Weekly Round-up on Tax and Corporate Laws | 22nd December to 27th December 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from December 22^nd to December 27^th 2025, namely:

1. Non-compete fee paid to restrict competition held allowable as revenue expenditure under section 37(1): SC;
2. SEBI reviews and simplifies procedure and documentation for issuance of duplicate securities to improve ease of investment;
3. Labour Court cannot override employer’s penalty; reducing dismissal to reinstatement despite proven misconduct was invalid: HC; 
4. GST Demand on government enterprise’s lease proceeds set aside where Finance Ministry clarified no tax due: HC;
5. Areca nuts in transit ordered to be released on payment and bank guarantee due to perishability despite GST document irregularities: HC;
6. ASB of ICAI issues FAQ on accounting implications of new labour codes for Gratuity and Employee Benefits;
7. ASB of ICAI issues exposure draft on amendment of Ind AS 21 and opens a window for public comment; and
8. DAAB of ICAI invites public comments on the Exposure Draft of the Information Systems Audit Standards.

1. Non-compete fee paid to restrict competition held allowable as revenue expenditure under section 37(1): SC

Assessee, a public limited company, was engaged in the business of software development, hardware sales, technical training and engineering services. It filed its return of income for the relevant assessment year, declaring a net loss. During the assessment proceedings, the Assessing Officer (AO) computed the assessee’s total income and made several disallowances. One of the disallowances concerned the depreciation claim on the non-compete fee.

Aggrieved-assessee preferred an appeal to the CIT(A), where it contended that the non-compete fee was nothing but a license. Assessee could exclusively carry on the business of software development, training and export of technologies by restraining M/s. Pentamedia Graphics Limited is not allowed to carry out the same activities. Thus, the payment of the non-compete fee was held to be an intangible asset entitled to depreciation under Section 32(1)(ii).

The matter, after passing through the ITAT and the High Court, was carried in appeal before the Supreme Court

The Supreme Court ruled that non-compete fee is paid by one party to another to restrain the latter from competing with the payer in the same line of business. The restriction may be limited to a specified territory or otherwise; similarly, it can be for a specified period or otherwise. The purpose of a non-compete payment is to give the payer’s business a head start. It can also be for the purpose of protecting the payer’s business or enhancing its profitability by insulating it from competition.

Thus, the non-compete fee seeks only to protect or enhance the business’s profitability, thereby facilitating its carrying on more efficiently and profitably. Such payment neither results in the creation of any new asset nor accretion to the profit-earning apparatus of the payer. The enduring advantage, if any, of restricting a competitor in business is not in the capital field.

Following the judicial trend, it can be safely inferred that the length of time over which the enduring advantage may enure to the payer is not determinative of the nature of expenditure. As long as the enduring advantage is not in the capital field, where the advantage merely facilitates carrying on the business more efficiently and profitably, leaving the fixed assets untouched, the payment made to secure such advantage would be an allowable business expenditure, irrespective of the period over which the advantage may accrue to the payer (assessee) by incurring such expenditure.

Thus, the Supreme Court held that a payment made by the assessee as a non-compete fee is an allowable revenue expenditure under Section 37(1) of the Act.

Read the Ruling

2. SEBI reviews and simplifies procedure and documentation for issuance of duplicate securities to improve ease of investment

The Securities and Exchange Board of India (SEBI) vide Circular dated December 24, 2025, has reviewed the procedure and documentation requirements for the issuance of duplicate securities with a view to further simplifying and standardising the process. Under the revised framework, the threshold for simplified documentation has been increased from Rs. 5 lakhs to Rs. 10 lakhs; a standardised affidavit-cum-indemnity has been prescribed; documentation requirements for higher-value securities have been rationalised, and notarisation has been dispensed with for low-value cases. The revised framework shall apply with immediate effect and is summarised below:

• Threshold for simplified documentation increased from Rs 5 lakh to Rs 10 lakh

SEBI has decided to increase the threshold for simplified documentation from Rs 5 lakh to Rs 10 lakh. This measure is expected to significantly reduce the procedural burden on investors seeking the issuance of duplicate securities and make the overall process more efficient and investor-friendly.

• A Standardised Affidavit-cum-Indemnity bond has been prescribed

The regulator has prescribed a standardised Affidavit-cum-Indemnity bond for investors. Where the value of securities as on the date of submission of the application, along with complete documentation, does not exceed Rs 10 lakhs, the security holder is required to submit an Affidavit-cum-Indemnity bond on a non-judicial stamp paper of appropriate value, as prescribed by the Stamp Act of the State where the claimant resides.

Further, the value of the non-judicial stamp paper must be determined as the higher of the amounts prescribed for an affidavit and an indemnity bond.

• Rationalisation of documentation for securities valued above Rs 10 lakhs

SEBI has rationalised the documentation requirements for securities valued at more than Rs 10 lakh. For securities valued above Rs 10 lakh, the claimant must, in addition to the Affidavit-cum-Indemnity bond, submit a copy of an FIR, including e-FIR/police complaint/Court injunction order/copy of plaint, which must necessarily contain details of the securities, folio number, distinctive number range and certificate numbers.

Further, the listed company is required to issue an advertisement regarding the loss of securities in a widely circulated newspaper in the region where its registered office is situated, on a weekly basis. The listed company may charge a minimal fee from the investor towards the cost of such an advertisement.

• Dispensing with the requirement of Notarising the Affidavit-cum-Indemnity bond for securities valued at up to Rs 10,000

SEBI has done away with the requirement of notarising the Affidavit-cum-Indemnity bond in cases involving securities valued at up to Rs 10,000. Accordingly, where the value of securities does not exceed Rs 10,000 as on the date of submission of the application, the security holder must submit an undertaking on plain paper in the prescribed format.

Processing of requests for issuance of duplicate securities by listed companies and RTAs

SEBI has directed that all listed companies and RTAs must process requests for the issuance of duplicate securities strictly in accordance with the updated procedure. The revised provisions must also apply to ongoing requests for the issuance of duplicate securities that are currently in process to give the benefit of the simplified procedure to the investors.

Conclusion

This initiative marks a significant step towards enhancing the ease of investment and strengthening investor protection. By increasing thresholds, streamlining documentation, and removing unnecessary procedural requirements, such as notarisation for low-value cases, the revised framework reduces time, cost, and complexity for investors. Extending these benefits to pending requests further ensures fairness, uniformity, and transparency. Overall, these measures promote a more efficient and investor-friendly ecosystem.

Read the Circular

3. Labour Court cannot override employer’s penalty; reducing dismissal to reinstatement despite proven misconduct was invalid: HC

The High Court, in the matter of TATA Consultancy Services Ltd. vs. Vinit Jain [2025] 181 taxmann.com 284 (Bombay), held that the Labour Court cannot override the penalty imposed by the employer on an employee. Thus, reducing a dismissal to reinstatement when the misconduct is duly proved was held to be invalid.

a) Brief facts:

In the instant case, the Respondent-employee was dismissed from the service of the petitioner-employer on charges of insubordination, late reporting for duty, etc. Since no disciplinary inquiry was held by the petitioner-employer while dismissing the respondent, the petitioner chose to justify its action by leading evidence before the Labour Court.

The Labour Court held that charges relating to insubordination and late reporting for duty were proved, whereas the balance of charges were not proved against the respondent. The Labour Court, however, found that the punishment of dismissal from service was not proportionate to the proved misconduct and, accordingly, directed the reinstatement of the respondent with 50% back wages and continuity with effect from the date of dismissal.

Before the High Court, the petitioner submitted that once serious charges of insubordination were proved, the Labour Court could not have interfered in the quantum of punishment.

b) High Court Observations:

The High Court noted that the Labour Court could not wear the glasses of the employer and decide whether such conduct on the part of the employee was grave or not. Further, the Labour Court had committed a jurisdictional error by going into the issue of the quantum and proportionality of the penalty.

c) High Court Ruling:

The High Court held that the Labour Court had grossly erred in recording a casual finding of punishment being disproportionate to prove misconduct by substituting itself in place of the employer, as if it was exercising appellate jurisdiction over the wisdom of the employer in choosing the exact nature of the penalty. Thus, the impugned award passed by the Labour Court was indefensible and liable to be set aside.

Read the Ruling

4. GST Demand on government enterprise’s lease proceeds set aside where Finance Ministry clarified no tax due: HC

The High Court held that the GST demand on lease proceeds collected in escrow by a Government enterprise was unsustainable in view of a Government office memorandum clarifying the tax treatment of such receipts. The memorandum clarified exemption and reverse charge applicability to escrow receipts from redevelopment projects.

Facts of the Case

The petitioner, a government enterprise, undertook the redevelopment and executed a memorandum of understanding (MOU) with the Ministry of Urban Development. An escrow agreement appointed the petitioner as the agency to manage lease proceeds, which were credited to escrow for onward transfer to the Ministry or the Consolidated Fund. The receipts originated from Government Departments, autonomous bodies, PSUs, and others. The Directorate General of GST Intelligence investigated the project and the escrow collections, confirming a GST demand on the escrow receipts. It was contended that the GST demand was unsustainable. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the GST demand raised lacked merit in view of the Ministry of Finance’s office memorandum. The Court observed that the memorandum clarified the treatment of escrow receipts from redevelopment projects and addressed the applicability of exemption and reverse charge mechanisms under Section 9 of the CGST Act. It was concluded that the petitioner’s claims were consistent with the memorandum and that the GST demand could not be sustained. Consequently, the Court set aside the impugned order.

Read the Ruling

5. Areca nuts in transit ordered to be released on payment and bank guarantee due to perishability despite GST document irregularities: HC

The High Court held that detention and penalty under section 129 of the CGST Act were justified where serious GST document irregularities indicated a dubious transaction during transit. However, considering the perishable nature and short shelf life of areca nuts, the Court directed release of the goods and conveyance on payment of tax and furnishing of a bank guarantee for the balance.

Facts of the Case

The petitioner, a trader engaged in the sale of areca nuts, challenged detention and penalty imposed on its consignment during interstate transit. It contended that the consignment was perishable, that multiple e-way bills and alleged discrepancies in consignor identity and invoices did not justify penalty. It was submitted that weighment evidence did not conclusively establish irregularity. The Department of Revenue maintained that e-way bills were generated 36 minutes apart for locations 266 km apart, the documents were dubious, the movement was continuous, and the penalty was justified. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that exceptional writ grounds were absent and factual disputes regarding penalty and document irregularities required appellate scrutiny under Section 107 of the CGST Act. The Court interpreted that Section 129 applied only where documents were genuine and could not protect dubious transactions. It concluded that penalty under Section 129(1)(b) was justified. Considering the perishability and short shelf life of the areca nuts, the Court directed the release of both goods and conveyance on payment and on furnishing a bank guarantee securing the balance, to be completed within three working days.

Read the Ruling

6. ASB of ICAI issues FAQ on accounting implications of new labour codes for Gratuity and Employee Benefits

The Accounting Standards Board (ASB) of ICAI has now issued detailed FAQs clarifying the accounting implications of the New Labour Codes under Ind AS and Indian GAAP, effective 21 November 2025. The guidance provides much-needed clarity for companies and auditors on the recognition, measurement, presentation, and disclosure of employee benefit obligations, particularly gratuity and leave encashment.

Key clarifications include the treatment of the increase in gratuity liability arising from the revised wage definition and expanded employee eligibility, which is to be accounted for as a plan amendment resulting in past service cost, with immediate recognition in profit or loss under Ind AS 19. The FAQs also distinguish between salary restructuring (plan amendment) and actual salary increases (changes in actuarial assumptions), requiring separate identification and accounting.

Importantly, the ASB has clarified that the additional gratuity liability must be recognised in interim financial results, such as the quarter ending December 2025, and cannot be deferred to the year ending March 2026. For periods ending before 21 November 2025, the impact is treated as a non-adjusting event, requiring appropriate disclosures under Ind AS 10.

The FAQs further address the accounting and presentation of incremental employee benefit expenses, the circumstances in which exceptional item presentation may be considered, and the related current and deferred tax implications.

Overall, the guidance aims to ensure consistency, transparency, and comparability in financial reporting for entities impacted by the New Labour Codes, and underscores the need for timely actuarial evaluation and robust disclosures.

Read the News

7. ASB of ICAI issues exposure draft on amendment of Ind AS 21 and opens a window for public comment

The Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) has issued an exposure draft proposing amendments to Ind AS 21, aligned with recent developments in IFRS Standards. Ind AS are designed to remain converged with IFRS, and accordingly, the ASB periodically reviews changes introduced by the International Accounting Standards Board (IASB) to assess the need for corresponding updates in Ind AS.

As part of this ongoing convergence process, the exposure draft on “Amendments to Ind AS 21 – Translation to a Hyperinflationary Presentation Currency” has been released for public consultation. Stakeholders may submit their comments on the proposed amendments up to 25 January 2026.

This step reflects ICAI’s continued commitment to keeping Ind AS in line with global accounting standards while addressing emerging and practical financial reporting considerations.

Read the News

8. DAAB of ICAI invites public comments on the Exposure Draft of the Information Systems Audit Standards

With a view to strengthening assurance over information systems, the Digital Accounting and Assurance Board (DAAB) of ICAI has issued the Exposure Draft of the Information Systems Audit Standards (ISAS) and invited public comments. The draft seeks to establish a comprehensive, principle-based framework for assessing the integrity, confidentiality, availability, reliability, and security of information systems.

The proposed ISAS adopts a structured and globally aligned approach to Information Systems Audits, addressing critical aspects such as audit planning and performance, audit evidence and documentation, governance and internal controls, use of automated tools, cybersecurity audits, digital personal data protection, reporting, and quality management. Stakeholders may review the exposure draft and submit their comments by 25 January 2026.

Read the News