This weekly newsletter analytically summaries the key stories reported at taxmann.com during the previous week from 25th to 30th August, 2025.
- Principal Purpose Test can’t apply without specific section 90(1) notification of Multilateral Instrument in DTAA | ITAT;
- SEBI issues draft circular to revise ‘Block Deal Framework’;
- Extension of limitation by the Supreme Court during COVID available to litigants and not to authorities | HC;
- HC quashes demand as proceedings initiated against dead person were to be construed as nullity;
- HC dismissed writ petition as assessee was involved in fraudulent availment of ITC by giving OTP to a known person; and
- Revenue recognition in Bill-and-Hold arrangements in accordance with Ind AS framework.
1. Principal Purpose Test can’t apply without specific section 90(1) notification of Multilateral Instrument in DTAA | ITAT
An Ireland-based company leased aircraft to IndiGo under dry operating leases and declared nil income in its return, claiming:
(i) lease rentals were not “royalty” under Article 12 of the India-Ireland DTAA,
(ii) absence of a PE in India, making income taxable only in Ireland under Article 7, and
(iii) exemption under Article 8 for international traffic.
Facts of the Case
Assessing Officer (AO) rejected this and invoked Multilateral Instrument (MLI) Articles 6 & 7 Principal Purpose Test (PPT) and held that the assessee’s incorporation aimed at treaty benefits. The DRP upheld, citing lack of infrastructure in Ireland, assessee’s control over aircraft in India (fixed place PE), and characterising the leases as finance leases.
AO passed order and held the rentals as “royalty” u/s 9(1)(vi), alternatively taxable as PE profits, denied Article 8 relief, and recharacterised the leases as finance leases. The assessee appealed before the Tribunal.
ITAT Held
The Tribunal held that the MLI cannot be used to deny tax treaty benefits without a separate, specific notification under Section 90(1) of the Income Tax Act. This is based on the Supreme Court’s binding precedent in Nestle SA [2023] 155 taxmann.com 384 (SC). The ruling clarifies that a new notification is required to incorporate the MLI’s anti-abuse measures into the India-Ireland Double Taxation Avoidance Agreement (DTAA), despite both instruments being separately notified.
The Tribunal concluded that the AO failed to prove that the principal purpose of the lessors’ structure was to obtain treaty benefits. It validated the lessors’ business model, noting that Ireland is a globally recognised hub for the aircraft leasing industry, accounting for 60% of all global leasing activity, and that the lessors had a genuine business presence there with Irish directors and licensed service providers. It was held that genuine commercial considerations are a legally sound basis for a corporate structure and can effectively counter allegations of treaty abuse.
The Tribunal provided crucial clarity by confirming that the agreements in question are bona fide dry operating leases, not finance leases. The Tribunal based its analysis on the actual contractual terms, noting that the lessor, not the lessee, retained ownership and key ownership risks, such as residual value fluctuation. The agreements also explicitly required the return of the aircraft at the end of the term and prohibited the lessee from holding itself out as the owner.
The Tribunal definitively held that no Permanent Establishment (PE) exists in India. It applied the “disposal test” from the Supreme Court’s Formula One precedent [2017] 80 taxmann.com 347 (SC), finding that the aircraft were at the exclusive operational disposal of the lessee (IndiGo), not the lessors. The lessor’s rights of inspection and repossession were characterized as standard asset protection measures, not as a means of carrying on business in India.
Even if a PE had been found, the Tribunal ruled that the income would be exclusively taxable in Ireland under Article 8(1) of the India-Ireland DTAA. It was noted that this article, which explicitly includes “rental of ships or aircraft in international traffic,” is a deliberate departure from the narrower OECD model and prevails over the general business profits rule, ensuring the income is not subject to source-based taxation in India.
Read the Ruling
2. SEBI issues draft circular to revise ‘Block Deal Framework’
In the ever-evolving landscape of financial markets, the need for a stronger and more efficient trading framework has become increasingly important. Reflecting this objective, SEBI, on August 22, 2025, released a draft circular seeking public comments on the proposed review of the Block Deal Framework. The draft circular proposes dual block deal windows, a higher minimum block deal size, revised price bands and enhanced responsibilities for trading and settlement practices. These measures aim to bring greater transparency, efficiency, and fairness to large-volume transactions conducted through block deals.
2.1 Background and Rationale
Paragraph 1.2 of Chapter 1 of SEBI Master Circular dated December 30, 2024, for ‘Stock Exchanges and Clearing Corporations’ provides norms relating to the Block Deal Framework.
Under the current framework, stock exchanges are permitted to offer two separate 15-minute trading windows each day for block deals, i.e., large trades executed through a single transaction without disadvantaging either the buyer or the seller. This mechanism, introduced in 2005 and last revised in 2017, enables pre-negotiated deals between the parties to take place within designated windows under strict norms designed to prevent price manipulation.
Based on feedback received from various stakeholders, the recommendations of the Working Group, deliberations in the Secondary Market Advisory Committee (SMAC), and subsequent internal deliberations, SEBI has decided to revise the existing Block Deal framework.
2.2 What is a Block Deal?
A block deal is the execution of large trades through a single transaction, without putting either the buyer or seller at a disadvantage. For this purpose, stock exchanges are permitted to provide a separate trading window.
2.3 Key Proposals
The draft circular proposes the following changes to the block deal framework –
- Introduction of Dual Block Deal Windows – The morning window will operate between 8:45 AM to 9:00 AM. The reference price for executing block deals in this window will be the previous day’s closing price of the stock. The afternoon window will operate between 2:05 PM to 2:20 PM with the reference price being the volume-weighted average market price (VWAP) of the trades executed between 1:30 PM to 2:00 PM. This aims to provide flexibility and improve price discovery for market participants.
- Increase in minimum block deal size – SEBI has proposed to increase the minimum order size for execution of trades in the block deal windows to Rs 25 crores (from the current Rs 10 crores). This reflects the market expansion since 2017, reserving the window for large institutional trades. This move is expected to reduce manipulation risks, promote transparency, and channel smaller deals to the regular market, ensuring that the block deal mechanism is used only for genuine deals.
- Price Bands and Trade Conditions – Under the proposed framework, orders placed in the block deal window will be subject to specific price bands. For F&O stocks, trades must be executed within +1% of the applicable reference price. For stocks other than F&O, the permissible range will be +3% of the reference price, subject to surveillance measures, if any.
Also, all trades executed in these windows must result in compulsory delivery, ensuring that trades cannot be squared off or reversed. This is expected to curb speculative activity and enhance the credibility of block deal transactions. - Responsibility for implementing proper trading and settlement practices – The responsibility for implementing proper trading and settlement practices as well as surveillance and risk containment measures will now be extended to Clearing Corporations and Depositories, in addition to stock exchanges. This aims to bring uniform responsibility, making block deals more reliable for market participants.
- Applicability – The provisions of the circular shall be applicable with effect from the 30th day of its issuance.
2.4 Conclusion
SEBI’s proposals, including the introduction of dual block deal windows, an increase in the minimum block deal size, and defined price bands, aim to provide greater flexibility and attract a large volume of institutional investors. In addition, extending responsibility to Clearing Corporations and Depositories is expected to create tighter checks and balances, strengthening trust in large-volume transactions. By linking trades more closely to real market benchmarks and mandating compulsory delivery, the framework discourages speculative activity and ensures genuine participation. Comments on the draft circular may be submitted by September 15, 2025.
Read the Draft Circular
3. Extension of limitation by Supreme Court during COVID available to litigants and not to authorities | HC
The High Court held that the extension of limitation granted by the Supreme Court during COVID was available only to litigants and not to authorities. It ruled that suo motu directions applied solely to judicial/quasi-judicial proceedings by litigants, not departmental actions.
Facts of the Case
The petitioner challenged a revisional order passed under Section 108 of the CGST Act read with the Andhra Pradesh GST Act on the ground of limitation. It was submitted that the statutory period of three years from the date of the order sought to be revised had expired, and that the impugned order was issued beyond the permissible period. The petitioner contended that the benefit of extension of limitation granted by the Supreme Court during the COVID-19 pandemic in Cognizance for Extension of Limitation, In re [2022] 134 taxmann.com 307 was applicable only to litigants who approach judicial and quasi-judicial bodies, and not to revenue authorities. It was argued that as the revisional authority could not rely on the said extension, the impugned order was barred by limitation. The matter was accordingly placed before the High Court.
High Court Held
The High Court held that the Supreme Court in the aforesaid suo motu proceedings had directed exclusion of the COVID-19 period while computing limitation for judicial and quasi-judicial proceedings. However, it reiterated its earlier ruling that such extension of limitation was available only to litigants and could not be invoked by authorities exercising statutory powers. Applying this principle, the Court concluded that the revisional order was beyond the prescribed period of limitation and was therefore liable to be set aside. The Court accordingly quashed the impugned order, holding that the limitation relief extended during the pandemic did not enlarge the powers of authorities, thereby reinforcing that statutory timelines governing departmental actions must be applied strictly.
Read the Ruling
4. HC quashes demand as proceedings initiated against dead person was to be construed as nullity
The High Court held that proceedings initiated against a dead person are a nullity and orders passed therein cannot be sustained. It observed that liability may extend to legal heirs, but valid notice must be issued in the names of legal representatives. This was held in Sikha Borgohain vs. Union of India – [2025].
Facts of the Case
The petitioner, being the daughter and legal heir of a deceased assessee, was issued a show cause notice under section 73(1) of the CGST Act read with the Assam GST Act in respect of a tax period subsequent to the death of her father. The notice and subsequent proceedings were directed against the deceased assessee, although the petitioner had intimated the authorities regarding the demise and requested time to respond. No reply was ultimately submitted, and an order was passed imposing tax, interest, and penalty in the name of the deceased assessee. The petitioner challenged the validity of such proceedings before the High Court on the ground that the initiation of proceedings against a dead person was without jurisdiction and void in law. The matter was accordingly placed before the Gauhati High Court.
High Court Held
The Gauhati High Court held that the proceedings initiated against a dead person were a nullity in law and therefore the show cause notice and consequential order passed in the name of the deceased assessee were liable to be set aside and quashed. The Court observed that liability under section 73 of the CGST Act and the Assam GST Act may extend to legal representatives, but valid proceedings can only be initiated by issuance of notice in their names. It was clarified that while the impugned proceedings could not be sustained, the authorities were at liberty to initiate fresh action by issuing a show cause notice against the legal representatives in accordance with law.
Read the Ruling
5. HC dismissed writ petition as assessee was involved in fraudulent availment of ITC by giving OTP to a known person
The High Court held that a writ petition was not maintainable where the assessee had facilitated fraudulent availment of ITC by sharing OTPs. It noted that multiple firms were created using OTPs voluntarily provided by the assessee, and such matters required police investigation, not writ jurisdiction.
Facts of the Case
The petitioner’s registration under GST was subjected to proceedings on the ground of fraudulent availment of input tax credit (ITC). Orders were passed confirming demand of ineligible ITC along with additional tax liability arising from mismatch between Form GSTR-1 and Form GSTR-3B. The petitioner contended that his registration number had been misused by third parties and alleged that the sales shown in his returns were not genuine. He admitted to having shared one-time passwords (OTPs) from his mobile number with another person but claimed this was only for the limited purpose of suspension of registration. He argued that he was not directly responsible for the creation of multiple entities or the fraudulent availment of ITC and therefore challenged the impugned orders through a writ petition. The matter was accordingly placed before the High Court.
High Court Held
The High Court held that the writ petition was not maintainable in the facts of the case. It observed that on the basis of OTPs voluntarily provided by the petitioner, several firms had been created through which fraudulent ITC was availed. The Court found that the petitioner could not claim complete innocence after having facilitated the creation of such firms and that the writ jurisdiction could not be invoked to contest orders passed on the basis of such fraudulent activity. It held that a factual inquiry into the role of different persons in the fraudulent availment of ITC could only be undertaken by police authorities through proper investigation and not by the High Court in exercise of writ jurisdiction. Accordingly, the writ petition was dismissed.
Read the Ruling
6. Revenue recognition in Bill-and-Hold arrangements in accordance with Ind AS framework
When applying Ind AS 115, Revenue from Contracts with Customers, a practical challenge arises in accounting for bill-and-hold arrangements, where the seller invoices a customer but retains physical possession of the goods until a future date. The central issue is determining whether revenue can be recognised immediately upon invoicing or should be deferred until the customer takes physical delivery.
Ind AS 115 provides clear guidance in this regard. It states tha revenue is recognised when the entity satisfies its performance obligation by transferring control of the promised goods to the customer. In bill-and-hold arrangements, control may transfer even if physical possession remains with the seller, provided all of the following conditions are met:
- the arrangement is substantive and requested by the customer,
- the goods are separately identified as belonging to the customer,
- the goods are ready for physical transfer, and
- the seller cannot redirect them to another customer.
Any remaining performance obligations, such as storage or custodial services, must be accounted for separately with a portion of the transaction price allocated to them.
This issue is particularly relevant in cases where customers request the seller to store goods temporarily due to site readiness or storage constraints. The seller must evaluate whether control has transferred to the customer despite retaining custody, and separately account for any continuing obligations.
For example, A Company manufactures high-value industrial generators. On 15 February 2025, B company orders 20 customised generators worth ₹40 crores. Due to delays at the customer’s site, B Company requests that A company invoice immediately and hold the generators in its warehouse until May 2025. The generators are fully manufactured, segregated, and earmarked for B Company, and A company cannot redirect them.
Applying Ind AS 115, all criteria for a bill-and-hold arrangement are satisfied. Control transfers to B Company upon invoicing on 15 February 2025, as the arrangement is substantive, goods are ready for delivery, and the company cannot redirect them. The storage service provided over the three months constitutes a separate performance obligation, with revenue recognised over the storage period. The transaction price attributable to the generators is recognised immediately, while revenue from custodial services is recognised over time.
This example highlights the importance of assessing control transfer in bill-and-hold arrangements and properly identifying separate performance obligations to ensure compliance with Ind AS 115. However, clear documentation of the arrangement, customer requests, and identification of goods is essential to support revenue recognition decisions.
Read the Story
The post Weekly Round-up on Tax and Corporate Laws | 25th to 30th Aug 2025 appeared first on Taxmann Blog.
