Justice BV Nagarathna: Igniting hope for the first ever woman Chief Justice of India
Know thy Judge

“Our country India, or Bharat, is not just a piece in history or geography. It is a nation of over a billion people with over a billion dreams. I have often wondered what binds us together despite the innumerable diversities. It is my firm conviction that one of the binding factors is the Indian Constitution — a legal system committed to rule of law and an organized hierarchy of courts with a Supreme Court at the apex” – Justice B V Nagarathna 1

Early Life and Education2

Justice Bangalore Venkataramiah Nagarathna was born on October 30, 1962, and is currently serving in the Supreme Court of India. She is the daughter of the late Chief Justice of India, E. S. Venkataramiah.

She attended the Bharatiya Vidya Bhavan in New Delhi for her formal education. She graduated from Jesus and Mary College, University of Delhi, with a B.A. in history in 1984. Later, she went on to the Campus Law Center, Faculty of Law, University of Delhi, where she obtained a law degree.

Did You know? Justice E.S. Venkataramiah, Justice Nagarathna’s father, served as India’s 19th Chief Justice. He was appointed on June 19, 1989, and he served until retirement on December 17, 1989

Career Trajectory 3

Justice Nagarathna became a member of the Karnataka Bar Council in October 28, 1987, and worked as a constitutional and commercial lawyer in Bangalore, including insurance law, service law, administrative and public law, law pertaining to land and rent laws, family law, conveyancing & drafting of contracts and agreements, arbitration and conciliation until being chosen in February 18, 2008, to serve as an additional judge on the Karnataka High Court.

On February 17, 2010, she was selected to serve as a permanent judge. A number of commentators noted that Justice Nagarathna’s potential nomination to the Supreme Court of India in May 2020 would put her in the race to become the first female Chief Justice of the Indian Supreme Court. She was appointed to the Supreme Court of India on August 26, 2021, and took the oath of office on August 31, 2021.

Did You Know? On September 25th, 2027, she is expected to become India’s 54th Chief Justice and will hold the post for 36 days.

Her Notable Judgments as a Judge 4

In High Court

[Preventive Detention] Karnataka HC | Non-consideration of representation at the earliest opportunity could lead to release of detenu; Guidelines/Directions issued

A Division Bench of B V Nagarathna and Hanchate Sanjeev Kumar, JJ. held that it is settled law that an order of preventive detention is made on the subjective satisfaction of the detaining authority. The Act also provides for revocation or modification of the order of detention. Such a power could be exercised suo motu by the State. It is a power coupled with the duty when it is exercised on the detenu under Section 14 of the Act is a right of the detenu and a corresponding duty is cast on the State Government, then administrative delay cannot imperil the said right. Inordinate delay in considering the said representation could lead to release of the detenu. Even though Section 14 does not prescribe any time limit for consideration of the said representation, the same must be considered at the earliest point of time.

[Rizwan Pasha v. Commissioner of Police, Writ Petition Habeas Corpus No.29 of 2021, decided on 15-06-2021]

“There can be illegitimate parents, but no illegitimate children.” Karnataka HC analyses whether a ‘son’ born out of void marriage be considered for compassionate appointment

A Division Bench of B.V Nagarathna and Hanchate Sanjeev Kumar, JJ. allowed the petition and remarked:

“no child is born in this world without a father and a mother. A child has no role to play in his/her birth.”Read More

[K Santhosha v. Karnataka Power Transmission, 2021 SCC OnLine Kar 12989 , decided on 24-06-2021]

Karnataka High Court| Whether the accused is entitled to bail in case the mandate under Section 35 of the POCSO Act has not been completed?

A Division Bench of B. V. Nagarathna and M.G. Uma JJ. held that the accused does not have a right to seek bail for the reason that the mandate under Section 35 of the POCSO Act has not been completed. Read more

[Hanumantha Mogaveera v. State of Karnataka, 2021 SCC OnLine Kar 12300 , decided on 23-04-2021]

[MV Act] Karnataka HC│Necessary permits for running the business of bike taxis as transport vehicles: Can’t decide on this an emerging concept before application of mind by State on all aspects

A Division Bench of B.V. Nagarathna and J.M. Khazi disposed of the appeal and laid the observations herein under Read More

[Ani Technologies v. State of Karnataka, 2021 SCC OnLine Kar 11972 , decided on 05-04-2021]

Karnataka High Court | Koladamatt not entitled to registration of occupancy rights over disputed land

A Division Bench comprising of B.V. Nagarathna and Jyoti Mulimani, JJ. reversed a 1993 order, holding that all titles, rights and interests of the Koladamatt over the land in question had been extinguished by a government notification which vested the land in the State Government following the Mutt’s failure to make an application to get registered as an applicant. Read More

[S. M. Kannappa Automobiles v. Koladamatt Mahasamsthana, 2020 SCC OnLine Kar 964 , decided on 29-07-2020]

Karnataka High Court | Journalists & other media personnel are on the field to disseminate correct information just like police, doctors, nurses & government personnel carrying out essential duties

A Division Bench of B.V. Nagarathna and Suraj Govindaraj, JJ., while addressing petition held that,

“Role of journalists and media personnel cannot be underestimated nor undermined during this pandemic and just like the police doctors, nurses, and Government personnel and others carrying out essential duties, in the same way, the journalists and other media personnel are on the field to disseminate correct information.” Read More

[Jacob George v. Secy., Department of Information and Broadcasting, 2020 SCC OnLine Kar 541, decided on 15-05-2020]

Did you Know? Justice Nagarathna happens to be the longest-serving female judge in the State of Karnataka 5

In Supreme Court

Order 6 Rule 17 CPC: Doctrine of dominus litus for amendment of plaint

The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., explained the legal propositions governing Order 6 Rule 17 and Order 1 Rule 10 of the Civil Procedure Code for amendment of the plaint. Read More

[Asian Hotels (North) Ltd. v. Alok Kumar Lodha, (2022) 8 SCC 145 , decided on 12-07-2022]

Make way for the outsiders: Compassionate Appointment cannot be extended to heirs of the retiring employees, holds Supreme Court

In a case where the Ahmednagar Mahanagar Palika/ Municipal Corporation was giving appointment to the heirs of the employees on their superannuation and/or retirement, the bench of MR Shah* and BV Nagarathna, JJ has held that such appointment is contrary to the object and purpose of appointment on compassionate grounds and is hit by Article 14 of the Constitution of India. Read more

[Ahmednagar Mahanagar Palika v. Ahmednagar Mahanagar Palika Kamgar Union, 2022 SCC OnLine SC 1154 , decided on 05.09.2022]

If a High Court converts itself into Executing Court it will be flooded with writ petitions to execute arbitral awards

While adjudicating an appeal relating to arbitration, the Division Bench of M. R. Shah* and B.V. Nagarathna, JJ., held that by entertaining the petition under Article 226 for executing an arbitral award, the High Court had virtually converted itself into Executing Court. Read more

[NHAI v. Sheetal Jaidev Vade, 2022 SCC OnLine SC 1070 , decided on 24-08-2022]

Financial crunch a valid ground to fix cut-off date for granting actual benefit of revision of pension/pay; Rule 3(3) of Tripura State Civil Services (Revised Pension) Rules, 2009 constitutional

The bench of MR Shah* and BV Nagarathna, JJ has held that the financial crunch/financial constraint due to additional financial burden is a valid ground to fix a cut-off date for the purpose of granting the actual benefit of revision of pension/pay. Read more

[State of Tripura v. Anjana Bhattacharjee, 2022 SCC OnLine SC 1071 , decided on 24.08.2022]

Disinvesting of Hindustan Zinc Ltd.; SC smells irregularities in bidding process, directs full-fledged CBI enquiry in the matter

The Division Bench comprising of Dr. Dhananjaya Y Chandrachud* and B V Nagarathna, JJ., partly allowed the petition challenging Union Government’s disinvestment of its shareholding in Hindustan Zinc Ltd. (HZL). The Bench, though held that the government was within its powers to disinvest its shares, it was of the opinion that a full-fledged CBI enquiry was required regarding previous disinvestment by the government. The Bench stated,

“There is no bar on the constitutional power of this Court to direct the CBI to register a regular case, in spite of its decision to close a preliminary enquiry.”Read more

[National Confederation of Officers Association of Central Public Sector Enterprises v. Union of India, 2021 SCC OnLine SC 1086 , decided on 18-11-2021]

Judgment Debtor’s right under Rule 60 of Second Schedule of Income Tax Act a valuable right to save his property; cannot be taken away on technical ground or bona fide mistake for which he is not at fault:

The bench of MR Shah* and BV Nagarathna, JJ has held that the right available to the judgment debtor under Rule 60 of the Second Schedule of the Income Tax Act, 1961 is a valuable right and the last resort/opportunity to the judgment debtor to save his property and should not be affected on the technical ground and/or for the mistake and/or the bona fide mistake for which he was not at all responsible. Read More

[RS Infra-Transmission Ltd v. Saurinindubhai Patel, 2022 SCC OnLine SC 854, decided on 11.07.2022]

Ready Reckoner Price cannot be the basis for determining compensation for land acquisition: SC declares Bombay HC’s decision per incuriam

While reversing the impugned decision of the Bombay High Court, M.R. Shah* and B.V. Nagarathna, JJ., held that the prices mentioned in the Ready Reckoner cannot be the basis for determining compensation for the land acquired under the Land Acquisition Act, 1894. Read more

[BSNL v. Nemichand Damodardas, 2022 SCC OnLine SC 815 , decided on 11-07-2022]

Twin conditions of furnishing declaration within time limit “mandatory” for exemption relief under Section 10B (8) of IT Act

The bench of MR Shah* and BV Nagarathna, JJ has rejected the view taken by the Karnataka High Court and ITAT, Bangalore that the requirement of furnishing a declaration under Section 10B (8) of the Income Tax Act, 1961 (IT Act) is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The Court held that the assessee shall not be entitled to the benefit under Section 10B (8) of the IT Act on noncompliance of the twin conditions as provided under Section 10B (8) of the IT Act. Read More

[CIT v. Wipro Ltd., 2022 SCC OnLine SC 831 , decided on 11-07-2022]

Pay on a par with last drawn pay on reemployment in Government Service? Not a matter of right, holds Supreme Court

In a case where the bench of MR Shah* and BV Nagarathna, JJ was posed with the question as to whether on re­employment in the government service, an employee who was serving in the Indian Army/in the Armed Forces shall be entitled to his pay scales at par with his last drawn pay, it has been held that a claim for the last drawn pay in the armed forces is not a matter of right. Read More

[Union of India v. Anil Prasad, 2022 SCC OnLine SC 665 , decided on 20.05.2022]

Land Acquisition| Compensation under 2013 Act cannot be claimed if award under 1894 Act couldn’t be passed due to pendency of proceedings or interim stay

The bench of MR Shah* and BV Nagarathna, JJ has held that in a case where on the date of commencement of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, no award has been declared under Section 11 of the Act, 1894, due to the pendency of any proceedings and/or the interim stay granted by the Court, such landowners shall not be entitled to the compensation under Section 24(1) of the Act, 2013 and they shall be entitled to the compensation only under the Act, 1894. Read More

[Faizabad-Ayodhya Development Authority v. Dr. Rajesh Kumar Pandey, 2022 SCC OnLine SC 679 , decided on 20.05.2022]

Nature of offence under Section 63 of Copyright Act – Cognizable or Non-cognizable?

In a case where the Trial Court had held that the offence under Section 63 of the Copyright Act is a cognizable offence but the Delhi High Court took a contrary view, the bench of MR Shah* and BV Nagarathna, JJ has reversed the finding of the Delhi High Court and held that the offence under Section 63 of the Copyright Act is a cognizable offence. Read More

[Knit Pro International v. State of NCT of Delhi, 2022 SCC OnLine SC 668 , decided on 20.05.2022]

Insurance companies refusing claims on flimsy/technical grounds must stop! Don’t ask for documents that insured can’t produce

In a case where an Insurance Company had refused to settle an insurance claim on non-submission of the duplicate certified copy of certificate of registration of the stolen vehicle, the bench of MR Shah* and BV Nagarathna, JJ has held that while settling the claims, the insurance company should not be too technical and ask for the documents, which the insured is not in a position to produce due to circumstances beyond his control. Read More

[Gurmel Singh v. National Insurance Co. Ltd., 2022 SCC OnLine SC 666 , decided on 20.05.2022]

Male Head Constable enters Mahila Barrack at 00:15 hours; is punishment of removal from service too harsh? SC tells what makes the punishment disproportionate

The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., affirmed impugned judgment of the Gauhati High Court whereby the High Court had reversed the findings of the Single judge who had interfered with the order of disciplinary authority and remanded the matter for re-consideration. Read More

[Anil Kumar Upadhyay v. Director General, SSB, 2022 SCC OnLine SC 478 , decided on 20-04-2022]

Right to residence under DV Act not restricted to actual residence; Domestic relationship not necessary to be subsisting at the time of filing of application

The bench of MR Shah and BV Nagarathna*, JJ has answered three important questions pertaining to the Protection of Women from Domestic Violence Act, 2005 (D.V. Act) and has expanded the scope of the Act by holding that,

  1. Even in the absence of a Domestic Incident Report, a Magistrate is empowered to pass both ex-parte or interim as well as a final order under the provisions of the D.V. Act.
  2. The expression ‘right to reside in the shared household’ would include not only actual residence but also constructive residence in the shared household.
  3. It is not necessary that at the time of filing of an application by an aggrieved person, the domestic relationship should be subsisting. Read More

[Prabha Tyagi v. Kamlesh Devi, 2022 SCC OnLine SC 607 , decided on 12.05.2022]

It isn’t the purpose of grace marks to allow reserved category candidate to switch over to general category

The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., reversed the impugned order of the Rajasthan High Court whereby the High Court had directed Income Tax Department to grant grace marks to the applicant and treat him as a person belonging to general category. Read More

[Union of India v. Mukesh Kumar Meena, 2022 SCC OnLine SC 525 , decided on 28-04-2022]

Insertion of meritorious OBC candidates into general category list without disturbing the appointment of general category candidates? Supreme Court strikes balance

In a service matter where upon reshuffling and on insertion of two OBC candidates into general category select list, two general category candidates already appointed and working since long would have been expelled or removed, thereby unsettling the entire selection process, the bench of MR Shah* and BV Nagarathna, JJ exercised its powers under Article 142 of the Constitution of India to do complete justice to all the candidates involved. Read More

[Bharat Sanchar Nigam Ltd. Sandeep Choudhary, 2022 SCC OnLine SC 524 , decided on 28.04.2022]

Even a single crime committed by a ‘Gang’ is sufficient to prosecute an accused under the Gangsters Act

In a case where it was argued before the Court that an accused cannot be prosecuted under the Gangsters Act, 1986 for a single offence/FIR/charge sheet with respect to any of the antisocial activities mentioned in Section 2(b), the bench of MR Shah* and BV Nagarathna, JJ has held that even a single crime committed by a ‘Gang’ is sufficient to implant Gangsters Act on such members of the ‘Gang’. Read More

[Shraddha Gupta v. State of Uttar Pradesh, 2022 SCC OnLine SC 514 , decided on 26.04.2022]

Producing false/fake certificate is a grave misconduct; Dismissal of service justified in such cases

In a case where an employee had produced a fake certificate for seeking employment, the bench of MR Shah* and BV Nagarathna, JJ has held that producing the false/fake certificate is a grave misconduct and dismissal of service is a justified punishment in such cases. Read More

[Indian Oil Corporation Ltd. v. Rajendra D. Harmalkar, 2022 SCC OnLine SC 486 , decided on 21.04.2022]

Candidates can’t claim appointment to unfilled posts in absence of provision for waiting list

The bench of MR Shah* and BV Nagarathna, JJ has held that as per Rule 16 of the Andhra Pradesh Direct Recruitment for the post of Teachers (Scheme of Selection) Rules, 2012, a candidate does not have right to claim any appointment to the post which remained unfilled in absence of provision for waiting list. Read More

[Vallampati Sathish Babu v. State of Andhra Pradesh, 2022 SCC OnLine SC 470 , decided on 19.04.2022]

Income Tax| If such orders continued to be passed, we will impose substantial costs on Assessing Officer which will be recovered from his/her salary

The Division Bench comprising of M.R. Shah and B.V. Nagarathna, JJ., stayed the impugned order of Bombay High Court wherein the High Court had quashed the assessment order under Income Tax Act, 1961 and had further cautioned that if such orders continued to be passed, the Court will be constrained to impose substantial costs on the concerned Assessing Officer to be recovered from his/her salary.

[National Faceless Assessment Centre v. Mantra Industries Ltd., Special Leave to Appeal (C) No(s). 4906 of 2022, decided on 11-04-2022]

Land owners cannot claim acquisition proceeding is lapsed u/s. 24(2) of Right to Fair Compensation Act where stay was obtained by them vide interim orders

The Division Bench comprising of M. R. Shah* and B.V. Nagarathna, JJ., reversed the impugned judgment of Karnataka High Court holding that land owners who approach the acquisition proceedings and obtain interim orders in their favour cannot take benefit under Section 24(2) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Read More

[Agricultural Produce Marketing Committee v. State of Karnataka, 2022 SCC OnLine SC 342 , decided on 22-03-2022]

Appointment of Teachers| Can obtaining a degree in one branch of a subject be considered equivalent to obtaining degree in the subject as a whole?

In the case where the Court was posed with the question as to whether the degrees obtained by the respective petitioners in one branch of History can be said to be obtaining a degree in History, the bench of MR Shah* and BV Nagarathna, JJ has held that once the Expert Committee has opined that the degrees obtained by the candidates in one branch of History cannot be said to be obtaining the degree in History as a whole, the Court cannot go against such finding. Read More

[Indresh Kumar Mishra v. State of Jharkhand, 2022 SCC OnLine SC 449, decided on 13.04.2022]

Lapse of a long period in deciding appeal cannot be a ground to award disproportionate and inadequate punishment

The bench of MR Shah* and BV Nagarathna, JJ has held that merely because a long period has lapsed by the time the appeal is decided cannot be a ground to award the punishment which is disproportionate and inadequate. Read More

[State of Rajasthan v. Banwari Lal, 2022 SCC OnLine SC 428 , decided on 08.04.2022]

Can employees appointed for fixed period in temporary unit be absorbed/regularised by creating supernumerary posts?

In the case where the Gujarat High Court had ordered the absorption of persons employed in a temporary unit, by creating supernumerary posts, the bench of MR Shah* and BV Nagarathna, JJ has held that no such direction can be issued by the High Court for absorption/regularisation of the employees who were appointed in a temporary unit which was created for a particular project and that too, by creating supernumerary posts. Read More

[State of Gujarat v. RJ Pathan, CIVIL APPEAL NO. 1951 OF 2022, decided on 24.03.2022]

Did You Know? From 2008 until 2021, Justice Nagarathna presided as a judge on the Karnataka High Court. She came to the attention of the public in 2009 after being violently arrested inside the grounds of the Karnataka High Court by a group of protesting attorneys.6

“A prudent insurer has to gauge possible risks”; Insurer can’t repudiate mediclaim alleging pre-existing illness where policy was issued after considering necessary medical records

The Division Bench of Dhananjaya Y Chandrachud and B.V. Nagarathna*, JJ., held that if on the consideration of the medical report, the insurance company gets satisfied about the medical condition of the proposer and that there was no risk of pre-existing illness, and on such satisfaction, it issues the policy, it cannot thereafter, contend that there was a possible pre-existing illness or sickness which has led to the claim made by the insured and for that reason repudiate the claim. Read More

[Manmohan Nanda v. United India Assurance Co. Ltd., 2021 SCC OnLine SC 1181 , decided on 06-12-2021]

Allotment of Government Largesse| Discretionary quota inevitably leads to corruption, nepotism, favouritism. Time to do away with it

Noticing that the allotment of government largesse on the basis of discretionary quota inevitably leads to corruption, nepotism and favouritism, the bench of MR Shah* and BV Nagarathna, JJ has suggested that discretionary quota should be done away with, and allotments of the public properties/plots must be through public auction by and large. Read More

[State of Orissa v. Pratima Mohanty, 2021 SCC OnLine SC 1222 , decided on 11.12.2021]

No borrower can claim benefit of One Time Settlement Scheme as a right; Can’t encourage dishonest borrowers

In a major relief to Banks, the bench of MR Shah* and BV Nagarathna, JJ has held that no borrower can, as a matter of right, pray for grant of benefit of One Time Settlement Scheme (OTS Scheme) as,

“If it is held that the borrower can still, as a matter of right, pray for benefit under the OTS Scheme, in that case, it would be giving a premium to a dishonest borrower, who, despite the fact that he is able to make the payment and the fact that the bank is able to recover the entire loan amount even by selling the mortgaged/secured properties, either from the borrower and/or guarantor. This is because under the OTS Scheme a debtor has to pay a lesser amount than the actual amount due and payable under the loan account. Such cannot be the intention of the bank while offering OTS Scheme and that cannot be purpose of the Scheme which may encourage such a dishonesty.”Read More

[Bijnor Urban Cooperative Bank Limited v. Meenal Agarwal, 2021 SCC OnLine SC 1255 , decided on 15.12.2021]

Three death row convicts to walk free as SC finds them “not guilty” of murdering six family members

In a big relief for three death row convicts, the 3-judge bench of L. Nageswara Rao, BR Gavai* and BV Nagarathna, JJ has acquitted all of them of charges of killing 6 members of their family after it was found that the prosecution had failed to prove the case beyond reasonable doubt. Read More

[Jaikam Khan v. State of Uttar Pradesh, 2021 SCC OnLine SC 1256 , decided on 15.12.2021]

Determination of Pension to be governed by the rule as it existed at the time of joining or the rule in force at the time of retirement?

The Division Bench of M.R. Shah and B.V. Nagarathna*, JJ., held that the action of the selectively applying the proviso to Rule 25(a) in relation to one person, while not applying the said proviso in relation to similarly situated persons, is arbitrary and therefore illegal. The Bench stated,

“We accept the settled position of law that the rule applicable in matters of determination of pension is that which exists at the time of retirement, we are unable to find any legal basis in the action of the respondent University of selectively allowing the benefit of Rule 25 (a).”Read More

[G. Sadasivan Nair v. Cochin University of Science and Technology, 2021 SCC OnLine SC 1155 , decided on 01-12-2021]

SC awards 30 years RI to man who killed 2 brothers & nephew; Finds imposition of death penalty on the day of conviction itself, wrong

In a case where the trial court had convicted the accused and imposed death penalty on the very same day, the 3-judge bench of L. Nageswara Rao, BR Gavai* and BV Nagarathna, JJ has converted the death sentence to life imprisonment after noticing that the trial court as well as the High Court has only taken into consideration the crime but have not taken into consideration the criminal, his state of mind, his socioeconomic background etc. Read More

[Bhagchandra v. State of Madhya Pradesh, 2021 SCC OnLine SC 1209 , decided on 09.12.2021]

Right to promotion is not considered to be a fundamental right but consideration for promotion has now been evolved as a fundamental right

The 3-Judges Bench comprising of D.Y. Chandrachud, Vikram Nath* and B.V. Nagarathna, JJ., set aside the seniority list prepared by the Department of Minor Irrigation, U.P. on finding the list to be in contravention of statutory mandate. The Bench stated,

“The Appointing Authority ought to have prepared a combined merit list based upon the performance or the proficiency on the basis of the marks received in the selection test as prepared by the Commission; otherwise, it would amount to denial of the right of consideration for promotion to a more meritorious candidate as against a candidate having lesser merit.”Read More

[Ajay Kumar Shukla v. Arvind Rai, 2021 SCC OnLine SC 1195 , decided on 08-12-2021]

Can ITAT recall an order while exercising powers under Section 254(2) of the Income Tax Act?

Explaining the scope of jurisdiction of ITAT, the bench of MR Shah* and BV Nagarathna, JJ has held that the powers under Section 254(2) of the Income Tax Act are only to correct and/or rectify the mistake apparent from the record and not beyond that. Read More

[Commissioner of Income Tax v. Reliance Telecom Ltd., 2021 SCC OnLine SC 1170 , decided on 03.12.2021]

Contractual bar on interest doesn’t only bar the parities from claiming it but also the Arbitrator from awarding it

The Division Bench comprising of M.R. Shah* and B.V. Nagarathna, JJ., held that where it is specifically barred in the contract, the Arbitrator cannot award any interest pendente lite or future interest on the amounts due and payable to the contractor under the contract. Rejecting the claim of the respondent that the government having claimed interest itself could not oppose the same, the Bench stated,

“Even if the government would have been awarded interest, the same also was not permissible and could have been a subject matter of challenge. In short, there cannot be an estoppel against law.”Read More

[Union of India v. Manraj Enterprises, 2021 SCC OnLine SC 1081 , decided on 18-11-2021]

HC quashes proceedings based on “draft charge-sheet” yet to be placed before Magistrate! Clear abuse of S. 482 CrPC, holds SC

In a case where the Gujarat High Court had quashed criminal proceedings at the behest of persons who were not named in the FIR purely on the basis of their names appearing in the draft charge-sheet, the bench of Dr. DY Chandrachud* and BV Nagarathna, JJ has found it to be a “clear abuse” of High Court’s jurisdiction under Section 482 of the CrPC. The Court noticed that the High Court cannot place reliance on a “draft charge-sheet” which is yet to be placed before the Magistrate to quash the criminal proceedings under Section 482. Read More

[Jitul Jentilal Kotecha v. State of Gujarat, 2021 SCC OnLine SC 1045 , decided on 12.11.2021]

National Security Act| Delay in considering representation; non-communication of rejection strike at the heart of fundamental rights of detenu

In a case where the Government caused unreasonable delay in considering the representation and thereafter failed to communicate the rejection to a person detained under Section 3(2) of National Security Act 1980 (NSA), the 3-judge bench of Dr. DY Chandrachud, Vikram Seth and BV Nagarathna, JJ has held that the procedural rights of the detenu emanating from Article 22 of the Constitution and Section 8 of the NSA were not sufficiently protected in the present case.

“The State Government cannot expect this Court to uphold its powers of subjective satisfaction to detain a person, while violating the procedural guarantees of the detenu that are fundamental to the laws of preventive detention enshrined in the Constitution.”Read More

[Sarabjeet Singh Mokha v. District Magistrate, Jabalpur, 2021 SCC OnLine SC 1019 , decided on 29.10.2021]

Karnataka High Court calls person committing suicide a ‘weakling’! Don’t diminish the gravity of mental health issues, says SC

In a case where the Single Judge of Karnataka High Court had termed person committing suicide a ‘weakling’ and also made observations on how the behavior of the deceased before he committed suicide was not that of a person who is depressed and suffering from mental health issues, the bench of Dr. DY Chandrachud* and BV Nagarathna, JJ has held that such observations describing the manner in which a depressed person ought to have behaved deeply diminishes the gravity of mental health issues and that,

“The mental health of a person cannot be compressed into a one size fits all approach.”Read More

[Mahendra KC v. State of Karnataka, 2021 SCC OnLine SC 1021 , decided on 29.10.2021]

Nomenclature of a Tax does not determine the nature of the levy or its true character

The 3-judg bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has upheld the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act, 1975 and has held that the levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee. The Court also went on to hold that the levy which is imposed under Section 52 is a tax on lands and buildings within the meaning of Entry 49 of List II. Read More

[Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corporation, 2021 SCC OnLine SC 960 , decided on 22.10.2021]

IBC and Limitation| Words “order is made available to the aggrieved party” consciously omitted from Section 61(1)&(2): SC. Read why

Dealing with the question as to ) when will the clock for calculating the limitation period run for proceedings under the Insolvency and Bankruptcy Code (IBC), the bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has held that Sections 61(1) and (2) of the IBC consciously omit the requirement of limitation being computed from when the “order is made available to the aggrieved party”, in contradistinction to Section 421(3) of the Companies Act.

“… the omission of the words “from the date on which the order is made available” for the purposes of computation of limitation in Section 61(2) of the IBC, is a consistent signal of the intention of the legislature to nudge the parties to be proactive and facilitate timely resolution.”Read More

[V. Nagarajan v. SKS Ispat and Power Ltd, 2021 SCC OnLine SC 959 , decided on 22.10.2021]

‘Furlough not a legal right’: Supreme Court explains difference between Parole and furlough

The bench of Dr. DY Chandrachud* and BV Nagarathna, JJ has formulated “broad, general” principles governing rules for granting parole and furlough, holding that parole and furlough are distinct in nature and that although furlough can be claimed without a reason, the prisoner does not have an absolute legal right to claim furlough. Read More

[State of Gujarat v. Narayana, 2021 SCC OnLine SC 949 , decided on 20.10.2021]

Principles governing power of Courts to direct Retrial and Joint Trial, as laid down by Supreme Court

The 3-judge bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has lucidly laid down the principles governing the power of the Courts to direct re-trial, Joint Trial and Separate trial and has held retrial and joint trial can be ordered only in exceptional circumstances. Read More

[[Nasib Singh v. State of Punjab, 2021 SCC OnLine SC 924 , decided on 08.10.2021]

Explained| Is Preliminary Enquiry mandatory in all corruption cases?

The 3-judge bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has held that a Preliminary Enquiry is not mandatory in all cases which involve allegations of corruption.

The Court said that in case the information received by the CBI, through a complaint or a “source information”, discloses the commission of a cognizable offence, it can directly register a Regular Case instead of conducting a Preliminary Enquiry, where the officer is satisfied that the information discloses the commission of a cognizable offence. Read More

[CBI v. Thommandru Hannah Vijayalakshmi, 2021 SCC OnLine SC 923 , 08.10.2021]

Explained| Law on grant on bail in NDPS cases

The bench of Dr. DY Chandrachud* and BV Nagarathna, JJ has elaborately discussed the principles governing the grant of bail, especially in cases under the NDPS Act and has held that,

“… the test which the High Court and this Court are required to apply while granting bail is whether there are reasonable grounds to believe that the accused has not committed an offence and whether he is likely to commit any offence while on bail. Given the seriousness of offences punishable under the NDPS Act and in order to curb the menace of drug-trafficking in the country, stringent parameters for the grant of bail under the NDPS Act have been prescribed.”Read More

[Union of India v. Md. Nawaz Khan, 2021 SCC OnLine SC 782 , decided on 22.09.2021]

Few Notable Judgments during COVID-19

[Coronavirus] Kar HC | State Govt. response sought on incident wherein doctors, nurses, ASHA workers assaulted; breach of social distancing guidelines, held in a marriage ceremony at a political leader’s house

A Division Bench of Abhay S. Oka, CJ and B.V. Nagarathna, J., asked for the State Government’s response with regard to breach of social distancing norms at a political leader’s house, incident of assault on doctors, nurses and ASHA workers and action being taken on the complaints filed with respect to domestic violence. Read More

[Mohammed Arif Jameel v. Union of India, 2020 SCC OnLine Kar 442, decided on 21-04-2020]

COVID 19 | Kar HC | Media to ensure that Court’s order are not misinterpreted or misquoted; Voluntary organisations can distribute food while following social distancing

A Division Bench of Abhay Shreeniwas Oka, CJ and and B.V. Nagarathna, J. while dealing with certain issues amid COVID 19 outbreak, noted a very significant point, that,

“media must ensure that no part of the stand taken by the State Government or no part of the orders passed by this Court should be misinterpreted or misquoted” Read More

[Mohammed Arif Jameel v. Union of India, WP No. 6435 of 2020, decided on 13-04-2020]

COVID-19 | Kar HC | State Govt. to file response in petition for protection, salary payment and statutory benefits to medical practitioners and ASHA workers

A Division Bench of Abhay Shreeniwas Oka, CJ and B.V. Nagarathna, J. while addressing the present petition asked the State Government to file response with regard to two issues:

  • failure to protect the registered medical practitioners, workers and ASHA workers and other accredited and non-accredited health workers.
  • Provision of salary payment and statutory benefits to the medicare personnel and ASHA workers Read More

[Dr Rajeev Ramesh Gothe v. State of Karnataka, 2020 SCC OnLine Kar 426, decided on 07-04-2020]

Corona Virus | Kar HC | State Govt. to take cognizance on issues like provision of — Supply of hot meal to pregnant women, lactating mothers, malnutritioned children & needy people

A Division Bench of Abhay S. Oka, CJ and B.V. Nagarathna, J. asked the State Government of Karnataka to take cognizance on various significant issues that have been raised in wake of the outbreak of Corona Virus.

Bench while addressing the present petition, appealed the members of the Bar and citizens to not file more PILs with the issues being considered in the present petition. Read More

[Mohammed Arif Jameel v. Union of India, 2020 SCC OnLine Kar 391 , decided on 30-03-2020]

Kar HC | Court enunciates guidelines for disqualification of directors; demarcates boundaries, crossing which, it would be rendered bad in law

B.V. Nagarathna, J., disposed of the petitions seeking the provisions of Sections 164(2) and 167(1)(a) and the proviso to Section 167(1)(a) of the Companies Act, 2013, to be held unconstitutional. Read More

[Yashodhara Shroff v. Union of India, 2019 SCC OnLine Kar 682 , decided on 12-06-2017]

COVID-19 | Kar HC | Release of information regarding people contracting COVID-19 at Nizamuddin religious ceremony a policy decision; Court declines to interfere

A Division Bench of Abhay S. Oka, CJ and B.V. Nagarathna, J. while addressing a petition with regard to release of information of people who contracted COVID-19 at Nizamuddin, Delhi, stated that,

It is a policy decision and Court cannot interfere in the same. Read More

[Girish Bharadwaj v. State of Karnataka, 2020 SCC OnLine Kar 445, decided on 21-04-2020]

Coronavirus | Kar HC | Decision to open super markets 24×7 is a policy decision; Nothing per se illegal in allowing BMTC buses to transport people connected with essential services

A Division Bench of Abhay S. Oka, CJ and B.V. Nagarathna, J., while addressing a petition held that,

“…decision to keep open super markets 24×7 relates to purely a policy decision and nothing arbitrary in the said policy decision is found.”Read More

[Sandhya U. Prabhu v. State of Karnataka, 2020 SCC OnLine Kar 441, decided on 21-04-2020]

Did you know? Once Justice Nagarathna takes the top post, it will be the first father-daughter duo to be Chief Justices of India, besides being the first father-daughter duo to be judges of the Supreme Court.7

Interesting insights given by Justice Nagarathna about Legal Reporting- Read here

To watch the whole video of the SCC Pre 69 Launch- Click here

†Arunima Bose, Editorial Assistant, has put this report together.


1. https://indianexpress.com/article/india/maintaining-credibility-of-judicial-system-biggest-challenge-before-us-karnataka-hc-chief-justice-at-farewell-7474662/

2. https://www.deccanherald.com/state/top-karnataka-stories/b-v-nagarathna-the-new-supreme-court-judge-with-roots-in-mandya-village-1023838.html

3. https://karnatakajudiciary.kar.nic.in/bio_data/former_judges/bvnj.htm

4. https://www.scconline.com/blog/search/B%20V%20Nagarathna

5. https://www.ndtv.com/india-news/supreme-court-official-who-took-justice-bv-nagarathna-to-school-as-child-now-senior-staff-2523805

6. https://en.wikipedia.org/wiki/B._V._Nagarathna

7. https://www.ndtv.com/india-news/supreme-court-official-who-took-justice-bv-nagarathna-to-school-as-child-now-senior-staff-2523805

Ministry of Finance
Legislation UpdatesStatutes/Bills/Ordinances

   

On 16-9-2022 the CBDT has issued revised guidelines for compounding of offence under the Income-Tax Act, 1961 to simplify and facilitate compounding of offences under Income Tax Act, 1961 with reference to various offences covered under the prosecution provisions of the Act.

Key Points:

  • Offence punishable under Section 276 of IT Act, 1961 have been made compoundable. Section 276 deals with Removal, concealment, transfer or delivery of property to thwart tax recovery.

  • Offence under Direct Taxes Laws where case of an applicant, who has convicted earlier with imprisonment for less than two years being previously non-compoundable has now been made compoundable.

  • Relaxation of time: Time limit for acceptance of compounding application has been relaxed with the approval of Chief Commissioner of Income Tax from the earlier limit of 24 months to 36 months now. In such cases where relaxation has been provided compounding charges would be @1.5 times more than the normal compounding charges.

  • Complexity in procedure has been simplified now by intimating the applicant that the application is found acceptable or non-acceptable along with compounding charges.

  • Compounding charges for failure to pay Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) @2% per month up to 3 months and 3% per month beyond 3 months have been reduced to 1% and 2% respectively.


*Disha Srivastava, Publication Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of UU Lalit, CJ and S. Ravindra Bhat and PS Narasimha, JJ has granted bail to Journalist Sidhique Kappan after considering the length of custody undergone by him ever since he was taken in custody on 06.10.2020. It is important to note that, last month, the Allahabad High Court had rejected his bail plea.

The Kerala journalist was arrested under the Unlawful Activities (Prevention) Act on his way to Hathras, Uttar Pradesh to report on the alleged gang-rape of a Dalit woman, who later died in the Hospital. He has been booked under Sections 153A, 295A, 120B of the Indian Penal Code, Sections 17 and 18 of Unlawful Activities (Prevention) Act, 1967 and sections 65 and 72 of the Information and Technology Act, 2000. While the charge-sheet has already been filed on 02.04.202, the matter has yet not been taken up for consideration whether charges need to be framed or not.

While the Court refrained from dealing with and commenting upon the progress and investigation and material gathered by the prosecution in support of its case as the matter is still to be taken up at the stage of framing of charges, it directed that Kappan be produced before the Trial Court within three days; and that the Trial Court shall release him on bail, subject to such conditions as the Trial Court may deem appropriate to impose to ensure Kappan’s presence and participation in the matter pending before it. Apart from this, Kappan shall either in person or through a lawyer attend the proceedings before the trial court on every single date. He will also deposit his passport if not already deposited with the investigating machinery before his actual release.

The Court also imposed the following conditions on Kappan while releasing him on bail :

  1. For the first six weeks, Kappan has to stay in Delhi and within the jurisdiction of Nizamuddin police Station. He cannot leave Delhi without express permission of the trial court; He also has to record his presence in the concerned police station every Monday in a register maintained for the purpose.
  2. After six weeks, he may go back to his native place and stay at Mallapuram in Kerala but shall report at the local police station on every Monday and mark his presence in the register maintained in that behalf.

[Sidhique Kappan v. State of Uttar Pradesh, Crl.A. No.-001534-001534 / 2022, order dated 09.09.2022]


For Sidhique Kappan: Senior Advocate Kapil Sibal

For State: Senior Advocate Mahesh Jethmalani

Also Read

Charge-sheet and documents adduced prima facie point towards guilt; Allahabad High Court denies bail to journalist Sidhique Kappan [Hathras gang-rape row]

Case BriefsHigh Courts

   

Delhi High Court: In a case filed by Neetu Singh (‘plaintiff 1') being aggrieved as her work which is circulated by Telegram (‘defendant 1'), is continuously being infringed due to mushrooming of channels on the platform under challenge and seeking disclosure of details of the defaulters, Prathiba Singh J. remarked that ‘take down' or blocking orders are merely token relief for the interregnum and without monetary relief of damages, coupled with mushrooming of infringing platforms, the copyright owner's spirit to create and write may be considerably negated. The Court further directed Telegram to disclose the details of the channels/devices used in disseminating the infringing content along with their mobile numbers, IP addresses, email addresses, etc.,

Factual Background: Plaintiff 1 is a renowned author of books which are designed to train students aspiring to take various competitive examinations including the examinations of Staff Selection Commission (SSC), Bank Probationary Officer (PO), CDS, NDA, etc. The allegation in the suit is that the Plaintiffs' copyrighted works including course material, online lectures and other works are being disseminated unauthorizedly through various Telegram channels. Even after repeated notices being sent to Telegram, some channels were taken down, but some infringing channels continue to exist and new channels come up almost on a daily basis, with different names. The present suit was filed vide an application seeking discovery of the details of the people who are operating these channels.

Issue: Whether Telegram can be directed to disclose the identity of the creators of the infringing channels which unauthorizedly and illegally disseminate the Plaintiffs' copyrighted works?

Submissions: Telegram has opposed the grant of relief stating that it cannot share the data relating to the creators or users of the channels, as the said data is stored in Telegram's data servers in Singapore and the law of Singapore prohibits such disclosure. Moreover, as per Telegram, it being an intermediary under the IT Act, none of the pre-conditions which permit the intermediary to disclose the identity of the users, as per the IT Guidelines, are satisfied.

Observations: The Court noted that the Telegram stores its data on a cloud server. It is claimed that the same is in an encrypted form. The personal data is claimed to be protected under Telegram's Privacy Policy and its Terms of Service.

Whether the act amounts to copyright infringement?

The activity of circulating copyrighted materials on Telegram channels would be “communication to the public” as provided for in Section 2(ff) of the Copyright Act, 1957. The copies of the Plaintiffs' works, which are circulated on the Telegram channels, would constitute “infringing copy” of the Plaintiffs' works as defined under Section 2(m) of the Copyright Act, 1957. Thus, any reproduction of such literary work would constitute an infringing copy, even if the same is in electronic form.

The Court further noted that the remedies available for a copyright owner under the Copyright Act are both civil and criminal in nature. Thus, the significance of the protection and enforcement of such rights cannot be diminished, merely due to the growth of technology, which has made infringers easy to hide and conceal their illegal activities. The propensity of infringers to conceal and hide is the very reason due to which the provisions of law are widely worded.

The Court opined that the grant of injunction per se in the absence of commensurate damages or monetary deterrents, would be a toothless relief. Unless and until the identity of the operators of these channels who are ex facie infringers of the Plaintiffs' copyright are disclosed, the Plaintiffs are rendered without remedy for recovering damages.

The Court explained elaborate factors regarding Indian courts to be the natural forum of jurisdiction in this dispute. For the sake of brevity, a few are listed below

  1. The copyrighted material is related to Indian examination materials, and thus, in all likelihood the source of the infringing channels being in India, the accounts of such infringing channels would have been created from India and the data of such accounts would have been uploaded from India;

  2. Considering that the Plaintiffs' work relates to competitive examinations in India, it is highly possible that the devices circulating the infringing content and the persons running the infringing platforms and channels are located in India.

  3. Cloud computing being the norm these days, even if the data is stored in a physical structure outside India, the same is accessible to the company in other jurisdictions including from India.

  4. Therefore, the data is accessible across different jurisdictions, including India and the conventional concepts of territoriality no longer exist.

  5. The High Courts are vested with inherent powers to enable themselves to maintain their dignity, and secure obedience to their process and rules, i.e., and to give effective relief.

Thus, the courts in India would be perfectly justified in directing Telegram, which runs its massive operations in India to adhere to Indian law and adhere to orders passed by Indian Courts for disclosure of relevant information relating to infringers.

In so far as the law in Singapore is concerned, the provisions of Section 17 and First Schedule, Part III under Legitimate Interests in Personal Data Protection Act, 2012 (Singapore), specifically recognize violations of law, as being an exception to privacy, when details of the originators of the infringing data can be revealed. Moreover, copyrighted works are entitled to automatic protection in all WTO countries under the Berne Convention for the Protection of Literary and Artistic Works, 1886 read with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1995.

Thus, in view of this position of the law regarding copyright along with compliance with local law, i.e., PDPA, Telegram cannot excuse itself from non-furnishing of information relating to the channels through which dissemination of infringing content takes place.

Coming to Indian laws, even according to the broad principles of Order XI Civil Procedure Code, the Court can direct disclosure of documents and information relating to ‘any matter in question in a suit'. Placing reliance on K.S. Puttaswamy v Union of India (2018) 1 SCC 809, the Court clarified that if there is a law in existence to justify the disclosure of information and there is a need for the disclosure considering the nature of encroachment of the right, then, privacy cannot be a ground to justify non-disclosure, so long as the same is not disproportionate.

Thus, the Court concluded that Indian Courts are competent to decide issues relating to infringement of copyright and the mere fact that Telegram is operating a messaging service in India which chooses not to locate its servers in India cannot divest the Indian Courts from dealing with copyright disputes or divest copyright owners from availing their remedies in Indian Courts.

The Court remarked “In the present age of cloud computing and diminishing national boundaries in data storage, conventional concepts of territoriality cannot be strictly applied. The dynamic evolution of law is essential to ensure appropriate remedies in case of violation of copyright and other IP laws.”

The Court thus directed Telegram to disclose the details of the channels/devices used in disseminating the infringing content, mobile numbers, IP addresses, email addresses, etc., used to upload the infringing material and communicate the same, as per the list of channels filed along with the present application.

[Neetu Singh v. Telegram FZ LLC, CS (Comm) 282 of 2020, decided on 30-08-2022]


Advocates who appeared in this case :

Ms. Rajeshwari H. & Ms. Swapnil Advocates, for the Plaintiff;

Mr. Amit Sibal, Sr. Adv. with Ms. Anushka Sharda, Mr. Madhav Khosla, Ms. Smriti Nair, Mr. Vinay Tripathi, Mr. Madhav Chitale, Mr. Aishwary Vikram and Mr. Saksham Dhingra, Advocates, for the Telegram.


*Arunima Bose, Editorial Assistant has put this report together.

Bonus Share
Op EdsOP. ED.

   

Introduction

A company accumulates its equity capital via investments from various investors. Generally, these investors are concerned less with the company’s affairs and more with their return on investment. The company issues cash dividends and/or bonus shares to reward these investors’ interest.

Cash dividends involve actual cash outflow from the company’s coffers and attract dividend tax which the investor bears.1 However, on the other hand, bonus shares are free shares (as its cost of acquisition is taken as nil) issued to the investors in proportion to their already existing shareholding in the company. These are issued out of accumulated profits/reserves of the company, and no additional cash inflow or outflow is involved.2 Hence, a question on the taxability of allotment of bonus share arises.

In IRC v. John Blott, a case from 1921, the House of Lords addressed this moot question by observing that since the allotment of bonus shares does not change the company’s coffers and nothing enters the allottee’s pockets, the issuance of bonus shares could not be taxed on similar lines as taxation of cash dividends.3 Various Indian courts have made similar observations.4

However, recently, there have been cases wherein the assessing officers (AO) have extended the literal interpretation of Section 56(2)(vii)5 of the Income Tax Act, 1961 (IT Act) to conclude that issuance of bonus share is a transfer of property, other than immovable property, without consideration and hence, is income from other sources (IOS) in the hands of the assessee. Therefore, tax is leviable on those bonus shares aggregate fair market value. Although, the Indian courts have struck down this extension of literal interpretation on various occasions.

This article aims to understand the basis and extent of the feasibility of such interpretation and elaborate on why the decision of various courts to reject such interpretation is correct. The paper first lays Section 56(2)(vii) of the IT Act to understand how the issuance of bonus shares could not be taxed as IOS and then elaborates on some recent judicial decisions supporting the same.

Section 56 of the Income Tax Act, 1961

Section 56(2)(vii) of the IT Act deals with levying tax on deemed income arising on transfer of gifts, etc. which has the value of more than a certain amount under the head “income from other sources”. It stipulates that “where an individual or Hindu Undivided Family (HUF) receives, from any person, any property other than an immovable property without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be taxable as IOS”.6 This provision applies mutatis mutandis to a company or a firm.7

By imprinting dictionary meaning on the term “receive” in the above provision, it would mean receiving or actual receipt of something, including money, letter, or a gift, by way of a transfer. Likewise, the term “property” in Section 56 means to include “shares and securities” under the head of an assessee’s capital asset. This implies that Section 56(2)(vii) applies when the nature of the property being transferred is a capital receipt and not a revenue receipt.

Following the above logic, allotment of bonus share constitutes a property transfer without consideration for Section 56 and shall be subjected to tax. However, a holistic understanding of the purpose of enacting Section 56 and interpreting the term “consideration” would prove that the same is not warranted.

Purposive approach to Section 56

On reading Section 56(2)(vii), we could see that any sum of money or any property-in-kind received without consideration or for inadequate consideration by an individual or HUF is chargeable to income tax as IOS. The provision addresses deemed income received due to the transfer of property without consideration, like in the case of gift transfer. Such deemed income was taxed under the Gift-Tax Act, 19588. However, it was repealed, and to have a preventive measure against tax evasion in the guise of gifts transfer and prevention of money laundering, Section 56(2)(vii) in the form of an anti-abuse provision, was enacted.9

Further, recognising this anti-abuse nature of Sections 56(2)(vii)/(vii)(a) and broadening the scope of donee-based taxation of gifts or IOS, the Finance Bill, 201710 introduced Section 56(2)(x) to include any other assessee (other than an individual, HUF, a firm, or a company in certain cases) who receives a sum of money or property without consideration or for inadequate consideration.11

Furthermore, the Karnataka High Court, in the case of CIT v. Ranjan Pai when faced with a similar challenge, ruled in favour of the assessee, basing their verdict on the premise that there was no material evidence pertaining to the assessee’s intention of evading tax liability, which the Court considered as one of the primary objectives of enacting and levying tax under Section 56(2)(vii).12

When bonus shares are issued, the primary purpose is to incentivise the investor for their contribution. Even though these shares are allotted without any cash inflow or outflow, bonus shares are taxed at a later stage when the allottee transfer or sells these shares under the head “capital gains”.13 In this scenario, since there is no cost of acquisition, it is taken as nil14, and the full selling price is considered gains to compute capital gains tax.15 Hence, in a nutshell, tax is not evaded. It is only deferred to a later stage. Therefore, subjecting allotment of bonus share under Section 56(2)(vii) does not fit the purpose of enacting the said provision and thus, should not be taxed as such.

Meaning of “consideration”

Similarly, the term “consideration” as used in Sections 56(2)(vii)/(vii)(a) is neither defined nor explained anywhere in the IT Act16. In the conventional sense, “consideration” refers to something done in place of or in return for something else,17 including any inconvenience or harm endured.18 The term “consideration” as used in Sections 56(2)(vii)/(vii)(a) might thus be interpreted to encompass the decrease in the fair market value of the shares previously held by such shareholders (as a detriment).19 Hence, it can be contended that the issuance of bonus shares is actually not bereft of any consideration and should be considered for tax purposes under Section 56.

Therefore, it can be construed that Section 56(2)(vii) does not warrant levying of tax on the allotment of bonus share. Various courts in India have made similar observations.

Judicial development

In 2014, the ITAT, Mumbai in Sudhir Menon v. CIT20, dealt with this issue of taxability of bonus share under Section 56. In this case, the taxpayer was offered proportional bonus shares with a face value of INR 100 each. Half of the shares were subscribed by the taxpayer, with the remaining shares being distributed to the other shareholders. The assessing officer used the shares’ year-end market value and treated the difference as insufficient compensation under Section 56 of the Income Tax Act because of the higher value.

The Tribunal determined that the issuance of bonus shares is a capitalisation of the company’s profit that does not result in an increase or decrease in a shareholder’s wealth or shareholding percentage. A bonus issue merely increases the market liquidity of shares, whereas a proportionate allotment does not affect shareholders. As a result, it is exempt from taxation under Section 56 of the Income Tax Act.

However, the Tribunal did rule that in the event of a disproportionate issue of bonus shares, where the value of the property being passed is greater than the value of his existing property, he may be subject to tax under Section 56.21

The ITAT, Delhi, in 2019, relied on this decision in CIT v. Mamta Bhandari, holding that Section 56 of the ITA did not apply to the allotment of bonus shares when the shareholder’s shareholding did not increase or decrease. The shareholder does not receive property in a proportional allotment of bonus shares because what they receive is the split shares from their own holding. Due to the issuance of bonus shares, the shareholder gets his own value of the existing shares at a lower overall value. As a result, Section 56 of the ITA is not applicable.22

Following the above Tax Tribunal decisions, a similar case was appealed to the Karnataka High Court from the Bangalore ITAT.23 According to the ITAT, when a shareholder receives the bonus issue, there is a decrease in the overall value of the shares he owns, which is offset by the bonus issue shares. As a result, such an issue should not be taxed as “income from other sources”. The Income Tax Department then appealed the matter. The High Court upheld the ITAT ruling and reiterated that the allotment of bonus shares made on a pro rata basis could not attract tax liability under Section 56.

The Court determined that a company’s issuance of bonus shares is merely a reallocation of funds from its reserves to its capital. It does not result in an inflow or outflow of funds for the company. Furthermore, shareholders who receive such a pro rata allotment do not gain any benefit that can be taxed under Section 56.24 Hence, it is clear that the issuance of bonus shares shall not attract tax liability under Section 56.

Conclusion

When a company allot bonus shares, it does not change its capital structure.25 In other words, the issuance of bonus shares increases the number of shares accessible on the market but does not affect the total value of the company’s stock. Simply capitalising the reserves and transferring the numbers from the “reserves/surplus” column to the “share capital” column without actual cash inflow or outflow does not influence the company’s total net worth.

Neither does it increase or decrease the wealth of the shareholder. His shareholding remains unchanged. It is only that his existing shareholding further splits on a pro rata basis. There is no actual transfer of the property. Issuance of bonus shares only reduces the value of the shares of the existing shareholders proportionately.26 On the contrary, while selling these bonus shares, since the acquisition cost is taken nil, the entire selling price is considered as gains and is taxable at that stage.

In other words, allotment of bonus share does not attract tax liability under Section 56(2)(vii) as it does not match the purpose of enacting the said provision and following the interpretation of the term “consideration”, it further does not fulfil the criteria of levying tax under the said provision.

As a result, the author believes that the definition of “shares and securities” in Section 56(2)(vii) should be limited to those shares and securities that would otherwise command a price and whose absence is due to nefarious tax evasion motives, rather than bonus shares, which are supposed to be without any outflow by their very nature. Hence, the issuance of bonus shares does not attract tax liability under Section 56(2)(vii) of the Income Tax Act.


† Fifth year student, BA LLB (Hons.), West Bengal National University of Juridical Sciences, Kolkata. Author can be reached at <kartik218023@nujs.edu>.

1. Tax Guru, “Income Tax on Dividend Received from Company”, 4-6-2022, <https://taxguru.in/income-tax/income-tax-dividend-received-company.html> (last visited 8-6-2022).

2. Tax Guru, “Taxability of Bonus Shares under the Income Tax Act”, 1961, 8-10-2018, <https://taxguru.in/income-tax/taxability-bonus-shares-income-tax-act-1961.html> (last visited 8-6-2022).

3. IRC v. John Blott, (1921) 8 TC 101.

4. See CIT v. Madan Gopal Radhey Lal, AIR 1969 SC 840; CIT v. Dalmia Investment Co. Ltd., AIR 1964 SC 1464; CIT v. Mercantile Bank of India Ltd., 1936 SCC OnLine PC 33.

5. Income Tax Act, 1961, S. 56(2)(vii).

6. Income Tax Act, 1961, S. 56(2)(vii).

7. Income Tax Act, 1961, S. 56(2)(vii)(a).

8. Gift Tax Act, 1958.

9. Sumeet Khurana and Rajat Juneja, “Taxing ‘Bonus Shares' — The Question is of Timing!”, <https://database.taxsutra.com/articles/f71b0d371e2d106d969d4598adc9f7/expert_article#_ftn17> (last visited 8-6-2022).

10. Finance Bill, 2017.

11. Memorandum Explaining the Provisions of the Finance Bill, 2017, at 22, <https://www.taxmann.com/bookstore/bookshop/bookfiles/samplechapterGTA.pdf> (last visited 8-6-2022).

12. CIT v. Ranjan Pai, 2020 SCC OnLine Kar 4981.

13. Income Tax Act, 1961, S. 45.

14. Income Tax Act, 1961, S. 55(2)(aa)(iii-a).

15. Tax Guru, “Taxability of Bonus Shares under the Income Tax Act, 1961”, 8-10-2018, available at <https://taxguru.in/income-tax/taxability-bonus-shares-income-tax-act-1961.html> (last visited 8-6-2022).

16. Income Tax Act, 1961.

17. CIT v. Jaykrishna Harivallabhdas, 1997 SCC OnLine Guj 255.

18. Oregon Home Builders v. Crowley, 170 P 718, 87 Or 517, 171 P. 214.

19. CIT v. Dalmia Investment Co. Ltd., AIR 1964 SC 1464.

20. 2014 SCC OnLine ITAT 118.

21. Sudhir Menon v. CIT, 2014 SCC OnLine ITAT 118.

22. 2019 SCC OnLine ITAT 16913.

23. CIT v. Ranjan Pai, 2020 SCC OnLine Kar 4981.

24. CIT v. Ranjan Pai, 2020 SCC OnLine Kar 4981.

25. Sudhir Menon v. CIT, 2014 SCC OnLine ITAT 118.

26. CIT v. Mamta Bhandari, 2019 SCC OnLine ITAT 16913.

Delhi High Court
Case BriefsHigh Courts

Delhi High Court: In a case where FIR was registered by Managing Director of Sanash Impex Pvt. Ltd. (‘respondent’) against Flipkart (‘petitioner’) for allegedly selling fake products of DC Dermacol cosmetics, Asha Menon J. quashed the FIR stating that this is one such case where the registration of an FIR against an intermediary would lead to miscarriage of justice considering the basic ingredients being met to avail protection under Section 79 of Information Technology Act, 2000.

Flipkart is an e-commerce entity that provides its portal for the sale of products to other sellers. Respondent 2, being MD of Sanash Impex Pvt. Ltd. has been authorized with absolute and exclusive right to sell DC DERMACOL cosmetic products in India, both online and offline. DC DERMACOL is a product of an international brand (Czech Brand) and gained high repute as a brand all over the world in respect of skin makeup.

The allegations are such that it is in connivance with the fake/unauthorized re-sellers. Thus, the respondent 2, on behalf of its company, accused the petitioner of cheating and illegal selling of DC DERMACOL cosmetics products. On the basis of this complaint, FIR was registered for the commission of offences under Sections 103/104 of the Trademark Act, 1999 and Section 63 of the Copyright Act, 1957.

Thus, instant petition was filed under Articles 226 and 227 of the Constitution of India read with Section 482 of Criminal Procedure Code praying for quashing of the said FIR.

Counsel for Petitioner Mr. Siddharth Luthra submitted that the petitioner was an intermediary as defined under Section 2(1) (w) of Information Technology Act, 2000 and was thus protected under Section 79 of Information Technology Act, 2000. It was further submitted that until and unless a court order was served upon the petitioner, there was no obligation on the petitioner, as an intermediary, to remove any material from its portal. It was submitted that in the present case, respondent 2 has not initiated any civil proceedings and no court order had been served upon the petitioner. As such, the FIR against the petitioner was mis-placed and mala fide.

“Intermediary” is defined under Section 2(1)(w) Information Technology Act, 2000 as follows:

Section 2(1)(w) —intermediary, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.

Placing reliance on Google India Private Limited v. Visaka Industries, (2020) 4 SCC 162, the Court noted that the e-market portals, like the petitioner, are intermediaries.

The Court further noted that IT Act does not provide for infringement of trademark or copyright as an offence thereunder and the only obligation of an intermediary is provided under Section 79 of IT Act which incidentally falls under Chapter XII under the title —Intermediaries Not to Be Liable in Certain Cases.

It was stated that the obligation of the intermediary is to observe due diligence and follow the guidelines that may be prescribed by the Government in this regard. Therefore, reference will have to be made to the Information Technology (Intermediary Guidelines) Rules, 2011 (‘IT Guidelines’). Rule 3(1) of IT Guidelines provides for due diligence to be observed by the intermediary, however, the non-compliance of these Guidelines/Rules have not been declared to be an “offence” under the IT Act.

The Court remarked the present matter relates to criminal liability. The simple question is whether compliance with the “due diligence” requirement under Rule 3 of IT Guidelines would render the intermediary eligible for exemption from criminal liability also.

The Court opined that the standard for fixing criminal liability is far higher than that under civil law, one requiring proof ‘beyond reasonable doubt’ and not just a ‘balance of probabilities. Thus, unless an active role is disclosed in the commission of the offences complained of, the intermediary, such as the present petitioner, would be entitled to claim protection under Section 79 of the IT Act. Thus, when compliance with the “due diligence” requirement under Rule 3 of IT Guidelines is evident, ex facie, the exclusion of liability under Section 79 of IT Act would include exclusion from criminal prosecution.

The Court observed that the petitioner has complied with the Guidelines by putting it on their Terms of Use, that the users cannot display what belongs to another person and over which they have no right or which infringes upon or violates any third party’s rights, including but not limited to intellectual property rights, rights of privacy or rights of publicity; or promotes an illegal or unauthorized copy of another person’s copyrighted work or infringes any patent, trademark, copyright, proprietary rights, third-party’s trade secrets, rights of publicity or privacy, or is fraudulent or involves the sale of counterfeit or stolen items or which violates any law for the time being in force. Thus, due diligence under Rule 3 of IT Guidelines has been complied with.

The Court also considered a moot question whether the information provided by the complainant would suffice to obligate the petitioner to take down the allegedly offending information/sites/products. It noted that the intermediaries are certainly not situated to determine the correctness of a claim by a complainant to a trademark or copyright.

The court remarked that the present case goes a step ahead as the FIR has been lodged only against the petitioner and another platform, as none of the other sites or entities, allegedly selling the products which are either fake or unauthorized, are even named.

Thus, placing reliance on State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, the Court quashed the FIR qua the petitioner holding that this is one such case where the registration of an FIR against an intermediary would lead to miscarriage of justice not barring investigations in order to ascertain the identity of those who are infringers and/or unauthorized sellers of the products of the Czech company.

[Flipkart Internet Pvt Ltd v. State of NCT of Delhi, 2022 SCC OnLine Del 2439, decided on 17-08-2022]


Advocates who appeared in this case :

For Petitioners- Mr. Siddharth Luthra, Senior Advocate with Mr. Dheeraj Nair, Mr. Manish K. Jha, Ms. Shruti Dass and Mr. Ayush Kaushik, Advocates;

For Respondents- Mr. Amol Sinha, ASC for R-1/ State with Mr. Anshum Jain and Mr. Rahul Kochar, Advocates and Insp. B.M. Bahuguna Mr. Vivek Raja, Advocate for R-2.


*Arunima Bose, Editorial Assistant has put this report together.

Legislation UpdatesRules & Regulations

   

The Central Board of Direct Taxes has notified Income-tax (26th Amendment) Rules, 2022 to amend Income-tax Rules, 1962.

The amendment inserts a new  Rule 40G in the Income-tax Rules, 1962, relating to Refund Claim under Section 239-A has been inserted. It provides that a claim for refund under section 239-A shall be made in Form No. 29D and must be accompanied by a copy of an agreement or other arrangement referred to in section 239-A. The claim may be presented by the claimant himself or through a duly authorised agent.

In the principal rules, Form No. 29D relating to Application by a person under section 239-A of the Income-tax Act, 1961 for refund of tax deducted has been inserted.

Allahabad High Court
Case BriefsHigh Courts

Allahabad High Court: Krishan Pahal, J. dismissed the bail application of Sidhique Kappan, the journalist who was arrested along with three others in October 2020 while on his way to Hathras, Uttar Pradesh allegedly to report on the gang-rape and murder of a 19-year-old Dalit girl noting that he had no work being in Hathras and that there were reasonable grounds to believe that the accusations against such person are prima facie true.

The FIR alleged that the applicant and other co-accused persons were heading to Hathras where the ill-fated incident had been committed with an intention to create caste struggle and to incite riots. The said persons were said to have been collecting funds and running a website ‘Carrd.com’. There was another website operated by the laptop which had the heading ‘Justice For Hathras’. It was also found that the incident of mob lynching, exodus of labourers and the Kashmir issues were also highlighted through the same website. The website also imparts training pertaining to concealing one’s identity during demonstrations and to ways to incite violence. The matter was registered under Sections 153-A, 295-A, 120-B Penal Code, 1860, Sections 17, 18 of Unlawful Activities (Prevention) Act, 1967 and Sections 65 and 72 of Information Technology Act, 2000.

Senior Counsel for the applicant contended that no pamphlets or printing papers were being carried out by the applicant or other co-accused persons in the car and that the applicant was unaware of any website with the name of ‘Carrd.com’ and ‘Justice For Hathras’. It was submitted that the applicant was going to Hathras to discharge his duty as a professional journalist and was illegally detained by Police in violation of his fundamental rights. It was further submitted that the applicant is an honest journalist and does not post any biased reports on the basis of his political leanings. The applicant has written several journalistic reports on the plights of dalits and minorities, but none of them promotes any sort of rivalry between the communities.

State has vehemently opposed the bail application on the ground that the applicant is a resident of Kerala and has nothing to do with the incident of Hathras and had deliberately with malafide intent come with the co-accused persons and was arrested at Mathura. It was further stated that the co-accused persons had collected funds from foreign national mediums which was utilized by co-accused persons for illegal activities. The applicant was in regular touch with co-accused persons and there were call detail records (CDRs) to corroborate the same. It was submitted that during the search of the house of the applicant at New Delhi 47 papers in Malyalam language were recovered pertaining to Students’ Islamic Movement of India (SIMI). Two AK-47 guns were also shown in the said documents, which also contained the popular slogan of SIMI ‘Welcome Mohammad Gajni’.

The Court noted that after the investigation it came up that the applicant had no work in Hathras. The Court believed that the State machinery was at tenterhooks owing to the tension prevailing due to various types of information being viral across all forums of media including the internet and the sojourn of the applicant with co-accused persons who did not belong to media fraternity was a crucial circumstance going against him.

The Court nullified the defence made by the applicant of him being a journalist and visiting Hathras for work by the claims made by the prosecution in the charge sheet and stated that tainted money being used by the applicant and his colleagues cannot be ruled out.

The Court considered the case of NIA v. Zahoor Ahmad Shah Watali, (2019) 5 SCC 1 where the Supreme Court while overturning the High Court’s order of granting bail to the accused, had stated that Section 43(D)(5) prohibits a Court from granting bail to accused if on a perusal of a final report filed under Section 173 Cr.P.C., the Court is of the opinion that there are reasonable grounds to believe that the accusations against such person are prima facie true.

The bail application was dismissed considering the facts and circumstances of the case, nature of offence, evidence on record, complicity of accused, severity of punishment and the settled law propounded by the Supreme Court in the case of NIA v. Zahoor Ahmad Shah Watali, (2019) 5 SCC 1.

[Sidhique Kappan v. State of U.P., 2022 SCC OnLine All 511, decided on 02-08-2022]


Advocates who appeared in this case :

Mr I.B. Singh, Mr Ishan Baghel, Mr Avinash Singh Vishen, Advocates, Counsel for the Applicant;

Mr Vinod Kumar Shahi, Mr Shivnath Tilahari, Advocates, Counsel for the Opposite Party.


*Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Orissa High Court: A Division Bench of S. Muralidhar CJ and R. K. Pattanaik J. dismissed the appeal filed by the assessee and upheld AO’s decision to disallow part of the payment towards commission.

The background facts are that the Appellant during the AY in question was engaged in the business of manufacturing and sale of P.P. woven sacks meant for packing of fertilizer and cement etc. It filed its return of income and while examining the claims, the AO raised a query regarding payment of commission and asked the Appellant to justify it. It was claimed that the commission was entirely paid through banking channels after deducting Tax at Source (TDS). Each of the commission agents had disclosed the said commission amount in their respective returns and paid tax thereon. In the assessment order dated 8-03-2013, the AO partly allowed the commission expenses to the tune of Rs.23,41,245/- and disallowed Rs.30,08,545/- which was then added to the returned income of the Appellant. The Appellant filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was dismissed as the persons to whom the commission was paid were Directors of the appellant or the relatives of such Directors. Thereafter, the Appellant went before ITAT. The Appellant failed to bring on record their expertise to render services and also what services had in fact been rendered to enhance the business of the Appellant. Merely because TDS had been deducted, would not justify allowing the entire amount as claimed towards commission. Accordingly, the appeal was dismissed, and the instant appeal was filed.

Counsel for the appellants Mr. RP Kar submitted that the commission paid could not be termed as excessive or unreasonable and had been duly accounted for. He insisted that with the TDS having been deducted at the time of paying such commission, and with the recipients of commission having disclosed it in their respective tax returns and having paid tax thereon, again subjecting such payment at the hands of the Appellant would amount to double taxation, which is impermissible in law.

Counsel for respondents Mr. RS Chimanka and A Kedia submitted that the concurrent orders of the AO, the CIT (A) and the ITAT and submits that they call for no interference.

The Court observed that in the given case claiming that each of the seven persons to whom commission was paid actually had the expertise to help the Appellant procuring the IOF from different sources appears to be stretching things a bit too far, and hence the AO appears to be justified in disallowing the commission insofar as it was paid to the said seven persons.

The Court relied on J.K. Woollen Manufacturing v. Commissioner of Income Tax (1969) 72 ITR 612 (SC) and observed that there was the test of commercial expediency. In other words, whether the payment made to the General Manager of the company as commission was an expenditure wholly and exclusively for the purpose of the business? It was concluded that the reasonableness of the expenditure had to be adjudged from the point of view of the businessman and not the Income Tax Department. In the circumstances, the entire amount paid to the General Manager as commission was allowed as expenditure.

The Court observed that all the persons to whom commission was paid were either Directors of the Company or their relatives. None of them is shown to have any expertise in procuring IOF from the Indian markets for enabling the Appellant to meet the purchase order placed on it for IOF. The amounts paid as commission were also not insubstantial. Even from the point of view of a businessman, it does appear to this Court that the commission amount which was disallowed by the AO cannot be said to be for the purpose of business of the Appellant.

The Court held “Thus, it cannot be said that the AO’s decision to disallow part of the payment towards commission was unreasonably arrived at.” [Oripol Industries Ltd. v. Joint Commissioner of IT, ITA No.41 of 2017, decided on 12-05-2022]


Arunima Bose, Editorial Assistant ahs reported this brief.

CBDT
Legislation UpdatesNotifications

On September 17, 2021, the Central Board of Direct Taxes (CBDT)  has issued a notification  that no deduction of tax shall be made on the following payment under section 194A of the Income-tax Act, 1961, which specifies, Interest other than “interest on securities”, made by a scheduled bank located in a specified area, to a member of Scheduled Tribe residing in any specified area, as referred to in clause (26) of section 10 of the Income-tax Act, 1961 subject to the following conditions:

 

  • The payer satisfies itself that the receiver is a member of Scheduled Tribe residing in any specified area, and the payment as referred above is accruing or arising to the receiver as referred to in clause (26) of section 10 of the said Act, during the previous year relevant for the assessment year in which the payment is made, by obtaining necessary documentary evidences in support of the same;
  • The payer reports the above payment in the statements of deduction of tax as referred to in sub- section (3) of section 200 of the said Act;
  • The payment made or aggregate of payments made during the previous year does not exceed twenty lakh rupees.
Case BriefsHigh Courts

Delhi High Court: Anup Jairam Bhambhani, J. has held it to be an irrefutable proposition that if the name and/or likeness of a person appears on a pornographic website without the consent or concurrence of such person, such act would by and in itself amount to an offence, among others, under Section 67 of the Information and Technology Act, 2000 (“IT Act”).

During the course of the instant proceedings, it transpired that despite orders of the Court, even the respondents who were willing to comply with interim directions issued to remove offending content from the world-wide-web, expressed their inability to fully and effectively remove it in compliance with court directions; while errant parties merrily continued to repost and redirect such content from one website to another and from one online platform to another, thereby cocking a snook at directions issued against them in pending legal proceedings. The High Court, therefore, also suggested template directions that would be legal, implementable, effective and would enable meaningful compliance of the orders of a court without putting any impossible or untenable burden on intermediaries.

Petitioner’s grievance

The principle grievance of the petitioner was that her photographs and images that she had posted on her private social media accounts on Facebook and Instagram have been taken without her knowledge or consent and have been unlawfully posted on a pornographic website by an unknown entity, whereby the petitioner’s photographs and images have become offensive by association.

It was contended that even though the petitioner’s photographs and images are otherwise unobjectionable, but by placing the same on a pornographic website, the errant respondents have ex-facie committed the offence of publishing and transmitting material that appeals to the prurient interests, and which has the effect of tending to deprave and corrupt persons, who are likely to see the photographs, which is an offence under Section 67 of the IT Act. Further, the errant parties have attached captions to her photographs, which act falls within the mischief of other penal provisions of the IT Act and the Penal Code, 1860.

Need for crafting out a solution

During the preliminary hearing, it transpired that cyber crime unit of Delhi Police was ready and willing to comply with Court’s directions of removing/disabling access to the offending content relating to the petitioner, but by reason of technological limitations and impediments, it could not assure the Court that it would be able to entirely efface the offending content from the world-wide-web. While on the other hand, the petitioner complained that while the Court made interim orders for immediate removal of the offending content from the errant website, yet in brazen and blatant disregard of such directions, the errant respondents and other mischief-makers had redirected, reposted and republished the offending content onto other websites and online platforms, thereby rendering the orders of the Court ineffective.

The Court accordingly perceived that the issue of making effective and implementable orders in relation to a grievance arising from offending content placed on the world-wide-web, needed to be examined closely; and a solution to the problem needed to be crafted out so that legal proceedings of the instant nature did not become futile. For examining the statutory landscape, the technological limitations and the reality, the Court appointed Dr Pavan Duggal, Advocate, specialising in cyber law and cyber crime, as Amicus Curiae.

Discussion

Statutory Architecture

On a combined reading of Sections 1(2), 75 and 81 of the IT Act, the Court noted that the IT Act has extra-territorial and overriding application provided the computer, computer system or computer network involved are located within India.

Section 67 of the IT Act forms its parent provision which makes the publishing or transmitting of ‘obscene material in the electronic form an offence. Sections 67-A and 67-B were also noted.

2(1)(w) defines “intermediary” as a person who ‘receives, stores or transmits’ electronic records on behalf of another person or provides ‘any service’ in relation to electronic records. The definition is inclusive and includes within its ambit telecom service providers, network service providers, internet service providers, web-hosting service providers and search engines. Sections 2(1)(o) which defines “data”; 2(1)(v) which defines “information” are also important.

It was noted that though Section 79(1) exempts intermediaries from certain liability under the IT Act, what is noteworthy is that such exemption is not unqualified or unconditional and applies only if the intermediary fulfils certain conditions and obligations. The Information Technology (Procedure and Safeguards for Blocking for Access of Information by Public) Rules 2009; and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, were also considered.

The High Court placed reliance on the Supreme Court judgment Shreya Singhal v. Union of India, (2015) 5 SCC 1, where it was held that an intermediary would lose the exemption from liability that it enjoys under Section 79(1) if it does not ‘expeditiously remove or disable access to’ offending content or material despite receiving ‘actual knowledge’, which would mean knowledge by way of a court order or on being notified by the appropriate Government or its agency (which in the instant context would mean the police authorities concerned).

Lastly, the Court noted Section 85, which while dealing with contraventions of the IT Act or Rules committed by companies, also makes the directors, manager, secretary or other officer of a company liable if the contravention has been committed by reason of neglect attributable to such person. It was emphasised that what is brought within the provision is any contravention of any provision of the IT Act or any Rules made thereunder.

Breach of Privacy

According to the High Court, it is an irrefutable proposition that if the name and/or likeness of a person appears on a pornographic website (as in the instant case) without the consent or concurrence of such person, such act would by and in itself amount to an offence, among others, under Section 67 of the IT Act. This is so since Section 67 makes it an offence to publish or transmit, or causes to be published or transmitted, in the electronic form, any material which appeals to the prurient interests of those who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it. The Court said:

“The only purpose of posting the petitioner’s photograph on a pornographic website could be to use it to appeal to the prurient interests of those who are likely to see it. That apart, the inclusion of the name and/or likeness of a person on such website, even if the photograph of the person is not in itself obscene or offensive, without consent or concurrence, would at the very least amount to breach of the person’s privacy, which a court may, in appropriate cases, injunct or restrain. It is evident that such publication would likely result in ostracisation and stigmatisation of the person concerned in society; and therefore immediate and efficacious remedy is required in such cases.”

Difficulty faced by Intermediaries

The Court noted that in the first instance, an intermediary cannot be heard to say that it is unable to remove or disable access to offending content despite such actual knowledge as contemplated in law. That being said, however, the Court could not ignore the difficulties expressed by the intermediaries, in the instant case, in identifying and removing offending content, which intermediaries effectively represented the perspective and point-of-view of several other intermediaries who are similarly placed. In fact, none of the respondent intermediaries took a stand that they were not ready or willing to remove offending content if directed by a court order or by an appropriate governmental agency. The intermediaries only said that it may not be possible to identify the offending content appearing in various disguises and corrupted avatars; and further that, it would be too onerous and impractical to place upon them the responsibility to keep on a lookout for offending content resurfacing in the various different disguises and corrupted avatars at the instance of mischief-makers, on a continuing basis.

Suggested directions

In the High Court’s opinion, a fair balance between the obligations and liabilities of the intermediaries and the rights and interests of the aggrieved user/victim would be struck by issuing directions as detailed below, which would be legal, implementable, effective and would enable meaningful compliance of the orders of a court without putting any impossible or untenable burden on intermediaries:

(i) Based on a ‘grievance’ brought before it, as contemplated in Rule 2(1)(j) of the 2021 Rules or otherwise, and upon a court being satisfied in any proceedings before it, whether at the interim or final stage, that such grievance requires immediate redressal, the court may issue a direction to the website or online platform on which the offending content is hosted, to remove such content from the website or online platform, forthwith and in any event within 24 hours of receipt of the court order;

(ii) A direction should also be issued to the website or online platform on which the offending content is hosted to preserve all information and associated records relating to the offending content, so that evidence in relation to the offending content is not vitiated, at least for a period of 180 days or such longer period as the court may direct, for use in investigation, in line with Rule 3(1)(g) of the 2021 Rules;

(iii) A direction should also be issued by the court to the search engine(s) as the court may deem appropriate, to make the offending content non-searchable by ‘de-indexing’ and ‘de-referencing’ the offending content in their listed search results, including de-indexing and de-referencing all concerned web pages, sub-pages or sub-directories on which the offending content is found. The intermediary must be obliged to comply with a court order directing removal or disabling access to offending content within 24 hours from receipt of such order;

(iv) The directions issued must also mandate the concerned intermediaries, whether websites/online platforms/search engine(s), to endeavour to employ pro-active monitoring by using automated tools, to identify and remove or disable access to any content which is ‘exactly identical’ to the offending content that is subject matter of the court order, as contemplated in Rule 4(1)(d) of the 2021 Rules;

(v) Directions should also be issued to the law enforcement agencies concerned, such as the jurisdictional police, to obtain from the website or online platform concerned all information and associated records, including all unique identifiers relating to the offending content such as the URL (Uniform Resource Locator), account ID, handle name, Internet Protocol address and hash value of the actual offending content alongwith the metadata, subscriber information, access logs and such other information as the law enforcement agency may require, in line with Rule 3(1)(j) of the 2021 Rules, as soon as possible but not later than 72 hours of receipt of written intimation in this behalf by the law enforcement agency;

(vi) Also, the court must direct the aggrieved party to furnish to the law enforcement agency all available information that the aggrieved party possesses relating to the offending content, such as its file name, Image URL, Web URL and other available identifying elements of the offending content, as may be applicable; with a further direction to the law enforcement agency to furnish such information to all other entities such as websites/online platforms/search engines to whom directions are issued by the court in the case;

(vii) The aggrieved party should also be permitted, on the strength of the court order passed regarding specific offending content, to notify the law enforcement agency to remove the offending content from any other website, online platform or search engine(s) on which same or similar offending content is found to be appearing, whether in the same or in a different context. Upon such notification by the aggrieved party, the law enforcement agency shall notify the website concerned, online platform and search engine(s), who (latter) would be obligated to comply with such request; and, if there is any technological difficulty or other objection to so comply, the website, online platform or search engine(s) may approach the court concerned which passed the order, seeking clarification but only after first complying with the request made by the aggrieved party;

(viii) The court may also direct the aggrieved party to make a complaint on the National Cyber-Crime Reporting Portal (if not already done so), to initiate the process provided for grievance redressal on that portal;

(ix) Most importantly, the court must refer to the provisions of Section 79(3)(a) and (b) read with Section 85 of the IT Act and Rule 7 of the 2021 Rules, whereby an intermediary would forfeit the exemption from liability enjoyed by it under the law if it were to fail to observe its obligations for removal/access disablement of offending content despite a court order to that effect.

Orders in the instant petition

The Court was satisfied that the action of the petitioner’s photographs and images having been taken from her Facebook and Instagram accounts and having been posted on a pornographic website; and then having been reposted onto other websites and online platforms, amounts prima facie to an offence under Section 67 of the IT Act in addition to other offences under the IPC.

Accordingly, the High Court issued the following directions to the State and other respondents:

(1) The petitioner was directed to furnish in writing to the Investigating Officer of the subject FIR, all available information relating to the offending content, including the Image URL and Web URL pertaining to the offending image files, within 24 hours of receipt of a copy of the judgment, if not already done so;

(2) The Delhi Police/CyPAD Cell were directed to remove/disable access to the offending content, the Web URL and Image URL of which would be furnished by the petitioner as above, from all websites and online platforms, forthwith and in any event within 24 hours of receipt of information from the petitioner;

(3) A direction was issued to the search engines Google Search, Yahoo Search, Microsoft Bing and DuckDuckGo, to globally de-index and de-reference from their search results the offending content as identified by its Web URL and Image URL, including de-indexing and de-referencing all web-pages, sub-pages or sub-directories concerned on which the offending content is found, forthwith and in any event within 24 hours of receipt of a copy of the judgment alongwith requisite information from the Investigating Officer as directed below;

(4) A further direction was issued to the search engines to endeavour to use automated tools, to proactively identify and globally disable access to any content which is exactly identical to the offending content, that may appear on any other websites/online platforms;

(5) The Investigating Officer was directed to furnish in writing the Web URL and Image URL of the offending content to the other entities to whom directions have been issued by the court in the instant matter, alongwith a copy of the judgment, within 24 hours of receipt of such copy;

(6) The Delhi Police was directed to obtain from the pornographic website concerned and from the search engines Google Search, Yahoo Search, Microsoft Bing, DuckDuckGo (and any other search engines as may be possible) all information and associated records relating to the offending content such as the URL, account ID, handle name, Internal Protocol Address, hash value and other such information as may be necessary, for investigation in the FIR registered in the instant case, forthwith and in any event within 72 hours of receipt of a copy of the judgment, if not already done so;

(7) Furthermore, the petitioner was granted liberty to issue written communication to the Investigating Officer for removal/access disablement of the same or similar offending content appearing on any other website/online platform or search engine(s), whether in the same or in different context; with a corresponding direction to the Investigating Officer to notify such website/online platform or search engine(s) to comply with such request, immediately and in any event within 72 hours of receiving such written communication from the petitioner;

(8) Notwithstanding the disposal of the present petition by the instant order, if any website, online platform, search engine(s) or law enforcement agency has any doubt or grievance as regards compliance of any request made by petitioner as aforesaid, such entity shall be at liberty to approach the High Court to seek clarification in that behalf.

The Court made it clear that non-compliance with the foregoing directions would make the non-compliant party liable to forfeit the exemption, if any, available to it generally under Section 79(1) of the IT Act and as specified by Rule 7 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021; and shall make such entity and its officers liable for action as mandated by Section 85 of the IT Act.

The petition was disposed of in the above terms. [X v. Union of India, 2021 SCC OnLine Del 1788, dated 20-4-2021]


Advocates who appeared in this case:

Mr. Sarthak Maggon, Advocate alongwith petitioner in-person.

Dr. Pavan Duggal, Amicus Curiae.

Mr. Ajay Digpaul, CGSC with Mr. Kamal R. Digpaul, Advocate for UOI.

Ms. Gayatri Virmani, Advocate for Ms. Nandita Rao, ASC for the State. Mr. Meet Malhotra, Senior Advocate with Mr. Aditya Vaibhav Singh, Advocate for respondent No. 3.

Mr. Parag P. Tripathi, Senior Advocate with Mr. Tejas Karia, Mr. Ajit Warrier, Mr. Gauhar Mirza, Mr. Shyamal Anand, Mr. Thejesh Rajendran, Ms. Malikah Mehra and Ms. Mishika Bajpai, Advocates for respondent No. 4.

Mr. Sajan Poovayya, Senior Advocate with Ms. Mamta R. Jha, Advocate, Ms. Shruttima Ehersa, Advocate, Mr. Pratibhanu, Advocate, Ms. Raksha, Advocate and Mr. Sharan, Advocate for respondent No. 7.

Op EdsOP. ED.

1.Every person has a right to have his reputation preserved inviolate. It is a jus in rem, a right good against all in the world.

2. Defamation in law, means attacking another person’s reputation by a false publication (communication to a third party), tending to bring the person into disrepute.

As per MerriamWebster Dictionary, defamation means the act of communicating false statements about a person that injure the reputation of that person.

Black’s Law Dictionary records that defamation means offence of injuring a person’s character, fame, or reputation by false and malicious statements.

3. Section 499 of Penal Code, 1860[1] defines defamation as:

Defamation.—Whoever, by words either spoken or intended to be read, or by signs or by visible representations, makes or publishes any imputation concerning any person intending to harm, or knowing or having reason to believe that such imputation will harm, the reputation of such person, is said, except in the cases hereinafter expected, to defame that person.

 Explanation 1.— It may amount to defamation to impute anything to a deceased person, if the imputation would harm the reputation of that person if living, and is intended to be hurtful to the feelings of his family or other near relatives.

Explanation 2.— It may amount to defamation to make an imputation concerning a company or an association or collection of persons as such.

 Explanation 3.— An imputation in the form of an alternative or expressed ironically, may amount to defamation.

 Explanation 4.— No imputation is said to harm a person’s reputation, unless that imputation directly or indirectly, in the estimation of others, lowers the moral or intellectual character of that person, or lowers the character of that person in respect of his caste or of his calling, or lowers the credit of that person, or causes it to be believed that the body of that person is in a loathsome state, or in a state generally considered as disgraceful.

4. Defamation is a public communication which tends to injure the reputation of another. What statements are defamatory and the span of defences varies from jurisdiction to jurisdiction but there is common agreement in all jurisdictions that statements that are unflattering, annoying, irksome, embarrassing or hurt one’s feelings are not actionable. Common element in all jurisdictions is the potential to injure the reputation. (Refer Ram Jethmalani Subramaniam Swamy.[2])

5. For any defamation action under special law of torts to be successful, the following essential elements are to be proved before the court:

(i) the statement is made by words, either spoken or intended to be read, or by signs or by visible representations;

(ii) the said statement must refer to the plaintiff;

(iii) the statement must be defamatory;

(iv) the person making the defamatory statement knows that there are high chances of other people believing the statement to be true and it will result in causing injury to the reputation of the person defamed;

(v) the statement should be false;

(vi) the statement should not be privileged;

(vii) the statement must be published;

(viii) the third party believes the defamatory matter to be true; and

(ix) the statement must cause injury.

6. However, there are certain exceptions to the general rule:

(i) If the statement made is truth, then it does not constitute defamation.

(ii) If it is a fair comment made in public interest.

The Delhi High Court in Sasikala Pushpa v. Facebook India[3], while dismissing the suit, held that if the people like the plaintiff meet someone behind closed doors, more particularly a person of rival political party, such matters are of public interest and the public at large has a right to know the true state of affairs, the same outweighing the private interest of the plaintiff of keeping the same hidden from public eyes. Therefore, such a public interest shall be an exception to make somebody liable for defamation and to seek injunction against him/them.

 Defence of absolute and qualified privileges.— Absolute privilege gives the person an absolute right to make the statement even if it is defamatory, as the person is immune from liability arising out of defamation lawsuit. Generally, absolute privilege exempts defamatory statements made during judicial proceedings; by government officials; by legislators during debates in the parliament; during political speeches in parliamentary proceedings; and communication between spouses.

When a person making the statement has a legal, social or moral duty to make it and the listener has an interest in it, then the defence of qualified privilege is allowed. Generally, such a defence can be availed in case of reference for a job applicant; response to police enquiries; fair criticism of a published book or movie in review; communication between parents and teachers; communication between employers and employees; and communication between traders and credit agencies.

In Ram Jethmalani[4], the Delhi High Court while dwelling upon absolute and qualified privileges, in the context of defamation, observed as:

“67. Even the issue of absolute privilege has remained a subject-matter of considerable debate. Is absolute privilege absolute in the sense of being infinite? As late as 1998, in the decision reported as Waple v. Surrey County Council[5], it was held:

The absolute privilege which applies to statements made in the course of judicial or quasi-judicial proceedings and in the documents made in such proceedings, would only be entitled where it was strictly necessary to do so in order to protect those who were to participate in the proceedings from being sued themselves.

  1. The decision brings out that absolute privilege is not absolute in the context of being infinite. Even when the occasion is privileged one gets no licence to utter irrelevant and scandalous things unrelated to the proceedings. If what is stated is necessary or relevant to the proceedings, immunity would be absolute.

                                                *                    *                         *

  1. Qualified privilege may be defeated and its protection destroyed by proof of express malice. But how is express malice to be established?”

(iv) If the statement made is an opinion and not a statement of fact, then the said statement cannot be termed as defamatory.

(v) If a person consents to a statement made, then there is no defamation.

(vi) Censure passed in good faith by the person having lawful authority.

(vii) Accusation made in good faith against a person who has lawful authority over that person is not defamation.

7. Under the law of defamation, the test of defamatory nature of a statement is its tendency to incite an adverse opinion or feeling of other persons towards the plaintiff. A statement is to be judged by the standard of ordinary, right thinking members of society at the relevant time. The words must have resulted in the plaintiff to be shunned or evaded or regarded with the feeling of hatred, contempt, ridicule, fear, dislike or disrespect or to convey an imputation to him or disparaging him or his office, profession, calling, trade or business.

8. Defamation can either be libel or slander. Libel is a publication of false and defamatory statement tending to injure the reputation of another person without lawful justification. For example, writing, printing, etc. On the other hand, slander is a false and defamatory statement by spoken words or gestures tending to injure the reputation of another.

9. Defamation traditionally requires the proof of publication of a matter intentionally and with malice. It is important to mention that any person who intentionally and maliciously publishes or distributes such defamatory statement, is also liable as if he has made the statement himself. However, if the defendant proves that the statement is true he will not be liable for such defamation. In India and most other common law countries, the burden of proof is on the defendant to show that the statement is true or the publication was not intentional.

10. The right to reputation, as per the judicial interpretation, is a dimension of the right of life and also comes in the ambit of Article 21 of the Constitution of India[6]. In Subramanian Swamy Union of India[7], where defamation was sought to be decriminalised, challenging the constitutional validity of Sections 499 and 500 of the Penal Code, 1860 alleging them to be unreasonable restriction on the freedom of speech and expression, the Supreme Court held that criminal defamation under Sections 499 and 500 did not violate Article 19(1)(a) as it is a reasonable restriction under Article 19(2). The term “defamation” in Article 19(2) includes both civil and criminal defamation. Sections 499 and 500 IPC were held to be non-discriminatory and non-arbitrary and not violative of the right to equality guaranteed under Article 14 of the Constitution. While in a democracy, an individual has a right to criticise and dissent, but his right under Article 19(1)(a) is not absolute and he cannot defame another person as that would offend the victim’s fundamental right to reputation which is an integral part of Article 21 of the Constitution of India.

11. A nine-Judge Bench of the Supreme Court inS. Puttaswamy v. Union of India[8], has authoritatively elucidated the following important principles regarding right to privacy:

(i) the right of privacy is a fundamental right;

(ii) it is a right which protects the inner sphere of the individual from interference from both State and non-State actors and allows the individuals to make autonomous life choices;

(iii) technology has made it possible to enter a citizen’s house without knocking at his/her door and this is equally possible both by the State and non-State actors;

(iv) it is an individual’s choice as to who enters his house, how he lives and in what relationship;

(v) privacy of the home must protect the family, marriage, procreation and sexual orientation which are all important aspects of dignity;

(vi) if the individual permits someone to enter the house it does not mean that others can enter the house; the only check and balance is that it should not harm the other individual or affect his/her right;

(vii) the only permitted exception is where there is a countervailing public interest which in particular circumstances is strong enough to outweigh it;

(viii) the question to be asked is, was it necessary and proportionate for the intrusion to take place, for example, in order to expose illegal activity or to prevent the public from being significantly mislead by public claims made by the individual concern or what it necessary because the information would make a contribution to a debate of general interest; and

(ix) the court, in order to decide a case, must carry out a balancing operation, weighing the public interest in maintaining confidence against a countervailing public interest favouring disclosure.

12. The internet has made it easier than ever before to spread a huge amount and variety of information worldwide. Social network websites (SNWs) are, at a grass root level, a medium for exchanging information between people. SNWs allow any person to write any statement, including the defamatory one, on their own or on a third party’s virtual profile. In this scenario, the question which arises is: who can be sued by the person against whom such defamatory statement has been made? Under the operative Indian Law, the person who made such statement as well as its distributor and publishers can be sued. Apart from the author of such statement, intermediaries such as SNWs concerned, the website holder, the internet service providers, as well as other users of such SNWs on whose profiles defamatory statements have been written by the author, can be sued in their capacity as publisher of defamatory statements and can be held liable for such statements. It is to be noted that such intermediaries or other users of SNWs may not be aware of such defamatory statements by the author on their own virtual profile.

13. Section 2(1)(w) of Information Technology Act, 2000[9] (ITA) defines “intermediary” as under:

“intermediary”, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.

14. Section 79 of ITA[10] gives immunity to intermediary. According to clause (1) to the said section, an intermediary shall not be liable under the Act or Rules or Regulations made thereunder, for any third-party information or data made available by him, if he proves that the offence or contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence or contravention.

In Shreya Singhal v. Union of India[11], wherein Section 66-A of ITA was a subject-matter of challenge, inter alia, for providing protection against annoyance, inconvenience, insult, injury, or criminal intimidation, all not covered under Article 19(2) of the Constitution of India, the Supreme Court found the said impugned section of ITA to be vague, and invalidated it on the ground of being violative of the right to freedom of speech and expression. It further held that the liability of an intermediary under the ITA shall arise only where the intermediary upon receiving actual knowledge from a valid court order or otherwise that unlawful acts relatable to Article 19(2) of the Constitution of India are going to be committed, fails to expeditiously remove or disable access to such material.


. Achal Gupta is an Advocate and a qualified Chartered Accountant, presently practising at Supreme Court and Delhi High Court. Author’s views are personal only.

[1] Section 499 IPC.

[2] 2006 SCC OnLine Del 14.

[3] 2020 SCC OnLine Del 618.

[4] 2006 SCC OnLine Del 14.

[5] (1998) 1 WLR 860 : (1998) 1 All ER 625.

[6]Constitution of India, Article 21.

[7] (2016) 7 SCC 221.

[8] (2017) 10 SCC 1.

[9] Information Technology Act, 2000.

[10] Ibid, Section 79.

[11] (2015) 5 SCC 1.

Case BriefsSupreme Court

Supreme Court: A Division Bench comprising of AM Khanwilkar and Dinesh Maheshwari, JJ. has held that the contents of a memory card or a pen drive in relation to a crime amount to a ‘document’ and not a ‘material object’ and the accused would be entitled to a copy of the same to prepare his defence under Section 207 of the Code of Criminal Procedure, 1973. However, if the electronic evidence pertained to a rape case then the trial court, keeping in mind the sensitivity of the contents, could deny a copy but may allow the inspection to the accused and his/her lawyer or expert for presenting effective defence during the trial.

The Court was deciding upon a case relating to Kerala actor’s plea for handing over a copy of the visuals of the alleged sexual crime committed on an actress in February 2017. The Court observed that if the prosecution was to rely on the fact of recovery of a memory card, then it could be treated as a material object. However, if the contents of the memory card are sought to be relied upon by the prosecution, then the same would be documentary evidence.

The judgment referred to Section 3 of the Indian Evidence Act, 1872 which includes electronic records in the definition of ‘documentary evidence’. The Court observed that tape records of speeches, and compact discs containing visuals, etc have been held to be “documents” by precedents. Also, Section 2(1)(t) of the Information Technology Act, 2000 [IT Act, 2000] defined “electronic record” to mean ‘data, record or data generated, image or sound stored, received or sent in an electronic form or microfilm or computer generated microfiche’. In this backdrop, the Court held that the footage/clipping contained in such a memory card/pen drive, being an electronic record as envisaged by Section 2(1)(t) of the IT Act, 2000, is a “document” and cannot be regarded as a “material object”. [P. Gopalkrishnan v. State of Kerala, 2019 SCC OnLine SC 1532, decided on 29-11-2019]

Case BriefsHigh Courts

Madras High Court: A Division Judge Bench comprising of Indira Banerjee, CJ. and M. Sundar, J., allowed a writ appeal filed against the order of the learned Single Judge wherein he dismissed assessee’s challenge to the show-cause notice issued by principal Commissioner of Income Tax (revenue).

The assessee filed a return for the year 2012-2013 under Section 139 of Income Tax Act, 1961. Subsequently, the revenue issued a notice to the assessee under Section 148 of IT Act. The revenue wanted to open a re-assessment for the said year, on the grounds that the interest on loan amount shown to be paid to the bank was diverted by the assessee to its partners. The assessee challenged the re-assessment contending that the notice was issued after expiry of 2 years, which was not permissible.

The High Court considered the submissions made on behalf of the parties and perused Section 148 of the IT Act. The Court noted that read with Section 263(2), a notice of re-assessment under Section 148 could have been issued only within a time period of two years from the date of the scrutinization of the original assessment. Holding the said notice to be a show cause notice, the High Court observed, principles and grounds available for assailing a show cause notice are well settled. It the authority issuing the show cause notice lacks jurisdiction and if it is clearly barred by law, it renders the show cause notice invalid in law. The Court held that the show cause notice issued in this case was issued beyond the statutory period of two years which was clearly barred by law. Accordingly, the writ appeal was allowed. [Indira Industries v. CIT, 2018 SCC OnLine Mad 1850, dated 14-6-2018]