Weekly Round-up on Tax and Corporate Laws | 8th December to 13th December 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Dec 15th to Dec 20th 2025, namely: 

1. Dividend income on investments in shares not eligible for deduction under section 36(1)(viii): SC; 
2. Section 44C covers head office expenses, whether common or solely for Indian branches: SC;
3. Key Highlights of SEBI’s Board Meeting dated December 17, 2025;
4. Contractual service period prior to regularisation must be counted towards payment of pensionary benefits: SC; 
5. Subsidiary’s independent services to US parent were zero-rated exports; refund of unutilised ITC was allowable: HC; 
6. Seizure of goods justified as E-way bill was generated much after interception of goods: HC; 
7. NFRA issues circular on compliance with SA and SQC 1 requirements for audit file retention; and 
8. Accounting for digital assets: Research Committee of ICAI highlights the need for framework in digital assets.

1. Section 44C covers head office expenses, whether common or solely for Indian branches: SC 

The assessee, a non-resident banking company, filed its return of income for the relevant assessment year. While computing the income, the assessee claimed a deduction for expenses incurred at the head office directly related to the Indian branches.  

The Assessing Officer (AO) contended that the expenses in question should be subject to the ceiling specified in Section 44C. The assessee claimed that the expenses in question could not have been classified as head office expenditure for the reason that Section 44C presupposes that at least a part of the expenditure is attributable to the business outside India. If this presumption does not hold, and the entire expenditure is incurred solely for the business in India, Section 44C would not apply. 

The AO passed an assessment order limiting the deduction under Section 44C to 5% of the gross total income. The matter reached before the Supreme Court. 

The Supreme Court held that to be brought within the ambit of Section 44C, two broad conditions must be satisfied: (i) The assessee claiming the deduction must be a non-resident; and (ii) The expenditure in question must strictly fall within the definition of ‘head office expenditure’ as provided in the Explanation to the Section. 

The Explanation prescribes a tripartite test to determine if an expense qualifies as ‘head office expenditure’ – (i) The expenditure was incurred outside India; (ii) The expenditure is in the nature of ‘executive and general administration’ expenses; and (iii) The said executive and general administration expenditure is of the specific kind enumerated in clauses (a), (b), or (c) respectively of the Explanation, or is of the kind prescribed under clause (d). 

This means that even if such head office expenditure can be allowed as a deduction under Section 37(1), it would not be permitted if it exceeds the ceiling limit set under Section 44C. Section 44C of the Income Tax Act does not create a distinction between common and exclusive head office expenditure. It applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches. The term ‘attributable’ in Clause (c) does not create a statutory distinction between ‘common’ and ‘exclusive’ expenditure. 

Thus, the question of law is answered in favour of the Revenue, and it was held that Section 44C applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches. 

Read the Ruling 

2. Key Highlights of SEBI’s Board Meeting dated December 17, 2025 

The Securities and Exchange Board of India (SEBI), at its 212th board meeting on December 17, 2025, approved a series of amendments to strengthen the regulatory landscape and promote market integrity.  

The Press Release (PR No. 84/2025) dated December 17, 2025, highlights the key approvals made by the Board. These include (a) Relaxation in the threshold for identification of ‘High-Value Debt Listed Entities’, (b) streamlining public issue requirements to enhance ease of doing business and Retail Investor Participation, (c) permitting debt issuers to offer incentives in public issues to certain categories of investors (d) a comprehensive review of mutual fund regulations to enhance transparency and investor protection. Some of the key highlights of the SEBI’s board meeting in detail are as follows:  

• Relaxation in the threshold for identification of ‘High-Value Debt Listed Entities’ 

Presently, HVDLEs are identified as entities with outstanding non-convertible debt of Rs. 1,000 crore or more. To promote ease of doing business, the Board has approved a proposal to relax this threshold with entities having outstanding non-convertible debt of Rs. 5000 crore or more.  

The Board has also approved amendments to the LODR Regulations, 2015, to align the Corporate Governance (CG) norms for HVDLEs with the recent changes applicable to equity-listed entities. The amendment aims to ease compliance for HVDLEs by raising the threshold and aligning their corporate governance frameworks with those of equity-listed entities.  

• Streamlining Public Issue Requirements to enhance ease of doing business and Retail Investor Participation  

Under the ICDR Regulations, the entire pre-issue capital held by persons other than promoters, except for shares held by certain specified categories of shareholders, must be locked in for 6 months from the date of allotment in the IPO.  

Certain issuers face challenges meeting these lock-in requirements, especially when non-promoters created pledges before the IPO.  

In this regard, the Board has approved an amendment to the ICDR Regulations to prescribe that, in case lock-in of the specified securities cannot be created, the depositories must record such securities as “non-transferable” for the duration of the lock-in period.  

Further, the Board has approved that a focused, concise and standardised summary of offer documents in the form of a draft abridged prospectus must be made available at the DRHP stage, in addition to the existing requirement of filing of an abridged prospectus at the RHP stage. Disclosures in the abridged prospectus will also be rationalised for improved clarity.   

By introducing a draft abridged prospectus at the DRHP stage and simplifying disclosures, SEBI intends to improve transparency and support better-informed retail investor participation. 

• Permitting debt issuers to offer incentives in public issues to certain categories of investors 

Currently, issuers of debt securities are not permitted to offer incentives to any persons for making an application in the issue, except for fees or commissions paid for services related to the issue.  

To boost retail investor participation in the corporate debt market and encourage public issuances, the Board considered and approved a proposal to amend the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, allowing debt issuers to offer incentives to specific categories of investors.  

Under this amendment, issuers of debt securities will be able to provide incentives in the form of additional interest or a discount to the issue price to specific categories of allottees, including senior citizens, women, armed forces personnel (serving and retired), widows and widowers of such personnel, retail individual investors or any other category of investors as may be specified by the Board.  

This change aims to make corporate debt issuances more attractive by allowing issuers to reward select investor groups through meaningful financial incentives. It is expected to widen retail participation, improve market depth, and make public debt offerings more competitive. 

• Replacement of SEBI (Stock Brokers) Regulations, 1992 with SEBI (Stock Brokers) Regulations, 2025   

The Board has approved of a proposal to replace the SEBI (Stock Brokers) Regulations, 1992, with the SEBI (Stock Brokers) Regulations, 2025. Some of the features of the new Regulations approved by the Board are as follows: 

a) Reorganisation of the Regulations
b) Amendments of certain key definitions, such as clearing member, professional clearing member, proprietary trading member, proprietary trading, designated director, etc. to provide clarity
c) Modifications or inclusion of certain provisions to facilitate ease of compliance and ease of doing business by enabling provision for joint inspection and maintenance of books of accounts
d) Removal of obsolete and non-applicable historical provisions, such as provisions relating to physical delivery of shares, Forward Market Commission sub-brokers, etc. 

The replacement of Regulations, 1992, with the 2025 framework reflects SEBI’s intent to modernise and simplify the existing regulatory framework. By reorganising provisions, updating definitions, and removing outdated requirements, the revised Regulations aim to enhance clarity and reduce compliance burden.  

• Comprehensive review of Mutual Funds Regulations to enhance transparency and investor protection  

For nearly three decades, the SEBI (Mutual Funds) Regulations, 1996, have served as the foundational regulatory framework for India’s mutual fund industry. Over the years, multiple amendments have adopted to address evolving market practices, resulting in a complex, layered regulatory structure.  

The Board has now approved a comprehensive review of these Regulations. The new SEBI (Mutual Funds) Regulations, 2026, aim to provide greater clarity, improved readability, and enhanced structural clarity for all stakeholders.  

While simplifying compliance, the revised framework retains the core principles, safeguards, and regulatory intent developed over the years and further strengthens investor protection, transparency, and governance standards within the mutual fund ecosystem. The revised structure ultimately enhances transparency, governance, and investor protection across the mutual fund industry.  

Read the Press Release 

<h2id=”3″> 3. Dividend income on investments in shares not eligible for deduction under section 36(1)(viii): SC 

The assessee, National Cooperative Development Corporation (NCDC), a statutory corporation engaged in providing long-term finance for agricultural and industrial development, claimed deduction under section 36(1)(viii) of the Income-tax Act, 1961 in respect of (i) dividend income on investments in shares, (ii) interest earned on short-term bank deposits, and (iii) service charges received for monitoring loans under the Sugar Development Fund. 

The Assessing Officer, during the scrutiny assessment, disallowed the claim, holding that the receipts lacked a direct nexus with the business of providing long-term finance as required under section 36(1)(viii). 

Aggrieved, the assessee preferred appeals before the CIT(A), which were dismissed. The disallowances were confirmed by the Income Tax Appellate Tribunal and thereafter by the High Court. Aggrieved by the High Court’s judgment, the assessee filed appeals before the Supreme Court. 

The Supreme Court held that the phrase “derived from” signifies a strict, first-degree nexus. It connotes a requirement of a direct, first-degree nexus between the income and the specified business activity. It is judicially settled that “derived from” is narrower than “attributable to”. 

Assessee contended that the substance of redeemable preference shares is effective loans, as the fixed redemption schedule and dividend rate assimilate them to the nature of debt. However, the AO drew attention to the admitted factual position that these receipts are “investments in agricultural-based societies by way of contribution to share capital”.  

AO submitted that under Section 85 of the Companies Act, 1956, preference shares unequivocally remain share capital and cannot be treated as loans. 

The Supreme Court held that dividends are a return on investment dependent on the profitability of the investee company, and that this distinction is fundamental to the income’s genealogy. There is a fundamental distinction between a shareholder and a creditor. The basic characteristic of a loan is that the person advancing the money has the right to sue to recover the debt. 

In stark contrast, a redeemable preference shareholder cannot sue for the money due on the shares or claim a return of the share money as a matter of right, except in the specific eventuality of winding up. 

This is also the reason SC holds that the immediate source of dividend income is the investment in share capital, not the business of providing loans. Since the statute specifically mandates ‘interest on loans’, extending this fiscal benefit to ‘dividends on shares’ would defy the legislative intent. Therefore, the Supreme Court held that dividend income does not qualify as profits derived from the business of providing long-term finance. 

Read the Ruling 

4. Contractual service period prior to regularisation must be counted towards payment of pensionary benefits: SC 

The Supreme Court, in the matter of S.D. Jayaprakash vs. Union of India [2025] 181 taxmann.com 182 (SC), ruled that the contractual service period rendered prior to the appellants’ regularisation must be counted towards payment of pensionary benefits in accordance with the mechanism set out in Rule 17 of the Central Civil Services (Pension) Rules, 1972. 

a) Brief facts of the case: 

In the instant case, the appellants were appointed as Data Entry Operators under the Plan Scheme called ‘Rationalisation of Data Processing Facilities’ on a temporary and contractual basis between 1996 and 1999.

Pursuant to an order of the Central Administrative Tribunal (CAT), the respondents issued an Office Memorandum to regularise the appellants’ service from a prospective date, i.e., from the date of issuance of this order. Consequently, the appellants were appointed on a regular basis by an order dated 01-04-2015. 

The appellants filed an Original Application before the CAT, seeking regularisation of their services from the date of initial appointment or from the date of completion of 10 years of service. They also sought protection of their pay, along with seniority, service benefits, and pension, by counting their period of contractual service.  

The respondents challenged the CAT’s order by way of a writ petition, which was partly allowed by the High Court. The High Court set aside the CAT’s directions concerning the counting of the period of contractual service for seniority, service benefits, and pension on the ground that the initial appointment was on a contractual basis and was not made pursuant to the recommendations of the Staff Selection Commission. The Court held that the appellants will be entitled to regularisation and its consequential benefits only from 1-4-2015.  

However, the Court upheld the CAT’s direction regarding protection of pay while fixing the pay scale. Thereafter, an appeal was made before the Supreme Court.  

b) Supreme Court Observations: 

The Supreme Court took note of Rule 17 of the Pension Rules, which addresses the counting of service on a contractual basis for the purpose of granting a pension. Rule 17 had been considered and interpreted in Sheela Devi (supra), where this Court held that although Rule 2(g) of the Pension Rules excludes contractual employees from their application, Rule 17 applies once such an employee is regularised at a later date. 

Further, the Supreme Court noted that upon regularisation, the Pension Rules would apply, and Rule 17 mandates that the past service as a contractual employee be taken into account when calculating the pension.  

In this context, Rule 17 requires a regularised employee to exercise an option to either retain the Government’s contribution to the Contributory Provident Fund, or to refund such amount or to forgo the same if it had not been paid in exchange for counting the service period for which such benefits may have been payable. 

c) Supreme Court Ruling: 

The Supreme Court held that, in view of the clear language of Rule 17 of the Pension Rules and its interpretation in Sheela Devi (supra), the period of contractual service rendered by the appellants’ before their regularisation in 2015 must be counted towards the payment of their pensionary benefits in accordance with the mechanism set out in Rule 17.  

Further, the Supreme Court directed the respondent-Union of India to take immediate steps and indicate the mode and manner for the appellants to exercise the option provided under Rule 17 of the Pension Rules, as well as to notify the amounts that the appellants would have to remit in case they opt for the grant of pension under the Rules.  

Accordingly, the Supreme Court allowed the appeal and set aside the impugned order of the High Court. 

Read the Ruling 

<h2id=”5″> 5. Subsidiary’s independent services to US parent were zero-rated exports; refund of unutilised ITC was allowable: HC 

The High Court held that services independently rendered by an Indian subsidiary to its US parent were not intermediary services but qualified as zero-rated export services, making refund of unutilised ITC admissible. This was held in Infodesk India (P.) Ltd. vs. Union of India [2025]. 

Facts of the Case

The petitioner was a wholly owned Indian subsidiary of a US company established exclusively to provide services fulfilling the parent company’s technical requirements by assisting it in carrying on the business of software development and related consultancy. It managed IT infrastructure, editorial and content creation activities, customer support, and raised tax invoices for providing software consultancy services directly to the parent company. It was submitted that the services were provided in an independent capacity and not as an agent or intermediary. The matter was accordingly placed before the High Court. 

High Court Held 

The High Court held that the petitioner was required to assist the parent company in carrying on its software consultancy business. The Court observed that the petitioner was to perform the services on its own account with payment based on actual costs plus an 8 per cent markup, thereby earning a profit. It found that the petitioner could not be regarded as an intermediary or agent and that the services were zero-rated exports. The Court directed the jurisdictional officer under GST to process the refund claim for unutilised input tax credit in accordance with Section 16 of the IGST Act and Section 54 of the CGST Act. 

Read the Ruling 

6. Seizure of goods justified as E-way bill was generated much after interception of goods: HC 

The High Court held that detention and seizure of goods were legally justified where the e-way bill was generated only after interception of the consignment. Post-interception generation could not cure the statutory lapse of non-generation before movement. This was held in Birds RO System (P.) Ltd. vs. State of U.P. – [2025]. 

Facts of the Case

The petitioner, a GST-registered trader in water purifiers and parts, filed a writ petition challenging the detention, seizure, and penalty proceedings. It was contended that multiple tax invoices had been issued for the consignment, which required the generation of an e-way bill, and that the transporter was instructed not to commence movement until the e-way bill was generated. Despite this instruction, the transporter dispatched the goods in transit, which were intercepted only by the invoices and without the e-way bill. It was submitted that the e-way bill was subsequently generated after interception due to a technical glitch and that there was no intent to evade tax. The matter was accordingly placed before the High Court. 

High Court Held 

The High Court held that it was not in dispute that the e-way bill was not generated before the commencement of the movement of goods. Since the e-way bill was produced only after interception, the detention, seizure, and order under Section 129(3) of the CGST Act/UP GST Act stood legally justified. The court observed that the plea of a technical glitch or absence of intent to evade tax did not negate the statutory requirement of generating the e-way bill before transit. Accordingly, the writ was dismissed, upholding the jurisdictional officer’s actions.  

Read the Ruling 

 7. NFRA issues circular on compliance with SA and SQC 1 requirements for audit file retention 

The National Financial Reporting Authority (NFRA) has issued a circular reiterating the requirements relating to the maintenance, archival and submission of audit files, after observing deficiencies in audit firms’ compliance with the Standards on Auditing (SAs) and SQC 1. NFRA has emphasised the need for audit firms to establish robust policies and controls to ensure the completeness, integrity and timely archival of audit documentation, including controls over authorised access to archived files. 

NFRA has also expressed concern over unreasonable delays and repeated extensions sought by auditors, noting that such practices hinder timely regulatory action and, in some cases, appear to have been misused to modify or recreate audit documentation after prescribed timelines. The Authority has clarified that audit evidence originally prepared in electronic form must be retained in that form, and any alteration of original workpapers violates SAs and SQC 1. Audit files requisitioned by NFRA must be submitted in full within seven days, with extensions permitted only in exceptional circumstances and sought within the same period. 

Read the Circular 

8. Accounting for digital assets: Research Committee of ICAI highlights the need for framework in digital assets 

The Research Committee of the Institute of Chartered Accountants of India (ICAI) has issued a report emphasising the need for a dedicated accounting framework for digital assets, including cryptocurrencies, NFTs and other blockchain-based instruments. At present, in the absence of a specific standard, entities rely on existing standards such as Ind AS 2, Ind AS 32 and Ind AS 38, which do not fully capture the unique nature, valuation challenges and risk characteristics of digital assets. This has resulted in diversity in accounting practices and limited, and at times inconsistent, disclosures. 

The report examines prevailing global practices under IFRS and US GAAP, highlights challenges in classification and fair value measurement of highly volatile digital assets, and notes the evolving regulatory landscape in India and abroad. It concludes that the development of a separate and comprehensive accounting standard for digital assets would promote consistency, enhance transparency and improve the usefulness of financial statements for users. 

Read the Story