In a notification issued on April 23, the Central Board of Direct Taxes (CBDT) notified that any expenditure incurred to settle proceedings initiated in relation to contravention or defaults under the four specified laws shall not be deemed to have bbeen incurred for the purpose of business or profession and no deduction or allowance will be allowed for such expenditure.
The four laws are the
Securities and Exchange Board of India Act, 1992;
The Securities Contracts (Regulation) Act, 1956;
The Depositories Act, 1996
the Competition Act, 2002
The deductibility of settlement payments under Section 37(1) of the Income-tax Act, 1961, has long been a subject of judicial debate, particularly in cases like Income Tax Officer v. Reliance Share & Stock Brokers (P.) Ltd., where consent fees paid to SEBI were allowed as business expenditure on grounds of commercial expediency.
However, the CBDT brought in changes to law via Finance Act, 2024, and has now notified that any expenditure incurred or settlement or compounding of proceedings under specific legislations in India or outside, including the SEBI Act, the Securities Contracts (Regulation) Act, the Depositories Act, and the Competition Act, shall not be eligible for deduction