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This article is written by Gulrukh Kaur Sidhu, pursuing a Certificate Course in Advanced Corporate Taxation from Here she discusses “Top 5 Income Tax Lawyers in India and One Landmark Case They Argued”.


1. Nani Palkhivala

Textile Machinery Corporation Ltd. Calcutta Vs Commissioner of Income Tax, West Bengal, (1977)


The assessee company is a heavy engineering concern which is in the business of manufacturing boiler, machinery parts, wagons etc. In a bid to diversify, it established a Steel Foundry Division and a Jute Mill Division and thereby claimed exemption u/s 15C of the Income Tax Act, 1922. Both of these divisions produced goods which were needed by the assessee and were procured from outside. Separate accounts were maintained and the element of the profit was also present. None of the assets was used in the new Division. The question referred to the Apex Court, in this case, was: Was the tribunal correct while holding that the Steel Foundry Division falls under the definition of an industrial undertaking and that Section 15 is applicable to it

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The Apex court went on to state that the following facts need to be established in order to be eligible to avail benefit of Section 15C:

  1. Employment of labour. 
  2. Investment in the form of substantial fresh capital in the industrial undertaking set up.
  3. There is the presence of Manufacture or production of articles.
  4. Earning of profits is clearly attributable to the undertaking.
  5. Above all, there is a separate and distinct identity of the Industrial unit.

Section 15C is an exemption section. The benefits so availed under this section is a partial benefit is to the extent of the quantum of the exempted profits of any new industrial undertaking that is established. The section provides for tax incentives in order to encourage the establishment of new industrial undertakings. These incentives may be availed thirteen years from 1st April 1948. The fact that an assessee by way of establishment of a new industrial undertaking expands his existing business, would not deprive him of the benefits under section 15C. Since new business creation amounts to some kind of expansion and advancement within the business, the true test becomes not to see whether the new industrial undertaking denotes expansion of pre-existing business, but whether this undertaking can be identified as distinct and separate from the aforementioned business. No particular case or an example can lay down an exhaustive test to determine whether something falls under the ambit of section 15C. In order to drive home the point, that a new undertaking cannot be said to have been formed out of the already existing business, there must be material to show that a new emergence of a physically separate industrial unit which has the capability to exist on its own as a viable unit.

An undertaking is said to be formed out of the existing business only if the physical identity with the old unit is preserved. In this case, there has been the establishment of two undertakings which are separate and distinct. Therefore, if the establishment is ‘Formed by Reconstruction of the business already existing’ it can be concluded that a newly established undertaking is entitled to exemption u/s 15C of the Income Tax Act, 1922.

2. Harish Salve, Senior Advocate

Commissioner of Income Tax Vs M/S Italindia Cotton Co, (1988)


The assessee suffered a loss in the Assessment Year 1960-1961. But there was a change in the shareholding of the three companies held by M/s Italindia Cotton Co. This led to the question that whether the benefit of carrying forward that loss is availed, for the purpose of computing its assessable profits for the year. The income-tax officer held that section 79 of the Income Tax act disentitled the assessee from such a set-off because as of March 31.1961, it was not having a 51% shareholding.


The Bombay High court had said that even if there is a change in the voting power of not less than 51% between the dates in question, it has to be shown that the change carried out was with a purpose to reduce or avoid any tax liability. The object of section 79 is to discourage individuals claiming a reduction of their tax liability on the profits earned in companies that had sustained losses in previous years (sub-section b).

The Apex Court went on to state, that section 79 is an exception to the scheme in Chapter 6 and that to avoid falling within the scope of section 79, it is, therefore, sufficient to just show that the case attracts either clause (a) or (b). If the assessee can show that his case falls under the two clauses, he will be entitled to claim a carry-forward and set off of losses suffered by the company in an earlier year or any previous years against the income.

3. Sandeep Goyal, Counsel for the Income Tax Department Punjab and Haryana Region

M/s Tilak Raj Madan Lal Vs State Of Punjab And Ors 2007


The case related to Purchase and sale of sugar in packed Jute Gunny bags (bardana). The assessing authority held that the gunny bags sold with sugar are liable to tax. Simultaneously the tribunal modified its earlier order while holding that there was an implied condition concerning the sale of gunny bags.


On the question of tribunal modifying its orders, the Court held that the, in this case, it cannot be something which could have to be established by a ling drawn process of reasoning on points.

On the issue of Gunny bags and sugar, it relied on the decision of Raj Steels Vs state of Andhra Pradesh (1989) 3 SCC 262 which laid down the tests in order to ascertain whether a sale transaction of packaging material will fall under the category of an independent transaction or if it is a one package deal. The factors are:

  1. The packaging is capable of being reused once the contents have been consumed.
  2. That packaging material is a commodity which has its own identity and is capable of being separately classified.
  3. There is no change, either chemical or physical in the packaging, either at the time of packing or at the time of using the content.
  4. The mere fact that the consideration for the packaging is merged with the consideration for the product, it would not make the sale of the packaging an integrated part of the sale of the product.
  5. The quantity of packaging that is used for the convenience of transport and the quantity of the goods so transported are not dependent on each other.

Thus, the court held that gunny bags are taxable only if a person exclusively deals in the sale of gunny bags and that the sale of sugar to gunny bag manufacturer which they were not, thus the portioners were not deemed to be the first purchaser from the manufacturer of the gunny bags. Therefore, the order allowing the rectification application and simultaneously dismissing the rectification application are set aside.

5. Kashmiri Lal Goyal, Senior Advocate

M/S Food Corporation Of India V State Of Punjab, 2009


The questions involved in this case were:

  1. Whether the expenses so incurred by the state or agencies of the Food corporation after the purchase or acquiring of goods before delivery to the petitioner could form part of the gross turnover and be subjected to tax.
  2. Whether the foodgrains produced by the FCI under the levy order can be subjected to tax on grounds of sale/purchase.
  3. Can the bardana supplied along with the foodgrains be subjected to tax?


For Question 1 – A close scrutiny of Section 2(1) of Punjab General Sales Tax Act indicates special emphasis being laid on any sum that has been charged for anything done by the dealer in respect of the goods at the time of, or before the delivery. Purchase made by the dealer of agricultural produce through inter is bidding and its delivery has to incur certain which is either on or before the delivery. Therefore, it would include the price of a bag, price of jute thread, stitching charges, labour charges, dammi and carriage etc. As per the facts of the case, there was no delivery taken before weighment, which is technically not possible without packaging the agricultural produce in a gunny bag and that the cost of even stitching and labour incurred for these activities have to be included for effective delivery of the goods, which would include cost of carriage also. Therefore, for question No. 1 it will form part of the gross turnover and be subjected to tax.

For Question 2 – The case is covered by Hon’ble Supreme Court in Food Corporation of India Vs State of Kerala’s case (1997) 105 STC 4 which held that ‘the disputed transactions that fall under sales, maybe due to the compulsion of a statute. Nevertheless, those sales are still eligible to tax. Whatever force is used to bring about the transactions, the same must be traced back to legislation i.e. what has been mandated by the law, that has to be done, and not to the State Government who may/may not be a party to such transactions. Thus, the principal point is that the levy procurement is a sale/purchase thereby falling within the purview of entry No. 54 of List II of Seventh Schedule to the Constitution, the States are competent to levy sales/purchase tax on such transactions.’

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On the question of Market Fee – The aforementioned position was discussed and examined in detail by the Apex Court in State of Punjab v. Guranditta Mal Shauti Prakash (2004 (5) SCC 791, wherein it was held the seller has no obligation to pay market fee since it is only the duty of the buyer to pay the same and the seller can later realise it from the buyer.”

5. Mr V Lakshmikumaran, Senior Advocate

Commissioner Of Income Tax Vs Bhayana Builders (2018)


The Government issued notification no 15/2004 – ST dated 10.09.2004 as per which service tax was to be calculated on the value which is equivalent to 33% of the gross amount charged from any person by such commercial concern providing the taxable service. This was amended vide Notification no 4/2005 – ST dated 01.03.2005 whereby an explanation was added, clearing the air that the ‘gross amount charged’ shall include the value of goods and material supplied and provided, or used by the provider of construction services. This case thereby, raised the question as to whether the value of goods/material supplied or provided free of cost by a service recipient and further using it to provide the taxable service of construction or industrial complex, could be included in the computation of gross amount of the valuation of taxable service u/s 67 and Notification no 15/2004 – ST dated 10.09.2004.


It is upon the service recipient to use any quality of goods and the value of such goods, have absolutely no bearing on the value of services provided by the same service recipient. On the first principle itself, any value not part of the contract between the service provider and the recipient has no relevance in the determination of the value of taxable services so provided. Since the levy of service tax has been found to be non-existent, the question of exemption does not arise. Service tax is to be levied in respect of ‘taxable services’ and for the purpose of arriving at 33%, of the gross amount charged, unless the value of goods/materials is specifically included by the Legislature, it cannot be added.

Explanation (c) to Section 67 lays down the definition of “gross amount charged” which includes the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. This definition in no way expands the meaning of the term “gross amount charged” which may enable the Department to ignore the contract value so charged by the service provider. The definition is an inclusive definition and not an  exhaustive one, and in no certain terms does it lead to the conclusion that the contract value can be ignored or that, the value of free supply goods can be added over and above the contract value for the sole purpose to arrive at the value of taxable services.

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