notices are also starting points for the IT Department to initiate other proceedings and invoke other statutory remedies available to it. The necessary evidence for prosecution is often collected in penalty proceedings. The material relied on in penalty proceedings often has its foundation in the facts unearthed during assessment proceedings. With the quashing of foundational notices under section 143(2)/ 148 of the Act, the IT Department is unable to proceed in any manner or collect the requisite material / evidence to proceed against the erstwhile management in case of any wrong doing.
  2. Considering the object and purpose of IBC i.e. to promote resolution of insolvent companies by encouraging new companies to offer resolution plans for them, there is an obvious need to assure the new management that they need not be scared that the taxman will come after them for the faults of the earlier promoters21. Keeping this in mind and the express statutory provisions of IBC under section 31(1), the enunciation by the Supreme Court in Ghanashyam Mishra and Sons Private Limited (supra), that IT dues and other tax dues which do not form part of the approved resolution plan cannot be recovered from the company emerging after successful resolution or its new management, is unexceptionable. However, the  legal  consequence  of quashing scrutiny or reassessment notices at the threshold is also virtually a grant of immunity to the erstwhile management for their acts. This is contrary to legislative intent as evident from the clarification issued by the Finance Minister in the Rajya Sabha22 that “Once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company” and section 32A of IBC which grants immunity only to the new management against liability for past offences by the old management. The approach of quashing the foundational notices under the IT Act has the effect of preventing (or at least making it more difficult) the IT Department from initiating otherwise permissible action against the erstwhile promoters. For instance, without an assessment order or an order imposing penalty, the IT Department would be unable to launch prosecution against the erstwhile management for tax evasion or other fiscal wrongs, if committed by the erstwhile management.
  3. Having said that, the views of the Single Judge of the Madras High Court in Ruchi Soya Industries Ltd. (supra) also do not appear to represent the correct view. It interprets the provisions of IBC in a rather constricted For instance, requiring a successful resolution applicant to prove that the tax dues in respect of which a claim was not filed by the tax department before the resolution professional have been factored in the resolution plan as a pre-condition is contrary to the scheme of IBC. This view also fails to appreciate that a resolution plan can factor in payments only for claims which were filed before the resolution professional.

The middle-path approach

  1. The answer may lie somewhere at the middle of the two In order to give full effect to the provisions of the IT Act as well as IBC, it may not be desirable to quash the notices which are foundational to assessment proceedings. Under the IT Act, proceedings for assessment and recovery are different. Permitting the IT Department to continue with the assessment proceedings with a clear direction that the tax demand, if any, at the conclusion of the assessment proceedings shall not be recovered from the company in question now under the new management should be the way forward. This will enable the IT Department to use the findings in the assessment proceedings for initiating appropriate proceedings against the old promoters / management of the company. For instance, section 179 of the IT Act empowers the IT Department to recover income-tax due from the directors of a private company if the recovery cannot be made from the company in certain situations. These provisions may be invoked by the IT Department to recover the tax which would have been payable by the company in question. The Bombay High Court in Murli Industries Ltd. (supra), while referring to a similar provision in the Maharashtra Value Added Tax Act, 2002, failed to take note of section 179 of the IT Act.
  2. A harmonious interpretation of IBC with the IT Act does not warrant the in limine quashing of assessment / reassessment notices but only a prohibition on recovery of tax dues pertaining to past years from the company or its new A quashing of the notices at the initial stage itself would seriously jeopardise the remedies available to the IT Department or at least an opportunity to explore ways in which the earlier management could be made accountable for its actions. At the same time, continuing assessment proceedings with respect to the company in its new avatar in order to foist liability on, or take action against, the erstwhile promoters without the participation of the erstwhile promoters may run foul of the well-established principles of natural justice embedded in the IT Act since the company under the new management being aware that the assessment proceedings cannot result in any adverse consequences for them (since they relate to a period prior to the date of approval of the resolution plan), is not likely to participate in the assessment proceedings in the best possible manner. In addition, there may even be serious actual impediments to the participation of the company such as lack of information and documents pertaining to the past years since in many insolvency resolution processes, it is experienced that all information and documents are not available. A successful resolution applicant has to make do with whatever is made available to it and has to solely rely on the resolution professional for the same.
  1. While every case is likely to have its own peculiarities, a more fact specific approach would be desirable on these issues. The first step however that the IT Department and other tax departments must undertake to protect the interests of the revenue is to diligently file claims before the resolution professional. Since all companies and limited liability partnerships are invariably assessees of the IT Department, it is quite simple to act on a public announcement regarding commencement of corporate insolvency resolution process and to file a claim, if any, before the resolution professional. The importance of filing a claim before the resolution professional can be gauged from the judgement of the Supreme Court in State Tax Officer (1) v. Rainbow Papers Limited (supra), wherein a resolution plan, not factoring in a claim in respect of tax dues under the Gujarat Value Added Tax Act, 2003 which was filed with the resolution professional, was set aside.
  1. In respect of tax claims that may arise for past years owing to information received after the approval of the resolution plan (but before the expiry of the limitation period within which the assessment can be reopened under the IT Act), obviously, the IT Department would be unable to file any claim before the resolution professional. This is where Courts must take a middle-path approach whereby the company under its new management is not made to pay any amount towards tax claims not factored in the resolution plan but at the same time the other provisions of the IT Act which the IT Department may invoke against the erstwhile promoters are also not completely shut Similar should be the approach in case of scrutiny assessments for periods prior to the approval of the resolution plan but picked up for scrutiny after its approval. In Vadraj Energy (Gujarat) Limited v. ACIT23, the Bombay High Court has for instance quashed assessment orders passed in respect of the company after its successful resolution but remanded the matters back to the assessing officer to consider the legal effect of the company having emerged out of insolvency resolution process.
  2. The tax departments must also realise that their actions, if held to be contrary to the provisions of IBC and the law laid down in Ghanashyam Mishra and Sons Private Limited (supra), are unlikely to withstand judicial scrutiny. Therefore, unmindful insistence on recovering taxes for past years from the company now under the new management must give way to a more practical and solution oriented approach of exploring alternatives within the statutory framework for taking steps in relation to the past promoters as this is the approach which is likely to yield better results. The respective Boards under the relevant tax laws ought to play a more proactive role in this regard.


  1. The divergent views expressed by Courts as above and different fact-situations having implications on the criminal as well as civil side that could arise after the approval of a resolution plan under IBC for the actions of erstwhile managements have opened up new and interesting There are many unanswered and unconsidered aspects under the tax laws that arise with the approval of a resolution plan.
  2. Supreme Court’s judgement in Ghanashyam Mishra and Sons Private Limited (supra) does not seem to be the end of all controversies that can arise from the interplay between IBC and the IT Act qua tax assessments and past tax dues. Each case that comes before a Court has its own factual situation or legal peculiarities which may not have been examined earlier. The law on these aspects is likely to develop and evolve further. In the meantime, while approval of a resolution plan may extinguish monetary claims not factored in the resolution plan, an approved resolution plan is only likely to ignite new legal controversies.

Dear Friends,

I write to you amidst the festival season and the busy professional season on account of Tax audit and Income Tax return deadlines.

I am also happy to inform that our Member Mr. Jag Mohan Bansal, Senior Advocate has been Elevated to High Court as Judge of High Court of Punjab and Haryana High Court. Our heartiest congratulations to Mr. Jag Mohan Bansal and we wish him all the success in Life.

The Festival Season has started and we are in the midst of Ganesh Utsav Celebrations and soon the Navratri, Dussehra will start around end September and am sure that we are all geared up to enjoy the festive season after a gap of 2 years where on account of the COVID 19 pandemic, where we were restricted to our homes and could not go out and enjoy the festivities.

I would like to congratulate the Northern Zone team headed by Mr. H. L. Madan and Vice President Dr. Naveen Rattan for successfully conducting a National Tax Conference and NEC at Delhi at a short notice. On the occasion we have also released a public 75 Landmark Judgements under GST authored by Advocates Mr. Sandeep Goyal & Mrs. Aanchal Goyal, Chandigarh. I would like to Congratulate the Publication team for coming out with the publication and the authors for putting in efforts to compile the same.

We also had a successful International Study Tour and RRC at Dubai, which was well organized by the International Conference Team led by the Chairman Mr. Sanjay Kumar from Prayagraj and Co-Chairman Mr. Santosh Gupta from Nagpur and their team. There were over 170 delegates in the tour and it was a good fellowship and learning event. We are also planning to hold another study tour in First week of November, 2022 for the benefit of the members.

We also have a NTC and NEC scheduled at Dwarka, The abode of Lord Shri Krishna, which is being organized by the Western Zone on 1st and 2nd October, 2022. We have had a tremendous response with over 300 delegates so far and we shall be able to cross over 300 registrations. The Conference would also be a relaxing outing after the busy audit season in September. I request all the members to register for a unique experience. The subjects in the conference are also of relevance for the day-to-day practice in Direct and Indirect Tax. We have also planned a Foundation day Fortnight celebrations in November from 10th to 25th November, where all the zones would be involved in conducting various programmers in their respective zones to commemorate the 46th Foundation year celebrations.

The 25th National Convention is at Jaipur on 16th and 18th December, 2022. Details have already been circulated. Kindly register early for the same, the Central Zone is putting in a lot of efforts to make the Convention a success.

We invite suggestions from members for any improvement or betterment in the working of the Federation, as we can together make the Federation the best amongst compatriot bodies.

With these words, I conclude my communiqué with a sincere advice:

“Fill the brain with high thoughts, highest ideals, place them day and night before you and out of that will come a great Results and success.”

I wish you all a very happy Navratri and Dussehra.

With Best Regards,

Yours faithfully,

K. Gandhi

National President, A.I.F.T.P.

Dear Friends,

By the time this issue finds place in the hands of my CA friends all may be coping with the pressure to meet the dead line to upload the Tax Audit Reports. So friends, my sincere advice is to avoid stress which is injuries to health. There are many more deadlines to meet. I am reminded of the beautiful line by Robert Frost

“Whose woods these are I think I know.

His house is in the village though; He will not see me stopping here

To watch his woods fill up with snow.

My little horse must think it queer To stop without a farmhouse near Between the woods and frozen lake The darkest evening of the year.

He gives his harness bells a shake To ask if there is some mistake. The only other sound’s the sweep Of easy wind and downy flake.

The woods are lovely, dark and deep, But I have promises to keep,

And miles to go before I sleep, And miles to go before I sleep”

I am keen to discuss the decision of the Hon’ble Allahabad High Court in the case of Writ Tax No. 554 of 2022 Vikas Gupta vs. UOI dated 8th September 2022. It was a batch of 9 Writ Petitions. In all these Writ Petitions the common issue percolated out of facts which may not be identical but similar. The notices under section 148 were issued, in one of the cases before Hon’ble Court, on 31/03/2021 at 7:05 P.M. i.e. 19:05 hours by digitally signing the approval. Jurisdictional A.O. issued notice u/s. 148, digitally signed on 31/03/2021 at 5:43 P.M., i.e. 17:43 hours. The Assessee challenged the validity of notice on the ground that the notice issued u/s. 148 before the approval was granted by the PCIT is invalid. The Department defended the action of the A.O. relying on the provisions of the provisions of Section 282A of the Income Tax Act, 1961 (the Act), Rule 127A of Income Tax Rules, 1962 and sections 2(d), 2(p) and 2(t) of the Information Technology Act, 2000. The Department’s contention was contained that once the PCIT has pushed in “Generate Tap in TBA system” his satisfaction u/s. 151 of the Act would be deemed to be an authenticated document. The digital signature affixed by PCIT on his aforesaid satisfaction u/s. 151of the Act, subsequent to issuance of the notice by the A.O. u/s. 148 of the Act, would not in validate the notices is issued by A.O.

The Hon’ble Court analyzed the statutory provisions and law on the issue in detail.

The Hon’ble court in para 25 of the decision observed that

“Thus the expression “shall be signed” used in Section 282A(1) of the Act 1961 makes the signing of the notice or other document by that authority a mandatory requirement. It is not a ministerial act or an empty formality which can be dispensed with. “Signed” means to sign one’s name; to signify assent or adhesion to by signing one’s name; to attest by signing or when a person is unable to write his name then affixation of “mark” by such person. The document must be signed or mark must be affixed his mark is the author of it. Therefore, a notice or other documents as referred in Section 282A(1) of the Act, 1961 will take legal effect only after it is signed by that Income Tax Authority, whether physically or digitally. The usage of the word “shall” make it a mandatory requirement.

The Hon’ble court further observed that

The first and foremost condition under sub-Section (1) of Section 282A is that notice or other document to be issued by any Income Tax Authority shall be signed by that authority. The word “and” has been used in sub-Section (1), in conjunctive sense, meaning thereby that such notice or other document has first to be signed by the authority and thereafter it may be issued either in paper form or may be communicated in electronic form by that authority. In the present set of facts, it is the admitted case of the respondents that the PCIT has not recorded satisfaction under his signature prior to the issuance of notice by the Assessing Officer under Section 148 of the Act, 1961.

These findings are of the Hon’ble High Court are very important and of far reaching consequences.

In this issue of the Journal articles on import topics have been compiled. I hope they will be of help to all the professionals. I thank all the professional who have spared their valuable time for contributing to this issue of the Journal.

 K. Gopal,