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Case Laws Companies Law
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Corporate veil-piercing permits forensic scrutiny in execution where promoter-controlled entities may dissipate shareholding despite judicial assurances.
Corporate veil-piercing in execution is an exceptional response where promoters allegedly use layered entities and securities transactions to deplete shareholding represented as security through judicial assurances. Separate personality remains the rule, and control or ownership alone does not suffice; there must be a nexus between control, misuse of the corporate form, and frustration of enforcement. A forensic audit reconstructs share movements, pledges, sales, financing, approvals, disclosures, and fund flows, distinguishing legitimate enforcement of pre-existing security from coordinated asset dissipation.
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School affiliation services fall outside educational exemption without a direct nexus to admissions or examination conduct.
Consolidated show cause notices may combine financial years governed by Sections 73 and 74 where liabilities are segregated period-wise, each component independently meets limitation and notice requirements, the additional ingredients for fraud-based proceedings are satisfied, and no actual prejudice arises. School affiliation and affiliation-form processing charges are independent taxable supplies where they concern institutional eligibility and compliance, rather than directly and immediately relating to student admission or the conduct of examinations. A broad connection with education does not satisfy the educational-services exemption.
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Fraudulent input tax credit requires proof of fictitious supplies, absent goods receipt, and fraud-linked self-assessment, not cancellation alone.
Input tax credit from allegedly non-existent suppliers depends on proof of genuine supply and actual receipt of goods or services, not merely invoices, accounting entries, or banking-channel payments. Section 155 places the burden of establishing ITC eligibility on the claimant. Section 74 requires more than ineligible credit: the wrongful availment must be linked to fraud, wilful misstatement, or suppression to evade tax. Retrospective supplier-registration cancellation is relevant evidence but is not conclusive. A fraud-based notice must disclose facts showing fictitious suppliers, absence of supply, and a basis for inferring the recipient's knowledge or participation.
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Prolonged pre-trial incarceration may justify conditional PMLA bail when delayed trials make continued detention constitutionally disproportionate.
Section 45 of the Prevention of Money-Laundering Act remains the stringent ordinary bail threshold, requiring prosecutorial opportunity and, on opposition, reasonable grounds to believe that the accused is not guilty and unlikely to offend while on bail. Article 21 nevertheless requires a separate, fact-sensitive inquiry where prolonged pre-trial detention and an unrealistic trial timetable make custody disproportionate. Relevant factors include custody length, trial progress, remaining witnesses, secured documentary evidence, source of delay, predicate-case status, and risks of absconding or witness interference. Conditions such as passport surrender, attendance, non-contact directions, and residence disclosure may safeguard the trial.
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Prospective operation of stamp-value taxation prevents retrospective application where property agreements and substantial payments predate the charging provision.
Section 56(2)(x)(b) applies to immovable property received for inadequate consideration only where its temporal and valuation conditions are satisfied. A stamp-value difference alone does not establish taxability. Where consideration was fixed and substantial payments or contractual performance occurred before the charging provision commenced, later conveyance or registration does not by itself attract the later charge. Agreement-date valuation is available only for covered transactions where consideration was fixed and paid, wholly or partly, through prescribed banking or electronic modes on or before the agreement date. The tax authority must identify the correct statutory basis and provide a meaningful opportunity to respond.
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GST seizure powers cannot be used to take cash as a general investigative measure or security for a possible tax demand. Currency is excluded from goods, and "things" is confined contextually to articles useful or relevant as evidence in GST proceedings. Valid seizure and retention require recorded statutory reasons, procedural compliance and observance of return timelines. Unauthorised retention engages property protections; later return does not cure the deprivation, and accrued interest is restitutionary rather than delayed-refund interest.
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Salary expense genuineness requires proof of actual services, business purpose, and fair testing of adverse third-party statements.
Under Section 37(1), salary expenditure is deductible only where it is actually incurred wholly and exclusively for business purposes and is supported by proof of genuine employment, services rendered, business nexus, and payment. Bank transfers and accounting entries alone are not conclusive. Where a third-party statement is central to an allegation of non-genuine salary, the taxpayer should receive disclosure and a meaningful opportunity to rebut it, including cross-examination where appropriate. A retracted and uncorroborated statement is vulnerable as the sole basis for disallowance.
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Discounted cash flow valuation remains taxpayer-selected under prescribed rules, while tax scrutiny must identify specific valuation-date defects.
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Case Laws GST
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Excess IGST on exports remains refundable when later correction triggers automated refund and reconciliation proves duplicate payment.
Refund of excess IGST paid on zero-rated exports may arise where turnover and tax are mistakenly entered under non-zero-rated supplies in FORM GSTR-3B while export invoices and shipping bills are correctly reported in FORM GSTR-1. If the exporter then pays the same IGST in the correct zero-rated field and the automated refund is credited against that later payment, the earlier payment remains a separately identifiable potential excess; its claim is not a repeat request for the same export-tax refund.
Case Laws GST
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GST registration revocation requires timely application, return compliance, payment of dues, and a reasoned statutory decision.
GST registration revocation after cancellation for return default is a conditional, time-bound process. An application under Section 30 and Rule 23 must ordinarily be filed within ninety days, subject to prescribed extension, and cannot be made until pending returns are filed and tax, interest, penalty and late fee are paid. Portal non-acceptance may permit online or physical submission where technically unavailable, but does not condone delay or ensure revocation. The competent authority must assess statutory eligibility, sufficient grounds and compliance while following notice and hearing requirements before rejection.
Case Laws Income Tax
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Reassessment limitation under TOLA requires final notices to issue within surviving time and satisfy statutory safeguards.
Reassessment limitation under TOLA is a jurisdictional restraint. Transitional notices issued between 1 April 2021 and 30 June 2021 are treated as Section 148A(b) show-cause notices, but only the surviving time remaining until 30 June 2021 is available for completing the reassessment process. Periods for supply of material and the assessee's response are excluded, but the Section 148A(d) decision, statutory approval and final Section 148 notice must issue within the remaining period. For Assessment Year 2015-16, post-1 April 2021 notices are treated as time-barred.
Case Laws Customs
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Unseized food consignments cannot face indefinite detention without lawful seizure, valid sampling, and prompt assessment.
Provisional release of an unseized imported food consignment is not mechanically governed by Section 110A, which applies to goods seized under Section 110. Customs may examine, test, verify and reassess imports, but indefinite retention without a seizure memorandum or disclosed reasons connecting the goods with confiscation is not justified. Food sampling should follow the specialised food-safety process through an authorised officer. A valid food-safety report may support conditional clearance, while classification, duty liability, confiscation and adjudication remain open. Revenue may be protected through proportionate security.
Case Laws Customs
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Anti-dumping duty recovery permits post-clearance demands and consequential import IGST where self-assessment omitted an applicable levy.
Unpaid anti-dumping duty omitted during self-assessment may be pursued through the customs recovery procedure without prior appellate modification of the self-assessment. The recovery framework applies to anti-dumping duty through statutory incorporation of provisions concerning assessment, non-levy, short-levy, interest and recovery. Where anti-dumping duty is chargeable, it forms part of the aggregate value used to compute IGST on imports, potentially creating a consequential IGST short-payment. Recovery requires accurate assessment of notification coverage, product, origin, rate, valuation, limitation and procedural safeguards.
Case Laws GST
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Project-wise anti-profiteering requires actual input tax credit measurement and area-based allocation of benefits to real-estate purchasers.
Real-estate anti-profiteering under Section 171 requires project-level identification of additional input tax credit and allocation of the saving across total project area on a per-square-foot basis. Purchase value may quantify credit attributable to project expenditure, but turnover or collections cannot serve as the allocation basis. The comparison must use pre-GST credit actually availed rather than merely available credit. GST collected on consideration inflated by an undistributed benefit forms part of the amount not passed on and remains distinct from statutory interest.
Case Laws Income Tax
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Retirement leave encashment exemption applies under the enhanced notified ceiling while preserving non-government employee classification and statutory conditions.
Section 10(10AA)(ii) governs retirement leave-encashment exemption for non-Government employees, subject to the ten-month earned-leave measure, average-salary computation, and the notified monetary ceiling. Notification No. 31/2023 specifies an enhanced ceiling of Rs. 25,00,000, is deemed effective from 1 April 2023, and certifies that retrospective effect causes no adverse effect. The enhanced ceiling is treated as a remedial rationalisation of an existing exemption and may govern pending earlier-period matters, while preserving the distinction between Government and non-Government employees.
Case Laws GST
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Transit GST jurisdiction limits detention penalties for documented inter-State supplies lacking a local taxable nexus.
Transit-State jurisdiction under GST permits interception, document production, e-way bill verification and authorised physical inspection of goods moving through an intermediate State. It does not, in a pure transit movement, support detention-related penalty for an external inter-State supply where origin and destination lie outside the intercepting State, no tax is payable there, and there is no evidence of diversion, local supply, fictitious or mismatched documents, or mismatch of goods. Cross-empowerment is administrative and does not create an independent territorial taxable nexus.
Case Laws SEBI
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Shareholder ratification cannot cure preferential-issue fund diversion when disclosed objectives are abandoned, triggering securities-market fraud and disclosure concerns.
Post-facto shareholder approval cannot retrospectively validate diversion of preferential-issue proceeds contrary to issue-specific objects disclosed to shareholders and the market. A special resolution authorises the issue but does not permit unrestricted use of proceeds. Periodic deviation reporting, audit-committee review and utilisation disclosures promote transparency; they do not enable diversion followed by later regularisation. Immediate diversion, inadequate commercial justification and missing documentation may indicate that disclosed objects were not genuinely intended to be performed. Later amendment of corporate objects or shareholder ratification cannot cure a completed securities-market disclosure breach.
Case Laws Income Tax
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Cross-border software payments require copyright-right, technical-service, and permanent-establishment analysis before withholding obligations are determined under applicable treaties.
Section 195 requires withholding only from a remittance to a non-resident that includes income chargeable in India. For software, royalty depends on transfer of copyright rights, not merely the right to install, access, use, or distribute a copyrighted article under restrictive terms. Where a DTAA is more beneficial, its royalty and FTS definitions control; treaty FTS may require technology to be made available. Amounts that are neither royalty nor FTS require consideration as business profits, ordinarily taxable only where profits are attributable to a permanent establishment. Composite payments require component-wise allocation and analysis.
Case Laws GST
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Personal GST penalty requires proof that the beneficiary retained benefit and directed a covered invoice or credit transaction.
Section 122(1A) may impose personal GST penalty on a registered or unregistered person only for a covered invoice or input tax credit transaction. Liability requires cumulative proof that the individual retained an identifiable personal benefit and that the transaction was conducted at that person's instance. Directorship, employment, registration, signature authority, or association with the taxable entity neither independently establishes nor excludes liability. Proceedings require transaction-specific and person-specific allegations and findings. The provision operates prospectively for underlying acts or transactions occurring on or after 01.01.2021.
Case Laws IBC
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Proof of tenancy rights governs insolvency recovery of corporate-debtor premises from occupants lacking enforceable possessory interests.
Where premises form part of the corporate debtor's assets, Sections 18 and 25 of the Insolvency and Bankruptcy Code, 2016 require the resolution professional to take custody, control, preservation and protection measures. An occupant resisting recovery must prove a subsisting tenancy, leasehold interest or enforceable licence through reliable evidence of the parties' intended relationship and its essential terms. Permission to stock goods or conduct limited business activity, prolonged occupation, and business or utility records do not independently create rights in the premises. Section 60(5)(c) supports insolvency jurisdiction over asset-recovery measures connected with the insolvency estate.

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Introduction of concept of mediation and Advance Ruling System for Residents to reduce tax litigation and more clarity

15 September, 2020

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2020 (9) TMI 496 - Supreme Court

While decided an issue pertaining to AY 1976-77, honorable Supreme Court has wrote two postscript with the following note:

We have been persuaded to write two postscripts on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee, and we hope that both the aspects meet consideration at an appropriate level. [Para 21]

 

Postscript 1:

1. The Indian legal system is reeling under a docket explosion.

The Government and public authorities are active contributories to this deluge. To top it, a number of litigations arise inter se the Government and its bodies and, thus, the only question, as stated in the beginning, is which pocket of the Government will be benefitted?

2. The aforesaid position resulted in a judicial innovation with the Supreme Court passing orders in Oil and Natural Gas Commission & Anr. v. Collector of Central Excise [1991 (10) TMI 58 - Supreme Court] requiring that such cases must be referred to a Committee to be appointed by the Government to facilitate a resolution of such disputes and that no case should be filed without the approval of this Committee. This system was a failure as is apparent from the facts of the present case, where the SLP filed by the appellant-Corporation was initially dismissed with liberty to revive the same in case the High Powered Committee granted such a permission which was so granted in a meeting held on 14.08.2009. The said Committee discussed the legal ramifications, and in some way opined in favour of the appellant-Corporation, as is apparent from the discussion aforesaid. But the ball was again lobbed back into the Court to adjudicate the said issue rather than a resolution being reached. The result was only the revival of the appeal, and the consequent decision which has seen the light of the day only now.

3. The aforesaid failure of the system resulted in the Supreme Court recalling its orders in the ONGC cases vide Electronics Corporation of India v. Union of India. [2011 (2) TMI 3 - Supreme Court].

4. The Central Government and the State authorities have been repeatedly emphasising that they have evolved a litigation policy. Our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this Court, so that there is no responsibility in the decision-making process – an unfortunate situation which creates unnecessary burden on the judicial system. This aspect has also been commented upon in a judgment of this Court in Union of India & Ors. v. Pirthwi Singh & Ors., [2018 (4) TMI 1586 - Supreme Court]   albeit between the Government and the private parties, where the question of law had been settled and yet the appeal was filed only to invite a dismissal. The object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments. Undoubtedly, this is complete wastage of judicial time and in various orders of this Court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain this certificate of dismissal.

5. The 126th Law Commission of India Report titled ‘Government and Public Sector Undertaking Litigation Policy and Strategies’ debated the Government versus Government matters which weighed heavily on the time of the Courts as well as the public exchequer. This was as far back as in 1988. It was only in the year 2010 that the National Litigation Policy (for short ‘NLP’) was formulated with the aim of reducing litigation and making the Government an efficient and responsible litigant. Five (5) years later it reportedly saw a revision to increase its efficacy, but it has hardly made an impact. In the year 2018, the Central Government gave its approval towards strengthening the resolution of commercial disputes of Central Public Sector Enterprises (for short ‘CPSEs’)/ Port Trusts inter se, as well as between CPSEs and other Government Departments/Organisations. The aim was and is to put in place a mechanism within the Government for promoting a speedy resolution of disputes of this  kind, however it excluded disputes relating to Railways, Income Tax, Customs and Excise Departments. It has now been made applicable to all disputes other than those related to taxation matters. This was pursuant an order passed in The Commissioner of Income Tax (Exemptions) v. National Interest Exchange of India -SLP (C) Diary No. 35567 of 2019 [2020 (3) TMI 1250 - SC ORDER] by a bench of which one of us (Sanjay Kishan Kaul, J.) was a part.

6. Insofar as non-taxation matters are concerned, the Administrative Mechanism for Resolution of CPSEs Disputes was conceptualised to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes. It has a two-tiered structure.

7. At the first level, commercial disputes will be referred to the Committee comprising Secretaries of the Administrative Ministries/Departments to which the disputing parties belong and the Secretary, Department of Legal Affairs. In case the two disputing parties belong to the same Ministry/Department, the Committee will comprise Secretary of Administrative Ministry/Department concerned; the Secretary, Department of Legal Affairs and the Secretary, Department of Public Enterprises. If a dispute is between a CPSE and a State Government Department/Organisation, the Committee will comprise of the Secretary of the Ministry Department of the Union to which the CPSE belongs, the Secretary, Department of Legal Affairs and the Chief Secretary of the State concerned. Such disputes are ideally to be resolved at the first level itself within a time schedule of three (3) months, and in the eventuality of them remaining unresolved, the same may be referred to the Cabinet Secretary at the second level, whose decision will be final and binding on all concerned.

8. We are of the opinion that one of the main impediments to such a resolution, plainly speaking, is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement. In order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to  the settlement so that such apprehensions do not come in the way of arriving at a settlement. It is our pious hope that a serious thought would be given to the aspect of dispute resolution amicably, more so in the post-COVID period.

9. In most countries, mediation has proved to be an efficacious remedy and here we are talking about mediation inter se the Government authorities or Government departments. India is now a signatory to the Singapore Convention on Mediation and we understand that a serious thought is being given to bring forth a comprehensive legislation to institutionalise mediation, in furtherance of this function to which India has committed itself.

Postscript 2:

10. We now turn to the issue of matters pertaining to CPSEs and Government authorities insofar as taxation matters are concerned,  because they are consistently sought to be carved out as a separate category of cases. One of the largest areas of litigation for the Government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%. - See ‘Economic Survey 2017-19 – Volume 1’ by the Department of Economic Affairs, Ministry of Finance, Government of India So, the question is can something be done about it?

11. In our opinion, a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity. Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down.

12. It is as far back as in 1971 that a report was submitted by the Direct Taxes Enquiry Committee under the Chairmanship of Dr. K.N. Wanchoo, recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration. The aim was to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes. This finally resulted in a scheme of Advance Ruling being brought into effect in 1993, with the introduction of a new Chapter in the Income Tax Act, 1961 (hereinafter referred to as the ‘IT Act’). A quasi-judicial tribunal was established as the Authority for Advance Rulings (for short ‘AAR’) to provide certainty and avoid litigation related to taxation of transactions involving non- residents. The scope of the transactions on which an advance ruling can be sought from the AAR has gradually increased to now include both residents and non-residents, who can seek the same for issues having a substantial tax impact. Chapter XIX-B of the IT Act deals with advance rulings and it has been defined in Section 245N(a) of the  IT Act. These rulings are binding both on the Income Tax Department and the applicant, and while there is no statutory right to appeal, the Supreme Court has held in Columbia Sportswear Company v. Director of Income Tax Bangalore [2012 (8) TMI 105 - Supreme Court]  that a challenge an advance ruling first lies before the High Court, and subsequently before the Supreme Court. The advance ruling may be reversed in the event a substantial question of general public importance arises or a similar question is already pending before the Supreme Court for adjudication.

13. The ground level situation is that this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six (6) months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four (4) years!- See Deloitte Report on Advance Rulings in India: Delivering Greater Tax Certainty (Deloitte Tax Policy Paper 5, 2019)  There is obviously lack of adequate numbers of presiding officers to deal with the volume of cases. Interestingly, the primary reason for this is the large number of vacancies and delayed appointments of Members to the AAR. ibid In view of the time taken, the very purpose of AAR is defeated, resulting in the mechanism being used infrequently as is evident from the ever- increasing tax related litigation.

14. We may notice a significant development in Section 245N of the IT Act. It was through Notification No.11456 dated 3.8.2000 that public sector companies were added to the definition of ‘applicant’, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of ₹ 100 crore or more.

15. Insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and we do believe that it is time to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!

16. We may refer to the international scenario where there has been an incremental shift towards mature tax regimes adopting advance ruling mechanisms. The increase in global trade puts the rulings system at the centre-stage of a robust international tax cooperation regime. The Organisation for Economic Cooperation and Development (for short ‘OECD’) lists advance rulings as one of the indicators to assess trade facilitation policies, making it an aspirational international best practice standard. For example, Australia and New Zealand have a robust system of advance rulings wherein the decisions (which are public rulings affecting a large number of taxpayers) are given teeth by being made binding on the revenue authorities. New Zealand has gone a step further and innovated “status rulings” under which a taxpayer can apply to the Commissioner for a ruling on how a change in the law impacts an existing ruling.

17. In the United States, there is a mechanism for the Treasury to authorise guidance in the form of revenue rulings, procedures and notices. The mechanism again, has been bolstered by subsequent practice and interpretations of the United States courts, where rulings have indicated that taxpayers may be penalised if they act inconsistently with legal interpretations set out in the revenue rulings, procedures or notices.

18. Tax transparency has been a hallmark trait of the Swedish legal system. Swedish law requires public disclosure of ex ante tax administration such as advance rulings. Both the taxpayer as well as the Swedish Tax Agency can request an advance tax ruling, these rulings are published without information identifying the taxpayer that requested them. The Skatterättsnämnden, or the Council for Advance Tax Rulings is the Swedish Government agency which is vested with this power. The advance ruling system has played a crucial role in Sweden’s position as a country with one of the highest tax compliance rates in the world.

19. The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process.

20. We, thus, consider it appropriate to recommend to the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. A council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

 


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2020 (9) TMI 496 - Supreme Court

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Acts Income Tax