Tax questions were left unanswered while the Revenue’s claim remained pending before the Supreme Court.

The assessee appealed under Section 260A of the Income Tax Act, 1961, against a common ITAT order dated 31 July 2009 concerning assessment year 2006–07.

The High Court had admitted four substantial questions of law concerning the head of assessment for mutual-fund interest and commission income, carry-forward of short-term capital loss, allowability of interest expenditure under Section 14A, and whether the Tribunal could decide an issue not before it.

During the appeals, insolvency proceedings against the assessee culminated in a Supreme Court judgment allowing withdrawal of the CIRP under Section 12A of the Insolvency and Bankruptcy Code, 2016.

The Supreme Court subsequently considered objections by the Income Tax Department and made orders addressing protection of the Department’s interests while leaving its claim to be established in the proceedings before it.

1. Whether interest and commission income from subscriptions to mutual funds was assessable as “income from other sources” rather than “profits and gains from business or profession”.

2. Whether the assessee was entitled to carry forward its short-term capital loss.

3. Whether interest expenditure claimed as cost of improvement was disallowable under Section 14A.

4. Whether the Tribunal could decide the allowability of interest expenditure when that issue was not before it for adjudication.

Section 260A of the Income Tax Act provides for appeals to the High Court on substantial questions of law; the Court did not decide the substantive tax questions raised under that provision.

The proceedings before the Supreme Court arose under Section 12A of the Insolvency and Bankruptcy Code, read with Regulation 30 of the 2016 Regulations.

In addressing the Department’s objections, the Supreme Court stated that a settlement arrangement receiving judicial sanction could not be frustrated by subsequent claims of statutory authorities, referring to Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, and Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308.

It also held that the Department’s claim had not been extinguished, compromised, or adjudicated, and that attachment of assets and deposit of sale proceeds in an interest-bearing fixed deposit protected the Department’s interests.

The High Court noted that the Supreme Court was overseeing the settlement and sale process and that the Department’s claim remained for determination in those proceedings.

Because the Supreme Court’s orders had protected the Department’s interests and the claim had not been adjudicated or extinguished, the High Court considered itself not called upon to determine the admitted tax questions in these appeals.

It therefore left the substantive tax issues unanswered rather than deciding them on their merits.

It granted the parties liberty to seek revival of the appeals if necessary and made no order as to costs.