On 26th September 2025, the Hon’ble Gujarat High Court heard the writ petition filed by the Chartered Accountants Association, Surat (CAAS) in the matter of CAAS v. Union of India. Listed at Serial No. 9, the petition raised concerns that go far beyond the routine prayer for extensions of filing deadlines.

The Core Issues Raised

While other petitioners restricted their submissions to requests for extending statutory deadlines, CAAS, represented by Adv (Dr.) CA Avinash Poddar, pressed systemic and recurring issues:

• Delay in release of Income Tax Return (ITR) and Tax Audit Report (TAR) utilities since 2015.
• Persistent glitches in the Income Tax portal.
• Hardships faced in advance tax compliance.
• Denial of the full statutory 182 days available under the Act.

Court’s Sharp Observations

The Bench did not merely hear arguments; it heavily berated CBDT counsel for the continuing misalignment between the due dates for TAR and ITR. By law, ITR filing is supposed to allow at least one month after the due date for submission of the TAR. Yet, in practice, this alignment has not been maintained.

The Court posed direct and critical questions to the CBDT:

• Why are extension circulars issued at the last possible moment?
• Why is the statutory one-month gap between TAR and ITR ignored?
• Why should taxpayers and professionals be subjected to harassment when issues like floods and technological glitches are already known?

Beyond Extensions: A Call for Accountability

CAAS’s petition is distinct in its scope. It seeks not only temporary relief but also systemic correction through the formation of a Committee of Experts comprising ICAI, NIC, and other relevant bodies. The aim is to establish accountability and oversight in tax administration.

Next Steps

The Court indicated that while the current focus remains on the immediate issue of specified due dates, the larger grounds raised by CAAS will be taken up in subsequent hearings. The matter is now listed for 6th October 2025.

Conclusion

Whatever the eventual judgment, the proceedings mark a significant moment in the ongoing dialogue between taxpayers, professionals, and the administration. CAAS has made it clear—it stands not only for deadline extensions but for a tax system that is predictable, transparent, and accountable.

Watch the arguments by Adv (Dr.) CA Avinash Poddar here:

Issue Involved

Whether disallowance u/s. 37 is tenable where AO has not doubted the nature and source of purchases expenditure and addition is made solely on the basis of genuineness of expenditure?

Facts of the Case

The assessee’s case was reopened u/s 148 on the basis of the allegation that the assessee had claimed purchases from a certain entity which was not a genuine entity. During the course of scrutiny assessment proceedings, the assessee furnished audited books of account, ledger accounts, purchase bills, bank statement and certificate from the auditor.

The Assessing Officer also conducted physical verification from supplier and collected statement from the controller of the entity. Finally, the Assessing Officer held the expenses claimed by the assessee to be not genuine and disallowed the same under section 37. Assuming jurisdiction conferred upon by provisions of section 263, the PCIT issued a show cause notice to the assessee stating that the disallowance was to be made under section 69C and not section 37 and higher rate of 60 per cent as per section 115BBE was applicable instead of normal rates and thus the assessment order was prejudicial to the interest of the revenue.

Arguments of the Appellant (Assessee)

1. The Ld. Counsel of the assessee argued that the assessment order was not erroneous as the AO has taken a possible view and conducted adequate enquiry. The Ld. AR further contended that there is no mandate in law that all the disallowance of business expense is to be made u/s 69C only.
2. AO also conducted physical verification from supplier and collected statement from controller of entity and held expenses claimed by assessee to be not genuine and disallowed same under section 37(1).
3. Disallowance made by the AO u/s 37 is tenable and no addition is made u/s 69C where the AO has not doubled the nature and source of the expenditure incurred, thus higher rate of 60% as per Section 115BBE of the Act is not applicable.

Arguments of the Respondent (Revenue)

PCIT initiated revision proceedings u/s 263 since the AO failed to conduct proper enquiry and the assessment order was not only erroneous but also prejudicial to the interest of the revenue and that the disallowance was to be made u/s 69C and not u/s 37 and higher rate of 60% was applicable normal rate of tax was incorrectly charged by the AO instead of special rate u/s 115BBE.

Decision of the Court

Section 37 is specific provision which disallows business expense when it is found to be not wholly and exclusively for business. In contrast, section 69C applies where the explanation of assessee regarding nature and source of expense was not satisfactory to AO. In this case, the nature of expense i.e. purchases and source of expense i.e bank payments are not doubted. Only doubt was regarding genuineness of expense and thus disallowance has been correctly made u/s 37 by AO.

The AO had, in re-assessment under section 143(3)/147 conducted physical verification from supplier, collected statement of alleged controller of supplier, considered reply of assessee and thereafter passed order disallowing expense u/s 37. Thus, observation of PCIT that there is lack of enquiry on the part of AO, is not justified.

When the Goods and Services Tax (GST) was introduced back in July 2017, it was celebrated as India’s most ambitious tax reform since independence. The idea was to unify India’s fragmented indirect tax system into “one nation, one tax.”

But in practice? Multiple slabs, frequent disputes over classification, high compliance costs, and uneven burdens across industries made GST far more complicated than expected.

Fast forward eight years, and the government has rolled out GST 2.0—effective 22nd September 2025. This reform simplifies the earlier four major slabs (5%, 12%, 18%, 28% + cess) into just three:

• 0–5% → Essentials
• 18% → Standard rate for most goods and services
• 40% → Luxury and sin goods

The logic is clear: lower taxes on mass-use items boost demand, while higher rates on luxury and harmful products discourage overconsumption.

But the biggest headline from GST 2.0?
Health and Life Insurance premiums will no longer attract GST.

Insurance Goes GST-Free – A Big Relief?

Finance Minister Nirmala Sitharaman announced:

• All individual life insurance policies—whether term life, ULIP, or endowment—are exempt from GST.
• All individual health insurance policies—including family floater and senior citizen plans—are exempt from GST.
• Even reinsurance for these products is exempt.

That means, if you currently pay ₹20,000 annually for a health cover of ₹15 lakh, the GST component of ₹3,050 (earlier charged at 18%) will disappear.

On paper, it looks like a straight 15–18% saving for crores of policyholders. Insurance suddenly becomes more affordable and accessible, pushing India closer to its long-term goal of increasing insurance penetration.

The Catch: No Input Tax Credit (ITC) for Insurers

Here’s where things get tricky.

While policyholders are freed from GST, insurers lose their right to claim Input Tax Credit (ITC) on expenses like:

• Agent commissions
• Brokerages
• Office rent
• Software and IT services

For example: If an insurer pays ₹10,000 as commission, the GST on it (₹1,800) earlier used to be claimed as credit against the GST collected on premiums. From September 22, that ₹1,800 becomes a direct cost.

In the short term, your premium may look lighter. But over time, insurers are likely to load these extra costs back into renewal premiums.

What It Means for You

At first glance, premiums look cheaper. But in reality:

1. Immediate savings: No GST means you don’t pay that 18% markup on your premium.
2. Hidden cost: Insurers’ operating expenses rise because they lose ITC.
3. Future impact: To protect margins, insurers may gradually increase premiums or restructure products.

So while GST-free insurance feels like a win, the net benefit could be smaller than you expect.

Final Takeaway

GST 2.0 simplifies India’s tax structure and rightly focuses on affordability for essentials. Making health and life insurance GST-free is a welcome move to encourage financial protection for the masses.

But for policyholders, the relief may be short-lived. As insurers absorb higher costs, premiums could creep back up over time.

In short: What looks like a saving of 18% today may translate into a much smaller net saving tomorrow.

Still, one thing is clear—GST 2.0 is a bold step forward, and its success will depend on how industries, including insurance, adapt to this new tax landscape.

Issues Involved

Whether granting license to permit construction of land without giving any possession in land considered as transfer u/s. 2(47)?

Facts of the Case

• The assessee entered into a development agreement with a developer in consideration of which assessee was to receive certain number of flats.
• The development agreement was entered into in A.Y. 2012-13 the period under consideration and subsequently a supplementary development agreement was also entered during the A.Y. 2013-14.
•  According to the development agreements, the assessee was going to receive certain portion of constructed property in shape of flats in subsequent year and, therefore, the income in this year was not shown. Thus, in subsequent assessment year i.e. during assessment year 2013-14, the assessee had received number of flats which were sold and the capital gain on sale of flats was disclosed in subsequent assessment year.
• The AO was of the view that since the development agreement was signed during the period under consideration, the property is said to be transferred during this period only and accordingly not satisfied with the above reply of the assessee.

Arguments of the Appellant (Assessee)

1. The Ld. AR appearing from the side of the assessee submitted before the Bench that the assessee entered into a development agreement with the developer with regard to a piece of land owned by the assessee. According to the agreement, the assessee was to receive flats in consideration. Initially, development agreement was entered into in A.Y. 2012-13 the period under consideration and subsequently a supplementary development agreement was also entered during the A.Y. 2013-14. The value of piece of land subjected to development agreement was Rs.1,22,50,000/- and the value of constructed area which the assessee was supposed to receive was valued at Rs.2,23,26,000/-. Accordingly, the capital gains of Rs.1,00,76,000/- (Rs.2,23,26,000/-minus Rs.1,22,50,000/-) was calculated by the AO.
2. The Ld. AR further submitted before the Bench that as per the development agreement, the assessee was to receive flats of the value of Rs.2,23,26,000/- and admittedly these flats were handed over to the assessee in subsequent financial year i.e. in A.Y. 2013-14 and those flats were sold by the assessee in this subsequent period only and not during the period under consideration. Accordingly, the assessee has rightly shown the capital gains in assessment year 2013-14.
3. In support of its contention, Ld. AR also argued that section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for purposes of development of the flats and selling the same and that granting such a license could not be said to be granting possession within the meaning of section 53A. Such license cannot be said to be in ‘possession’ within the meaning of section 53A, which is a legal concept, and which denotes control over the land and not actual physical occupation of the land. Accordingly, section 53A of the TOPA cannot possibly be attracted.

Arguments of the Respondent (Revenue)

The Ld. Counsel for the Revenue, urged that since development agreement was signed during period under consideration, property was said to be transferred during this period only and completed assessment by determining total income which included capital gains on sale of immovable property.

Decision of the Court

The assessee has entered into a development agreement with the developer which was registered in A.Y. 2012-13. A supplementary development agreement was again entered into and was registered during the subsequent A.Y. 2013-14. We also find that the commencement certificate & the building permission of the subjected property was issued on by Municipal Corporation in A.Y. 2013-14 which is also in subsequent year. We also find that in consideration of said development agreement the assessee has received flats of value of Rs.2,23,26,000/- in the subsequent assessment year. These flats were handed over to the assessee in subsequent A.Y. and not during the period under consideration. We also find that these flats were sold by the assessee in assessment year 2013-14 and the respective capital gains was also shown in the income tax return of assessment year 2013-14.

The sole grievance of the assessee in this appeal is that although the development agreement was first entered during the A.Y. 2012-13 but subsequently a supplementary development was again entered & also registered in the subsequent assessment year & even the consideration i.e. flats were also received in subsequent assessment year in 2013-14. Considering the totality of the facts of the case and the evidences produced before us, & placing reliance on the judgement passed by Hon’ble Bombay High Court in the case of Bharat Jayantilal Patel we are of the considered opinion that capital gains income does not arise to the assessee on transfer of development rights in its land to a developer, since assessee had merely granted licence to permit construction on land to such developer but not given any possession in land as contemplated under section 53A of T.P. Act, 1882, there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of assessee.

Issues Involved

Whether payments remitted by Indian law firms to an NR foreign attorney towards filing, prosecution and maintenance of overseas intellectual property (IP) matters for Indian clients—are taxable in India as “fees for technical services” (FTS) or “professional services” (FPS)?

Facts of the Case

• The assessee engaged foreign individual attorneys and overseas law firms to perform professional tasks and remitted fees to these NR professionals without withholding tax u/s. 195, on the footing that no income accrued/arose (or was deemed to accrue/arise) in India.
• The Assessing Officers however, treated the outgoings as FTS “chargeable to tax in India” by virtue of section 9(1)(vii), and disallowed the expenditure under section 40(a)(i) for failure to deduct TDS.

Arguments of the Appellant (Assessee)

1. Statutory scheme separates “professional services” and “technical services.” Section 194J defines “professional services” (including “legal”) distinctly from “fees for technical services,” which in turn borrows its meaning from Explanation 2 to section 9(1)(vii). If Parliament had intended professional services to be swept into FTS, there was no need to define them separately in 194J; the specific prevails over the general.
2. Section 40(a)(ia) (resident payees) expressly refers to both “FTS” and “FPS,” and defines both. By contrast, Section 40(a)(i) (non-resident payees) mentions only “royalty, fees for technical services, or other sum chargeable,” and defines only FTS—not professional services. This deliberate legislative carving indicates that professional fees paid to non-residents are not per se within “sum chargeable” via section 9(1)(vii).
3. Section 195 obliges TDS only where the sum is chargeable to tax in India. Since the services were rendered outside India by non-residents and are professional in nature, they are not covered by section 9(1)(vii) and so are not chargeable in India.
4. The work undertaken is quint essential “legal/professional” practice—representation before foreign IP offices/courts, compliance with jurisdiction-specific regulations—requiring local professional standing. While such work involves expertise, it is not “managerial, technical or consultancy” in the sense contemplated by section 9(1)(vii).

Arguments of the Respondent (Revenue)

The Respondents characterized the foreign services as “managerial/technical/ consultancy,” hence as FTS under Explanation 2 to section 9(1)(vii), attracting deeming accrual in India. On that premise, TDS under section 195 should have been deducted; failure attracts disallowance under section 40(a)(i).

Decision of the Court

The Act, read as a whole, draws a clear line between “FPS” and “FTS.” Section 194J’s Explanation defines professional services (including legal) separately from FTS. Section 44AA likewise lists “legal” and “technical consultancy” as professions, reinforcing that Parliament treats “profession” as a distinct category. If “professional” were intended to be subsumed within FTS, separate definitions would serve no purpose.

Legal practice is a regulated professional activity tied towards providing jurisdictional and regulatory services. Thus, the said services are professional in character—not a managerial/technical/consultancy service in the statutory sense—determines the tax outcome. The Tribunal emphasized that professional know-how/expertise alone does not transform legal services into FTS under section 9(1)(vii). Where the Act provides specific definitions and treatment for “professional services,” those provisions prevail over broader, general concepts like “consultancy” embedded within the FTS definition.

Significant Takeaways from Judgement

• Professional Services are not Technical Services: Legal/professional services are a separate, specifically recognized category in the Act; they are not to be auto-classified as “managerial, technical or consultancy” merely because they involve expertise.
• Section-by-section coherence matters: The interplay of sections 9(1)(vii), 40(a)(i)/(ia), 44AA, 194J and 195 shows deliberate legislative architecture. Courts must respect this structure and not read professional services into the FTS basket.
• Chargeability first, TDS next: Under section 195, TDS liability arises only if the sum is chargeable in India. The chargeability test precedes withholding; its failure ends the inquiry, along with any section 40(a)(i) disallowance.
• Specific over general: When a special, precise provision (e.g., the definition of “professional services” in 194J read with 44AA) exists, it overrides any broader, general conceptualizations (e.g., “consultancy” in the FTS definition).

Introduction:

ESOPs are structured as rights, not obligations, granted by companies to employees to purchase shares at a future date at a pre-agreed price. These rights vest over time and can be exercised upon meeting certain conditions. The life cycle of an ESOP generally involves the following stages:

1. Grant: The option is granted to the employee.

2. Vesting: The employee earns the right to exercise the options over a vesting period.

3. Exercise: The employee purchases shares at the exercise price.

4. Allotment: The Company allots the shares to the employee.

5. Sale: The employee sells the shares, triggering potential capital gains.

Under the Indian taxation regime, ESOPs are taxed at two key stages:

• At the time of exercise, where the difference between the fair market value (FMV) and the exercise price is taxed as a perquisite under Section 17(2)(vi).

• Upon sale, where any gain is taxed under the head capital gains.

However, when corporate events like demergers, spin-offs, or strategic realignments occur, the value of unexercised options may fluctuate drastically even before the employees can benefit from them- and that’s where the tax complexities enter. This creates a unique challenge for the tax system, which is built on realization-based taxation principles, not hypothetical or notional events.

Manjeet Singh Chawla vs. DCIT [TS-806-HC-2025(KAR. H.C.)]

Whether one-time voluntary compensation awarded to employees on account of diminution in the value of unexercised stock options is a capital receipt?

Issue Involed

Whether one-time voluntary compensation awarded to employees on account of diminution in the value of unexercised stock options is a capital receipt?

Facts of the Case

• Manjeet Singh Chawla (the assessee) was an employee of Flip kart Internet Private Limited (FIPL) an Indian subsidiary of Flip kart Marketplace Private Ltd. (FMPL) which was a step-down subsidiary of Flip kart Private Limited, Singapore (FPS). Assessee was granted stock options of FPS.
• In a significant restructuring exercise in 2022, Flip kart Singapore (FPS), the holding entity for Flip kart India and Phone Pe, completed a spin-off that separated Phone Pe as an independent entity. While this move was intended to unlock value and create independent growth trajectories for the businesses, it had a depreciative effect on the share value of FPS, impacting the value of ESOPs granted by Flip kart to Indian employees. Recognizing this loss, Flip kart Singapore made a voluntary, one-time payment to employees.

Arguments of the Appellant (Assessee)

Employees contended that the payment was a capital receipt, not chargeable under any head of income. They sought Nil TDS certificates under Section 197, anticipating that the payment would not attract tax.

Arguments of the Respondent (Revenue)

Receipt of any stock options under ESOP or any ESOP related monetary compensation by the assessee was inherently income and taxable as a perquisite under Section 17(2)(vi) of the Act, being linked to the ESOPs. The payment should be treated the same as tax treatment of ESOPs as compensation was linked to a reduction in the value of stock options, thus taxable under the head of ‘Salaries’. 

Decision of the Court

The said payment was:

• Non-contractual: There was no legal obligation to make the payment.

• Non-recurring: It was a one-time compensatory measure.

• Non-transfer-related: The ESOPs were not exercised, sold, or transferred.

Importantly, recipients continued to hold their unexercised ESOPs, which meant that no real transaction had occurred in terms of exercising or liquidating stock options. The payment merely attempted to compensate for unrealized economic value.

In the instant case, although some stock options were vested, the assessee had neither exercised the options, nor transferred/sold any shares. Since the computation of an ‘perquisite’ for ESOPs under Section 17(2)(vi) of the Act is inextricably linked to actual exercise and allotment of shares, the machinery for computation failed, hence, the one-time voluntary compensation cannot be taxed as ‘perquisites’ under Section 17(2)(vi) of the Act.

Also, the cost of acquisition of stock options by the assessee cannot be determined, and therefore, Section 48 of the Act cannot be applied; similarly, Section 45 of the Act is not applicable. Accordingly, computation mechanism under capital gains provisions cannot be applied and thus the charging provisions also fail.

Final Thoughts

The Flip kart- Phone Pe episode serves as a case study on the intersection of tax law, equity compensation, and corporate restructuring. It highlights how well-intentioned corporate actions can result in unintended tax exposure unless the legal and fiscal ecosystem evolves in parallel. As India grows into a global start up hub, ESOP related tax controversies will only increase. While judicial interpretations will play a role, what’s urgently needed is clarity from the tax administration, especially in borderline cases involving notional losses and voluntary compensation. Clarity in ESOP taxation, particularly in cross-border and restructuring contexts, is essential for ensuring fairness, reducing litigation, and fostering a predictable business environment.

Issue involved

Whether assignment of leasehold rights qualify as supply of services for the purpose of levy of GST?

Facts of the case

• The Gujarat Industrial Development Corporation (GIDC), acts as a nodal agency for the development of industrial estates in the state of Gujarat.
• A licensing agreement is executed between the GIDC and the lessees for setting up industrial units. Licensing agreement also contains a clause wherein the GIDC agrees to execute lease deed for a tenure of 99 years.
• GIDC executes a registered lease deed in favour of the lessees upon payment of the applicable stamp duty. The lease deed also permits the lessees to assign the leasehold rights and interest in the plot to any other person. Since the CGST Act came into force, revenue authorities have issued show cause notices to petitioners and assignees with leasehold rights and interest in their plots allotted by the GIDC, alleging non-payment of GST at the rate of 18% on such transactions of the assignment of leasehold rights.

Arguments of the Appellant (Assessee)

1. The appellant argued that although Section 7(1)(a) of the CGST Act, 2017 defines “supply” to inter alia includes activities such as “leasing or renting of immovable property”, whereas Schedule Ill of the Act exempts the “sale of land” and “sale of building” from the levy of GST, categorising them as neither a supply of goods nor services.
2. The assessee also submitted that a “permanent lease is as much an alienation or a sale”. The mere fact that lease rent was payable did not make a permanent lease any the less alienation than a sale.
3. Finally, the assessee contended that what was assigned to them was not merely the right to use land, building constructed on the land was also transferred along with the rights and interest in land. They asserted that since the transfer of such immovable property could not be subjected to GST, the sale of leasehold rights could not fall within the scope of supply of goods or services, considering it is not an activity but an event of transfer of leasehold right.

Arguments of the Respondent (Revenue)

1. The Respondents contended that since the transfer of leasehold rights qualified as a supply of services under Section 7(1), it was taxable under the GST regime. They stated that leasehold interest was an intangible asset, which was not the immovable property itself. Contrary to the reliance the Petitioners had placed on the definition of “immovable property” in various legislations, the Respondents submitted that the meaning of the term “immovable property”, more particularly when not defined in the GST legislations, should be understood in context of the provisions of the legislation with which the question had arisen – CGST Act. Furthermore, the exclusion of only the sale of land and building in Schedule III implies that other immovable property transactions, such as leasehold rights, are covered under services.
2. Further, the GIDC, as the owner of the land, enjoyed a bundle of rights over it, including the right to own, right to construct, right to give a license, right to possess and occupy, right to give a lease, etc. Now, when the GIDC transfers one of the rights, i.e., the right to occupy the land, in favour of the lessee, it qualifies as supply of service under the GST Act and is susceptible to GST. Consequently, its further transfer, which is also a transfer of the right to occupy/possess, will continue to remain as a supply of service. Its characteristic will not change even if the lessee elects absolute transfer in favour of an assignee, leaving no rights whatsoever with the lessee in respect of the said lease-hold land.

Decision of the Court

The ownership includes rights such possession, enjoyment of income from, alienation, and recovery any right from the one who has improperly obtained the title. Interest in the immovable property in the form of leasehold rights cannot be said to be different from the immovable property itself.

However, since Entry 5 of Schedule III to the CGST Act clearly provides that sale of land cannot to be treated as supply of goods or services, transfer of leasehold rights (which must be considered as sale of land) could also be out of the purview of the provisions of the scope of supply according to Section 7 of the CGST Act. Accordingly, the HC held that assignment of any land to the assignees would not be subject to GST.

Significant takeaways from judgment

The decision reinforces the exclusion of immovable property transactions from GST. The impact of this judgment extends beyond leasehold assignments to other rights arising derived from land. Transactions, such as the transfer of development rights in real estate projects, are also highly contentious. If such rights are considered benefits arising from land, they could be claimed to not attract GST, based on the rationale of this decision. This could lead to reduced tax costs for developers and builders, significantly impacting the taxation of real estate transactions, potentially lowering project costs, and encouraging investment in urban development.

When we think of Cadbury, the first thing that comes to mind is the purple wrapper and the tagline “Kuch Meetha Ho Jaaye.” But for the Income Tax Department, Cadbury (Mondelez India Foods Pvt Ltd) became the subject of a ₹320 Crore tax adjustment, sparking a major legal battle before the Income Tax Appellate Tribunal (ITAT), Mumbai.

The Background

Mondelez India, formerly known as Cadbury India, has been the undisputed leader in the Indian chocolate market. In the assessment year 2015–16, the company incurred significant Advertisement, Marketing & Promotion (AMP) expenses to maintain its market dominance and expand its consumer base. However, the Transfer Pricing Officer (TPO) viewed these expenses differently.

The TPO argued that Cadbury’s AMP expenditure indirectly promoted the global Cadbury brand owned by its overseas Associated Enterprise (AE). Using the controversial Bright Line Test (BLT), the TPO treated the excess AMP spend as an international transaction and made a massive adjustment of approximately ₹287 Crores, along with other related additions, bringing the total tax adjustment to nearly ₹320 Crores.

The Issues Before ITAT

The dispute raised two key questions:

1. Can AMP expenses incurred in India be treated as an “international transaction” with the foreign parent company?
2. Is the Bright Line Test a legally valid method for benchmarking AMP expenditure under Indian transfer pricing law?

Tribunal’s Findings

The ITAT examined the matter in detail and leaned heavily on precedents from earlier years in Cadbury’s own cases, as well as rulings from higher courts:

• No Agreement, No Transaction: There was no agreement obligating Mondelez India to incur AMP expenses on behalf of its parent company. Therefore, these cannot be classified as international transactions under Section 92B of the Income-tax Act.
• BLT is Invalid: The Tribunal reiterated that the Bright Line Test has already been rejected by the Delhi High Court in landmark cases like Sony Ericsson and Maruti Suzuki.
• Local Campaigns for Local Growth: The AMP expenses, including popular campaigns like “Kuch Meetha Ho Jaaye”, were clearly targeted at Indian consumers, and payments were made to third-party vendors in India.

On this basis, the ITAT deleted the entire AMP adjustment, along with related transfer pricing additions, giving full relief to Mondelez India.

Key Takeaways for Professionals

Substance over Assumptions: AMP expenses, when incurred for local market growth, do not automatically qualify as international transactions.

Judicial Consistency: The rejection of BLT by higher courts is binding, and professionals must challenge any attempt by tax authorities to revive it.

Documentation Matters: Businesses must maintain clear records showing that marketing strategies are India-focused and independent of any AE obligations.

Broader Implication: This case is a reminder that transfer pricing adjustments cannot be based on notional benefits; they must be grounded in law and evidence.

Conclusion

The Cadbury-ITAT case reinforces a critical principle: advertising to grow your own market is not the same as promoting your parent’s brand overseas. For businesses and professionals, it is a strong precedent ensuring that tax law respects commercial realities rather than assumptions.

Introduction

One of the most debated income-tax issues in the current year has been the scope of rebate under Section 87A, particularly in situations where the assessee’s income comprises short-term capital gains (STCG) on listed equity shares taxable under Section 111A while opting for the default new regime under Section 115BAC(1A).

The matter attained significance because, post the Finance Act 2023, Section 87A was expanded to grant a rebate up to ₹25,000 for resident individuals with total income not exceeding ₹7,00,000 under the new regime.

However, confusion arose when the Centralised Processing Centre (CPC) systems began mechanically denying such rebate on incomes taxed at special rates, especially STCG under Section 111A.

The Ahmedabad ITAT (SMC Bench) in the case of Jayshreeben Jayantibhai Palsana vs. ITO (ITA No. 1014/Ahd/2025, order dated 12.08.2025) has now decisively addressed this controversy

Facts of the Case

The assessee, a resident individual, filed her revised return of income for Assessment Year 2024–25 opting for the new regime under Section 115BAC(1A). The income declared consisted of short-term capital gains of ₹3,79,559 taxable at 15% under Section 111A, long-term capital gains of ₹38,840 which was below the exemption threshold under Section 112A, and income from other sources of ₹9,236.

Her total income thus stood at ₹6,76,402, which was well within the prescribed limit of ₹7,00,000. On this basis, she claimed a rebate of ₹13,320 under Section 87A, equal to the entire tax liability arising on STCG.

The CPC, Bengaluru, while processing the return under Section 143(1), denied the rebate without assigning any specific reason and raised a tax demand of ₹15,820, inclusive of cess and interest.

The first appellate authority (CIT(A)) upheld the CPC’s adjustment, primarily relying on the interpretation that incomes falling under Chapter XII, being taxable at special rates, cannot be offset by rebate under Section 87A. Reliance was also placed on the Memorandum to the Finance Bill, 2025, which suggested that rebate was not intended to apply to such incomes.

The Issue for Consideration

The central question before the Tribunal was whether a resident individual, whose total income does not exceed ₹7,00,000 and who has opted for the new tax regime under Section 115BAC(1A), is entitled to rebate under Section 87A even when the income comprises short-term capital gains taxable at 15% under Section 111A.

Arguments of the Parties

The Revenue, through the order of the CIT(A), argued that the rebate was not available in this case because Section 115BAC(1A) is expressly made “subject to” the provisions of Chapter XII, which includes incomes like STCG under Section 111A and LTCG under Section 112A. The view taken was that rebate cannot be granted on such special rate incomes and that the Memorandum to the Finance Bill 2025 only clarified what was already implicit in the law.

The Assessee, on the other hand, argued that Section 87A, as amended by the Finance Act 2023, is unambiguous in granting a rebate up to ₹25,000 to a resident individual opting for the new regime where total income does not exceed ₹7,00,000.

The provision does not distinguish between normal income and special rate income. Importantly, the legislature has, in Section 112A(6), specifically barred rebate against long-term capital gains exceeding ₹1 lakh, but no such bar exists for short-term capital gains under Section 111A.

It was contended that the express exclusion for LTCG and the absence of a similar exclusion for STCG is a deliberate legislative choice and cannot be ignored.

Further, the Finance Bill 2025 amendment, proposing to extend such exclusion to all special rate incomes from A.Y. 2026–27, is prospective and cannot be applied to earlier years. The assessee also placed reliance on appellate orders in similar matters, such as Avni Milanbhai Maniya (CIT(A), Nagpur, 2025), and on the judgment of the Bombay High Court in The Chamber of Tax Consultants vs. DGIT (Systems) which directed that CPC cannot deny rebate claims mechanically.

Tribunal’s Analysis

The Tribunal carefully examined the statutory provisions and rival arguments. It noted that Section 87A, as amended, simply provides that where the total income of a resident individual is chargeable under Section 115BAC(1A) and does not exceed ₹7,00,000, a rebate up to ₹25,000 shall be granted. There is no language in Section 87A which excludes tax on STCG under Section 111A from the scope of rebate.

The reliance by the CIT(A) on the Finance Bill 2025 memorandum was found misplaced. The Tribunal observed that the amendment proposed therein, effective only from A.Y. 2026–27, actually supports the assessee’s case by confirming that no such restriction existed earlier. Furthermore, the explanatory notes to a Finance Bill are only aids to interpretation and cannot override the clear language of the statute.

Reference was also made to judicial developments, including the Bombay High Court’s ruling that CPC system configurations cannot curtail statutory rights. The Tribunal emphasised that the disallowance by CPC appeared to be driven by automated logic rather than any statutory mandate.

Tribunal’s Decision

On this reasoning, the Tribunal held that the assessee, being a resident individual with total income below ₹7,00,000 and assessed under Section 115BAC(1A), was eligible for rebate under Section 87A in respect of her tax liability on STCG under Section 111A. The adjustment made by CPC and confirmed by CIT(A) was therefore not sustainable. The demand of ₹15,820 was deleted, and the Assessing Officer was directed to allow the rebate of ₹13,320 and recompute the tax liability accordingly.

Key Takeaways for Professionals

This ruling has important implications for both taxpayers and professionals. For A.Y. 2024–25 and A.Y. 2025–26, rebate under Section 87A is available even where total income includes STCG taxable under Section 111A, provided the total income does not exceed ₹7,00,000 and the assessee has opted for the new regime. From A.Y. 2026–27 onwards, however, the amendment introduced by the Finance Act 2025 will bar rebate against all special rate incomes, including STCG under Section 111A and LTCG under Section 112A.

The Ministry of Finance recently introduced the Income-tax (Twenty Second Amendment) Rules, 2025 through Notification G.S.R. 555(E), redefining key thresholds related to perquisites and employer-provided medical benefits. For professionals and salaried employees, this update has significant implications on taxable income and exemptions. Let’s break it down.

Under Section 17 of the Income-tax Act, 1961, the value of certain perquisites benefits or amenities provided by employers is considered part of an employee’s salary income. Historically, thresholds for taxable perquisites and exemptions were relatively low, limiting the scope for middle-income employees to benefit.

The 2025 amendment introduces higher thresholds, clarifying who can enjoy tax exemptions and who will have these benefits included in taxable income.

Who Benefits the Most?

Salary Thresholds for Perquisites (Rule 3C)

Rule 3C now sets the salary income threshold at ₹4 lakh for determining the taxability of perquisites under section 17(2)(iii)(c).

• Who it applies to: Employees who are not directors or substantial shareholders of the company.
• Implication: If an employee’s salary is below ₹4 lakh, certain perquisites may not be taxable, providing relief to a wider set of middle-income professionals.

Before: Only employees earning above ₹50,000 were considered for perquisite taxation.
Now: Threshold is significantly increased to ₹4 lakh, reflecting inflation and modern salary structures.

Gross Total Income Threshold for Medical & Travel Benefits (Rule 3D)

Employer expenses on medical treatment and travel for employees or their family members abroad have always been a sensitive area in tax compliance.

The amendment clarifies:

• Expenditure on medical treatment abroad (employee/family) and
• Travel & stay abroad for treatment (employee/family + one attendant)

is excluded from taxable perquisites if the gross total income of the employee does not exceed ₹8 lakh.

Key conditions:

1. Expenditure on medical treatment and stay abroad must follow RBI regulations.
2. Travel exclusion applies only if the employee’s gross income ≤ ₹8 lakh (earlier ₹2 lakh).

This change expands eligibility for tax-free medical and travel benefits to a larger pool of employees, especially in the middle-income bracket.

Conclusion

The Income-tax (Twenty Second Amendment) Rules, 2025 reflect the government’s effort to align taxation with contemporary income levels. Middle-income employees are set to gain significantly from higher thresholds, particularly in perquisites and medical reimbursements.

For tax planning and compliance, staying updated with such amendments is essential not only to optimize benefits but also to avoid unnecessary tax liabilities.

At Counselvise, we believe clarity in law empowers professionals to make informed decisions. Keep track of these thresholds and plan your salary structure and perquisites accordingly!