Lawstreet Journal

Supreme Court Directs Madras High Court to Decide on the Validity of Section 40(a)(iib) of the Income Tax Act, 1961

Lawstreet Journal 27 Nov 2020 6:30pm

Image courtesy: Lawstreet Journal Judiciary Supreme Court Directs Madras High Court to Decide on the Validity of Section 40(a)(iib) of the Income Tax Act, 1961

On Wednesday (November 25, 2020),  the Supreme Court ordered the Madras High Court to rule on the constitutional validity of Section 40(a)(iib) of the Income Tax Act, 1961, which forbids the deduction of royalties, licence fees, etc. in the case of State government undertakings headed by profits and business gains.

The judgement was issued in an appeal lodged by Tamil Nadu State Marketing Corporation Limited (TASMAC) by the Division Bench of Justices Ashok Bhushan, R Subhash Reddy,  and MR Shah against a judgement of the Madras High Court that had refused to determine the challenge.

 

“When the vires of Section 40(a)(iib) of the Income Tax Act were challenged, which can be decided by the High Court alone in exercise of powers under Article 226 of the Constitution of India, the High Court ought to have decided the issue on merits. The impugned judgment passed by the High Court is, hereby, quashed and the matter is remitted to the High Court to decide the petition on merits with respect to challenge to the vires of Section 40(a)(iib)”, the apex court ruled.

Without deciding on the validity of Section 40(a)(iib), the High Court dismissed the said written petition, noting that the vires of the law need not be entertained because the matter was still sub-judicated before the Income Tax Authority. 

In the case of the petitioner, the amount deductible in the estimation of the taxes paid under the Income Tax Act was not authorised pursuant to the above clause.

The petitioner argued that… Continue Reading...


Tagged: Income Tax  
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