Archives December 2025

The Supreme Court’s decision in CIT v. B.C. Srinivasa Setty [1981 AIR 972] addressed a common issue in capital gains law: whether goodwill created by a business from its own efforts can attract capital gains tax when it is transferred. The Court answered in the opposite where the goodwill is self-generated and there is no ascertainable cost of acquisition. The ruling remains a foundational authority on how the capital gains charge operates when intangible assets arise without an identifiable purchase price.

The Facts and the Dispute

B.C. Srinivasa Setty carried on an agarbatti manufacturing business that began in the mid-1950s. The partnership deed did not fix any value for goodwill and specifically deferred valuation until dissolution. On dissolution in 1965, goodwill was valued at Rs 1.5 lakh and transferred to a successor concern carrying on the business. The income-tax authorities sought to treat this receipt as capital gains in the assessment year following dissolution. The case moved through the tax tribunal and the High Court before reaching the Supreme Court.

The Core Legal Issues

Three central issues arose. First, is self-generated goodwill a “capital asset” within the statutory definition? Second, if it is a capital asset, can Section 45 operate so as to tax the full value of its transfer where there is no cost of acquisition? Third, can other provisions in the code supply a notional or deemed cost so as to permit a meaningful computation of capital gain?

Supreme Court’s Reasoning

The Court accepted that goodwill is, in general, an intangible capital asset. However, the crucial point was statutory mechanics. Section 45 charges income arising from the transfer of a capital asset, but the actual taxable gain must be computed under the scheme of Sections 45 through 55. That computation requires the value of acquisition and allowable deductions so that tax falls only on “gain” and not on capital itself.

In the case of self-generated goodwill, there is no acquisition cost recorded in the books, no purchase transaction to fix a cost, and no reliable basis for imputing a historic cost. The Court held that treating the entire receipt as taxable gain would amount to taxing capital itself and would circumvent the integrated computation mandated by the statute. Consequently, a transfer of self-generated goodwill cannot be made subject to capital gains tax where the statutory code offers no workable mode of computation.

Key Takeaways

The ruling establishes an important practical rule: a charge under the capital gains provisions cannot be invoked unless the statutory machinery permits a genuine computation of gain. Self-generated intangibles that lack an ascertainable acquisition cost therefore fall outside the charge in ordinary circumstances. This protects taxpayers from a demand that treats gross proceeds as profit rather than as return of capital.

Subsequent Developments and Practical Impact

While Setty’s principle remains a touchstone, law and practice have evolved. Over time, Parliament and tax authorities have introduced specific valuation or deeming rules for particular classes of intangibles in limited contexts, and anti-avoidance measures have grown stronger. General anti-avoidance rules and detailed valuation standards now affect how transfers of intangible value are examined. Tax practitioners therefore plan transfers and document cost bases carefully, and courts examine substance and statutory text closely.

Conclusion

CIT v. B.C. Srinivasa Setty clarified that mere valuation of self-generated goodwill on dissolution does not automatically create a taxable capital gain in the absence of statutory means to determine acquisition cost. The decision enshrined a simple but powerful rule: the charge to capital gains requires a workable calculation. While later legislative and administrative developments have adjusted how some intangibles are treated or valued, Setty’s basic doctrine, that tax law cannot be used to convert capital into taxable income without statute-based calculation remains a fundamental principle in Indian tax jurisprudence.

In Law, Cost of acquisition of Self-generated goodwill is mentioned as NIL to avoid any more conflict.

Charitable and religious trusts must register under Section 12AB of the Income Tax Act in order to be eligible for income tax exemptions. Registrations were first granted with a limited validity, typically five years, when this option was first implemented.

In order to continue receiving tax benefits, many trusts must renew their registration before their current period comes to a completion. One significant change brought about by the Finance Act 2025 is that qualifying entities can now receive 10-year validity rather than 5-year.

Also read here

Section 12AB Registration – Meaning, Importance, and Latest Changes (2025 Update)

Eligibility and Documents Required for Section 12AB Renewal in 2025

Why Renewal is Mandatory

Prior to the expiration date, each trust or institution that has acquired Section 12AB registration must submit an application for renewal. This is a must. The trust will lose its tax exemption benefits under Sections 11 and 12 if the renewal is not completed within the allotted period.

According to the law, the application for renewal must be submitted at least six months before the expiration date. The renewal must be submitted by September 30, 2025, for registrations that expire on March 31, 2026.

Eligibility for 10-Year Validity

In substitution of the previous 5-year cycle, the Finance Act 2025 added a provision that permits some trusts to be renewed for ten years. To be eligible,

• The total revenue of the trust, as determined without the use of Sections 11 and 12, cannot be more than ₹5 crore in each of the two years before the application year.
• Not gross receipts, but total income is subject to this cap.

For instance, you can renew your trust for a 10-year period if its total revenue (before exemptions) was ₹4.5 crore in FY 2023–2024 and FY 2024–2025.

Step-by-Step Process for Renewal

Form 10AB must be filed on the Income Tax e-filing portal as part of the entirely online renewal process. The steps are as follows:

Step 1: Log in to the Portal

Go to the Income Tax e-filing portal and log in using the trust’s credentials.

Step 2: Select Form 10AB

Navigate to ‘e-File’ > ‘Income Tax Forms’ > ‘File Income Tax Forms’ and choose Form 10AB under the relevant section.

Step 3: Choose Correct Category

In the form, select the correct sub-clause under Section 12A(1)(ac) for renewal (usually sub-clause (ii) for standard renewal).

Step 4: Attach Documents

Upload the following documents:

• Audited financial statements for the last two financial years
• Computation of income showing compliance with the ₹5 crore limit
• Trust deed and registration certificate
• Activity report and compliance certificates

Step 5: Submit and Verify

Submit the form online and verify it using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

Timelines and Processing

The application will be processed by the Commissioner of Income Tax (Exemptions) or the Principal Commissioner after it is submitted. The order must be issued within six months of the end of the quarter in which the application is filed, according to the statute. The registration will be renewed upon verification of authentic activity and completion of all necessary documentation.

Consequences of Non-Renewal

Sections 11 and 12 exemptions will be lost if the registration is not renewed by the deadline. A significant tax burden could arise from the trust’s revenue becoming taxable. Penalties for non-compliance are another possibility.

Tips for Preventing Penalties

• Apply as soon as possible: don’t hold off until the last minute. Apply seven to eight months prior to expiration.
• Verify that the documents are complete: Missing paperwork may cause permission to be delayed.
• Monitor the status of your application: Check the portal frequently for updates.

Conclusion

In order to continue receiving tax benefits, charity and religious organisations are required by law to renew their Section 12AB registration. If qualifying trusts meet the ₹5 crore income criterion, they can achieve long-term compliance with the new 10-year validity requirement. The secret to avoiding fines and preserving exemption benefits is the timely filing of Form 10AB with correct documentation.

Charitable trusts and non-profit institutions in India enjoy income tax exemptions under the Income Tax Act, provided they are registered under Section 12AB. These registrations were initially granted for a limited period, mostly up to March 31, 2026, which means renewal is now mandatory to continue availing benefits. The Finance Act, 2025 has introduced a 10-year validity for eligible trusts, replacing the earlier 5-year cycle.

Also read here

Section 12AB Registration – Meaning, Importance, and Latest Changes (2025 Update)

Who Needs to Renew Section 12AB Registration?

Every trust or institution registered under Section 12AB must apply for renewal at least six months before the expiry date of the current registration. For registrations expiring on March 31, 2026, the last date to apply is September 30, 2025.

Renewal is not optional; it is a legal requirement under Section 12A(1)(ac)(ii). Failure to renew may lead to cancellation of the registration and loss of tax benefits under Sections 11 and 12.

Eligibility for Renewal with 10-Year Validity

The Finance Act, 2025 has brought a major change in validity. If a trust meets certain conditions, the renewed registration will be valid for 10 years instead of 5. The key eligibility requirement is:

Income Threshold Test:

The trust’s total income, calculated without claiming exemptions under Sections 11 and 12, should not exceed ₹5 crore in each of the two previous years before the year of application.

This means, when applying for renewal in 2025, the income for FY 2023-24 and FY 2024-25 will be checked. If the income exceeds ₹5 crore in any of these two years, the trust will get a 5-year validity instead of 10.

Points to Remember:

• Total income is not the same as gross receipts.
• It must be computed as per the Income Tax Act, excluding the benefits under Sections 11 and 12.

Who Cannot Get 10-Year Validity?

• Trusts with income above ₹5 crore in either of the two preceding years.
• Provisional registrations under sub-clause (vi) of Section 12A(1)(ac) (they still get 3-year validity).
• Such trusts can apply again after the provisional period ends, but they will not automatically qualify for the 10-year period.

Documents Required for Section 12AB Renewal

To apply for renewal, trusts must submit an application in Form 10AB through the Income Tax portal. Along with the form, the following documents are generally required:

1. Trust Deed or Registration Certificate – A copy of the original trust deed or instrument of establishment.
2. Audited Financial Statements – For the two years immediately preceding the year of application (e.g., FY 2023-24 and FY 2024-25).
3. Income Computation – Showing total income without exemptions under Sections 11 and 12, proving the ₹5 crore threshold compliance.
4. PAN of the Trust/Institution – Mandatory for filing.
5. Details of Trustees/Office Bearers – Names, PAN, and addresses of all key persons.
6. Activity Report – A brief report of activities carried out during the preceding years.
7. Registration under Other Laws – Copies of registrations under laws like the Societies Registration Act or Companies Act (if applicable).
8. Compliance Certificates – Declarations confirming adherence to conditions under Section 12AB.

Practical Tips for Smooth Renewal

• Apply early: Do not wait for the last date. File at least six months before expiry.
• Keep accounts updated: Ensure audits for FY 2023-24 and FY 2024-25 are completed well before filing.
• Attach all required proofs: Missing documents can delay or reject the application.
• Check income calculations carefully: The ₹5 crore limit applies to total income, not receipts.

Conclusion

Renewal of Section 12AB registration is mandatory for all trusts and institutions to retain their tax exemptions. For those meeting the income threshold of ₹5 crore or less in each of the two preceding years, the Finance Act, 2025 offers a 10-year validity, providing long-term stability. Timely application through Form 10AB, supported by complete and accurate documentation, is crucial to avoid penalties and ensure uninterrupted benefits.

Section 12AB of the Income Tax Act plays a crucial role for charitable trusts and non-profit organisations in India. It ensures that such entities continue to enjoy income tax exemption on their income, provided they meet the prescribed conditions. With the introduction of the Finance Act, 2025, significant updates have been made to the registration framework, making it important for organisations to understand the meaning, importance, and latest changes under Section 12AB.

What is Section 12AB Registration?

Section 12AB registration is a legal requirement for charitable and religious trusts, NGOs, and similar institutions to claim tax exemption on income applied for charitable purposes under Sections 11 and 12 of the Income Tax Act. Without this registration, organisations will not be eligible for these benefits.

Earlier, registrations were granted under Section 12A or 12AA. However, the government introduced Section 12AB to streamline the process and increase transparency. Initially, the registration granted was valid for five years. But the Finance Act 2025 has introduced a new framework offering an extended validity period under certain conditions.

Why is Section 12AB Registration Important?

The importance of Section 12AB registration cannot be overstated for charitable entities. Here are a few reasons why:

1. Tax Exemption on Income: A valid registration under Section 12AB ensures that income applied for charitable or religious purposes is exempt from income tax, subject to compliance with the Act.
2. Eligibility for Donations under Section 80G: Many donors prefer contributing to institutions that are registered, as their donations qualify for tax deductions under Section 80G.
3. Legal Recognition and Credibility: Registration provides legal recognition to the trust or NGO, enhancing its credibility in the eyes of donors, government bodies, and stakeholders.
4. Compliance with Law: It is mandatory for all trusts and institutions to hold valid registration to continue availing benefits. Failure to renew or maintain registration may lead to denial of exemptions and penalties.

Latest Changes Introduced by the Finance Act, 2025

The Finance Act, 2025, has brought a major change in the validity period of registration. Here are the key updates:

1. 10-Year Validity for Eligible Entities

Earlier, registrations were valid for five years. Now, trusts and institutions meeting specific conditions can obtain registration for 10 years. This is a significant relief for organisations, as it reduces the frequency of renewals.

2. Conditions for 10-Year Validity

To qualify for the extended 10-year validity:

• The total income of the trust or institution, computed without giving effect to Sections 11 and 12, should not exceed ₹5 crore in each of the two financial years immediately preceding the application year.
• This calculation excludes exemptions under Sections 11 and 12, meaning organisations must calculate income before applying these benefits.

3. Application Timeline

Trusts with registration expiring on 31 March 2026 must apply for renewal by 30 September 2025. Applications should be filed through Form 10AB on the income tax portal.

Procedure and Compliance

The renewal process requires:

• Filing of Form 10AB under the appropriate sub-clause.
• Submission of supporting documents, including audited financial statements for the last two years, trust deed, activity reports, and income computation to prove eligibility.
• Processing by the Principal Commissioner or Commissioner of Income Tax (Exemptions).
• If the application meets all conditions, the registration order will be issued in Form 10AD with a 10-year validity.

Conclusion

Section 12AB registration remains an essential compliance requirement for charitable and religious institutions in India. The introduction of the 10-year validity framework under the Finance Act, 2025, is a welcome move, reducing administrative burden for genuine organisations. However, eligibility depends on meeting the ₹5 crore income threshold and ensuring timely application before the deadline. Charitable entities should maintain proper documentation and track compliance timelines to secure long-term benefits under this updated regime.

Tax planning often involves transferring assets or income to family members. While this may seem like a legitimate way to reduce tax liability, the Income Tax Act has provisions to prevent misuse. One such provision is the concept of “clubbing of income” under Section 64. This rule ensures that income transferred to certain relatives without adequate consideration is still taxed in the hands of the original owner.

What Is Clubbing of Income?

Incorporating someone else’s income—usually that of a close relative—into your own taxable income is known as “clubbing of income”. This is done in order to stop tax evasion through false transfers. Section 64 of the Income Tax Act explains various relationships and instances when clubbing restrictions apply.

It’s crucial to remember that not all family income is combined. The legislation specifies specific circumstances in which income must be included in the taxpayer’s overall income.

Key Scenarios Where Clubbing Applies

1. Transfer of Income Without Transferring the Asset (Section 60): If you transfer the income from an asset but retain ownership of the asset itself, the income remains taxable in your hands. For example, if you own a property and assign the rental income to someone else, you are still liable to pay tax on that income.
2. Revocable Transfers (Section 61): When an asset is transferred with a clause allowing the transferor to revoke it, any income from that asset is clubbed with the transferor’s income.
3. Income of Minor Children (Section 64(1A)): Income earned by a minor child is clubbed with the income of the parent who earns more. However, there are exceptions:
4. Income from manual work or application of skill by the child is not clubbed.
5. The income of a disabled child (as defined under Section 80U) is excluded.
6. An exemption of ₹1,500 per child is allowed under the old tax regime.
7. Spouse’s Income from a Concern with Substantial Interest (Section 64(1)(ii)): If your spouse earns income from a business or entity where you hold substantial interest (20% or more voting rights or profit share), that income may be clubbed with yours—unless your spouse has professional qualifications and the income is solely due to their expertise.
8. Transfer of Assets to Spouse (Section 64(1)(iv)): If you transfer an asset to your spouse without adequate consideration, the income from that asset is taxable in your hands. Exceptions include transfers before marriage, divorce settlements, and income from assets acquired through “pin money”.
9. Transfer to Daughter-in-Law (Section 64(1)(vi)): Assets transferred to a daughter-in-law without adequate consideration will result in clubbing of income in the hands of the transferor.
10. Indirect Transfers for Benefit of Spouse or Daughter-in-Law (Sections 64(1)(vii) and 64(1)(viii)): Even if the asset is transferred to someone else, but the benefit is intended for your spouse or daughter-in-law, the income will be clubbed with your income.
11. Transfer to Hindu Undivided Family (Section 64(2)): If a member of an HUF transfers personal property to the HUF without adequate consideration, income from that property is clubbed with the member’s income.

Examples to Illustrate Clubbing

Consider Mr A, who gifts ₹6 lakh to his wife. She invests it in a fixed deposit and earns ₹5,000 interest annually. Since the asset was transferred without consideration, the interest income is clubbed with Mr A’s income.

In another case, Mr B owns 21% shares in a company where his wife is employed. If she lacks the qualifications for her role, her salary may be clubbed with Mr B’s income.

How to Avoid Clubbing Provisions

While the law is strict, there are legitimate ways to plan your finances without triggering clubbing:

• Gifting to Parents: Gifts to parents are not taxable, and income earned from such gifts is taxed in their hands.
• Marriage Gifts: Gifts received during marriage are exempt, and income from those gifts is not clubbed.
• Investing in PPF: Interest from PPF is tax-exempt. Even if invested in the name of a spouse or minor child, clubbing provisions do not apply.

Conclusion

The purpose of income clubbing is to guarantee equitable taxation. It dissuades fraudulent agreements intended to change tax obligations. You can more effectively arrange your finances and prevent unforeseen tax burdens by being aware of these regulations. It’s a good idea to understand the clubbing consequences before transferring assets or income to family members.

A long-running tax controversy affecting India’s telecom infrastructure reached a decisive point in 2025 when the Supreme Court considered whether towers, shelters and related prefabricated structures used by mobile operators qualify as goods eligible for credit. The litigation resolved conflicting high court views and applied established legal tests for movability. The Court held that many such structures are movable in character and, depending on facts, can qualify as capital goods or inputs for credit purposes. The ruling clarifies the law for both pre-GST CENVAT and contemporary input tax credit disputes.

Background

Telecom operators buy towers, shelters and prefabricated cabins which are bolted or fastened at sites to carry antennas and electronic equipment. Revenue authorities had denied credit on the ground that, once fixed, these assets become immovable and therefore do not qualify under the CENVAT/input tax credit rules. Conflicting judgements from high courts created uncertainty: some benches treated such affixed structures as immovable; others recognised their relocatable character. The Supreme Court therefore examined the essential question of whether fixation transforms the goods into immovable property for credit law purposes.

The Court’s Tests and Reasoning

The Court applied well-established, multi-factor tests to determine movability:

• Permanency test: whether the structure was intended to be permanently attached to land.
• Intention and purpose test: whether attachment was intended to benefit land or the installed equipment and service.
• Functionality test: whether the fixation was used solely to serve the machinery or equipment that produces the taxable service.
• Marketability test: whether the article can be treated and traded as goods in the market.

Applying these tests to telecom towers and shelters, the Court concluded that where the structures are designed for functional support of telecom equipment, are bolted for stability and can be dismantled, relocated and reused, they retain the character of movable goods. The Court therefore accepted that such assets can qualify as capital goods or inputs under the relevant credit rules, subject to satisfying statutory conditions.

Key Legal Findings

• Fixation by bolts or fastenings, standing alone, does not automatically convert an item into immovable property.
• The commercial reality and intended use are central: if the erection serves the telecom equipment rather than improving land, movability is likely.
• Where those tests are satisfied, availability of CENVAT or input tax credit follows the ordinary rules; denial purely on the basis of affixation cannot be sustained.

Immediate and Practical Impact

The ruling removes a major legal obstacle for telecom companies seeking credit on towers and similar items. It strengthens the basis for claims that were earlier denied solely on the “immovable” theory. However, the judgement does not create automatic refunds. Affected taxpayers must follow statutory claim or refund procedures, consider limitation timelines, and address fact-specific record requirements when seeking relief. Tax authorities and tribunals will need to reassess denials in light of the movability analysis.

Further Relevance

While the decision is most directly relevant to telecom infrastructure, it has wider significance. Industries that use prefabricated units, modular cabins, plant supports or relocatable structures may now rely on the movability framework to argue credit entitlement. Administrative guidance and careful documentation on design, removability and intended use will be key for such claims.

Conclusion

Bharti Airtel’s litigation clarifies that legal treatment of an asset for credit purposes depends on substance over form. The Court reconciled statutory tests with commercial realities and provided a workable framework for distinguishing movable infrastructure from immovable construction. The ruling thus reduces legal uncertainty for telecom investment and offers a precedent other sectors can adapt, while also signalling that refund and credit claims remain subject to procedural conditions and limitation rules.

The Supreme Court’s order in Union of India vs. Bharti Airtel Ltd. and Others [CIVIL APPEAL NO. 2021 (ARISING OUT OF S.L.P. (C) NO. 8654 OF 2020) dated October 28, 2021] is a landmark on the limits of post-filing rectification under the Goods and Services Tax regime. Bharti Airtel sought a refund of roughly ₹923 crore for excess tax allegedly paid during the initial months of GST implementation in July–September 2017, citing technical failures of the return-matching system. The Delhi High Court had permitted rectification, but the Supreme Court set aside that relief and refused the refund, reinforcing the finality of self-assessed GSTR-3B returns and the statutory regime governing ITC claims.

The Initial Issues and Airtel’s Claim

When GST launched, certain electronic return processes were not fully operational. Inward-supply statements that would later assist ITC reconciliation did not immediately function as intended. Taxpayers filed summary returns in GSTR-3B on a self-assessment basis, sometimes making conservative estimates of ITC. Airtel said these constraints led to excess tax payment and sought rectification of earlier GSTR-3B filings to secure a refund of about ₹923 crore for the July–September 2017 period. The Delhi High Court initially allowed rectification and directed revenue authorities to verify revised returns.

Supreme Court’s Core Reasoning

On 28 October 2021, the Supreme Court overturned the Delhi High Court’s order and declined to allow unilateral rectification of GSTR-3B so as to claim the refund. The Court’s principal points were these:

• GSTR-3B is a self-assessment return and, once filed, carries statutory finality subject to the processes and timelines set out in the law and rules. Allowing retrospective reworking outside those processes poses risks to the GST electronic architecture and to third parties in the supply chain.
• Portal problems, while regrettable, do not displace the statutory mechanism. The Court treated the delayed availability of supplier statements as a practical difficulty that required administrative or legislative solutions, not judicially ordered, wide-ranging rewriting of statutory returns.
• The difference between a genuine correctable error and a post-facto attempt to alter self-assessed liability was stressed. The former falls within prescribed remedy windows; the latter cannot be used to undermine the GST return system.

Legal Principles Acknowledged

The judgement reaffirmed three structural principles of the GST regime: the primacy of self-assessment, the finality of GSTR-3B subject to statutory remedies, and the role of electronic ledger discipline for utilisation of input tax credit. The Court indicated that compliance and reconciliation must occur within the statutory scheme rather than by ad hoc judicial direction to reopen returns beyond permitted procedures.

Practical Impact on Businesses

The ruling curtailed the remedy available to taxpayers who had relied on post-launch administrative remedies. Businesses with similar transitional claims must rely on the statutory dispute and rectification mechanisms, audits, assessments, and refund procedures rather than expect broad return rectification. The decision underlines the need for contemporaneous reconciliation and careful self-assessment when filing summary returns.

Conclusion

A dispute regarding the extent to which courts can allow retrospective rectification of self-assessed GST returns was decided in Bharti Airtel v. Union of India. The Supreme Court strengthened the GST self-assessment structure’s discipline by rejecting the rectification-based refund claim and maintaining statutory finality. It also indicated that legislative or administrative solutions are better for systemic technical issues. The decision acts as a reminder to taxpayers to keep thorough reconciliations and to settle disputes using the proper legislative procedures.