SimplifiTax - Tax, Accounting & Financial Advisory

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from June 16^thto 21^st, 2025, namely:

Maintenance charges from the tenant taxed as business income if a separate agreement exists: ITAT;
SEBI proposes guidelines for responsible usage of Artificial Intelligence (AI)/Machine Learning (ML) tools in Indian Securities Market;
Delhi GST Dept. issues guidelines for mandatory conduct of virtual personal hearings: Circular;
No exemption from Rule 86B if no partner has paid more than Rs. 1 lakh tax individually: AAR;
GSTN to launch E-Way Bill 2.0 Portal from 1st July 2025 that features enhanced E-Way Bill functionalities; and
Accounting treatment of upward and downward revaluation of PPE under the Ind AS framework.

1. Maintenance charges from the tenant taxed as business income if a separate agreement exists: ITAT

The assessee owned a property that was let out to a tenant under a lease agreement. The assessee received rent and maintenance charges from the tenant. The assessee treated income from maintenance charges as ‘income from business’. During the assessment proceedings, the Assessing Officer (AO) held that income from maintenance charges received had a direct nexus with the property and derived from the property only.

Thus, maintenance charges are to be taxed under the heading ‘income from house property’. Aggrieved assessee filed the instant appeal before the CIT(A), wherein the CIT(A) upheld the order of the AO.

The matter then reached the Bangalore Tribunal.

The Tribunal held that in a single lease deed, the assessee had entered into two separate agreements, one for renting the premises on lease and another for providing maintenance services. The list of services related to the maintenance charges is such that the assessee could have provided merely as a facility management services provider, even if it were not the owner of the relevant immovable property.

Further, if the assessee had not agreed to provide the maintenance services, then that could be provided by some other third party separately as an independent business. According to section 2(13), the term ‘business’ includes any trade, commerce, manufacture, adventure, or concern in the nature of trade, commerce, or manufacture. The adventure or activities that may amount to business need not necessarily be by trade, commerce, or manufacture. They may even consist of rendering services, such as selling and managing agents, which may be multicoloured.

Therefore, the substance over the form principle is to be given importance. If the owner of a property carries on upon the property some activities which result in profits & gains arising, not from the ownership but from the use thereof, such profits & gains would be chargeable to tax as business income and not income under the head ‘income from house property’.

Undisputedly, the maintenance charges are being received by the assessee in return for providing specific services like external house-keeping, round-the-clock security, upkeepment of lifts, UPS, electrical fittings, borewell, pump sets, CCTV, Firefighting systems, Digisets, Split ACs, etc., as mentioned in the lease deed.

It is not disputed by the revenue that these services by way of maintenance have not been rendered by the assessee. In the instant case, it is evident that the services are distinct from letting out the property. Therefore, the assessee is justified in asserting that the same be taxed as business income.

Read the Ruling

2. SEBI proposes guidelines for responsible usage of Artificial Intelligence (AI)/Machine Learning (ML) tools in Indian Securities Market

Artificial Intelligence (AI)/Machine Learning (ML) tools are rapidly transforming the functioning of financial markets by enabling faster decision-making, improved efficiency and advanced risk detection. Recognising their growing adoption in critical areas such as algorithmic trading, asset and portfolio management, and advisory services, and to ensure the safe and transparent use of emerging technologies in financial markets, the SEBI, on June 20, 2025, released a consultation paper proposing guidelines for responsible usage of AI/ML tools in Indian securities market. The proposed guidelines focus on key principles including fairness, transparency, accountability, safety, and reliability.

2.1 Background and Rationale

The usage of AI and ML-based applications/models has significantly increased in the financial markets because of better availability of data and computational power, coupled with significant improvements in software and hardware. These technologies are widely used by stock exchanges, brokers, mutual funds, and other market participants for risk management, surveillance, compliance, and cybersecurity. While they enhance efficiency and outcomes, they pose challenges such as bias, lack of transparency and security risks. To ensure their safe and responsible use, SEBI constituted a dedicated working group to study global and domestic best practices, engage with stakeholders, and draft guiding principles for stronger governance and risk control in using AI/ML in the securities market.

2.2 What is Artificial Intelligence (AI) and Machine Learning (ML)?

Artificial Intelligence (AI), a term first coined by data scientist John McCarthy, refers to the science and engineering of creating intelligent machines. It involves studying methods that enable computers to mimic human intelligence to solve problems.

Machine Learning (ML) is a subset and application of AI that focuses on developing computer programs designed to automatically learn the rules to perform a specified task by examining data with many relevant examples. A machine learning system is trained rather than explicitly programmed.

2.3 Current Usage of AI/ML in Indian Securities Markets

AI and ML tools are increasingly being integrated across various segments of the Indian securities market. Stock exchanges are adopting these technologies for surveillance, advanced cybersecurity, pattern recognition, and social media analytics, as well as automating compliance-related data processing.

Brokers use AI/ML primarily for KYC and document verification, digital account opening, surveillance, anti-money laundering (AML) measures, and order execution. Mutual funds are utilizing AI/ML tools for customer support services such as chatbots, cybersecurity, customer segmentation and surveillance.

2.4 Proposed Recommendations of Working Group for responsible usage of AI/ML

The Working Group recommended implementing strong safeguards, continuous monitoring, and human oversight throughout the AI/ML development and deployment to ensure responsible use in the securities markets. The report of working group was placed before SEBI’s Committee on Financial and Regulatory Technologies (CFRT). The guidelines focus on these core principles for responsible usage of AI/ML, which are as follows –

Model Governance:
Under the principle of Model Governance, market participants using AI/ML models must establish an internal team comprising professionals with adequate expertise to oversee model performance, controls, and security of algorithms deployed throughout their lifecycle. The team must implement risk controls measures and establish procedures for error handling. AI/ML systems must be independently audited to ensure transparency and fairness. Market participants must ensure that AI/ML applications follow ethical guidelines and responsible practices and must have the ability to switch between manual and automated feedback mechanisms as needed.

Investor protection disclosure:
In accordance with principle of investor protection disclosure, market participants using AI/ML models for business operations that may directly impact their customers must disclose such usage to respective customers/clients. This is essential to promote trust, encourage transparency, and ensure accountability.

Testing Framework:
As per the principle of establishing a Testing Framework, market participants must adequately test and monitor AI/ML models to continuously validate their accuracy and performance. Testing must be conducted separately to verify model behaviour under normal and stressed market conditions. Proper documentation must be maintained, clearly explaining the logic and functioning of AI/ML models.

Fairness and Bias:
The principle of fairness and bias mandates that AI/ML models must operate in an impartial and non-discriminatory manner. They must not favour any particular group of clients/customers over others. Market participants must ensure an adequate level of data quality, and it must be sufficiently broad. Further, appropriate processes and controls must be implemented to identify and remove biases from data sets. Also, a specific training course may be conducted to raise awareness amongst data scientists regarding potential data biases.

Data Privacy and Cyber Security:
In line with the principle of Data Privacy and Cyber Security, market participants must establish a clear policy addressing data security, cybersecurity and data privacy for the usage of AI/ML-based models. Further, the collection, usage, processing of investors’ personal data, as well as security measures must comply with applicable laws. Also, information about technical glitches and data breaches must be promptly communicated to SEBI and other relevant authorities.

2.5 Conclusion

In conclusion, SEBI’s proposed guidelines for using AI/ML tools in the securities market present a structured approach to ensure transparency, accountability, fairness, and safety in their adoption. By requiring market participants to establish expert oversight teams, implement strong governance, conduct separate testing under normal and stressed conditions, and follow ethical and responsible practices, the framework addresses key risks such as bias, system failures, and data breaches. Also, clear investor disclosures, prevention of unfair discrimination, and adherence to data privacy and cybersecurity laws further strengthen trust and regulatory compliance.

Read the News

3. Delhi GST Dept. issues guidelines for mandatory conduct of virtual personal hearings: Circular

The Delhi Government has issued a circular mandating that all personal hearings under the Delhi Goods and Services Tax Act be conducted through virtual mode. This circular affirms the legal validity of such hearings under the DGST Act and the Information Technology Act, aiming to enhance transparency, procedural efficiency, and faceless tax administration. This was laid down in Circular No. F.3(640)/GST/P&R/2025/348-55, dated 13-06-2025.

About the Update

The Delhi Government has issued a circular mandating that all personal hearings under the Delhi Goods and Services Tax Act (DGST Act) be conducted through virtual mode. Hearings will be held via platforms like WEBEX or Google Meet, with prior communication sent to the taxpayer’s registered email and/or mobile number. Taxpayers or their authorized representatives must submit a vakalatnama or authorization letter, photo ID, and contact details in advance. This initiative is aimed at enhancing transparency, improving efficiency, and promoting a faceless and technology-driven tax administration.

The circular lays down comprehensive guidelines covering aspects such as scheduling of hearings, required documentation, dress code, conduct during virtual proceedings, and the submission of additional documents. Hearings will be conducted by the concerned authority from their office premises, while taxpayers may join remotely. These virtual hearings will have full legal validity under the GST framework and the Information Technology Act. In-person hearings will only be allowed in exceptional cases, subject to approval by the Zonal In-charge.

Read the Circular

4. GSTN to launch E-Way Bill 2.0 Portal from 1st July 2025 that features enhanced E-Way Bill functionalities

The Goods and Services Tax Network (GSTN) has announced the launch of the E-Way Bill 2.0 portal, effective 1st July 2025, to enhance and ensure uninterrupted e-way bill operations. The new system, developed by NIC, introduces real-time synchronisation, mirrored dual-platform functionality, and expanded API-enabled services to strengthen business continuity and cross-platform operability. This was laid down in GSTN Advisory, Dated 16-06-2025.

About the Update

The GSTN has announced the launch of the new E-Way Bill 2.0 portal (https://ewaybill2.gst.gov.in), developed by the National Informatics Centre (NIC), which will go live on 01-07-2025. This new portal addresses taxpayers’ demands for uninterrupted service during exigencies and enables real-time synchronisation with the existing E-Way Bill 1.0 portal. It introduces additional inter-operable services such as consolidated E-Way Bill generation, transporter detail updates, Part-A-based E-Way Bill creation, validity extension, and more, all accessible across both platforms.

Both portals will operate in a mirrored, dual-system model to ensure business continuity even during technical downtimes. All functionalities — including the new services — will also be available via APIs for seamless integration by taxpayers and logistics operators. This rollout ensures full cross-platform operability, allowing users to generate or update E-Way Bills on either portal.

Read the News

5. No exemption from Rule 86B if no partner has paid more than Rs. 1 lakh tax individually: AAR

The Authority for Advance Rulings, Rajasthan, held that exemption under Rule 86B of the CGST Rules is not available where no partner has individually paid income tax exceeding ₹1 lakh in each of the preceding two financial years. The AAR clarified that the proviso to Rule 86B mandates individual compliance by the registered person or a specified partner, and does not permit aggregation of income tax paid by multiple partners to satisfy the threshold condition. This was held in Aadinath Agro Industries, In re. – [2025] 175 taxmann.com 14 (AAR – RAJASTHAN).

Facts

The applicant, a partnership firm registered under GST, recorded a monthly taxable turnover exceeding Rs. 50 lakh during the financial year 2024–25, thereby attracting the restriction under Rule 86B of the CGST Rules, 2017 and the Rajasthan GST Act. As per Rule 86B, a registered person having taxable turnover above Rs. 50 lakh in a month is restricted from using more than 99 percent of the available balance in the Electronic Credit Ledger for discharging output tax liability, and must mandatorily pay at least 1 percent in cash. The applicant sought exemption from this restriction by invoking the first proviso to Rule 86B which provides that the restriction shall not apply where the registered person or a partner has paid income tax exceeding Rs. 1 lakh in each of the preceding two financial years. It was submitted that although neither the firm nor any individual partner had paid over Rs. 1 lakh in income tax individually, the cumulative income tax paid by the firm and its partners exceeded the threshold. The matter was accordingly placed before the AAR Rajasthan.

Held

The AAR Rajasthan, held that the exemption under Rule 86B was not available to the applicant. It was observed that Rule 86B requires that either the registered person or a specified individual such as a partner must have individually paid more than Rs. 1 lakh in income tax in each of the last two financial years, and that there is no provision permitting aggregation of the income tax paid by multiple persons to meet this threshold. As neither the applicant firm nor any of its individual partners satisfied this criterion, the restriction remained applicable, and the applicant could utilize only 99 percent of the credit balance for payment of tax.

Read the Ruling

6. Accounting treatment of upward and downward revaluation of PPE under the Ind AS framework

Accounting for Property, Plant, and Equipment (PPE) is a vital aspect of financial reporting, as it ensures that an enterprise’s financial statements reflect a true and fair view of its assets and financial position. Under Indian Accounting Standards (Ind AS), Ind AS 16, Property, Plant and Equipment, governs how such assets are recognised and measured.

Ind AS 16 permits entities to adopt either of two accounting models for PPE i.e., the Cost Model, under which assets are recorded at their historical cost less accumulated depreciation and impairment losses, or the Revaluation Model, where assets are measured at fair value, provided that such fair value can be determined reliably.

When an entity opts for the revaluation model, it enhances the relevance of its financial information by presenting assets closer to their current market value. However, to maintain reliability, Ind AS 16 requires that revaluations be performed regularly, so that the carrying amount of assets does not materially differ from their fair value at the end of each reporting period. Also, the chosen model must be applied consistently to an entire class of assets, such as all buildings or all land holdings, ensuring comparability and consistency across financial statements.

An important aspect of the revaluation model is the accounting treatment of changes in asset value, whether upward or downward, particularly when these occur across different financial years. If the fair value of an asset increases, Ind AS 16 requires the gain to be recognised in Other Comprehensive Income (OCI) and accumulated in equity under the heading of revaluation surplus. On the other hand, if the asset’s value decreases, the reduction is generally recognised in the profit and loss account. However, if a revaluation surplus exists for the same asset, the decrease is first adjusted against that surplus, and only the excess, if any, is charged to the profit and loss account.

For example, a company revalued a piece of land upward by ₹30,00,000 in FY 2023–24 and then recorded a downward revaluation of ₹40,00,000 in FY 2024–25. As per Ind AS 16, the ₹30,00,000 increase is recorded in Other Comprehensive Income (OCI) and added to the revaluation surplus. When the land’s value decreases the following year, the first ₹30,00,000 is adjusted against this surplus. The remaining ₹10,00,000 is recognised as a loss in the profit and loss account. This approach ensures that earlier gains are utilised before any loss is charged to profit and loss, aligning with the principle of fair presentation.

Thus, adherence to the provisions of Ind AS 16 regarding the revaluation of PPE fosters transparency, enhances comparability, and upholds the reliability of financial statements. It also protects stakeholder interests by ensuring that unrealised gains are not prematurely recognised as profits, while losses are accounted for with due prudence. These accounting practices are essential not just for regulatory compliance but also for sustaining investor confidence and informed business decision-making.