Reimbursement of maintenance through the sale of ancestral land!; No GST on relocation; and more

Case 1: SC orders sale of ancestral property to pay maintenance of divorced wife

The cliché goes that extraordinary situations require extraordinary measures. The Constitution of India, therefore, under Article 142, grants the Supreme Court the power to uphold complete justice by going beyond the law if the situation requires it. In a sense, this extraordinary power allows the Supreme Court to supersede laws enacted by Parliament and state legislatures. The Supreme Court has never shied away from making use of this extraordinary power when the situation requires it, that is, when there is a gap in the arsenal of the law.

The Supreme Court recently ordered the sale of a man’s ancestral property to clear his child support arrears ₹1.25 Crores to his wife using the powers conferred by Article 142 in Manmohan Gopal V. State of Chhattisgarh. After the divorce, the man dawdled around and actually lived happily in Australia while his ex-wife languished, having to be supported by her mother willy-nilly in the face of her ex-husband’s intransigence. To do justice, the Supreme Court ordered the sale of several ancestral properties of the delinquent ex-husband.

This should set a healthy precedent for men to scoff at family court orders.

Case 2: No GST on stock transfer

In a matter – M/S Vacmet India Ltd. v. Additional Commissioner Grade -2 (Appeal) and another

The court accordingly quashed the penalty order of the UP GST authorities who alleged tax evasion when there was none. Of course, the GST must be paid when the branch or depot has actually made sales.

Case 3: The club admission fee is not a capital expense

At Swiss Re Services India Pvt. Ltd. v. Deputy Commissioner of Income-Tax, the Bombay High Court recently rejected the Income Tax Department’s contention that the joining fee for a club was a one-time payment resulting in a permanent benefit and therefore could not be written down as compared to the current ones Win.

This is the Department’s typical claim of not recognizing what is supposed to be a business expense. The court rightly found that there was no increase or increase in the company’s profit apparatus, which would be the case if a machine was installed.

Section 37(1) of the Income Tax Act 1961, the residual or omnibus section that deals with business expenses, frowns on capital expenditure, giving rise to many litigations. The courts use their discretion to reach a pragmatic conclusion as to whether the expenditure in question was in fact capital expenditure.

Case 4: Telecom license fee is not a source of income: SC

The Supreme Court on October 16 said that the license fees paid by telecom companies to the Department of Telecom (DoT) after July 1999 would be treated as capital expenditure and not as revenue expenditure. ₹Accepting the Income Tax Department’s contention in this regard, the court said the annual payment was for royalty on the basis of Adjusted Gross Turnover (AGR). The fee cannot be considered a revenue expense simply because it is paid based on annual gross receipts.

The broadcasting fee under the 2G Directive (1999) was fixed in advance, but could be paid in 20 annual installments. The telecom companies have been rather ambitious and overconfident, claiming that the license fee is a revenue expense that is declining compared to the current year’s profits. However, in doing so they violate Section 35ABB, which states that royalties can be amortized evenly over the term of a license. So for the telecom companies, the verdict doesn’t just spell disaster, it just means compliance with Section 35ABB and biding their time.

—This column, Legal Digest, interprets various case judgments or proceedings and their impact on the current social and business scenario. The author, S. Murlidharan, is a CA trained and writes on economic issues, tax and trade laws. The views expressed are personal.

(Edited by: CH Unnikrishnan)

First Published: November 5, 2023, 1:07 PM IST