Weekly Round-up on Tax and Corporate Laws | 11th to 16th Aug 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Aug 11th to Aug 16th, 2025, namely:

1. Rebate under section 87A available even if tax payable on STCG on listed shares under section 111A;
2. SEBI proposes easier norms for ‘Large Value Funds’ with a lower investment limit and relaxed compliance norms.
3. No ITC allowed for compensation cess paid on coal attributed to the power plant for the supply of electricity to the township: HC;
4. Limitation period stipulated in section 107(4) is not mandatory but merely directory: HC;
5. SC directed the petitioner to submit a representation to the GST Council on the compliance mechanism for OIDAR services.
6. ICAI expands AQMM v 2.0 applicability and enhances disclosure norms; and
7. Accounting treatment of sponsorship expenditure for brand building under the Ind AS framework.

 

1. Rebate under section 87A available even if tax payable on STCG on listed shares under section 111A

The assessee, an individual, filed her return of income for the relevant assessment year, declaring short-term capital gains under section 111A. While filing the return, the assessee exercised the option under section 115BAC(1A). Upon processing the return, the Centralised Processing Centre (CPC) denied the rebate claim under section 87A in respect of short-term capital gains.

Aggrieved by the order, the assessee filed an appeal to the CIT(A), wherein the order was upheld. The matter reached the Ahmedabad Tribunal.

The Tribunal held that the amended first proviso to section 87A provides a rebate to a resident individual whose total income does not exceed Rs. 7,00,000 and who is assessed under section 115BAC(1A). The statute does not draw any distinction between normal income and income chargeable at special rates, nor does it contain any express exclusion for tax arising under section 111A.

By contrast, the legislature has inserted an express bar on the availability of the section 87A rebate in section 112A(6). The absence of a corresponding clause in section 111A is legally significant and supports the principle that – when the legislature intended to deny rebate in respect of special income (as in section 112A), it has done so expressly. In contrast, the absence of any exclusion in section 111A or in section 87A must be construed in favour of the assessee.

Section 115BAC(1A) opens with the phrase: “Notwithstanding anything contained in this Act but subject to the provisions of this Chapter..” The purpose of this clause is to enable the computation of income-tax under the concessional rate regime, subject to existing special rate provisions under Chapter XII, such as sections 111A, 112, 112A, etc. This clause governs the computation of tax and does not ipso facto affect eligibility for rebates or deductions unless specifically restricted.

Section 87A is not part of Chapter XII; it is an independent rebate provision under Chapter VIII of the Act. Therefore, the overriding clause in section 115BAC(1A) does not derogate or modify section 87A unless section 87A itself provides for exclusion, which, in the present case, it does not.

Further, the CIT(A) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that the rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under section 87A w.e.f. A.Y. 2026–27, which implies that the existing law (i.e., as applicable to A.Y. 2024–25) does not contain such a restriction. The Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.

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2. SEBI proposes easier norms for ‘Large Value Funds’ with lower investment limit and relaxed compliance norms

Large Value Funds (LVFs) are special Alternative Investment Funds meant only for accredited investors who can put in a large amount of money. In a move to make LVFs more flexible and accessible, SEBI issued a Consultation Paper on August 8, 2025, proposing measures to ease norms for Accredited Investors. The Key proposals include lowering the minimum investment to Rs. 25 crores, exempting LVFs from certain compliance requirements, such as using the standard Private Placement Memorandum (PPM) template, conducting an annual audit of PPM, assigning responsibility to the investment committee, and obtaining NISM certification for the key investment team of the Manager.

2.1 Background and Rationale

Currently, LVFs require each investor (excluding the manager, sponsor, or certain related employees/directors) to invest at least Rs 70 crore. Accredited investors are assumed to be well-informed and capable of making independent investment decisions.

The Ease of Doing Business Working Group highlighted that the Rs 70 crore threshold is too high for many domestic investors, including some institutional investors with internal investment limits. This restricts access primarily to large global institutions, leaving domestic investors with significant capital underserved.

There is also an inconsistency in minimum investment thresholds for LVFs between AIF Regulations (Rs 70 crore) and SEBI’s Portfolio Management Services (PMS) Regulations, 2012. The minimum investment threshold for LVFs under the AIF Regulations is Rs 70 crores, whereas under PMS Regulations, it is Rs 10 crores, with the ability to invest 100% of their portfolio in unlisted securities.

Also, reducing the threshold would allow more insurance companies and other domestic institutional investors to participate in LVFs, thereby broadening the investor base. To address these issues, SEBI has recommended easing norms for LVFs to make them more flexible and accessible.

2.2 SEBI Key Proposals

The Key proposals recommended are as follows –

• Lowering the minimum investment threshold in LVFs: The Alternative Investment Policy Advisory Committee (AIPAC) has proposed to reduce the minimum investment threshold in LVFs from Rs 70 crore to Rs 25 crore. This is expected to expand the investor base and make fundraising easier for AIFs.
• Relaxing the AIF Manager Qualifications: The Alternative Investment Policy Advisory Committee (AIPAC) has recommended exempting LVFs from the requirement to have at least one certified key personnel in the manager’s investment team.
• Freedom from Standard Documents: The Alternative Investment Policy Advisory Committee (AIPAC) has recommended that LVFs be exempted from the requirement to follow template PPM as specified by SEBI and from the requirement for annual audit of terms of PPM.
• Reduced liability for members of Investment Committee of LVFs: Regulation 20(8) of the AIF Regulations states that for AIFs or schemes where each investor (other than the Manager, Sponsor, or related employees/directors) commits to a minimum capital contribution of Rs. 70 crore and provides a waiver to fund, the investment committee members are not responsible for ensuring that decisions comply with policies and procedures. In such cases, responsibility lies with the AIF, its manager, and their key management personnel. The AIPAC has recommended extending this exemption to LVFs.
• Removal of Investor Cap for LVFs: The current framework for AIFs restricts the maximum number of investors in an AIF scheme (except angel funds) to 1,000. Since LVF investors are accredited and commit large amounts (currently Rs. 70 crore, proposed to be reduced to Rs. 25 crore), this limit may not be necessary.

2.3 Conclusion

The proposals aim to make Large Value Funds easier to access, boost investor participation and simplify compliance, helping domestic capital flow more efficiently into well-managed investment opportunities. By lowering the investment threshold, relaxing manager qualifications and easing other operational requirements, SEBI intends to attract a broader pool of large domestic and global investors. Comments on the proposals may be submitted by August 29, 2025.

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3. No ITC allowed of compensation cess paid on coal attributed to power plant for supply of electricity to township: HC

The Chhattisgarh High Court held that input tax credit of compensation cess paid on coal is impermissible to the extent the resultant electricity is utilised for township consumption, as such use falls outside the ambit of business purposes. Relying on binding precedents, the Court reiterated that ITC entitlement is confined to inputs having a direct and proximate nexus with taxable outward supplies.

3.1 Facts

The petitioner, an exporter of aluminium products, filed an application claiming refund of input tax credit (ITC) of compensation cess paid on import of coal on the premise that such ITC was admissible. A provisional refund of 90 per cent of the total claim was granted, and a show cause notice was issued proposing rejection of part of the refund claim. In reply, the petitioner contended entitlement to ITC; however, the claim was rejected on the ground that 540 MW electricity generated in its power plant was supplied to township consumption, thereby necessitating reversal of ITC of compensation cess paid on coal attributed to the said plant. The petitioner’s appeal was dismissed, leading to the present writ petition before the High Court of Chhattisgarh.

3.2 Held

The High Court of Chhattisgarh held that as it was the admitted case of the petitioner that electricity generated in the 540 MW plant was used in the course of furtherance of business, and as evident from Form G, the petitioner would not be entitled to ITC on electrical energy consumed for maintenance of its township. Reliance was placed on the decisions in CCE v. Gujarat Narmada Fertilisers Co. Ltd. [2009] 22 STT 46 (SC) and Maruti Suzuki Ltd. v. CCE, Delhi-III [2009] 22 STT 54 (SC). Accordingly, the claim for ITC of compensation cess paid on coal attributed to electricity supplied for township consumption was rejected.

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4. Limitation period stipulated in section 107(4) is not mandatory but merely directory: HC

The Calcutta High Court held that the limitation prescribed under Section 107(4) is directory in nature, and the provisions of the Limitation Act, 1963 stand attracted in the absence of an express statutory bar.

Facts

The Petitioner filed an appeal before the Appellate Authority against an ex parte assessment order. The Appellate Authority dismissed the appeal on the ground of limitation, and a writ petition filed against such appellate order was dismissed by the Single Judge. It was contended that in S.K. Chakraborty & Sons v. Union of India [2024] 159 taxmann.com 259/88 GSTL 328 (Calcutta), it had been held that the timelines stipulated in Section 107(4) of the WBGST Act are not mandatory and that the provisions of the Limitation Act, 1963 are applicable, there being no express bar in Section 107(4). It was argued that the provisions of Section 5 of the Limitation Act should apply. It was also submitted that no individual communication was made directly to the Petitioner either by SMS or e-mail regarding the assessment order, and that uploading of the notice only on the Additional Tab would not constitute sufficient communication. The Petitioner claimed sufficient grounds for condonation of delay of about three months and twenty days beyond the four months’ outer limit provided in the statute. The matter was placed before the High Court.

Held

The High Court held that the timelines stipulated in Section 107(4) of the WBGST Act are not mandatory but merely directory, and the provisions of the Limitation Act, 1963 are applicable, there being no express bar in the statute. It was further held that the provisions of Section 5 of the Limitation Act would apply. In the present case, sufficient grounds had been made out for condonation of delay in filing the appeal after about three months and twenty days from the expiry of the four months’ outer limit provided in the statute, and the delay was accordingly condoned.

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5. SC directed the petitioner to submit a representation to the GST Council on the compliance mechanism for OIDAR services

The Hon’ble Supreme Court held that the petitioner’s grievances regarding strengthening the GST compliance and reporting framework for overseas OIDAR service providers could be addressed by way of a representation to the GST Council.

Facts

The petitioner approached the Supreme Court seeking a writ of mandamus, direction, or order to the GST authorities for strengthening the tax collection, compliance, and reporting framework applicable to overseas suppliers of online information and database access or retrieval (OIDAR) services. The reliefs sought included a mechanism to track total GST paid on OIDAR services used by non-taxable online recipients in India under reverse charge, amendments to GSTR-5A or introduction of a new form to reflect revenue generated from such services, verification of receipts earned by foreign service providers from India to ensure GST compliance, requirement for overseas service providers to have a fixed establishment in India or permit Indian authorities access to their records, and provision of data on the number of persons located in non-taxable territories supplying OIDAR services in India. The petitioner also sought that overseas OIDAR service providers be subjected to a compliance framework equivalent to that imposed on other service providers, including periodic returns, GST audits by independent auditors, and related machinery provisions. The matter was accordingly placed before the Supreme Court.

Held

The Supreme Court permitted the petitioner to submit a copy of the writ petition, including its prayers, to the GST Council as a representation. It stated that the representation should be considered by the GST Council in accordance with law. The Court observed that this would enable the grievances raised in the petition to be brought to the Council’s attention. It directed that such consideration be undertaken expeditiously.

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6. ICAI expands AQMM v 2.0 applicability and enhances disclosure norms

The Institute of Chartered Accountants of India (ICAI) has announced a major expansion in the applicability of the Audit Quality Maturity Model (AQMM) Version 2.0, marking an important step in strengthening audit quality and transparency in the profession. Initially introduced in April 2023 with limited coverage, AQMM is now being extended in phases to a wider set of firms, including those auditing group entities of listed companies, large unlisted public companies, and entities with significant public interest.

This expansion ensures that audit firms across a broader spectrum adopt structured self-assessment of audit quality maturity, thereby aligning practices with global standards of accountability and governance. A significant enhancement under Version 2.0 is the increased transparency in disclosure norms; firms’ AQMM levels will now be publicly available on the ICAI website alongside Peer Review Certificates, and also specifically mentioned in the certificates themselves. These measures will provide stakeholders, including regulators, investors, and clients, with clearer insights into the robustness of audit practices, ultimately fostering greater trust in financial reporting and the audit profession at large.

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7. Accounting treatment of sponsorship expenditure for brand building under Ind AS framework

Nowadays, many companies incur significant sponsorship payments with the objective of building their brand value and strengthening long-term market presence. Despite being viewed strategically as brand investments, the nature of such expenditure needs to be carefully assessed under the accounting framework. Sponsorship payments are essentially advertising and promotional in nature, they provide visibility and marketing benefits but do not create a separately identifiable resource that meets the definition of an intangible asset.

Ind AS 38, Intangible Assets, is clear on this point. The standard prohibits recognition of internally generated brands, mastheads, or customer lists (Paras 63–64), as the costs associated with such initiatives cannot be reliably distinguished from general business development. Further, Para 69 explicitly requires expenditure on advertising and promotional activities to be recognised as an expense in the period in which the related services are consumed. This ensures that the financial statements do not carry forward brand-building spends as intangible assets without a clear measurement basis.

For example, a company may pay ₹150 crore upfront for a five-year sponsorship arrangement with the IPL. Even if management believes the brand visibility created will generate benefits for 15 years, such expenditure is still promotional in nature and does not qualify for recognition as an intangible asset. The correct accounting treatment is to record the upfront payment as a prepaid expense at inception and charge it systematically to the Statement of Profit and Loss as sponsorship/advertising expense over the five-year contract period.

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