Section 28(v) of the Income Tax Act
Income-tax Act, 2025: s.26
Section 28(v) falls under section 28 of the Income-tax Act, 1961, which corresponds to section 26 (Income under head “Profits and gains of business or profession") of the Income-tax Act, 2025.
Read section 26 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 28(v) is Motorola Inc. v. Dy. CIT (95 ITD 269), cited in 213 of the 74 judgments on BharatTax that turn on this section.
Leading authorities on Section 28(v)
Revenue must demonstrate the existence of a Permanent Establishment (PE) of a foreign enterprise in India, including establishing that transactions underlying a Dependent Agent PE were not at arm's length. Income from the sale of goods is not taxable in India if title and risk in the goods pass outside India.
A new industrial undertaking is not considered a reconstruction of an existing business for tax deduction purposes if it is a separate, independent production unit manufacturing commercially tangible products that can operate without losing its identity in the old business. The transfer and substantial use of assets and manpower from an old business to a new one may indicate reconstruction.
Incentive provisions in the Income-tax Act, particularly those granting deductions for new industrial undertakings, must be construed liberally to achieve their legislative purpose. This principle guides the interpretation of conditions such as what constitutes a 'new undertaking' versus a 'splitting up or reconstruction' of an existing business for claiming deductions.
Penalty under Section 271(1)(c) cannot be levied when the quantum appeal is pending before the High Court or where a quantum addition is confirmed and a question of law is admitted by the High Court.
Salary paid to a partner is merely a mode of sharing profits and retains the character of the firm's income. The payment is an adjustment of the amount the partner is entitled to receive based on their contribution of human capital, skill, and toil.
A partner's income from a firm, including salary, bonus, commission, or remuneration, is considered business income in their hands. Expenses necessary for earning this business income are deductible.
Provisions granting deduction, exemption, or relief to an assessee are to be interpreted liberally and in favour of the assessee.
Income accrues to an assessee when they acquire a right to receive it, even if not yet received or ascertained. This means income may accrue without actual receipt.
Penalty under section 271(1)(c) cannot be levied if the assessment proceedings giving rise to the penalty are debatable. An appeal admitted on a substantial question of law indicates that the issue is disputable, and therefore, the assessee cannot be charged with concealment of income or furnishing inaccurate particulars.
Expenditure incurred with a view to producing profits is considered revenue expenditure.