1. Supreme Court Declares Section 206C of Income Tax Act Inapplicable to Liquor Vending Rights Transactions : (Excise Commissioner Karnataka Vs Mysore Sales International Ltd)
Facts of the Case – The Mysore Sales International Ltd. (MSIL) was engaged in an auction of liquor selling rights and abstracted from tax obligations under the Excise Act for the assessment year 2000-01. However, Karnataka’s Excise Commissioner raised objections against MSIL’s exemptions saying the company was supposed to obtain Tax collected at Source (TCS) based on Section 206C of the Income Tax Act from those buying liquor vend rights through auction.. Two main issues arose in this context: whether these vendors qualified as buyers within the meaning assigned under the Income Tax Act, and whether section 206C applies to transactions between such bidders and MSIL.
Judgment – The Income Tax Act Section 206C was ruled out of order for MSIL in this case by the Indian Supreme Court on the 8th of July, 2024. In this case, the Court held that liquor vendors purchasing vending rights from MSIL through auctions, could not be called “Buyers” under Explanation (a) of Section 206C. It made a distinction between a “buyer” who acquires specific goods and a licensee who only gets permission to do business. The Court underlined that the intention of Section 206C is it pertains to actual purchasers of material, not just those who get permits for conducting trade.
2. Supreme Court Clarifies Criteria for Determining Management and Control in Company Residency: Mansarovar Commercial Pvt. Ltd. Vs CIT
Facts – Sikkim said the company before 1990 was taxable in terms of the Sikkim Manual 1948 or else regarded as taxable in India. The Income Tax Department contended that the management and control of the company were effective in Delhi, based on records maintained at a Chartered Accountant’s office. This location showed, according to the department, that the company’s income was taxable in India, not under Sikkim’s provisions, because its operational as well as managerial functions were being performed in Delhi.
Judgment – The Supreme Court held in the case of Mansarovar Commercial Pvt. Ltd. Vs CIT that for tax purposes company residency should be based on actual ‘management and control’ rather than just registered office location. The Court further clarified that “management and control” denotes the de facto exercise of control over a company’s operations involving real decision-making and business activity direction. This case emphasized as such, that even though some evidence showed that one of its operational functions was situated in Delhi; it was made clear by the Court that residency would have to be determined by the place where substantial control and management over company affairs were exercised. Therefore if effective control was exercised from Sikkim, then income earned shall be taxed according to Sikkim tax provisions.
3. Supreme Court Rules Out Section 80-IB Deductions for DEPB and Duty Drawback Profits: Saraf Exports vs CIT
Facts – The Supreme Court analyzed whether the profits obtained through the Duty Entitlement Pass Book (DEPB) and Duty Drawback schemes could be written off under Section 80-IB of the Income-tax Act, 1961, in the case of Saraf Exports vs CIT. The main issue was whether these export incentives, which are given based on export activities, constitute income “derived from” an industrial undertaking. The Court ultimately ruled that such incentives are not eligible for deductions under Section 80-IB, thus reaffirming its earlier decisions that have held export incentives such as DEPB and Duty Drawback do not come within the ambit of income derived from industrial activities for tax deduction purposes.
Judgment – The Supreme Court has held that profits earned under the Duty Entitlement Pass Book (DEPB) scheme and the Duty drawback scheme, are not eligible for deductions under section 80-IB of the Income Tax Act, 1961. The Court has stated that these export incentives are not derived out of the business of an industrial unit but are related to export activities instead. This decision maintained the belief that these kinds of incentives don’t count as income which is tied directly to manufacturing and selling goods.
4. Section 271C penalty cannot be levied for mere delayed payment of TDS: US Technologies International Pvt Ltd vs CIT
Facts – The Supreme Court analyzed whether to impose any penalties for remitting TDS at later dates in US Technologies International Pvt Ltd vs CIT about Sections 201(1A) and 271C of the Income-tax Act. The Supreme Court examined if delays in making TDS payments require penalties under section 271C or an interest under section 201(1A).
Judgment – The Supreme Court clarified that Section 201(1A) mandates interest for delayed TDS remittance, while Section 271C deals with penalties for failure to deduct TDS. The Court upheld that interest for belated payments and penalties for non-deduction are distinct, with Section 276B covering prosecution for non-payment. The CBDT Circular No. 551 was noted to support the view that both penalties and interest apply according to the specific nature of the default.
5. Income Tax: Supreme Court Rules That Order Directing Section 142(2A) Special Audit Must Be Communicated to Assessee: Rajiv Gandhi Proudyogiki Vishwavidyalaya vs Union of India and Others
Facts – The Supreme Court deliberated on whether a directive to carry out an extraordinary review as stipulated in Section 142(2A) of the Income Tax Act, 1961 should be shared with the appellant-assessee. Rajiv Gandhi Proudyogiki Vishwavidyalaya challenged the unique review command claiming that they were never informed about its foundation and therefore, couldn’t oppose it appropriately.
Judgment – The SC ruled down on the assessee with well-timed emails like thunder. This email is ideal for he/she who doesn’t want anything other than having an intelligent response to the financial notice from the Revenue office in which he/she will be taxed. They emphasized that there should be more openness in the way tax administrators carry out their work and also there is always a chance of choosing a rightful path in case you have a disagreement with them about any administrative order that would affect your salary payments.
6. Expenditure for Illegal or Prohibited Purposes Is Not Deductible: CIT vs Prakash Chand Lunia (D) Thr. Lrs. & Anr.
Facts – In this case, the Supreme Court reviewed whether expenditure related to activities deemed illegal or prohibited by law is deductible under the Income Tax Act. Silver slabs and ingots valued at ₹3.06 crores were recovered from the appellant’s premises, leading to their confiscation and a personal penalty under the Customs Act. The appellant’s failure to record this investment or explain its source resulted in an addition of ₹3,06,36,909 under Section 69A, along with penalties. Both the CIT(A) and ITAT upheld these additions and penalties.
Judgment – It was decided by the Court in earlier cases that one cannot make any deductions from income in respect of expenditure spending done for illegal or prohibited purposes. The Court stated emphatically that expenditure incurred on smuggled goods, which is illegal by their nature, should not be deducted. Thus, based on its ruling, such kinds of costs would remain non-deductible reinforcing the idea that no tax deductions can take place due to unlawful operations.
7. Supreme Court Endorses ICAI’s Tax Audit Limit: Effective April 2024: Shaji Poulose vs. ICAI
Facts – In Shaji Poulose and another v. Institute of Chartered Accountants of India (ICAI), the Chartered Accountants protested against the ICAI’s direction limiting the maximum number of tax audits to sixty annually, contending that it was unconstitutional and illegal. The matter concerned whether this limitation fell within the ambit of the authority of ICAI and how it affected the right to practice law by these professionals.
Judgment – As long as professional standards are upheld, the Supreme Court ruled that the ICAI’s directive restricting Chartered Accountants to sixty tax audits in a year was reasonable and valid. The ceiling was found to be in conformity with Article 19(6) of the Indian Constitution and shall come into force from April 1, 2024.
8. “Court Rules on Timely Processing of Tax Refunds and Restrictions on Adjustments Against Outstanding Due: Commissioner of Trade and Taxes vs. FEMC Pratibha Joint Venture
Facta – This case entails a disagreement between the department and the responding assessee about the offsetting of tax refunds with remaining liabilities. The department claimed that refunds could be sent beyond the legal limit while the assessee maintained that adjustments could not happen outside this stipulated time limit.
Judgment – The court ruled that refunds must be processed within the statutory timeline specified in Section 38(3) to ensure timely issuance. Adjustments against outstanding dues cannot be made if the default notices are issued after the refund processing period. The department was found to be unjustified in retaining and adjusting refunds beyond the stipulated period.
9. Supreme Court Rules on Market Value of Electricity for Section 80-IA Deductions in Jindal Steel Case: Commissioner of Income Tax v. M/s Jindal Steel & Power Limited
Facts – The Supreme Court analyzed the calculations for reductions in terms of Subsection 80-IA in the Income Tax Act, 1961 in the Commissioner of Income Tax v. M/s Jindal Steel & Power Limited case. In this regard, M/s Jindal Steel & Power Limited generated electricity alone for its use but disputed the method employed by the Assessing Officer who used Rs 2.32 per unit (i.e. what the State Electricity Board pays) to compute deductions. However, the company maintained that it should have been based on a higher market price figure for captive consumption at Rs 3.72 per unit.
Judgment – The Supreme Court ruled in favor of M/s Jindal Steel & Power Limited, determining that the rate of Rs. 2.32 per unit set by the agreement with the State Electricity Board did not reflect the true market value. The Court recognized that the fixed rate lacked the competitive dynamics of the open market and upheld the Assessee’s claim for the market rate of Rs. 3.72 per unit for deduction purposes.
10. Supreme Court Rules Cellular Service Providers Exempt from TDS on Payments to Franchisees/Distributors: Bharti Airtel Ltd. v. Assistant Commissioner of Income Tax
Facts – In the case of Bharti Airtel Ltd v. Assistant Commissioner of Income Tax, it was to determine whether tax should be deducted at source by cellular mobile telephone service providers from the amounts paid to their franchisees/distributors as commission under Section 194-H of Income Tax Act of 1961 or not, as per argument by the Revenue. However, Bharti Airtel Ltd argued that such payments are not commissions and these distributors/franchisees cannot be treated as their agents.
Judgment – It was held by the Supreme Court that the mobile service by cellphone providers like Bharti Airtel Ltd is to deduct tax at source since such payments are made by agents or distributors. In other words, it was established that under section 194-h, this particular income or profit cannot be included in the amount paid to distributors for prepaid coupons and starter kits.