This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 31st to April 05th, 2025, namely:
- Step-siblings are relatives under Income Tax Act; gifts received from them are exempt: ITAT;
- RBI issues draft unified export-import norms;
- ITC not to be denied to purchasing dealer on selling dealer’s failure to deposit collected tax: HC;
- HC upheld refund since Circular restricting IGST refund where drawback is claimed cannot override Rule 96;
- Order to be set aside as assessee’s explanation for mismatch in GSTR-1 and GSTR-3B was dismissed without proper reasoning: HC; and
- Accounting treatment of Grant in Lieu of Equity received from Government promoters under Ind AS framework
1. Step-siblings are relatives under Income Tax Act; gifts received from them are exempt: ITAT
The assessee, a non-resident individual, did not have any income or source from India and, therefore, was not filing any return of income in India. The assessee had made an application under section 197 for lower deduction of tax on account of the sale of property.
The property was received by the assessee as a gift from Ms. Vidhie Mukerjea. However, the gift was given by a step-sister to a step-brother. The assessee contended that the step-sister and step-brother are relatives as per the meaning contained in Section 56(2) of the Act.
The Assessing Officer (AO) rejected the assessee’s claim and held that the stepbrother and stepsister could not be treated as relatives. Thus, the receipt of the property without consideration was chargeable to tax under section 56(2)(vii). The CIT(A) also confirmed the AO’s action. The matter then reached the Mumbai Tribunal.
The Tribunal held that there are five kinds of brother and sister relations in common parlance. These are: Firstly, Uterine brothers and sisters – where the mother is the same; Secondly, Consanguine brothers and sisters – where the father is the same; Thirdly, Germane (also, biological) brothers and sisters – where both the parents are the same; Fourthly, Step, that is, step brothers and step-sisters – where both the parents are different; and lastly, Adopted children- who would become brother/sister through law.
Various Acts recognize stepchildren and step-siblings as relatives. For instance, section 2(15B) of the Income-tax Act, 1961 includes a stepchild within the definition of “child.” By extension, stepbrother and stepsister should also be treated as siblings. This view is supported by section 45S of the RBI Act, 1934 and section 2(77) of the Companies Act, 2013, both of which include step-siblings as “relatives.” While the Income-tax Act doesn’t specifically define step-siblings, these provisions help infer their inclusion as relatives under tax laws.
Further, the term ‘relative’ as per the Black’s Law Dictionary, includes a person related by affinity, which means the connection existing as a consequence of marriage between each of the married persons and the kindred of the other. If the aforesaid Dictionary meaning is to be referred and relied upon, then the term ‘relative’ would include step-brother and step-sister by affinity. If the term ‘brother and sister’ of the individual has not been defined under the Income Tax Act, then the meaning defined in common law has to be adopted, and in the absence of any other negative covenant under the Act, brother and sister should also include step-brother and step-sister who, by virtue of the marriage of their parents, have become brother and sister.
Accordingly, the gift given by the step-sister to the step-brother falls within the definition of ‘Relative’, that is, they are to be treated as brother and sister as per Section 56(2)(vii). Therefore, the property received by the brother from the sister cannot be taxed under section 56(2).
Read the Ruling
2. RBI issues draft unified export-import norms
In a significant move to simplify foreign trade regulations and enhance the ease of doing business, the RBI, vide a Press Release dated April 4, 2025, has released the draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2025. These draft regulations aim to consolidate existing export-import rules into a single document, streamlining compliance and improving regulatory clarity. This initiative forms a part of the broader effort to modernise India’s foreign exchange laws and align them with evolving global trade practices. The key provisions include
2.1 Stringent Export Guidelines for Delayed Payments
If an exporter’s export proceeds remain unrealised for over two years from the due date of realisation, and the total unrealised export proceeds exceeds Rs. 25 crore, the exporter must undertake further exports only upon receiving full advance payment or an irrevocable letter of credit.
2.2 Proposal to ban advance remittance on Import of Silver & Gold
RBI has proposed that no advance remittance shall be made for the Import of gold and silver.
2.3 Streamlining the Guidelines for Export and Import Transactions by Authorized Dealers
The proposed regulations consolidate instructions given to Authorised Dealers, outlining the procedures they must follow for handling export and import transactions. These instructions, which are currently issued separately, will now be incorporated into a single regulatory framework for authorised dealers.
2.4 Permitting Authorised Dealers to accept reduced export realisation value based on justified reasons
An authorised dealer may, upon a request from the exporter citing reasons for under-realisation or non-realisation of full export value, allow a reduction in realisation of export value. However, such a reduction is permitted only if the authorised dealer is satisfied with the reasons provided.
2.5 Timeline for Realisation of Full Export Value of Goods and Services
The full export value of goods and services must be realised and repatriated by the exporter within the time limits as specified below –
- In case of goods (other than goods exported to a warehouse outside India) – 9 months from the date of shipment
- In case of services – 9 months from the date of invoice
- In case of goods exported to a warehouse outside India – 9 months from the date of sale of goods
- In case of project exports – as per the payment terms of the contract
However, an Authorised Dealer may allow an extension of time for the realisation of export proceeds beyond the specified period if satisfied with the reasons cited by the exporter. Further, an Authorised Dealer must put in place systems and processes for monitoring and following up with exporters to ensure timely realisation of export proceeds.
Conclusion
In conclusion, the RBI’s draft regulations aim to create a streamlined, transparent and efficient framework for managing export and import transactions. By consolidating existing norms and introducing stricter compliance measures, the proposed changes are expected to enhance regulatory clarity and improve ease of doing business. Comments/feedback on the draft Regulations and Directions may be forwarded to the RBI via email by April 30, 2025.
Read the Draft Regulations
3. ITC not to be denied to purchasing dealer on selling dealer’s failure to deposit collected tax: HC
The Hon’ble Gauhati High Court held that input tax credit (ITC) cannot be denied to a bona fide purchasing dealer solely due to the selling dealer’s failure to deposit the collected tax. Emphasizing that a compliant purchaser should not suffer consequences of another’s default, the Court directed that recovery must be initiated against the defaulting seller, in line with established judicial precedent. This was held in McLeod Russel India Ltd. vs. Union of India [2025].
Facts
The assessee, a purchasing dealer, challenged the validity of Section 16(2)(aa) and Section 16(2)(c) of the CGST Act, 2017, and AssaM GST Act, 2017, before the Hon’ble High Court. The assessee argued that these provisions unjustly restricted input tax credit (ITC) by making it contingent on the selling dealer’s deposit of collected tax. Citing a prior ruling, the assessee contended that the department should recover unpaid tax from the defaulting selling dealer rather than deny ITC to the purchasing dealer. The revenue department did not object to applying the earlier ruling to this case.
Held
The Hon’ble High Court held that Section 16(2) must be read down in line with the prior ruling, reaffirming that ITC cannot be denied due to the selling dealer’s failure to deposit tax. Instead, the department must pursue recovery from the defaulting seller. The court emphasized that burdening compliant purchasing dealers with such consequences is inequitable. Accordingly, the ruling favored the assessee, ensuring ITC entitlement despite the selling dealer’s non-compliance.
Read the Ruling
4. HC upheld refund since Circular restricting IGST refund where drawback is claimed cannot override Rule 96
The Hon’ble Madras High Court held that Circular No. 37/2018–Customs, dated 09-10-2018 cannot override Rule 96 of the CGST Rules, which permits IGST refunds even where duty drawback is claimed. This was held in Assistant Commissioner of Customs vs. Modern India Products [2025].
Facts
The assessee, an exporter, sought a refund of IGST paid on exports under Section 16 of the IGST Act, 2017, and Section 54 of the CGST Act, 2017, read with Rule 96 of the CGST Rules, 2017. As the refund was not processed, the assessee filed a writ petition, which the Single Judge allowed. The revenue appealed, citing Circular No. 37/2018–Customs, dated 09-10-2018, which barred IGST refunds where duty drawback was claimed.
Held
The Hon’ble High Court held that the said circular could not override Rule 96 of the CGST Rules. As multiple High Courts had upheld this position, the Single Judge’s order granting relief was not to be disturbed. The appeal was dismissed, affirming the assessee’s right to an IGST refund despite claiming duty drawback.
Read the Ruling
5. Order to be set aside as assessee’s explanation for mismatch in GSTR-1 and GSTR-3B was dismissed without proper reasoning: HC
The Hon’ble Kerala High Court held that dismissing an assessee’s explanation for GSTR-1 and GSTR-3B mismatch without proper reasoning breaches natural justice. A mere remark that the reply was ‘not convincing and non-explanatory’ is insufficient under Section 73 of the CGST Act. This was held in Masany Construction Equipment (P.) Ltd. vs. State Tax Officer [2025].
Facts
The Revenue issued a show cause notice under Section 73 of the CGST Act, 2017, alleging a mismatch between the assessee’s GSTR-1 and GSTR-3B for Financial Year 2019-2020. The assessee explained that the discrepancy arose due to an entry error in GSTR-1, later corrected in GSTR-3B, with no tax liability as sufficient ITC was available. However, the reply was summarily rejected as ‘not convincing and non-explanatory’ leading to an adverse order, which the assessee challenged before the High Court on grounds of violation of natural justice.
Held
The Hon’ble High Court held that dismissing a reply with a mere sentence does not constitute a speaking order. The officer was obligated to verify the bona fides of the discrepancy and examine relevant records. The failure to provide proper reasoning, despite an opportunity for a hearing, rendered the order unsustainable. Accordingly, the order was set aside, and the matter remanded for reconsideration with a fresh opportunity of hearing.
Read the Ruling
6. Accounting treatment of Grant in Lieu of Equity received from Government promoters under Ind AS framework
In government-backed infrastructure projects, financial contributions are sometimes provided by central or state governments as “grants in lieu of equity.” These contributions are not linked to the issuance of shares but are intended to preserve a predetermined ownership ratio among promoters. This gives rise to a key accounting question i.e. whether such grants should be treated as government assistance under Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance or as equity contributions reflecting promoter ownership.
Ind AS 20 defines government grants as transfers tied to specific operational conditions and explicitly excludes “government participation in the ownership of the entity” from its scope under paragraph 2(c). When a contribution is made solely to preserve the ownership structure, without any attached conditions related to the entity’s operations, it does not qualify as a government grant. According to Ind AS 1, Presentation of Financial Statements, contributions by owners in their capacity as owners must be recognised directly in equity and not treated as income or liability. Such contributions are considered changes in net assets arising from transactions with owners and should be presented in the statement of changes in equity.
Ind AS 7, Statement of Cash Flows, supports this treatment by classifying changes in contributed equity as financing activities. Therefore, cash inflows received to maintain shareholding proportions are to be reported under financing activities in the statement of cash flows, rather than as investing activities, which are typically associated with acquisition or disposal of long-term assets or investments.
In a recent case reviewed by the Expert Advisory Committee (EAC), such a grant structure was challenged by auditors who proposed treating it as a capital grant under Ind AS 20. However, the EAC observed that the contribution was not conditional upon operational performance and was made purely to support an agreed equity structure among government promoters. It concluded that the appropriate accounting treatment was to recognise the amount directly in equity as per Ind AS 1 and to disclose the corresponding cash flows under financing activities in accordance with Ind AS 7.
Accordingly, when government promoters provide grants without operational stipulations and with the intent of reflecting ownership interest, such contributions must be treated as equity. This approach is consistent with the requirements of Ind AS 1, Ind AS 7, and the scope exclusions in Ind AS 20, ensuring the financial statements faithfully represent the substance and intent of the transaction.
Read the Story
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