Articles of Association (AoA) are the internal rules and regulations of a company that govern its management, administration and relationship between the company and its members. Defined under Section 2(5) of the Companies Act, 2013, the Articles contain provisions relating to share capital, transfer of shares, meetings, voting rights, directors’ powers and other operational matters necessary for the conduct of the company’s affairs.

Table of Contents

1. Articles of Association [Sec. 2(5)]
2. Contents of Articles (Sec. 5)
3. Alteration of Articles of Association (Sec. 14)
4. Effect of Memorandum and Articles
5. Are the Articles Enforceable by the Outsiders?
6. Doctrine of Constructive Notice
7. Doctrine of Indoor Management (Turquand Rule)

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1. Articles of Association [Sec. 2(5)]

As per Sec. 2(5), “Articles” means the Articles of Association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.

Articles are rules and regulations for the internal management of the company. Articles are the bye-laws of the company. It governs the relationship between the members and the company (Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd.). The articles are not enforceable by outsiders (Eley v. Positive Government Life Assurance Company Ltd.)

2. Contents of Articles (Sec. 5)

1. The articles of a company shall contain regulations for management of the company.
2. The articles contain matters relating to share capital, lien of shares, calls on shares, transfer and transmission of shares, proceedings at general meeting etc. The company may include such additional matters in its articles as may be considered necessary for its management.
3. Entrenchment Clause (i.e. Super Majority Clause) in the Articles of Association:

• • The articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with.
  • The provisions for entrenchment shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.
  • Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of such provisions in such form and manner as may be prescribed.

Model Form of Articles – The articles of a company shall be in respective forms specified in Tables F, G, H, I and J in Schedule I as may be applicable to such company.

Schedule I

Table F – Articles of Association of a company limited by shares.

Table G – Articles of Association of a company limited by Guarantee and having a share capital.

Table H – Articles of Association of a company limited by Guarantee and not having a share capital.

Table I – Articles of Association of an unlimited company and having share capital.

Table J – Articles of Association of an unlimited company and not having share capital.

In case the registered articles of the company do not exclude or modify the regulations contained in the model articles applicable to such company, those regulations shall, so far as applicable, be the regulations of that company in the same manner and to the extent as if they were contained in the duly registered articles of the company.

3. Alteration of Articles of Association (Sec. 14)

A company may alter its articles by a special resolution. It is rightly said that a company has wide power to alter articles as this can be done by simply passing special resolution in general meeting.

3.1 Restrictions or Limitations on Alteration of Articles

No alteration in Articles of Association shall be valid unless it is in accordance with the following conditions:

(a) As Articles of Association is a document subordinate to the Companies Act and Memorandum of Association so any alteration in Articles of Association cannot be against the provisions of the Companies Act and Memorandum of Association.

(b) If  Articles of Association contain ‘entrenchment clause’ then alteration to be valid with regard to change requiring ‘superior majority’ shall be valid only when it is in compliance with that.

(c) Alteration in Articles of Association for conversion of public company into private company shall not be valid without the approval of Central Government (now Regional Director).

(d) Alteration must not constitute fraud on minority by majority.

Case Law – Brown v. British Abrasive Wheel Co. Ltd. (1919)

The shareholders holding 98% of the shares passed a resolution that upon the request of holders of 9/10th of the issued shares, a shareholder shall be bound to sell his shareholding. The alteration was held to be invalid since it amounted to oppression of minority by majority.

(e) The alteration to be valid must be bona fide in the interest of the company (Allen v. Gold Reefs of West Africa). This is popularly known as Allen’s Test.

Case law – Allen v. Gold Reefs of West Africa (1900)

A company had a lien on partly paid-up shares only. Mr. A owned some fully paid-up and some partly paid-up shares. The company altered its articles and gave itself a right of lien on all shares. The alteration was held to be valid as it was bona fide for the interest of the company as a whole.

(f) Alteration cannot validate anything which is illegal, immoral or opposed to public policy.

The articles cannot be altered to enable a company to carry on an illegal scheme (Pioneer Mutual Benefit Society v. Assistant Registrar).

(g) Alteration cannot be against the order of the Tribunal.

Can a company justify a breach of contract with third party by altering Articles?

By effecting alteration in its Articles, a company cannot defeat or escape from contractual liability.  As the power to alter Articles is statutory and contractual obligation in Articles of Association cannot limit statutory powers.

4. Effect of Memorandum and Articles

According to Sec. 10(1) subject to the provisions of this Act, the Memorandum and Articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its own and his part to observe all the provisions of the Memorandum and Articles.

The binding effect can be understood in terms of the following propositions:

1. Company Bound to the Members – Whatever is stated in the Memorandum and Articles that creates binding between company and members for his rights as a member.
2. Members Bound to the Company – Where a shareholder who became bankrupt was asked to sell his shares to a person at price fixed by the directors under the provisions of Articles, he was bound by such provision (Borland’s Trustee v. Steel Bros. & Co. Ltd.)
3. Member to a Member in exceptional cases only. In Rayfield v. Hands (1960), directors being members in this case were compelled to buy shares of a member as Articles gave him this right to sell shares at a fair value.

5. Are the Articles Enforceable by the Outsiders?

The answer is No. ‘A third person who purports to have rights against the company would be precluded from relying on the Articles as a basis of his claim and must prove a special contract outside the Articles (Iyengar v. United India Life Insurance Co.).

In Eley v. Positive Life Assurance Co. Ltd. (1876) person named in articles as a solicitor was unable to enforce the provisions when the company employed someone else; the articles conferred no rights as between him and the company (reproduced as stated on page 100 of Company Law, Brenda Hannigan, 3rd edition, Oxford University Press, UK). It held that AoA were a matter between the members inter se or the members and the company for their rights as members.

Binding effect of Memorandum and Articles can be summarised as follows:

(1) Company and Members:

(a) Members are bound to the company always.

(b) Company is bound to the members for their rights as members.

(2) Company and Outsiders:

(i) Where Articles is not the basis of contract between company and outsiders: If by alteration in Articles any term with outsider is breached, outsider can file a claim for breach under separate contract which he has with company.

(ii) Where Articles of Association is the only basis of contract between company and outsiders: Here also Articles can be altered, as nothing can deprive the company of its statutory right to alter the Articles (Southern Foundaries Ltd. v. Shirlaw). While in such a case, the outsider shall be able to claim damages arising from alteration of Articles.

6. Doctrine of Constructive Notice

As per Sec. 399, any person may inspect or get a copy or extract of any document or any part of any document from Registrar of Companies, on payment of such fee as may be prescribed. Any outsider dealing with the company is supposed to have constructive or implied notice of company’s document because by virtue of Sec. 399, he has access to such documents. This doctrine protects the company as outsiders cannot later on allege that they did not know whether the act (i.e., agreement which they entered into with the company) was legitimate or not.

The above doctrine proved to be highly inconvenient and unjustifiable under certain circumstances and therefore other doctrine as an antithesis to doctrine of constructive notice got evolved.

7. Doctrine of Indoor Management (Turquand Rule)

This doctrine is an exception to the doctrine of constructive notice. It got established in Royal British Bank v. Turquand (1856) case where when a person was denied payment on maturity of bonds by the company, on the ground that resolution was required for authorization of issue of bonds and since no such resolution was passed by the company hence company is not liable on such bonds. Here the learned Judge opined that outsider cannot enquire into ‘internal regularities of the company’. The doctrine of indoor management emphasizes that outsider is not expected to know beyond a point, therefore, his interest needs to be protected and he cannot be penalized for none of his fault.

7.1 Exceptions to Doctrine of Indoor Management

1. Knowledge of Irregularity – If the person dealing with the company has knowledge of irregularity then protection under doctrine of indoor management shall not be available to him as was established in Howard v. Patent Ivory Manufacturing Co. In this case the directors of the company had the authority to borrow up to £ 1000 without consent of shareholders. For borrowings exceeding £ 1000, consent of the shareholders through resolution at the general meeting was required. Directors lent £ 3500 to the company without consent of shareholders. It was held that the company would be bound to pay only £ 1000 as the protection under Doctrine of Indoor Management cannot be claimed by those who know of irregularity.
2. Negligence – If the person himself was not careful enough, should he be given benefit for his own negligence? Answering in ‘No’ in case of Anand Bihari Lal v. Dinshaw & Co. Ltd. (1942), it was held that where the person supposed that the accountant had authority to sell company’s property without ‘power of attorney’ such person cannot be given protection under doctrine of indoor management for being negligent himself.
3. Forgery – Protection under doctrine of indoor management shall not be available in case of forgery. As forgery is null & void and the aggrieved person shall have a right to allege the person who did forgery but shall not have any protection under doctrine of indoor management (Ruben v. Great Fingall Consolidated, 1906).

Table – Difference Between Memorandum of Association & Articles of Association

Basis	Memorandum of Association	Articles of Association
Contents	Memorandum contains basic information about the company in form of different clauses such as Name clause, State clause, Objects clause, Liability clause, Capital clause (only in case of company having share capital), Subscription or Association clause in MoA is as per requirements of Sec. 3 of the Companies Act Nomination clause only in case of OPC	The Articles contain the regulations for the management of the company
Model Form	The Memorandum of a company shall be in respective forms specified in Table A, B, C, D and E of Schedule I as may be applicable to such company	The Articles of a company shall be in respective forms specified in Table F, G, H, I and J in Schedule I as may be applicable to such company. A company may adopt all or any of the regulations contained in the model articles applicable to such company All the companies need to file AoA. In case company’s AoA are silent on some matters then reference shall be made to model AoA
Entrenchment Clause	No such provision in MoA	The AoA may contain an Entrenchment clause
Subordination	MoA is subordinate to the Companies Act. (Sec. 6)	AoA is subordinate to the Companies Act as well as the MoA
Ultra Vires Acts	Acts which are ultra vires (outside the powers) the object clause of MoA can never be made intra vires (inside the powers) even by unanimous consent rule laid down in Ashbury Railway Carriage Company Ltd. vs. Riche	Acts which are ultra vires the AoA but intra-vires the MoA can be ratified

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source

Capital gains under the Income-tax Act refer to the profit or gain arising from the transfer of a capital asset such as land, building, shares, securities, mutual funds, jewellery, or other investments. Such gains are taxable under the head “Capital Gains” in the year in which the transfer takes place, unless specifically exempt under the Act. Depending upon the period of holding of the asset, capital gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG), and the taxability is determined according to the applicable provisions, exemptions, and computation rules prescribed under the Income-tax Act.

Table of Contents

1. Section 45(1) – Basis of Charge
2. Section 2(14) Capital Asset
3. Section 2(47) – Transfer
4. Section 2(42B) – Short Term Capital Gain
5. Section 2(29B) – Long Term Capital Gain
6. Section 2(42A) – Short Term Capital Asset
7. Section 2(29A) – Long Term Capital Asset
8. Section 46 – Distribution of Assets by Company in Liquidation
9. Section 46A – Capital Gain on Buy-back of Shares or Specified Securities by Company
10. Section 47 – Transactions Not Regarded as Transfer
11. Section 47A – Condition for Withdrawal of Exemptions u/s 47
12. Section 48 – Computation of Capital Gain
13. Section 50 – COA and CG for Depreciable Asset
14. Section 50A COA and CG for Electricity Company
15. Section 50AA Capital Gains in Case of Market Linked Debentures
16. Section 50B – CG in Slump Sale
17. Section 50C – Determining Full Value of Consideration on Transfer on Land & Building Both
18. Section 50CA – Determining Full Value of Consideration on Transfer of Unlisted Shares
19. 50D
20. Section 51 – Advance Money Received
21. Section 55A – Reference to Valuation Officer for Calculation of Fair Market Value
22. Section 55(1)(b) – Cost of Improvement
23. Section 55(2) – Cost of Acquisition

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1. Section 45(1) – Basis of Charge

• Capital Asset
• Transfer
• Capital Gain – Short-term or Long-term
• Not Exempt u/s 54/54B/54D/54EC/54F/54G/54GA/54GB

2. Section 2(14) Capital Asset

• Any kind of property
• Held by an assessee
• Whether or not connected with B & P.
• Any Securities held by Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under SEBI Act, 1992.
• Any unit linked insurance policy (ULIP) issued on or after 01.02.2021, to which exemption under section 10(10D) does not apply on account of:

1. 1. Premium payable exceeding ₹ 2,50,000 for any of the previous years during the term of such policy or
   2. The aggregate of premium exceeding ₹ 2,50,000 in any of the previous years during the term of any such policy, in case where premium is payable by a person for more than one ULIP issued on or after 01.02.2021.

• But Does Not Include:

1. 1. Stock in trade (Not for securities held by FII’s)
   2. Personal Effects – Movable property held for personal use (except Jewellery, drawings, paintings, archeological collections, sculptures or any other work of art)
   3. Rural Agriculture Land (Agriculture Land in India Not Situated in – Area in the limits of municipality or cantonment board having a population of 10,000 or more OR Within 2 kms of limits of municipality or cantonment board having population of more than 10,000 but upto 1,00,000; within 6 kms if population more than 1,00,000 but upto 10,00,000 or within 8 kms if population more than 10,00,000).
   4. Gold bonds, 1977 or 1980 or National Defence Gold bonds 1980
   5. Special bearer bonds, 1991
   6. Gold Deposit Bonds, 1999 or Deposit certificates issues under Gold Monetisation scheme 2015 or 2018.

3. Section 2(47) – Transfer

It Includes:

Sale, Exchange or Relinquishment of capital asset

• Extinguishment of any RIGHT
• Compulsory acquisition
• Conversion of capital asset into stock
• Maturity or Redemption of Zero-coupon bond
• Possession of Immovable property u/s 53A of Transfer of Property Act, 1882
• Acquiring shares or membership of Housing Co-operative Society for enjoyment of immovable property.

4. Section 2(42B) – Short Term Capital Gain

Gain on short-term Capital Asset

5. Section 2(29B) – Long Term Capital Gain

Gain on Long-term Capital Asset

6. Section 2(42A) – Short Term Capital Asset

If Holding Period is Upto 12/24 Months:

12 Months for Following Capital Assets:

• Security listed in a recognised stock exchange
• Units of UTI/Units of equity-oriented Fund
• Zero Coupon Bond

24 Months for Following Capital Assets:

• Other assets

Explanation:

• Shares in Company Under Liquidation – Exclude period after the date of liquidation
• Property Acquired u/s 49(1) – Include the holding period of previous owner
• Shares in Indian Amalgamated Co. – Include holding period of shares in Amalgamating Co.
• Shares in Indian Resulting Co. – Include holding period of shares In
  Demerged Co.
• Equity Shares in RSE (Company) in Demutualisation Scheme – Include holding period of membership in RSE when it was not a company
• Original/Right Shares – Holding period from date of allotment
• Right to Subscribe for Shares – Date of offer to Date or renouncement
• Bonus Shares – Holding period from date of allotment
• Specified Shares or Sweat Equity Shares – Holding period from date of
  allotment
• Units Allotted in the Consolidation Scheme of Mutual Fund – Include holding period of units prior to Consolidation scheme.
• In Case of Capital Asset, Declared Under Income Declaration Scheme, 2016 – Holding period shall be reckoned from the date on which such property is acquired, if the date of acquisition is evidenced by a deed registered with any authority of state government. In any other case, the period for asset shall be reckoned from 01.06.2016.
• In Case of Conversion of Physical Gold to EGR or Vice Versa – The holding period for the purpose of capital gain shall include the period for which the Gold was held by the assessee prior to conversion into the Electronic Gold Receipt and similarly the holding period for the purpose of capital gain shall include the period for which the Electronic Gold Receipt was held by the assessee prior to conversion into the Gold.

7. Section 2(29A) – Long Term Capital Asset

If Holding period is more than 12/24 Months.

Section 45(1A) – Capital Gain on Insurance Claim Received on Destruction of Capital Asset Because of:

• Flood, Typhoon, cyclone, earthquake or other natural disasters
• Riots or civil disturbance
• Accidental fire or explosion
• Action of enemy (with or without war)

1. 1. Year of Chargeability – PY in which money or asset is received
   2. Sale Consideration – Money + FMV of asset
   3. Indexation – Upto year of damage or destruction

Section 45(1B) – Capital Gain on ULIP Receipts:

• Any unit linked insurance policy (ULIP) issued on or after 01.02.2021, to which exemption under section 10(10D) does not apply on account of:

1. 1. Premium payable exceeding ₹ 2,50,000 for any of the previous years during the term of such policy or
   2. The aggregate of premium exceeding ₹ 2,50,000 in any of the previous years during the term of any such policy, in case where premium is payable by a person for more than one ULIP issued on or after 01.02.2021.
   3. Profit or gain on such ULIP shall be taxable in the year of receipt under 112A.

Section 45(2) – Capital on Conversion of Capital Asset into Stock:

• Conversion Before 01-04-1984 – Not a transfer
• Year of Chargeability – Year in which asset is sold
• Sale Consideration – FMV on conversion date
• Indexation – Upto year of conversion
• Business Income – Sale Price LESS FMV on conversion date

Section 45(2A) – Transfer of Securities by Depository (Demat a/c):

• Income will be of the beneficial owner
• Account wise FIFO method will be used
• Date of entry in to Demat account will be considered

Section 45(3) – Capital Gain on Transfer of Capital Asset by Partner/Member to Firm/AOP/BOI:

Sale Consideration – Amount recorded in Books

Section 45(4) – Capital Gain on Transfer of a Capital Asset by Firm/AOP/BOI to Partner/Member:

Sale Consideration – FMV of asset on transfer

Cost of Acquisition for Partner/Member – Value for which asset is transferred

Section 45(5) – Capital Gain on Transfer by Way of Compulsory Acquisition:

• Year of Chargeability – Year in which 1st part of initial compensation received
• Indexation – Upto year of compulsory acquisition
• Enhanced Compensation – (Fully taxable in the Year in which Enhanced compensation is received)
• If Initial Compensation Received by Legal Heir – Taxable in hands of deceased
• If Enhanced Compensation Received by Legal Heir – Taxable in hands of legal heir
• If compensation is reduced then capital gain will be recomputed u/s 155

Section 45(5A) – Taxability of Capital Gains in Case of Specified Agreement:

• Applicable to Individual/HUF who enters into a specified agreement for development of a project.
• Capital gain chargeable in the year in which the certificate of completion for the whole or part of the project is issued by competent authority.
• Consideration – Stamp Duty Value of his share being land or building or both, on the date of issue of completion certificate + Cash if any paid.
• This provision is not applicable where the assessee transfers his share in the project before completion certificate being issued. In such case taxability shall be in the year of such transfer and consideration shall be determined according to normal provisions.

Specified Agreement – Registered agreement in which a person owning a land or building or both, agrees to allow another person to develop real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment or part of the consideration in cash.

8. Section 46 – Distribution of Assets by Company in Liquidation

• Transfer by Company – YES (if sold in market) and NO (If distributed to shareholders)
• Transfer for Shareholder – YES (transfer of shares to company)
• Capital Gain – Money + Fair Market Value of assets on date of distribution

1. 1. Less – Deemed dividend u/s 2(22)(c)
   2. Less – Indexed cost of acquisition

9. Section 46A – Capital Gain on Buy-back of Shares or Specified Securities by Company

For buyback of securities other than shares of domestic companies, capital gain shall be taxable for the holder as usual, but in case of buyback of shares of domestic company, any sum paid by company shall be treated as dividend income (Other Sources) and sale consideration shall be taken as NIL, resulting into Capital Loss.

10. Section 47 – Transactions Not Regarded as Transfer

• HUF —– members (on partition)
• Transfer under gift, will, etc. (not acquired in ESOP) [upto A.Y. 2024-25]
• Holding co. —– 100% Indian subsidiary co.
• 100% subsidiary —— Indian holding co.
• Amalgamating Co. —— Indian amalgamated co.
• Foreign amalgamating co. —– foreign amalgamated co.

1. 1. Only Indian co. Shares
   2. 25% Shareholders remain same
   3. Not taxed in country of foreign amalgamating co.

• Amalgamating Banking co. —– Amalgamated Banking institution
• Demerged co. —– Resulting Indian Co.
• Foreign demerged co. —- foreign resulting co.

1. 1. Only Indian co. shares
   2. Shareholders holding 75% value remain same
   3. Not taxed in the country of foreign demerged co.

• Predecessor Co-operative Bank —- successor co-operative Bank
• NO TRANSFER For shareholders of Amalgamating co., demerged co. or predecessor co-operative Bank
• Non-resident —– Non-resident (Bonds/Global Depository Receipts/Shares of public co. bought in FC)
• Transfer of agriculture land in India before 01-03-1970
• Transfer to Art gallery, etc.
• Bond/ Debentures/Debenture stock —- converted into Shares/Debentures
• Transfer of land of sick industrial co.
• Firm —- Company

1. 1. All assets and liabilities are transferred
   2. All partners will remain in same proportion in capital account
   3. Consideration in shares only
   4. Partners held atleast 50% voting power till 5 years

• Sole proprietorship —- company

1. 1. All assets and liabilities are transferred
   2. Consideration in shares only
   3. Proprietor holds atleast 50% voting power till 5 Years

• Pvt. Co./ Unlisted Public co. —- LLP
• Shareholders of Pvt. Co. or unlisted Public Co. —- share in LLP

1. 1. All assets and liabilities are transferred
   2. All shareholders become partners in LLP
   3. Capital proportion and profit-sharing ratio will remain same
   4. Consideration to shareholders only by way of profit share and capital contribution
   5. Shareholders shall hold atleast 50% profit share till 5 years
   6. Turnover in 3 PPY should not be more than 60 Lakhs
   7. Total Assets in 3 PPY should not be more than 5 Crore.

• Transfer in scheme of lending of securities
• Transfer of units by unit holders on consolidation of plans within a mutual fund scheme not to be regarded as transfer.
• Redemption by an individual of Sovereign gold bonds issued by RBI not to constitute transfer
• Transfer by borrower in the scheme of reverse mortgage.
• Transfer of Government Security outside India by a Non-Resident to another Non-Resident.
• Transfer of units by a unit holder in the consolidation scheme of mutual fund in lieu of allotment of new units in the scheme.
• Transfer of a capital asset, being physical gold to the Electronic Gold Receipt issued by a Vault Manager or such Electronic Gold Receipt to physical gold shall not be considered as ‘transfer.
• Transfer of a capital asset (being an interest in a joint venture held by public sector company) in exchange of shares in a company incorporated outside India by a foreign company will not be treated as transfer.

11. Section 47A – Condition for Withdrawal of Exemptions u/s 47

(1) Holding to 100% subsidiary and vice versa:

• If capital asset is converted into stock in 8 years OR
• 100% holding is ceased within 8 years

1. 1. Capital gain chargeable in the hands of transferor
   2. Capital Gain – Price of transfer LESS Cost of Acquisition
   3. Year of Chargeability – Year of transfer
   4. Section 45(2) applicable

(2) Firm/proprietorship to Company, Pvt. Co./unlisted public co. to LLP

If conditions of section 47 breached

12. Section 48 – Computation of Capital Gain

Sale consideration

LESS – Transfer exp.

Cost of Acquisition/Cost of Improvement

LTCG/STCG

LESS – u/s 54/54B/54D/54EC/54F/54G/54GA/54GB

Taxable LTCG/STCG

• STT not allowed as deduction
• The cost of acquisition or the cost of improvement shall not include the amount of interest claimed u/s 24 or Chapter VIA.

Note – Resident Individual and HUF is given the option to claim benefit of indexation on Long-term Land and Building acquired before 23.07.2024 and transferred on or after 23.07.2024, but this shall be only at the time of computation of tax. In total income LTCG will be included without indexation only.

If the option is exercised than tax rate shall be 20% instead of regular 12.5%.

Calculation of Indexation:

If acquired by assessee himself: COA ×	CII of Year of transfer
	CII of Year of Acquisition

If received u/s 49(1): COA of previous owner ×	CII of year of transfer
	CII of Year when previous owner purchased the asset

 Note – CII = Cost Inflation Index

• If Asset acquired or held by Assessee or previous owner before 01-04-2001 then CII of 2001-2002 will be used.

Proviso 1 – Method of calculating capital gain for NR – (exemption can be claimed u/s 115F)

• Shares/ Debentures of Indian company bought in FC
• Calculate Capital Gain in Foreign Currency (in which asset purchased) and then convert into Rupees
• Rupee appreciation gains on redemption of Rupee denominated Bonds issued outside India shall not be included in the full value of consideration
• Rates to be used:

1. 1. For Cost of Acquisition – Avg. TT buying and selling rate —– as on date of acquisition
   2. For Transfer Expense – Avg. TT buying and selling rate —– as on date of transfer
   3. For Sale Consideration – Avg. TT buying and selling rate —- as on date of transfer
   4. For Capital gains —– TT buying rate —– as on date of transfer
   5. Section 49 – Cost of Acquisition in Certain Cases:

• Section 49(1) – Under gift, will, succession, inheritance, in liquidation, member to HUF, under trust, cases not transfer u/s 47 – COA is cost of previous owner (who actually paid for the asset)
• COA of Sweat Equity Shares – FMV taken for perquisite
• COA for Assets Which Have Been Declared Under the Income Declaration Scheme, 2016 and on Which tax, Surcharge and Penalty Have Been Paid According to the Scheme – FMV of the asset taken into consideration for the purpose of the scheme.
• COA for Property Received in Gift – value taken for that section
• COA of Units Allotted in the Consolidation of Scheme of Mutual Fund – Cost of original units

13. Section 50 – COA and CG for Depreciable Asset

Always Short-Term Capital Gain – Physical block exhaust or accounting block exhaust

Short-Term Capital Gain – Sale value LESS (Opening WDV + purchase)

14. Section 50A COA and CG for Electricity Company

Long-Term Capital Gain/ Short-Term Capital Gain: Sale value LESS Actual cost

15. Section 50AA Capital Gains in Case of Market Linked Debentures

Where capital asset being:

• Unit of a Specified Mutual Fund acquired on or after 01-04-2023
• Market Linked Debentures
• Unlisted bonds and unlisted debentures which is transferred or redeemed or matures on or after 23.07.2024,
• Capital gain shall be taxable as STCG irrespective of Holding Period at regular rate of tax.

Notes:

1. Market Linked Debenture means a security by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices and include any security classified or regulated as a Market Linked Debenture by the SEBI.
2. Specified Mutual Fund means a Mutual Fund by whatever name called, where not more than 35% of its total proceeds is invested in the equity shares of domestic companies. The percentage of equity shareholding held in respect of the Specified Mutual Fund shall be computed with reference to the annual average of the daily closing figures.

16. Section 50B – CG in Slump Sale

Lump sum sale value LESS Net worth of undertaking.

• For long-term Holding period should be more than 36 months
• Holding period of undertaking will be considered for Long-Term Capital Gain or Short-Term Capital Gain
• Net Worth – Total of assets LESS liabilities
• Fair Market Value shall be deemed to be the sale consideration if Sale consideration is less than FMV.

17. Section 50C – Determining Full Value of Consideration on Transfer on Land & Building Both

• If Sale Consideration is Less Than Stamp Duty Value – Stamp duty value shall be taken as sale consideration
• When AO may refer to valuation officer:

1. 1. If assessee claims that stamp duty value > FMV and when such case is not under appeal/revision/reference

• Sale Consideration After Receiving Valuation Report – Stamp value or value of report WEL
• If date of agreement and date of transfer are not same then Stamp Duty value on the date of Agreement shall be considered, provided that whole or part of consideration should be paid by account payee cheque/bank draft or ECS through bank account on or before the date of agreement.

Note – However, if stamp duty value doesn’t exceed 110% of such consideration then actual consideration shall be deemed to be the full value of consideration.

18. Section 50CA – Determining Full Value of Consideration on Transfer of Unlisted Shares

If consideration is less than FMV than, FMV shall be taken as the consideration

19. Section 50D

When sale consideration cannot be determined then FMV shall be sale consideration

20. Section 51 – Advance Money Received

• Deduct from the Cost of Acquisition before indexation (if received before 01.04.2014)
• Advance money recd. by previous owner will be ignored
• Never deduct advance money from cost of improvement
• Excess of advance money over COA is not taxable
• Where any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the Total income of the assessee for any Previous Year, then such amount shall not be deducted from the Cost of Acquisition. (if received on or after 01.04.2014)

21. Section 55A – Reference to Valuation Officer for Calculation of Fair Market Value

• If claimed value is estimated by registered valuer – Fair Market Value as per AO > such value
• In any other case – Fair Market Value as per AO > claimed value by 15% of claimed value or by ₹ 25,000 (WEL) OR
• Having regard to the circumstances it is necessary to do so.

22. Section 55(1)(b) – Cost of Improvement

• Goodwill of business, right to manufacture any article, right to carry on business – NIL
• Other Assets – Capital expense incurred by assessee himself or previous owner (if asset acquired u/s 49(1))
• Expense incurred before 01-04-2001 – IGNORE

23. Section 55(2) – Cost of Acquisition

• Goodwill of business of profession, right to manufacture any article, right to carry on business, tenancy right, trade mark or brand name, stage carriage permits, loom hours:

1. 1. Purchased – Purchase price
   2. Self-Generated – NIL
   3. Acquired u/s 49(1) – Cost of previous owner (self-generated – NIL)

• Original Shares – Actual amount paid
• Bonus Shares – NIL (if allotted before 01-04-2001 then FMV on 01-04-2001)
• Right to Subscribe Shares – NIL
• Right Shares – Actual amount paid
• COA for Person Who Purchases Right to Acquisition – Price paid to Co. + price paid to seller of right
• Equity Shares Acquired in Demutualisation of Stock Exchange – COA of membership of stock exchange
• Cost of Acquisition of Ttrading or Clearing Rights – NIL
• For Other Assets:

1. 1. If acquired by assessee or previous owner before 01-04-2001 – FMV on 01-04-2001 can be opted
   2. In case of a capital asset, being land or building or both, the fair market value of such an asset on 01-04-2001 shall not exceed the stamp duty value of such asset as on 01-04-2001 where such stamp duty value is available.

Cost of Long-term capital assets referred in section 112A:

Cost of long-term capital asset being:

(A) Equity shares of listed company on which STT is paid both at the time of purchase and transfer or

(B) Units of equity-oriented fund or units of business trust on which STT is paid at the time of transfer.

If acquired before 01.02.2018 than cost of acquisition shall be higher of

• cost of acquisition of such asset and
• lower of

1. 1. Fair market value of such asset or
   2. Full value of consideration received or accruing as a result of transfer of capital asset.

Fair market value means:

If listed on stock exchange on 31.01.2018:

Traded on 31.01.2018 – Highest price on that date.

Not traded on 31.01.2018 – Highest price on last traded date.

If units are not listed on stock exchange on 31.01.2018 – Net asset value.

The post Capital Gains Under Income Tax Act – Sections 45 to 55 appeared first on Taxmann Blog.

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Overheads in Cost Accounting refer to the indirect costs incurred in the production of goods or rendering of services that cannot be directly traced to a specific product, job, or process. These costs include indirect materials, indirect labour, and indirect expenses associated with manufacturing, administration, selling, and distribution activities. Overheads are allocated or apportioned to different cost centres and absorbed into the cost of products or services using suitable overhead absorption methods.

Table of Contents

1. Classification
2. Types of Classification
3. Allocation and Apportionment (Primary Distribution of Overheads)
4. Secondary Distribution of Production Overheads
5. Capacity
6. Absorption of Overheads

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1. Classification

Classification is defined by CIMA as, ‘arrangement of items in logical groups having regard to their nature (subjective classification) or the purpose to be fulfilled (objective classification). In other words, classification is the process of arranging items into groups according to their degree of similarity. Accurate classification of all items is actually a prerequisite to any form of cost analysis and control system.

2. Types of Classification

2.1 Elementwise Classification

• Indirect Material
• Indirect Labour
• Indirect Expenses

2.2 Functional Classification

• Factory (or Manufacturing or Production) Overhead
• Office and Administration Overhead
• Selling and Distribution Overhead

2.3 Classification Based on Behaviour

• Fixed Overheads/Period Costs
• Variable Overheads
• Semi – Variable Overheads

3. Allocation and Apportionment (Primary Distribution of Overheads)

Allocation of overhead means charging of overhead to a particular cost centre when such overhead has been incurred directly for that cost centre. If the overhead is directly related to a particular cost centre or department, it is charged to that.

Apportionment of overhead means those overheads which are not directly identifiable with any particular production or cost centre, are distributed over the departments/cost centres on some equitable basis. These are joint costs whose benefits are commonly shared. For example, the benefits of rent or electricity cannot be identified with any particular department. So, these overheads have to be apportioned.

4. Secondary Distribution of Production Overheads

After the primary distribution the next step is to reapportion the service department costs over the production departments. This also needs to be done on some suitable basis, as there may not be a direct linkage between services and production activity.

4.1 Methods of Secondary Distribution

(a) Direct Distribution Method – This method is based on the assumption that one service department does not give service to other service department/s. Thus, between service departments there is no reciprocal service exchange. Hence, under this method, service costs are directly loaded on to the production departments.

(b) Step Distribution Method or Non-reciprocal Method – This method is based on the assumption that one service department gives service to the other but does not receive service from other service department.

In such situation, cost of that service department will be distributed first which render services to maximum number of other service departments. After this, the cost of service department serving the next large number of departments is distributed. This process is continued till all service departments are over, because it is done in steps, it is called as Step Distribution Method.

c. Reciprocal Service Method – This method takes cognizance of the fact that service departments may actually give as well as receive services from and to the other service departments on reciprocal basis.

(i) Repeated Distribution Method – This is a continuous distribution of overhead costs over all departments. The decided ratios are used to distribute the costs of service departments to the production and other service departments. This is continued till the figures of service departments become ‘nil’ or ‘negligible’.

(ii) Simultaneous Equations Method – Under this method, simultaneous equations are formed using the service departments’ share with each other. Solving the two equations will give the total cost of service departments after loading the interdepartmental exchange of services. These costs are then distributed among production departments in the given ratio.

(iii) Trial and Error Method – This method is to be followed when the question of distribution of costs of service cost centres which are interlocked among them arises. In the first stage, gross costs of services of service cost centres are determined. In the second stage cost of service centres are apportioned to production cost centres.

5. Capacity

5.1 Theoretical or Maximum Plant Capacity

Maximum Capacity or the Ideal Capacity is the capacity for which plant is designed to operate. It is only Theoretical Capacity. It does not give allowance for waiting, delays and shut down.

5.2 Practical Capacity

When this capacity is determined, allowance is given for unavoidable interruptions like time lost for repairs, inefficiencies, breakdown, delay in delivery of raw material and supplies, labour shortages and absence, sunday, holidays, vacation, inventory taking etc. Thus, practical capacity is the maximum theoretical capacity with minor unavoidable interruptions.

5.3 Normal Capacity

Idle capacity due to long term sales trend only is reduced from practical capacity to get normal capacity. Calculation of normal capacity of a plant presents considerable problems. Normal capacity is determined for the business as a whole. Then, it is broken down by plants and departments.

5.4 Capacity Based on Sales Expectancy

Capacity may be based on sales expectancy for the year. The distinction between normal capacity and capacity based on sales expectancy should be properly understood. While normal capacity considers the long-term trend analysis of sales, which is based on sales of a cycle of years, the capacity based on sales expectancy is based on sales for the year only.

5.5 Idle Capacity and Excess Capacity

The difference between practical capacity and normal capacity, i.e., the capacity based on long term sales expectancy is the idle capacity. However, if actual capacity happens to be different from capacity based on sales expectancy, the idle capacity will represent difference between practical capacity and actual capacity.

Excess capacity results either from managerial decision to retain larger production capacity or from unbalanced equipment or machinery within departments. Excess capacity refers to that portion of practical capacity which is available, but no attempt is made for its utilisation for strategic or other reasons.

6. Absorption of Overheads

The absorption of overhead enables a Cost Accountant to recover the overhead cost spent on each unit of the product. Overhead absorption is also known as levy or recovery of overheads.

Absorption means ‘recording of overheads in Cost Accounts on an estimated basis with the help of a predetermined overhead rate, which is computed at normal or average or maximum capacity’

6.1 Overhead Absorption Rates

1. Actual Overhead Rate – Actual overhead rate is obtained by dividing the overhead expenses incurred during the accounting period by actual quantum on the base selected.
2. Pre-determined Overhead Rate – Predetermined rate is computed by dividing the budgeted overhead expenses for the accounting period by the budgeted base (quantity, hours etc.)
3. Blanket (Single) Overhead Rate – A single overhead rate for the entire factory may be computed for the entire factory. So, this is known as factory wide or blanket overhead rate method.
4. Multiple Rates – This method is most commonly used to determine the multiple overhead rates i.e., separate rate:

• • For each production department;
  • For each service department;
  • For each cost centre; and
  • For each product line.

6.2 Methods of Overhead Absorption

1. Production Unit Method – The concept here is to average out the total overheads on total units produced.
2. Percentage of Direct Wages – Under this method, overhead for a job is recovered on the basis of a pre-determined percentage of direct wages.
3. Percentage of Direct Material Cost – Here the absorption rate is expressed as a percentage of direct material cost.
4. Percentage of Prime Cost – This method combines the benefits of direct wages and direct material cost methods as we know prime cost means the sum total of direct material cost, direct labour cost and direct expenses.
5. Direct Labour Hour Rate – Under this method, the absorption rate is calculated by dividing the overhead amount by the actual or predetermined direct labour hours. The labour hour rate may be calculated as a single rate or different for different group of workers.
6. Machine Hour Rate – This is the rate calculated by dividing the actual or budgeted overhead cost related to a machine or a group of machines by the appropriate number of machine hours. These hours could be actual hours or budgeted hours.

6.3 Under-absorption and Over-absorption of Overhead

The amount of overhead absorbed in costs is the sum total of the overhead costs allotted to individual cost units by application of the overhead rate.

If the amount absorbed is less than the amount incurred, which may due to actual expenses exceeding the estimate and/or the output or the hours worked being less than the estimate, the difference denotes under absorption.

On the other hand, if the amount absorbed is more than the expenditure incurred, which may be due to the expense being less than estimate and/or the output or hours worked being more than the estimates, this would indicate over-absorption.

6.4 How does one deal with the situation of over or under absorption?

There are three ways to handle over or under absorption:

1. Write off (in case of under-absorption) or write back (in case of over-absorption) to the Profit and Loss Account. This treatment is valid if most of the overhead items are related to time.
2. Carry Forward to the Next Period Through a Reserve Account – this method is not recommended on the logic that it is inconsistent with Accounting Standard.
3. Use of Supplementary Rates – to adjust the effect to the cost of sales, finished stocks and work in progress stocks. This sound logical as it does not carry forward the unabsorbed or over-absorbed overheads to the next accounting period entirely. It aims at splitting the total effect between the cost of sale (which is charged to current year’s profits) and stocks (which is carried forward to the next year).

The post Overheads in Cost Accounting – Classification | Allocation appeared first on Taxmann Blog.

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Notification no. G.S.R 372(E); Dated: 19.05.2026

Click Here To Read The Full Notification

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Case Details: Orchid Pharma Ltd. vs. Deputy Commissioner of Income-tax [2026] 186 taxmann.com 623 (Chennai-Trib.)

Judiciary and Counsel Details

• Aby T. Varkey, Judicial Member & Ms Padmavathy S, Accountant Member
• Shrenik Chordia, C.A. for the Appellant.
• V. Justin, CIT for the Respondent.

Facts of the Case

The assessee was a company and filed the return of income for the relevant assessment year, admitting a total income of Nil. A search and seizure operation under section 132 was carried out in another case. The Assessing Officer (AO) of the searched party sent a satisfaction notice under section 153C to the assessee.

The assessee filed the return in response to the notice.AO referred the matter to the Transfer Pricing Officer (TPO), who proposed a transfer pricing adjustment. AO passed the draft assessment order incorporating the TP adjustment. The assessee preferred further remedy through CIT(A), the AO passed the final assessment order.

The assessee contended before CIT(A) that as per the provisions of Section 238 of the IB Code 2018, which has an overriding effect on all other laws, any demand arising out of any proceedings prior to the order of the NCLT would become Nil. However, CIT(A) proceeded to adjudicate the issues on merits, stating that the adjudication of the appeal before him is not going to result in any enhancement or reduction of demand since only losses claimed are brought forward will be adjusted. Aggrieved by the order, the assessee filed an appeal to the Chennai Tribunal.

ITAT Held

The Tribunal held that the final assessment order was passed by the AO on 18.02.2019, and the NCLT order approving the resolution plan was passed on 27.06.2019. From the perusal of the order of NCLT, it was noticed that all pending claims that were not part of the resolution plan which pertained to the period on or before the Effective Date, i.e., 31.03.2020, shall stand irrevocably and unconditionally settled, discharged and extinguished in perpetuity.

During the hearing, it was submitted that no demand or claim towards income tax dues had been placed before the NCLT, and the same was not part of the approved resolution plan. Therefore, there was merit in the contention that any demand towards the additions sustained by the CIT(A) can be raised against the assessee since the same pertains to the period before the effective date.

The contention raised by the DR that, if the assessee’s contention that the order of the NCLT provided a “clean slate” is accepted, then the unabsorbed losses of the assessee cannot also be carried forward, was rejected by the Tribunal. It was held that the contention that the “clean slate” provided by the NCLT’s order is to be applied to the brought-forward losses of the assessee company is not acceptable. Therefore, the AO’s additions do not survive.

List of Cases Reviewed

• Amns Gandhidham Ltd. v. ACIT [2025] 180 taxmann.com 43 (Bombay) (para 9) followed

List of Cases Referred to

• Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399/293 Taxman 141/454 ITR 212 (SC) (para 6)
• Amns Gandhidham Ltd. v. Asstt. CIT [2025] 180 taxmann.com 43 (Bombay) (para 9).

The post ITAT Allows Carry Forward of Losses Despite NCLT-Approved Resolution Plan appeared first on Taxmann Blog.

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Case Details: Shiva Enterprises vs. State of U.P. [2026] 185 taxmann.com 903 (Allahabad)

Judiciary and Counsel Details

• Saumitra Dayal Singh & Swarupama Chaturvedi, JJ.
• Aditya Pandey for the Petitioner.
• Ankur Agarwal, Learned Standing Counsel for the Respondent.

Facts of the Case

The petitioner, a partnership firm registered under the GST Act, transported walnuts to a purchaser in Delhi through Uttar Pradesh, where the goods and conveyance were intercepted, and detention proceedings under Section 129 of the CGST Act and Uttar Pradesh GST Act were initiated. A notice was issued and a penalty order was passed. It contended that after the 2021 amendment to Section 129, the notice and order were required to be issued within the prescribed seven-day timelines, failing which the proceedings became time-barred. The petitioner further submitted that it held a valid GST registration on the transaction date, claimed bona fide ownership of the goods, and sought quashing of the proceedings or alternatively release of the goods and conveyance upon security. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the seven-day timelines prescribed under Section 129 of the CGST Act and Uttar Pradesh GST Act were directory and procedural in nature, since no statutory consequence had been provided for their breach. The Court observed that Section 129, read with Section 169 of the CGST Act and Uttar Pradesh GST Act, contemplated procedural discipline and not invalidation of proceedings merely due to delay. It was further observed that the notice had been issued within seven days from interception and that the penalty order constituted substantial compliance with the statutory prescription. Accordingly, the release of the goods and conveyance was directed upon furnishing security equivalent to the penalty amount, while reserving liberty to challenge the penalty order through the statutory remedy.

List of Cases Referred to

• Govindlal Chhaganlal Patel v. Agricultural Produce Market Committee (1975) 2 SCC 482 (para 7)
• ASP Traders v. State of Uttar Pradesh [2025] 176 taxmann.com 782/100 GSTL 257 (SC) (para 8)
• Allcargo Logistics Ltd. v. State of Gujarat [2026] 182 taxmann.com 49/113 GST 699/105 GSTL 277 (Gujarat) (para 9)
• Khatu Enterprises v. State of Gujarat [2025] 180 taxmann.com 247/[2026] 104 GSTL 364 (Gujarat) (para 9)
• RSL Overseas LLP v. State of Odisha [2024] 168 taxmann.com 46 (Orissa) (para 10)
• Pawan Carrying Corporation v. State of Bihar [2024] 160 taxmann.com 350/103 GST 17/84 GSTL 14 (Patna) (para 10)
• Ankit Kamboj v. State of U.P. (2024) 84 NTN DX 9 (para 10)
• D.K. Enterprises v. Asstt./Deputy Commissioner (ST) Adjudication, Intelligence-I [2022] 143 taxmann.com 201/[2023] 96 GST 140/70 GSTL 277 (Madras) (para 10)
• P.T. Rajan v. T.P.M. Sahir 2003 (8) SCC 498 (para 11)
• Lakshmanasami Gounder v. CIT [1992] 60 Taxman 140 (SC) (para 11)
• Sharif-Ud-Din v. Abdul Gani Lone AIR 1980 SC 303 (para 11)
• State Of Uttar Pradesh v. Babu Ram Upadhya AIR 1961 SC 751 (para 11)
• State of U.P. v. Babu Ram Upadhya 1960 SCC Online SC 5 (para 21)
• Collector of Monghyr v. Keshav Prasad Goenka 1962 SCC OnLine SC 93 (para 22)
• Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur 1964 SCC Online SC 119 (para 23)
• Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar (2005) 2 SCC 188 (para 24)
• Kailash v. Nankhu (2005) 4 SCC 480 (para 25)
• Dove Investments (P.) Ltd. v. Gujarat Industrial Inv. Corpn. [2006] 71 CLA 112/129 COMP CASE 929/66 SCL 89 (SC) (para 26)
• Ram Deen Maurya (Dr.) v. State of U.P. (2009) 6 SCC 735 (para 27)
• Mahadev Govind Gharge v. LAO (2011) 6 SCC 321 (para 28)
• Sharif-ud-Din v. Abdul Gani Lone (1980) 1 SCC 403 (para 29)
• Topline Shoes Ltd. v. Corporation Bank [2002] 4 COMP. LJ 329/38 SCL 1009 (SC) (para 30)
• SCG Contracts (India) (P) Ltd. v. K.S. Chamankar Infrastructure (P) Ltd. (2019) 12 SCC 210 (para 31)
• Rama Devi v. State of U.P. 2018 SCC OnLine All 7700 (para 32)
• Vikas Trivedi v. State of U.P. (2013) 2 UPLBEC 1193 (para 32)
• Vivek Kumar Sharma v. High Court of Judicature at Allahabad 2023:AHC:159984-DB (para 33)
• Commissioner, Customs and Central Excise v. Sri Ram Piston & Rings 2019 (369) ELT 631 (All.) (para 35).

The post Seven-Day Timeline Under Section 129 Is Directory – Not Mandatory | HC appeared first on Taxmann Blog.

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Notification No. S.O. 2534(E); Dated: 15.05.2026

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Keshav Dwivedi – [2026] 186 taxmann.com 780 (Article)

The jurisprudence surrounding reassessment proceedings against deceased assessees under Sections 147, 148 and 148A of the Income Tax Act, 1961 has consistently evolved around one foundational principle: jurisdiction must validly exist at the inception of proceedings. The Delhi High Court’s decision in Hardeep Singh Being Legal Heir of Late Sardar Swarup Singh v. ITO, order dated 15.10.2025 in W.P.(C) No. 9297 of 2022 emphatically reaffirmed this principle by holding that a notice under Section 148A(b) issued in the name of a deceased assessee is fundamentally void and incapable of being cured by subsequent proceedings.

However, the subsequent decision of the Delhi High Court in Vijender Pal Jain L/H Late Rishi Raman Jain v. ACIT, order dated 08.05.2026 in W.P.(C) No. 12617 of 2022 appears to depart from this settled jurisdictional doctrine and introduces a problematic dilution of foundational principles governing reassessment proceedings. The judgment, with respect, conflates defects in service with defects in jurisdiction, and in doing so, stands in tension with the earlier coordinate bench ruling in Hardeep Singh, notably rendered by one of the very judges who later participated in Vijender Pal Jain.

1. The Foundational Principle in Hardeep Singh

In Hardeep Singh, the factual matrix was straightforward. The assessee had died prior to issuance of notice under Section 148A(b), and the Revenue had already been informed of the death before issuance of such notice. Despite this, the Assessing Officer proceeded to issue the foundational notice in the name of the deceased assessee.

The Revenue attempted to salvage the proceedings by contending that subsequent notices under Section 148A(d) and Section 148 had been issued in the name of the deceased assessee “through legal heir,” and therefore the defect stood cured.

The High Court categorically rejected this contention and held:

“when the initial notice itself was erroneous/defective, the proceedings pursuant thereto cannot be said to be valid.”

The Court therefore treated the notice under Section 148A(b) as the foundational jurisdictional notice whose invalidity vitiated the entire reassessment proceeding. This approach was entirely consistent with settled law that reassessment jurisdiction is created only upon valid issuance of notice and that a notice issued to a dead person is nullity in law.

Most importantly, Hardeep Singh refused to permit curative participation by the legal heir to validate inherently void proceedings. Even though the legal heir had replied to the notice, the Court did not treat such participation as waiver, acquiescence, or estoppel against challenging jurisdiction. The decision correctly recognized that participation cannot confer jurisdiction where none exists.

2. The Departure in Vijender Pal Jain

The subsequent judgment in Vijender Pal Jain marks a noticeable shift away from the strict jurisdictional approach adopted in Hardeep Singh. In that case too, the Revenue was admittedly aware of the death of the assessee much prior to issuance of reassessment notice. Yet reassessment proceedings were initiated in the name and PAN of the deceased assessee.

The Court nevertheless upheld the validity of the notice on the reasoning that:

1. The notice mentioned the deceased assessee “through legal heir”;
2. The father of the deceased had responded as legal representative; and
3. By participating in proceedings, he had effectively accepted representative capacity.

With respect, this reasoning fundamentally mischaracterises the nature of the defect involved.

The issue was never one of improper service of notice. The issue was whether jurisdiction itself had validly vested in the Assessing Officer upon issuance of notice under Section 148A(b). Once the notice continued to be issued in the name and PAN of the deceased assessee, the defect went to the very root of jurisdiction and could not be cured through participation or estoppel.

The Court in Vijender Pal Jain erroneously shifted the inquiry from “valid assumption of jurisdiction” to “effective service of notice.” This analytical shift diluted the distinction between:

• curable procedural irregularities; and
• incurable jurisdictional defects.

3. Jurisdiction Cannot Arise by Estoppel

Perhaps the most problematic aspect of Vijender Pal Jain is its reliance upon the conduct of the legal representative to sustain reassessment proceedings. The Court observed that since the father of the deceased assessee had responded as “legal representative,” he could not subsequently challenge the validity of notice.

This reasoning runs contrary to settled principles of public law and tax jurisprudence. It is trite law that:

• there can be no estoppel against statute;
• consent cannot confer jurisdiction; and
• participation cannot cure absence of jurisdiction.

Jurisdictional defects strike at the authority of the officer to initiate proceedings and cannot be validated by acquiescence. If a notice is fundamentally void, subsequent participation does not breathe life into it.

Indeed, the Supreme Court in numerous contexts has repeatedly held that defects going to the root of jurisdiction cannot be waived by parties. The approach adopted in Vijender Pal Jain therefore risks unsettling long-established principles governing assumption of jurisdiction under taxing statutes.

Click Here To Read The Full Article

The post [Opinion] Section 148A Notices to Deceased Assessees | Delhi HC Jurisdictional Conflict appeared first on Taxmann Blog.

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Circular HO/24/11/24(62)2026-IMD-RAC4/I/11872/2026; Dated: 19.05.2026

The Securities and Exchange Board of India (SEBI) has revised the format of the Monthly Cumulative Report (MCR) applicable to Mutual Funds following the introduction of new mutual fund scheme categories under the categorisation and rationalisation framework.

The revised reporting format shall be applicable with effect from June 2026.

1. Revision Following Introduction of New Scheme Categories

SEBI has updated the MCR reporting framework to align reporting requirements with newly introduced mutual fund scheme categories under the categorisation and rationalisation framework.

The revision is intended to ensure consistency in regulatory reporting and improve classification-based reporting of mutual fund schemes.

2. Updated MCR Format Issued

SEBI has issued the revised Monthly Cumulative Report (MCR) format through:

• Annexure A – Updated MCR format for Mutual Funds; and
• Annexure B – Separate MCR format for SIF

The revised formats are intended to standardise reporting in line with the updated mutual fund categorisation framework.

3. Separate Reporting Format for SIF

A distinct Monthly Cumulative Report format has been prescribed for SIF, recognising the reporting requirements arising from the revised scheme structure.

This separate reporting mechanism aims to improve regulatory oversight and reporting consistency for the relevant fund category.

4. Effective Date of Implementation

The revised reporting formats shall be effective from June 2026.

Accordingly, Mutual Funds will be required to furnish Monthly Cumulative Reports in the revised format from the applicable reporting period onwards.

5. Other Reporting Requirements Remain Unchanged

SEBI has clarified that all other reporting requirements prescribed under the SEBI Master Circular dated March 20, 2026 shall continue to remain unchanged.

Only the MCR reporting format stands revised, while existing compliance and reporting obligations will continue to apply.

6. Objective of the Revision

The revision aims to align Mutual Fund reporting requirements with the updated categorisation and rationalisation framework, improve consistency in regulatory disclosures and facilitate more structured monitoring of mutual fund schemes by SEBI.

Click Here To Read The Full Circular

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Notification No. S.O. 2486(E); Dated: 12.05.2026

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