Weekly Round-up on Tax and Corporate Laws | 3rd to 8th March 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 03^rd to 08^th 2025, namely:

1. SEBI eases nomination guidelines for a smoother investor experience;
2. Cross-objection not maintainable in appeal filed under section 260A: HC;
3. Refund of amount along with applicable interest was upheld as recovery made during investigation without adjudication was contrary to law: HC;
4. Limitation period for filing refund of unutilised ITC on export of goods to be computed from shipping date: HC; and
5. Ensuring accurate classification of liabilities: The importance of compliance with Ind AS.

1. SEBI eases nomination guidelines for a smoother investor experience

Investing just got easier! In its continuous efforts to enhance investor convenience, SEBI has introduced key amendments and clarifications to the nomination process for demat accounts and mutual fund (MF) folios. Through its Circular dated February 28, 2025, SEBI aims to simplify asset transfers, reduce procedural burdens, and provide greater flexibility to investors.

One of the most significant changes is that single account holders can now opt out of nomination either online or offline, instead of being restricted to a specific mode. Surviving joint holders have also been given the flexibility to update essential details such as residential addresses, bank details, and nominee information at their convenience. These modifications remove rigid formalities and introduce a structured and transparent approach that ensures seamless asset transmission.

1.1 Key modifications in SEBI’s Nomination guidelines for enhanced investor convenience

Through its Circular dated January 10, 2025, SEBI introduced a revamped framework for nomination facilities in the Indian Securities Market. In response to stakeholder representations and subsequent discussions, SEBI has now issued additional modifications and clarifications to enhance transparency, flexibility, and ease of use. These updates simplify the nomination process, reduce procedural complexities, and give investors greater control over their assets. The key modifications are as follows:

1.1.1 Simplified Transmission Process for Surviving Joint holders

When one or more joint holders pass away, the regulated entity is now required to transfer the assets held in the demat account or mutual fund folio to the surviving joint holder(s) by removing the deceased holder’s name from the records.

The term “assets” here refers to securities held in a demat account (such as shares, bonds, ETFs, debentures) or mutual fund units in an MF folio.

Previously, the surviving holders had to retain the same account structure. Now, they have the flexibility to either continue with the existing account/folio or transfer the assets to a new or another existing account/folio of their choice.

This ensures that surviving joint holders have greater control over their investments and can conveniently manage their holdings without unnecessary restrictions.

Regulated entities such as depositories, depository participants (DPs), asset management companies (AMCs), stockbrokers, and registrars must comply with these revised guidelines to ensure smoother transmission processes for investors.

1.1.2 Single Account Holder can Opt Out of Nomination either Online or Offline

The SEBI has made it easier for investors with single holding accounts or folios to opt out of nomination. With the latest revision, investors can now opt out online or offline, regardless of how their account was opened. This ensures that nomination remains a personal choice rather than a mandatory requirement, giving investors complete control over their accounts.

1.1.3 Nominee Can Operate Account If Investor is Physically Incapacitated

A new provision allows investors who become physically incapacitated but still have the capacity to contract to designate a nominee to operate their account or folio. This means that even if an investor is unable to manage their investments due to a physical condition, their nominee can step in and handle transactions on their behalf. Moreover, the investor retains the flexibility to change the nominee any number of times, ensuring greater security and control over their financial decisions.

1.1.4 No mandatory KYC requirement for Surviving joint holders

The SEBI has now clarified that submission of KYC details cannot be a precondition for transmission unless the regulated entity has already requested KYC documents from the holder, which were not provided. This means surviving joint holders will no longer face unnecessary delays in accessing their inherited assets.

Additionally, surviving holders can update their details such as addresses, bank accounts, income status, and nominee details either at the time of transmission or later, without the need for additional documentation. Furthermore, if a joint account becomes a single holding after the demise of one holder, the investor must either nominate or opt out, making the process more structured.

1.1.5 Strengthened Online Mechanism for Opting Out of Nomination

The revised guidelines strengthen the online mechanism for opting out of nomination by aligning the opt-out process with the mode of account opening. For investors opening a new account or folio online, the opt-out must also be completed online. Similarly, for those opening accounts through offline or physical modes, the opt-out must be done through the same mode. However, existing account or folio holders can opt out via either method, providing them with maximum flexibility.

For demat accounts, SEBI has also mandated that Depository Participants (DPs), and not Depositories, must provide the online opt-out mechanism, ensuring greater accessibility for investors.

1.2 Conclusion

The revised nomination guidelines establish a more streamlined and investor-friendly framework for nomination and transmission in the securities market.  By simplifying the process for surviving joint holders, allowing single holders to opt out of nomination, and enabling physically incapacitated investors to designate nominees, SEBI ensures greater flexibility and ease of asset transfer. Further, relaxing KYC requirements for surviving joint holders removes unnecessary procedural hurdles, facilitating quicker transmission.

Overall, these modifications improve efficiency, reduce administrative burdens and give investors greater control over their holdings, ultimately strengthening investor protection and market transparency. The revised norms are effective from March 01, 2025.

Read the Circular

2. Cross-objection not maintainable in appeal filed under section 260A: HC

The assessee was a company and was part of the ND Group. A search and seizure operation was undertaken in terms of section 132(1) in the case of the ND Group. During that search, several documents and material relating to the assessee were seized from the premises of APPL. The proceedings under section 153C were initiated against the assessee.

The Assessing Officer (AO) passed the assessment order by making certain additions. On appeal, CIT(A) granted partial relief to the assessee. Both the assessee and the revenue preferred an appeal to the Tribunal. The Tribunal partly allowed the appeal filed by the assessee and granted partial relief. Aggrieved-assessee filed a cross-objection to the High Court against the order of the Tribunal. The revenue objected that the cross-objection would not be maintainable in light of section 260A neither envisaging nor creating such a remedy.

The High Court held that section 260A refrains from incorporating a specific provision permitting the filing of a cross-objection. This starkly contrasts what is provisioned for at the second appeal stage before the Tribunal. Thus, while at the stage of an appeal reaching the board of the Tribunal, both the revenue as well as the assessee are statutorily enabled to prefer a cross-objection on receipt of notice of an appeal, the Legislature has not made any corresponding or parallel provision in section 260A.

It is also pertinent to note that while that cross-objection could be to ”any part of such order” and which forms the subject matter of the appeal filed before the Tribunal, the right of the respondent stands confined to urging for consideration that the appeal does not give rise to any substantial question of law.

The above aspect is of critical significance and representative of the legislative intent of narrowing down the scope of the appeal that may come to be instituted under section 260A. If one were to countenance a right of preferring a cross-objection despite the aforenoted statutory prescription, it would result in not only widening the scope of the intended appeal proceedings but also amount to the Court by way of legal interpretation reading into section 260A the existence of a substantive right which the statute otherwise forbears.

Read the Ruling

3. Refund of amount along with applicable interest was upheld as recovery made during investigation without adjudication was contrary to law: HC

The Hon’ble Karnataka High Court held that the recovery of tax during an investigation without adjudication is contrary to law and violative of Article 265 of the Constitution, as self-ascertainment under Section 74(5) of the CGST Act mandates voluntary determination. Accordingly, the Court directed a refund of the recovered amount along with applicable interest, holding that coerced payments cannot be treated as a self-ascertained tax liability.

Facts

The assessee challenged the investigation initiated under Section 67 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and questioned the validity of the summons issued to a witness. During the investigation, the intelligence officers recorded the statement of a partner, alleging that invoices were issued without an actual supply of goods. The assessee contended that the payments made during the investigation were extracted under coercion and could not be classified as self-ascertainment under Section 74(5) of the CGST Act. It was further asserted that any recovery prior to adjudication violated Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by the authority of law. Seeking relief, the assessee filed a writ petition before the Karnataka High Court, challenging the pre-SCN recovery and demanding a refund of the amount paid.

Held

The Hon’ble Karnataka High Court held that the recovery of tax amounts during an investigation without adjudication is contrary to law and violates Article 265 of the Constitution. The Court emphasized that self-ascertainment under Section 74(5) requires a voluntary determination of tax liability, which was absent in this case. Although the declaration in Form DRC-03 stated the payments were voluntary, the surrounding circumstances and evidence demonstrated coercion. Consequently, the payments made by the assessee could not be deemed as self-ascertained tax liability. The Court ruled that such recovery was illegal and unenforceable, directing the refund of the recovered amount along with applicable interest in favour of the assessee.

Read the Ruling

4. Limitation period for filing refund of unutilized ITC on export of goods to be computed from shipping date: HC

The Hon’ble Gujarat High Court held that, under Section 54(1) read with Explanation 2 of the CGST Act, 2017, the limitation period for filing a refund of unutilized ITC on exports is to be computed from the date of shipping when goods leave India. Consequently, as the petitioner failed to file the refund claim within the prescribed two-year period, the rejection of the claim as time-barred was upheld.

Facts

The assessee, an exporter, exported goods between July 2017 and March 2018 and subsequently filed a refund application under Section 54(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), seeking a refund of the IGST paid on such exports. The Revenue rejected the refund claim for the period prior to June 2018, stating that it was filed beyond the prescribed two-year limitation period. Aggrieved by the rejection, the assessee filed a writ petition before the Gujarat High Court, contending that the relevant date for computing the limitation period should be the date of filing returns rather than the date of shipping. The assessee further argued that the delay was attributable to COVID-19-related disruptions and sought relief on these grounds.

Held

The Hon’ble Gujarat High Court held that, as per Section 54(1) read with Explanation 2 of the CGST Act, 2017, the relevant date for computing the two-year limitation period is the date when the goods are loaded for shipping and leave India. The Court emphasized that the limitation period is mandatory and cannot be extended beyond two years, except where explicitly provided by law. As the petitioner has failed to file the refund claim within the prescribed period of two years from the relevant date, the respondent authority has rightly rejected such refund claim as being time barred.

Read the Ruling

5. Ensuring accurate classification of liabilities: The importance of compliance with Ind AS

The classification of liabilities in financial statements is a crucial aspect of financial reporting, impacting transparency, investor confidence, and regulatory compliance. Under Ind AS 1, Presentation of Financial Statements, the liabilities must be categorized as current or non-current based on the entity’s ability to defer settlement as of the reporting date. However, misclassification often occurs when companies factor in post-balance sheet events, leading to potential financial misstatements. Ensuring accuracy in classification is essential to provide stakeholders with a true and fair view of a company’s financial obligations and liquidity position.

A relevant example involves a company with a significant outstanding loan that was scheduled for repayment within a few months of the balance sheet date. Before the reporting date, the company received a sanction letter confirming refinancing, extending the loan term for several years. However, the formal refinancing agreement was signed only after the balance sheet date. Despite this, the company classified the loan as a non-current liability, assuming that the refinancing arrangement justified the reclassification. According to Ind AS 1, liabilities can only be classified as non-current if there is an unconditional right to defer settlement at the reporting date. Since the formal agreement was finalized after the reporting date, the classification as non-current was incorrect. Also in this case under Ind AS 10, Events occurring after Reporting Period the refinancing agreement shall be qualified as a non-adjusting event, meaning it should only be disclosed in the financial statements without affecting the liability classification and the company should continue to classify it as current liability as on the reporting date.

This case underscores the importance of auditors and audit committees critically assessing liability classifications based on actual agreements rather than anticipated events. Misclassification can distort a company’s financial position, mislead investors, and invite regulatory scrutiny. To maintain financial reporting integrity, entities must adhere to Ind AS 1 and Ind AS 10, ensuring that liabilities are classified based on conditions existing at the reporting date.

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