Income Tax Advisory: Latest Updates You Should Know

1. AAR v. Tiger Global International II / III / IV Holdings

Form 26AS is an annual tax statement prepared by the Income Tax Department that acts like your official tax ledger for the year. It shows all the tax that has been deducted from your income by others—such as your employer, clients, banks, or any payer—and deposited with the government in your name. It also reflects any tax you have paid directly, such as advance tax or self-assessment tax, along with any tax refunds issued to you. In some cases, it may also include details of high-value financial transactions reported by banks or institutions. In simple terms, Form 26AS helps ensure that you get credit for all taxes already paid so that the same income is not taxed twice.

Facts of the Case

1. Tiger Global International II, III and IV Holdings (“TGM Mauritius”) were Mauritius-incorporated investment entities holding valid Tax Residency Certificates and Category I Global Business Licences.
2. Between 2011 and 2015, these entities invested in Flipkart Private Limited, Singapore, whose value was substantially derived from Indian operations.

• In 2018, pursuant to Walmart Inc.’s global acquisition of Flipkart, TGM Mauritius exited its investment and earned significant capital gains.

1. The assessees sought a NIL withholding certificate and subsequently filed applications before the Authority for Advance Rulings (AAR) seeking confirmation that such gains were not taxable in India under the India–Mauritius DTAA.
2. The AAR rejected the applications at the admission stage under Section 245R(2)(iii) of the Income-tax Act, holding that the transaction was prima facie designed for tax avoidance.
3. While the Delhi High Court allowed the assessees’ petitions and granted treaty benefits, the Revenue appealed to the Supreme Court.

Judgement

The Supreme Court set aside the High Court’s ruling and upheld the AAR’s rejection of the advance ruling applications. The Court’s decision is notable for its procedural and jurisdictional focus, rather than a final ruling on treaty exemption.

Key observations of the Court include:

1. The AAR is empowered to decline to entertain an application at the threshold if, on a prima facie examination of the documents, the transaction appears to be structured for tax avoidance.
2. At the stage of Section 245R(2), the AAR is not required to conclusively decide issues such as treaty eligibility, place of effective management, or GAAR applicability on merits.

• The Court reiterated the correct sequencing of analysis:
  1. Determination of domestic taxability under Section 9(1)(i), including indirect transfer provisions;
  2. Examination of residency and treaty entitlement;
  3. Invocation of GAAR or judicial anti-avoidance principles in cases of treaty abuse.

1. A Tax Residency Certificate (TRC) is a mandatory eligibility condition but not a conclusive proof of treaty entitlement, particularly after the statutory amendments introducing GAAR and enhanced anti-avoidance scrutiny.
2. The Court consciously refrained from conclusively ruling on the scope of Article 13 of the India–Mauritius DTAA, leaving substantive treaty issues open for examination in regular assessment proceedings.

Conclusion

1. The judgment reinforces that the advance ruling mechanism is not intended to adjudicate complex avoidance structures and may be denied where arrangements appear prima facie impermissible.
2. Treaty benefits are not automatic and cannot be secured solely on the basis of documentation or long-standing structures.

• GAAR / substance-over-form principles can override treaty relief in cases of abusive or conduit arrangements, including at the exit stage.

1. Importantly, the ruling does not dilute protections for genuine commercial transactions; rather, it strengthens enforcement against colourable or tax-driven structures.

Overall, the Supreme Court has clarified that procedural discipline and anti-avoidance scrutiny form the foundation of treaty entitlement, and that such issues must be tested in appropriate assessment proceedings rather than through advance rulings.

2. Assessee entitled to sec. 54F relief despite owning two houses as one was co-owned and not exclusively hers: ITAT

Section 54F of the Income-tax Act, 1961 gives exemption to an Individual or HUF from long-term capital gains arising on sale of any long-term capital asset other than a residential house (such as land, shares, etc.), if the net sale consideration is invested in one residential house property in India—by purchasing it within 1 year before or 2 years after the transfer, or constructing it within 3 years. Full exemption is available if the entire net consideration is invested; otherwise, exemption is proportionate. The assessee should not own more than one other residential house on the date of transfer, and if the amount is not utilised before the due date of return filing under section 139(1), it must be parked in the Capital Gains Account Scheme. The exemption can be withdrawn if the new house is sold within 3 years or if another residential house is purchased/constructed within the specified period.

Facts of the Case

53. The assessee sold 36,00,000 shares of Emami Ltd. on 13-07-2020 and earned long-term capital gain of Rs. 26,77,72,881, which was claimed as exempt under section 54F on account of investment in construction of a new residential house at 1, Queens Park, jointly with family members. Construction commenced earlier and was completed on 09-06-2022, i.e., within three years from the date of transfer, and cost incurred up to 31-03-2021 was Rs. 53.86 crore.
54. The Assessing Officer denied exemption under section 54F holding that (i) the proviso to section 54F(1) was attracted as the assessee owned more than one residential house, namely property at 13, B.T. Road and property at 110, Southern Avenue, (ii) construction had commenced prior to sale of shares and sale proceeds were not directly utilised, and (iii) sale of shares was a colourable device as shares were allegedly gifted by the spouse.

• On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer.

1. On appeal to the Tribunal:

Judgement

1. ITAT held that 13, BT Road was only vacant land (factory/super-structure owned by tenant; not a residential house) and 110, Southern Avenue was jointly owned, hence assessee was not the exclusive owner of more than one residential house and proviso to section 54F(1) did not bar the claim.
2. Section 54F does not require construction to start after sale; what matters is completion within 3 years. Also, there is no requirement that sale proceeds must be directly utilised, investment/amount spent is the test.

• Tribunal set aside CIT(A) and directed AO to grant exemption u/s 54F (appeal allowed).

Conclusion

The Tribunal conclusively held that the assessee was entitled to exemption under Section 54F of the Income-tax Act. The ITAT clarified that ownership of vacant land or a jointly owned residential property does not amount to owning “more than one residential house” for the purposes of the proviso to Section 54F(1). It further held that Section 54F does not mandate that construction of the new residential house must commence only after the sale of the original asset, nor does it require direct utilisation of the sale consideration for such construction. The Tribunal also rejected the allegation of a colourable device, noting that the Revenue proceeded on incorrect factual assumptions. Accordingly, the denial of exemption by the Assessing Officer and CIT(A) was set aside, and the assessee’s claim under Section 54F was allowed in full.

3. Credit for TDS deducted from salary must be allowed to employee even if employer fails to deposit it: ITAT

Section 199 of the Income-tax Act provides that credit for TDS shall be given to the person in whose hands the related income is assessable, for the assessment year in which such income is offered to tax, typically based on TDS details appearing in Form 26AS (or prescribed statement), while Section 205 protects the assessee by prohibiting the Income-tax Department from demanding from the assessee any tax to the extent it has been deducted at source from that income; therefore, read together, these provisions ensure that once TDS is deducted, the deductee is entitled to credit and cannot be asked to pay that tax again even if the deductor fails to deposit the TDS, and the Department’s remedy lies against the deductor.

Facts of the Case

1. The assessee, an employee, received salary on which TDS was deducted. However, the employer had not deposited the TDS to the account of the Central Government.
2. The assessee had filed his return of income and claimed credit of the TDS that was deducted in the salary.

• In the intimation issued, the credit of the TDS had not been granted and a demand was raised against the assessee in lieu of the credit of the TDS not granted.

1. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.
2. On appeal to the Tribunal:

Judgement

1. CBDT instructions, the Office Memorandum and Section 205 clearly provide that once TDS is deducted from an employee’s salary, it is treated as tax already paid by the employee, and the employee cannot be asked to pay that amount again. Accordingly, the Assessing Officer must grant credit for the TDS deducted.
2. If the employer has deducted TDS but failed to deposit it with the Government, the Income-tax Department is free to recover such TDS from the employer under Section 201. The department’s failure to recover the amount from the employer cannot be a ground to raise a tax demand on the employee.

• In view of the above, the Assessing Officer is directed to allow the assessee full credit of the TDS claimed, and the appeal of the assessee stands allowed.

Conclusion

CBDT instructions, the Office Memorandum, and Section 205 make it clear that once TDS is deducted from an employee’s salary, it is treated as tax already paid by the employee to that extent. Therefore, the employee cannot be asked to pay that same tax again, and the Assessing Officer must allow the employee credit for the TDS deducted. If the employer has deducted TDS but not deposited it with the Government, the Income-tax Department can recover that amount from the employer under Section 201, and the department’s failure to recover it from the employer cannot become a demand on the employee. Accordingly, the Assessing Officer is directed to grant the TDS credit to the assessee, and the assessee’s appeal is allowed.

4. No sec. 68 additions on LTCG if assessee proved genuineness of share transactions : ITAT

Section 68 of the Income-tax Act, 1961 empowers the Assessing Officer to treat any sum found credited in the books of an assessee as income of that year if the assessee fails to satisfactorily explain its nature and source. To discharge this burden, the assessee is generally required to establish the identity of the creditor, the creditworthiness of the creditor, and the genuineness of the transaction. If these three ingredients are not proved with supporting evidence, the amount may be taxed as unexplained cash credit. The provision is commonly invoked in cases involving unsecured loans, share capital, share premium, or other credits appearing in the books, and places the initial onus squarely on the assessee to provide a credible and reasonable explanation.

Facts of the case

147. During a Section 132 search on the Ajmera Group, it was found that the assessee–HUF allegedly received bogus LTCG from share sales, so the case was reopened under Section 147.
148. Based on Investigation Wing (Ahmedabad) inputs alleging penny-stock accommodation entries and an unexplained price rise, the AO treated the assessee’s Rs.51.03 lakh sale proceeds as bogus and added it as unexplained cash credit u/s 68, along with Rs.1.02 lakh u/s 69C for estimated unexplained expenses, disregarding the assessee’s documents.

• On appeal, the Commissioner (Appeals) upheld the additions made by the Assessing Officer.

1. On appeal to the Tribunal:

Judgement

1. The ITAT held that additions under Section 68 (bogus LTCG) and Section 69C (alleged commission) were not sustainable merely on the basis of general investigation reports and price movement analysis, without direct evidence linking the assessee to any accommodation entry.
2. The Tribunal noted that the assessee had substantiated the share transactions through contract notes, demat statements, bank records, and payment of STT, and that no defect or falsity was found in these documents by the Assessing Officer.

• It was held that suspicion, however strong, cannot replace proof, and abnormal price rise or allegations of penny stock manipulation at large cannot justify additions unless the assessee’s involvement is specifically established. Accordingly, the entire additions were deleted and the appeal of the assessee was allowed.

Conclusion

The Tribunal concluded that additions made on account of alleged bogus long-term capital gains under Section 68 and estimated commission under Section 69C were unsustainable, as they were based solely on generalized investigation reports and abnormal price rise in the scrip, without any concrete evidence linking the assessee to accommodation entry operators. The ITAT held that the assessee had duly substantiated the share transactions through proper documentary evidence such as contract notes, demat statements, bank records and payment of STT, and that mere suspicion or market irregularities cannot override valid evidence. Accordingly, the Tribunal deleted the additions and allowed the appeal of the assessee.