Supreme Court Half Yearly Digest 2025: TAX

Constitution of India – Article 14, Entry 97, List I (Union List), Entry 62, List II (State List) – Kerala Tax on Luxuries Act, 2006 – Constitutional Validity – Cable TV Services – Legislative Competence – Aspect Theory – Held, cable TV services qualify as a “luxury” under Entry 62, List II, enabling State taxation. No conflict exists between State's luxury tax on entertainment and Central service tax on broadcasting under Entry 97, List I. Initial arbitrary exemptions under the Act violated Article 14, but the revised framework rectified these issues. The Supreme Court upheld the constitutional validity of Kerala's luxury tax on cable TV services under the Kerala Tax on Luxuries Act, 2006, affirming the State's legislative competence under Entry 62, List II. Applying the aspect theory, the Court distinguished the State's luxury tax on entertainment (cable TV services) from the Central tax on broadcasting services under the Finance Act, finding no constitutional overlap. The aspect theory, in India, focuses on the taxable event's nature, not legislative competence, unlike its Canadian application. The High Court's ruling striking down exemptions for smaller cable operators (under 7,500 connections) as violative of Article 14 was upheld, but the revised framework was deemed constitutionally valid. The tax was not discriminatory against cable TV operators compared to DTH providers. The appeal was allowed, reversing the High Court's decision to strike down the tax. (Para 17) State of Kerala v. Asianet Satellite Communications Ltd., 2025 LiveLaw (SC) 611 : 2025 INSC 757 Income Tax Act, 1961; Section 80-IA(9) - Scope of - Deductions under Sections 80-IA/80-IB and 80-HHC – Deductions under Sections 80-IA/80-IB (industrial undertaking profits) and Section 80-HHC (export profits) can be computed independently. Resolving the split verdict in Assistant Commissioner of Income Tax v. Micro Labs Limited, (2015) 17 SCC 96, the Court held that Section 80-IA(9) does not mandate reducing the gross total income by the Section 80-IA/80-IB deduction before computing deductions under Section 80-HHC. Instead, it restricts the aggregate deductions under heading 'C' of Chapter VI-A to the extent of eligible business profits, preventing double benefits on the same profits. Approving the High Court's reasoning in Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax, (2011) SCC OnLine Bom 27, the Court clarified that Section 80-IA(9) limits the allowability, not the computability, of deductions. For example, if business profits are Rs. 100 and Rs. 30 is allowed under Section 80-IA, a computed deduction of Rs. 80 under Section 80-HHC would be restricted to Rs. 70 to ensure the total deduction does not exceed the profits. The reference was answered accordingly, permitting independent computation of deductions while capping their aggregate to the eligible profits. (Para 20, 21 & 23) Shital Fibers v. Commissioner of Income Tax, 2025 LiveLaw (SC) 606 : 2025 INSC 743 Constitutional Law – Taxation - Sales Tax - Purchase Tax - Validity of Provisions Imposing Purchase Tax on Exempted Transactions - In a reference to resolve conflicting views on the interpretation of "levy" in sales tax exemptions, the Supreme Court (3 Bench) upheld the constitutional validity of Section 5A, Kerala General Sales Tax Act, 1963 (KGST Act), and the pari materia Section 7A, Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). The provisions impose purchase tax on purchasers who acquire goods from sellers exempted from sales tax under notifications issued pursuant to Section 10, KGST Act (or equivalent), and subsequently dispatch such goods outside the state via stock transfer (not constituting inter-state sale). Facts: The appellants, registered dealers, purchased voltage stabilizers from small-scale industrial (SSI) units and charitable institutions within Kerala, which were exempt from sales tax liability under Section 10 notifications. The goods were then dispatched outside Kerala by way of branch/stock transfer. The revenue authorities levied purchase tax under Section 5A, KGST Act, treating the purchases as "liable to tax." The appellants contended that the exemption under Section 10 rendered the transactions non-liable to tax altogether, excluding the operation of Section 5A. A 2009 Division Bench of Supreme Court, in a lead case, distinguished between "leviability" (imposition of tax liability) and "payability" (actual payment), holding the goods liable but exempt from payment. Due to a contrary view in Peekay Re-rolling Mills (P) Ltd. v. Assistant Commissioner, (2007) 4 SCC 30 (interpreting "levy" to include collection/payment), the matter was referred to a larger Bench. Issues Referred: 1. Whether purchases from tax-exempt dealers under the KGST/TNGST Acts constitute purchases "liable to tax" within the meaning of Section 5A/7A. 2. Whether such purchasers...

Supreme Court Half Yearly Digest 2025: TAX

LIVELAW NEWS NETWORK

Tags