This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Dec 08th to Dec 13th 2025, namely:
- Concept of virtual service PE does not find mention in DTAA between India and Singapore: HC;
- proposes Bill lowering CSR eligibility thresholds and mandating a CSR-experienced director on the Committee;
- Releases the draft Industrial Relations (Delhi) Rules, 2025;
- Long-term sub-letting as hostel still qualifies property for residential dwelling; GST exemption condition met: SC;
- Negative blocking of electronic credit ledger without available ITC impermissible as per Rule 86A: HC;
- Auditor’s observations on commonly identified non-compliances in electronically maintained books of account; and
- Accounting Standards Board of ICAI releases exposure draft of Ind AS 119 and opens a window for public comments.
1. Concept of virtual service PE does not find mention in DTAA between India and Singapore: HC
The assessee was a non-resident company incorporated in Singapore. It engaged in legal advisory services. It provided legal advisory to Indian clients, partly rendered remotely from outside India and partly by two of its employees who visited India to render such services.
The Assessing Officer (AO) passed draft assessment orders proposing additions, as the assessee constituted a permanent service establishment in India due to the physical presence of its employees in India for 120 days. AO also contended that the assessee constituted a virtual service permanent establishment in India. The Dispute Resolution Panel (DRP) dismissed the assessee’s objections. AO passed final assessment orders under section 143(3) read with section 144C(13), and the assessee filed an appeal to the Delhi Tribunal.
The Tribunal deleted the additions made by the AO, holding that a service PE requires actual performance of services in India by employees physically present there. Since the assessee rendered services for only 44 days after excluding vacation, business development, and standard days the 90-day threshold for a service PE in AY 2020-21 was not satisfied.
The matter reached the Delhi High Court. The High Court held that Article 5(6) of the DTAA contemplates that an enterprise shall be deemed to have a permanent establishment in the contracting state through its employees or other personnel only if the activities within the contracting state continue for a period aggregating to 90 days in any fiscal year. The words “within a Contracting State” and “through employees or other personnel” contemplate rendition of services in India by the employees of the non-resident enterprise, while mandating a fixed nexus, a physical footprint within India.
The term ‘within’ has a specific territorial connotation, and in the absence of personnel physically performing services in India, there can be no furnishing of services ‘within’ India. It is such a rendition of services by employees present within the country that would constitute a service permanent establishment. AO’s view that, as a result of rapid digitalisation, services, including consultancy services, can be provided virtually without the physical presence of employees in the contracting state, cannot be accepted. It is found that the DTAA contemplates no such eventuality. The concept of a virtual service permanent establishment is not mentioned anywhere in the DTAA.
In the absence of any such provision, the revenue’s argument would be at variance with the express provisions of the DTAA, as interpreted above. It is not for courts to read in concepts which are not expressly provided for by the treaty. The guiding principle here is that language which is not explicitly included in treaty provisions cannot be artificially read into such provisions by way of judicial fiction.
Accordingly, the AO’s contention that a virtual service permanent establishment existed for the relevant assessment years was rejected.
2. Govt. proposes Bill lowering CSR eligibility thresholds and mandating a CSR-experienced director on the Committee
The Companies (Amendment) Bill, 2025, was introduced in the Rajya Sabha on 5 December 2025 to amend the Companies Act, 2013 further. The Bill primarily seeks to amend section 135 of the Act, which governs the Corporate Social Responsibility (CSR) framework applicable to companies in India.
Existing CSR Framework under the Companies Act, 2013
Under the current provisions of section 135, CSR obligations apply to companies having a net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more, or a net profit of rupees five crore or more during the immediately preceding financial year. Such companies are required to constitute a Corporate Social Responsibility Committee of the Board and undertake CSR spending in accordance with the Act.
Key Amendments Proposed under the Bill
The Bill proposes a substitution of sub-section (1) of section 135, with the objective of expanding the scope of mandatory CSR compliance and strengthening governance at the CSR committee level. The amendments focus on lowering the financial thresholds for CSR applicability and introducing experience-based requirements in the constitution of the CSR Committee
- Revised CSR Applicability Thresholds
As per the proposed amendment, CSR provisions will apply to every company having a net worth of rupees one hundred crore or more, or turnover of rupees five hundred crore or more, or a net profit of rupees three crore or more during the immediately preceding financial year. This represents a significant reduction from the existing thresholds and will bring a larger number of companies within the CSR framework.
- Changes in Composition of the CSR Committee
The Bill retains the requirement of constituting a CSR Committee comprising three or more directors, including at least one independent director. In addition, it mandates that one of the other directors must have extensive experience in planning and implementing CSR projects. Where a company is not required to appoint an independent director under section 149(4), the CSR Committee shall consist of two or more directors.
3. Rationale and Objectives of the Amendment
The Government has observed that mandatory CSR has contributed significantly to social and economic development, particularly in the areas of education, healthcare and community development. It has further emphasised the need to expand CSR coverage to medium-sized companies to enhance private sector participation in social sector funding and support broader national development objectives.
3. Govt. releases the draft Industrial Relations (Delhi) Rules, 2025
The Government of the National Capital Territory of Delhi has notified the draft Industrial Relations (Delhi) Rules, 2025, vide Notification No. 15(12)/Lab/2022/4473-4479 dated December 3, 2025. The draft rules are issued under Section 99 of the Industrial Relations Code, 2020 and apply to industrial establishments falling within the jurisdiction of the Government of the National Capital Territory of Delhi. Stakeholders may submit objections and suggestions to the Labour Department within thirty days.
The key highlights of the Rules are as follow:
a) Rule-Making Powers under the Industrial Relations Code, 2020
Section 99 of the Code empowers the appropriate Government to frame rules for effective implementation of the Code, including provisions relating to trade unions, grievance redressal, standing orders, strikes, lock-outs, retrenchment, closure and adjudicatory authorities.
b) Constitution of Works Committee
The draft rules mandate the constitution of a Works Committee with a maximum of twenty members. The number of worker representatives must not be less than the number of employer representatives. Registered trade unions may nominate members in proportion to their membership strength.
c) Formation of Grievance Redressal Committee
Employers are required to constitute a Grievance Redressal Committee with equal representation of employers and workers, subject to a maximum of ten members. Adequate representation of women workers is mandatory and must be in proportion to their presence in the establishment.
d) Trade Union Subscription and Audit Requirements
The draft rules prescribe a minimum annual subscription of Rs. 100 per member for eligibility of trade union registration. Further, the annual audit of accounts of registered trade unions must be conducted by an auditor authorised under Section 139 of the Companies Act, 2013.
e) Voluntary Reference of Industrial Disputes to Arbitration
A formal written agreement is prescribed for voluntary arbitration, specifying authorised signatories for employers and workers. The agreement must be accompanied by the written or electronic consent of the arbitrator or arbitrators.
f) Appointment of Members of Industrial Tribunal
The draft rules lay down the procedure for selection, tenure and service conditions of Judicial and Administrative Members of the Industrial Tribunal. Judicial Members are to be appointed through a Search-cum-Selection Committee headed by the Chief Justice of the Delhi High Court or a nominated Judge, while Administrative Members are to be appointed by the appropriate Government based on the Committee’s recommendation.
g) Procedure for Strikes and Lock-outs
The rules formalise the procedure for strikes and lock-outs. Strike notices must be issued in the prescribed form and signed by the Secretary and five elected representatives of the registered trade union. Lock-out notices must be notified to labour authorities and displayed prominently at the establishment, including on electronic notice boards.
h) Provisions Relating to Lay-off, Retrenchment and Closure
Employers are required to apply for prior permission in the prescribed form, with service of applications through electronic means or by registered or speed post. The appropriate Government may review its order within thirty days of granting or refusing permission.
i) Worker Re-Skilling Fund
The draft rules operationalise the Worker Re-Skilling Fund, requiring employers to deposit an amount equivalent to fifteen days’ last drawn wages of a retrenched worker with the appropriate Government within ten days. The Government must transfer the amount to the worker electronically within forty-five days for re-skilling purposes.
j) Compounding of Offences
The draft rules prescribe the manner of compounding of offences by a Gazetted Officer through a prescribed electronic form detailing the offence, consequences of non-compounding and the application process. Where an offence is compounded prior to prosecution, no prosecution shall be initiated.
4. Long-term sub-letting as hostel still qualifies property for residential dwelling; GST exemption condition met: SC
The Hon’ble Supreme Court held that long-term sub-letting of a residential property as hostel accommodation qualifies as ‘use as residence’, thereby satisfying the exemption condition under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate). This was held in State of Karnataka vs. Taghar Vasudeva Ambrish.
Facts of the case
The assessee, a co-owner of a residential building, leased the property to a company, which sublet rooms as hostels for long-term stays of 3 to 12 months to students and working professionals. The Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) denied the exemption under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate), on the ground that the company did not itself reside in the property. It was contended that the property continued to qualify as a residential dwelling since the sub-lessees’ use satisfied the ‘use as residence’ condition, and that the amendment to the notification, which excluded registered persons from the exemption, was prospective and could not be applied retrospectively. The matter was accordingly placed before the Supreme Court.
Supreme Court Held
The Supreme Court held that the property qualified as a residential dwelling since the accommodation was for long-term stays and municipal records confirmed its residential character. It was observed that the condition of ‘use as residence’ under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) was satisfied through the sub-lessees, making the exemption activity-specific rather than person-specific. The Court further held that retrospective denial of exemption under the amended notification was impermissible, and that all conditions for exemption during 2019-2022 were met. Accordingly, the appeals filed by the Department of Revenue were dismissed in favour of the assessee.
5. Negative blocking of electronic credit ledger without available ITC impermissible as per Rule 86A: HC
he High Court held that negative blocking of the electronic credit ledger beyond the available Input Tax Credit (ITC) is impermissible under Rule 86A. The Court clarified that Rule 86A only allows temporary restriction to the extent of existing ITC, while excess amounts must be addressed through statutory recovery and eligibility determined via adjudication. This was held in Mannat Steels vs. Union of India.
Facts of the case
The petitioner, challenged the blocking of its electronic credit ledger (ECL). It was submitted that, under Rule 86A of the CGST Rules and the corresponding Punjab GST Rules, a negative blocking entry was created on the ECL despite the available balance being insufficient, without any prior notice. It was contended that Rule 86A does not authorise blocking of ITC beyond the balance actually available and that such action was inconsistent with the statutory scheme, emphasising that eligibility and recovery under GST must be determined through proper adjudication. The matter was accordingly placed before the High Court.
High Court Held
The High Court held that Rule 86A permits the jurisdictional officer under CGST to impose a temporary restriction on the debit of ITC when there are reasons to believe that the credit has been fraudulently or ineligibly availed, and that such restriction may be imposed without prior show-cause notice. The Court observed that creating negative blocking entries exceeding the actual ITC balance is impermissible, and that authorities could resort to statutory recovery procedures instead. It was further held that determination of eligibility for ITC must occur through formal adjudication.
6) Auditor’s observations on commonly identified non-compliances in electronically maintained books of account
Companies are increasingly maintaining their books of account in electronic form using cloud-based and enterprise accounting systems. During the course of audits, auditors frequently encounter recurring non-compliances with the requirements of the Companies Act, 2013 and the Companies (Accounts) Rules, 2014, particularly in relation to data backup arrangements and the mandatory audit trail functionality. These requirements are fundamental to ensuring the accessibility, integrity, and reliability of electronic accounting records.
In this context, Rule 3(5) of the Companies (Accounts) Rules, 2014 requires that where books of account are maintained in electronic mode, a daily backup of such books and related records must be kept on servers physically located in India, even if the primary data is maintained outside India. Further, Rule 3(1) mandates that accounting software used for maintaining books of account shall have a feature for recording an audit trail of each and every transaction, creating an edit log with details of changes and dates, and ensuring that such audit trail cannot be disabled (applicable from 1 April 2023). Rule 3(2) additionally requires that electronic records be retained in their original form so as to remain complete and unaltered.
During the audit, the auditor observed instances where companies maintained their books of account on cloud servers located outside India without maintaining a daily backup on servers physically located in India, resulting in non-compliance with Rule 3(5). The auditor also noted cases where, despite the accounting software being equipped with an audit trail feature, the functionality was not enabled throughout the financial year. Consequently, no logs of edits, deletions, or modifications along with user details and timestamps were generated or retained. Such lapses constituted non-compliance with Rules 3(1) and 3(2) and significantly restricted the auditor’s ability to assess the completeness, authenticity, and integrity of the electronic books of account.
7. Accounting Standards Board of ICAI releases exposure draft of Ind AS 119 and opens a window for public comments
The Accounting Standards Board of ICAI has issued an Exposure Draft of Ind AS 119 – Subsidiaries without Public Accountability: Disclosures, aligned with IFRS 19. The proposed standard introduces a reduced disclosure framework for eligible subsidiaries. Public comments are invited up to 5 March 2026, and the proposed effective date is for annual reporting periods beginning on or after 1 April 2027.
The post Weekly Round-up on Tax and Corporate Laws | 8th December to 13th December 2025 appeared first on Taxmann Blog.
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