The rules the courts use to read a taxing statute: two possible views, strict construction of exemptions, and when an amendment reaches backwards. 19 entries, strongest first, with what each one decided in a sentence. Read down the list, then open the entry that fits your facts. The How Tax Law Is Read hub cross-lists everything that touches this area, including entries filed under another subject.
My foreign company opened a project office in India to coordinate an EPC contract. Has the department made it a permanent establishment, and can it tax a slice of my offshore revenue? No, not on those facts. The Supreme Court held that a fixed place is a permanent establishment under Article 5(1) of the India-Korea treaty only if the core business of the foreign enterprise is carried on through it. Samsung's Mumbai project office had two non-technical employees, its accounts showed no expenditure on executing the contract, and it did liaison and coordination work only — preparatory or auxiliary activity excluded by Article 5(4)(e). The Court also held the burden of proving a permanent establishment is initially on the Revenue, and that an ad hoc attribution of 25 per cent of gross offshore revenue had no foundation.
Does the two-views rule also apply when you claim an exemption? No — it reverses. An exemption notification is construed strictly, the burden is on you to fall squarely within it, and any ambiguity goes to the revenue. The contrary rule in Sun Export was overruled.
Our Indian agents pay the foreign principal a pro-rata share of the cost of its global booking and communication system — is that fees for technical services taxable in India? No. The Supreme Court held that the payments the Indian agents made to a Danish shipping line for using its Maersk Net system were reimbursement of a proportionate share of cost, not fees for technical services. The system was an integral part of the shipping business and was a common facility available to all agents worldwide, not a service catering to any agent's special needs. Once the character of a payment is reimbursement of expenses, it cannot be income chargeable to tax; and since freight income was exempt under the India-Denmark treaty shipping article, the expenses of earning it could not be split off. The Revenue's appeals were dismissed.
An amendment adds a new levy. Does it reach back to earlier years? Not unless the statute says so. Legislation is presumed not to operate retrospectively, and that presumption applies with full force where the amendment imposes a new burden. Only clarificatory or beneficial amendments may be read back.
For book profit under section 115J, do I provide depreciation at Income Tax Rules rates or at Schedule XIV rates - and does it matter that I am a private limited company? It depends, and the Supreme Court did not settle it here. This is a reference order, not a decision. A two-judge bench held that its own earlier ruling in Malayala Manorama - that a private company outside sections 349, 350 and 355 of the Companies Act may provide depreciation at Income Tax Rules rates for book profit - needs reconsideration. Its view was that section 115J incorporates only Parts II and III of Schedule VI, not sections 205, 350 or 355, and draws no distinction between public and private companies. It directed the Registry to place the appeal before the Chief Justice for a larger bench.
Is off-the-shelf software supplied on a disc 'goods' that can be taxed as a sale? Yes. A five-judge Bench of the Supreme Court held that branded software on floppies, discs or CD-ROMs is 'goods' within the Andhra Pradesh General Sales Tax Act, 1957 and Article 366(12) of the Constitution. The term covers all kinds of movable property, tangible or intangible. The test is not tangibility: it is whether the item is capable of abstraction, consumption and use, and whether it can be transmitted, transferred, delivered, stored and possessed. Software has all of those attributes. Copyright may stay with the author of the programme, but once copies are made and marketed they are goods. The appeals were dismissed.
A Board circular gives me a benefit the section itself does not clearly allow. Can the Assessing Officer ignore it and apply the strict law instead? No. The Supreme Court held that the Central Board of Direct Taxes has statutory power under section 119 to tone down the rigour of the law in favour of assessees and to secure a fair administration of the Act, and that circulars issued in exercise of that power bind the authorities administering the Act. Applying the circular of 9 October 1984, it held that interest on doubtful loans credited by a bank to a suspense account, where nothing had been recovered for three accounting years, was not taxable in the fourth year and afterwards until actually received. The bank's appeal was allowed.
The officer has invoked s.79 after a change in our shareholding and struck out everything brought forward, including unabsorbed depreciation. Does s.79 reach unabsorbed depreciation? No. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2).
I won prize money in a car rally that was a test of skill, not a lottery or a race. Is it taxable when it does not fit any sub-clause of section 2(24)? Yes. The Supreme Court held that section 2(24) is an inclusive definition, so a receipt can be income even though it falls under none of the sub-clauses. It is wrong to test a receipt against sub-clause (ix) and conclude, if it does not fit, that it is not income. The rally was a contest, the assessee entered it to win, and the prize was a return for his skill and endurance. If money not earned in the true sense is income, money earned by skill and toil is income too. It may be casual, but section 10(3) itself shows casual income is income.
My wife's and minor children's share income from a firm is clubbed into my total income. Can I set my own carried forward business loss against it, when I am not a partner in that firm? Yes. The Supreme Court held that where the clubbing provision operates, the profit or loss from the business of the wife or minor child that is included in the assessee's total income must be treated as profit or loss from a business carried on by him for the purpose of carrying forward and setting off the loss. A strict literal reading would deny the set-off to the assessee, while the wife and children could not claim it either because the income is taxed in his hands, and Parliament cannot have intended that. The clubbing provision exists to counteract the transfer, not to punish the transferor.
The department says my restructuring was a device and is taxing me on the substance. How far can it go behind a transaction that is perfectly legal on its face? It depends, and this is the case both sides cite. A five-judge Bench of the Supreme Court held that excise duty paid direct to the authorities by the buyers still formed part of the manufacturer's turnover, because the payment was made on the manufacturer's account and was part of the consideration. In doing so the Court said that colourable devices cannot be part of tax planning and that it is wrong to think it honourable to avoid tax by dubious methods. Chinnappa Reddy J went further in a separate opinion, treating the Westminster principle as spent.
The provision can be read two ways. Which reading wins? Yours. Where two reasonable constructions of a taxing provision are possible, the one favourable to the assessee must be adopted. Applied here to hold that penalty is computed on tax payable after credit for amounts already paid.
My company is not a share dealer at all, but it lost money on exchange-traded F&O. The AO says the Explanation to s.73 makes it speculation loss. Can I set it off against my ordinary business income? In the Bombay High Court, yes. Once a derivative transaction falls inside clause (d) of the proviso to s.43(5) it is not a speculative transaction at all, and the Court held that neither s.73(1) nor the Explanation to s.73 applies to the loss, so it is an ordinary business loss set off under s.70 against any other business income. The Court expressly recorded that the Delhi High Court in DLF Commercial Developers has taken the contrary view.
My company lends money and also deals in shares. How is it decided which is the 'principal business' for the exclusion in the Explanation to s.73? There is no single test. The Calcutta High Court held that the memorandum of association, turnover, capital expenditure and the relation of profit to expenses are all relevant, that all of them must be judiciously analysed and assessed, and that what emerges is a tricky question of fact which the Tribunal must determine threadbare on the record. Because the Tribunal had not done that, the Court set its order aside and remitted the appeal with a direction to decide within six months.
I pay a foreign satellite operator for transponder capacity — has the 2012 amendment to section 9(1)(vi) turned that into royalty under the treaty as well? No. The Delhi High Court held on 8 February 2016 that the Explanations inserted in section 9(1)(vi) by the Finance Act 2012 cannot change the meaning of "royalty" in a double taxation avoidance agreement. A treaty is concluded between two sovereign states and can be altered only by them; a unilateral amendment of domestic law, however clearly it expresses the government's discomfort, does not rewrite Article 12. So the interpretation in Asia Satellite Communications — that payments for data transmission through transponder capacity are not royalty, the process referred to being a secret process — continues to govern years before the 2012 amendment and every case involving a treaty. The Revenue's appeals were dismissed.
My company lost money trading in exchange traded derivatives. Section 43(5)(d) says those are not speculative transactions, so can I set the loss off against ordinary business income? No, not if the Explanation to section 73 applies to the company. The Delhi High Court held that the exclusion of eligible derivative transactions from "speculative transaction" in section 43(5)(d) is confined to the provisions for which that definition was enacted, and does not carry into the Explanation to section 73. Derivatives take their value from the underlying stocks and shares, and if the share business itself is deemed speculative under the Explanation, so is the derivative business built on it. The Tribunal's order allowing carry forward of the Rs.4.92 crore loss was set aside and the Revenue's appeal allowed.
The AO says my company's gross total income does not 'consist mainly' of the four excluded heads because he has left the share loss out of the business head. Is that the right computation? No. To decide whether the exception in the Explanation to s.73 applies you compute gross total income under the normal provisions of the Act, taking into account both the income and the loss under the head profits and gains of business or profession, and only then ask whether what results consists mainly of interest on securities, house property, capital gains and other sources. Section 73(1) is applied after the Explanation, not before it, because to apply the bar first in order to decide whether there is a speculation business at all would reverse the order of the statute.
My derivative loss is for a year before assessment year 2006-07. Can I argue that clause (d) of the proviso to s.43(5) is clarificatory and covers it? No, in the Bombay High Court. Exchange-traded derivative transactions settled otherwise than by actual delivery are speculative transactions within the main part of s.43(5), and clause (d) of the proviso, inserted by the Finance Act 2005, operates prospectively from 1 April 2006 only. For years up to assessment year 2005-06 the loss is speculation loss.
My company has brought forward speculation loss from the Explanation to s.73. This year it made a profit on delivery-based share sales. The AO says the deeming fiction works only on losses. Can I set the brought forward loss against that profit? Yes. Once the Explanation to s.73 deems a company to be carrying on speculation business, the fiction attaches to the business, not to the result, so profits from that same business - including delivery-based share sales - are profits of a speculation business against which brought forward speculation loss can be set off under s.73(2). The Revenue's argument that the fiction applies to a loss but not to a profit would read a restriction into the Explanation that Parliament did not enact.
Nothing here is written from memory. Every entry was found through a search, and the page for it links to where it was found, so you can check it rather than take our word for it. What has not happened yet is the part that matters most: nobody has read the certified copy of each judgment and signed off the summary against it. Until that is done, each page says Not yet CA-verified, and it means exactly what it says. Read the source before you rely on an entry in a reply to an Assessing Officer or in an appeal.