Section 254 of the Income Tax Act
Income-tax Act, 2025: s.363
Section 254 of the Income-tax Act, 1961 corresponds to section 363 (Orders of Appellate Tribunal) of the Income-tax Act, 2025.
Read section 363 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 254 is Asia Satellite Telecommunications Co. Ltd. v. DIT (332 ITR 340), cited in 359 of the 1,576 judgments on BharatTax that turn on this section.
Leading authorities on Section 254
Payments for the use of equipment, such as satellite transponders, do not constitute 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961, or under applicable tax treaties, especially when there is no transfer of the right to use a process or underlying technology.
An assessee can make an additional claim for deduction or file a revised computation of income during assessment proceedings, even if a revised return of income has not been filed. Such additional claims or grounds can also be admitted at the appellate stage.
The Supreme Court holds that the issue of payment of excessive price on purchase of sugarcane by assesses is no longer res integra. The court elaborately dealt with this issue.
The Supreme Court restores the matter for ascertaining whether the difference between the fair market price and concessional price of sugar supplied by a cooperative sugar factory to its members should be added to its total income, considering relevant factors like state cooperative society directions.
The Supreme Court affirmed the doctrine of mutuality, holding that contributions received from and returned to members for a common purpose do not constitute taxable profits. However, income from transactions with non-members or interest earned from investments in external entities (like cooperative banks) may break the mutuality chain and be taxable under Section 56, falling outside the scope of Section 80P deductions.
Expenditure providing an enduring advantage, such as upfront lease rent for land, is revenue expenditure if no capital asset is acquired or generated, allowing for deduction under Section 37, even when capitalized in the books of account.
The Supreme Court established the foundational test for distinguishing between capital and revenue expenditure, holding that the aim and object of the expenditure and whether it brings into existence an asset or an advantage of an enduring nature determines its character, irrespective of the payment method. An advantage lasting five years or more can be considered enduring.
An expenditure is classified as either capital or revenue; the 'enduring benefit' test is a key criterion for this distinction, and income tax law does not generally recognize deferred revenue expenditure unless specifically provided.
Sections 4 and 5 of the Income Tax Act, which define total income and chargeability, are subject to Section 90, meaning that Double Taxation Avoidance Agreements (DTAAs) override the Act's provisions in case of a conflict.
Expenditure incurred for improving business operations or facilitating business conduct, even if the advantage endures indefinitely, is generally on revenue account if it leaves the fixed capital untouched.