I. NOTIFICATIONS
Government approves five institutions for Scientific Research under the Income-tax Acts.
The Central Government accorded approval during May 2026 to five institutions for the purpose of Scientific Research, entitling eligible donors to claim deduction on contributions made to these institutions.
The approved institutions are M/s Shree Hari Arogyam Foundation (Gandhinagar, Gujarat), Ramakrishna Mission Vidyamandira (Howrah), Regional Centre for Biotechnology (Faridabad, Haryana), S. Nijalingappa Sugar Institute (Belgaum, Karnataka) and National Institute of Advanced Studies (Bangalore). The approvals are operative for a period of five years commencing from Tax Year 2026-27.
[Notification Nos. 6/2026 dated 12-05-2026 and 66 to 69/2026 dated 30-05-2026]
II. MISCELLANEOUS
1. ITR forms for AY 2026-27 enabled on the e-filing portal.
The Income Tax Department enabled online filing of ITR-1, ITR-2 and ITR-4 for Assessment Year 2026-27 on its e-filing portal during May 2026. Both online and offline utilities for these forms were made progressively available during the month, facilitating early filing by taxpayers falling under the respective categories.
2. CBDT has issued communication to all PCCIT/PDGIT with reference to audit objection brought out by CAG u/s 68, 69A, 69B, 69C and 69D r.w.s. 115BBE.
The CBDT has issued a communication to all PCCIT/PDGIT with reference to the audit objections raised by the Comptroller and Auditor General of India (C&AG) in its “Draft Report on Compliance Audit on Application of Provisions u/s 68, 69A, 69B, 69C and 69D read with Section 115BBE” of the Income-tax Act, 1961.
The C&AG, while carrying out the Compliance Audit, pointed out that there was variation in invoking the provisions of the relevant sections and additions made by the AO, and also that incorrect application of rate of tax etc. led to loss to the exchequer.
While invoking the provisions of Section 68, 69A, 69B, 69C and 69D (corresponding to Sections 102, 103, 104, 105 and 106 of the Income-tax Act, 2025) read with Section 115BBE (corresponding to Section 195 of the Income-tax Act, 2025), the field formations have been directed to take the same into account.
III. Income Tax Case Laws
1. SC holds that the share representing 35% in the gross receipts from the sale of residential flats received by the assessee, pursuant to a development arrangement structured through an Association of Persons (AOP), is taxable in the hands of the assessee as a business receipt; reopening of assessment u/s 147/148 upheld.
Case: Sanad Properties Pvt. Ltd. v JCIT (C.A. No. 9017/2012, Judgment dated 12.05.2026, Supreme Court of India)
Court: Supreme Court of India
Verdict Date: 12 May 2026
Issues: Whether the share representing 35% in the gross receipts from the sale of residential flats received by the assessee, pursuant to a development arrangement structured through an AOP, is taxable in the hands of the assessee as a business receipt; and whether the reopening of assessment under Section 147/148 of the Income-tax Act was valid in the facts of the case. The matter pertained to AY 2008-09 and AY 2009-10.
Analysis: The assessee was a member of an AOP formed for the development and sale of residential flats. Under the terms of the underlying arrangement, the assessee was entitled to 35% of the gross receipts arising from the sale of flats. In the case of the AOP for AY 2008-09, the order of the AO contained a detailed elaboration of the nature of the agreement and concluded that the arrangement was based on revenue sharing – meaning the 35% share in gross receipts was not a share in profits, but a share in revenue. The assessee contended that parties are always free to devise their own formula for determining the manner in which profits should be distributed, and that the existence or validity of the AOP was not in question, the AOP having been assessed as such. The Supreme Court, following Phool Chand Bajrang Lal v ITO [1993] 69 Taxman 627 (SC), GKN Driveshafts (India) Ltd. v ITO [2002] 125 Taxman 963 (SC), and CIT v Sitaldas Tirathdas [1961] 41 ITR 367 (SC), held that the 35% share in the gross receipts from the sale of residential flats received by the assessee for AY 2008-09 and AY 2009-10 is taxable in the hands of the assessee as a business receipt.
Conclusion: The 35% share in gross receipts received by the assessee is taxable as a business receipt in his hands. The reopening of assessment under Section 147/148 was upheld.
2. SC dismisses Revenue’s review petitions, affirming its landmark ruling that payments made by resident end-users/distributors to non-resident computer software suppliers under End-User Licence Agreements (EULAs)/distribution agreements do not constitute ‘royalty’ under Section 9(1)(vi) of the Act or applicable tax treaties, and do not trigger withholding tax obligations.
Case: CIT v Engineering Analysis Centre of Excellence Pvt. Ltd. & Ors. (R.P. (C) No. 1422-1497/2021, Judgment dated 11.05.2026, Supreme Court of India)
Court: Supreme Court of India
Verdict Date: 11 May 2026
Issues: Whether the Supreme Court’s landmark ruling dated 02.03.2021 – holding that payments made by resident end-users/distributors to non-resident computer software suppliers under EULAs/distribution agreements do not constitute ‘royalty’ under Section 9(1)(vi) of the Act or applicable tax treaties and do not trigger withholding tax obligations – warrants reconsideration on review.
Analysis: The SC had in its 2021 ruling held that under EULA/distribution arrangements, the non-resident supplier merely grants a non-exclusive, non-transferable licence to use the software. No copyright rights – such as reproduction, adaptation or commercial exploitation – are transferred. Accordingly, the payment is for purchase/use of a copyrighted article and not for use of copyright, and therefore does not constitute royalty under tax treaties and does not trigger withholding tax obligations, across all transaction structures including direct end-user purchases, distributor models and bundled software supplies. A connected batch of review petitions had already been dismissed – on grounds of delay and on merits – vide order dated 23.04.2024. The present review petitions involved similarly situated parties. The court observed that the 2021 judgment is presently in operation as regards the parties to the April 2024 order and that it would not be proper to consider the present review petitions on merits again, considering the earlier order. Accordingly, all pending applications were dismissed.
Conclusion: All pending review petitions dismissed. The 2021 ruling stands as final authority: payments under EULAs/distribution agreements for computer software do not constitute royalty under Indian tax treaties and do not attract withholding tax obligations.
3. Delhi HC holds that ad hoc disallowance of telephone and motor car expenses of a company cannot be sustained merely on the assumption of personal use by directors or employees; a company cannot ordinarily incur personal expenditure; Tribunal must follow consistency with earlier years unless there is a material change in facts.
Case: M/s Raunaq International Ltd. v CIT (ITA No. 113/2006, Judgment dated 14.05.2026, Delhi High Court)
Court: Delhi High Court
Verdict Date: 14 May 2026
Issues: Whether expenditure incurred by a company on telephone and motor car facilities provided to its directors or employees can be regarded as “personal expenses” and consequently disallowed under the Income-tax Act.
Analysis: The assessee company challenged the Tribunal’s order upholding the disallowance of 1/6th of telephone and car expenses on the ground that such expenses contained an element of personal use, citing the absence of a log book and complete telephone expense details. The assessee argued that for earlier years, similar disallowances had been deleted by the CIT(A) and those orders had been affirmed by the ITAT itself. The Tribunal had relied upon Standard Chartered Bank v Directorate of Enforcement [2005] 275 ITR 81 (SC) – the principle that a company is a separate legal person. The Delhi HC held that the Tribunal ought to have followed consistency with earlier assessment years unless there was a material change in facts. The Court observed that merely because a company is a separate legal person does not mean that its expenses can automatically be treated as personal expenses. A company, though a separate legal person, cannot ordinarily incur personal expenditure. Disallowance can be made only when the Revenue establishes that the amount spent was of a personal nature having no nexus with the company’s business. Ad hoc disallowances of car, telephone or similar expenses merely on the assumption of personal use by directors or employees are not sustainable.
Conclusion: Ad hoc disallowance of telephone and motor car expenses set aside. The Tribunal was required to follow the position consistently taken for earlier years. Disallowance is sustainable only upon a positive finding that the expenditure had no nexus with the company’s business.
4. Karnataka HC (Division Bench) holds that search u/s 132 is person-centric and not premises-centric; the identity of the “searched person” is determined with reference to the person against whom satisfaction u/s 132(1)(a) to (c) is recorded and in whose name the search warrant is issued; Section 153C proceedings against the occupant of the searched premises restored.
Case: DCIT v C. R. Ram Mohan Raju (W.A. No. 382/2026 [T-IT], Judgment dated 24.04.2026, Karnataka High Court)
Court: Karnataka High Court (Division Bench)
Verdict Date: 24 April 2026
Issues: Whether search u/s 132 is person-centric or premises-centric; and whether an assessee whose residential premises are searched, but in whose name no search warrant was issued, is a “searched person” for the purpose of Section 153A, or an “other person” against whom Section 153C proceedings can be validly initiated.
Analysis: A search was conducted in the case of a third person, Sri K. Narayan Raju. Based on satisfaction recorded that books/documents belonging to the searched person were suspected to be kept at the assessee’s residence, those premises were also searched. During Section 153A proceedings of K. Narayan Raju, seized documents belonging to C.R. Ram Mohan Raju were found; notices u/s 153C were issued to him. The assessee challenged the 153C notices, contending he was a “searched person” and proceedings should have been initiated u/s 153A. The Single Judge, relying on Sunil Kumar Sharma v ACIT [2024] 159 taxmann.com 179, accepted this and quashed the 153C notices. The Division Bench reversed and held that the “searched person” is the person against whom satisfaction u/s 132(1)(a) to (c) is recorded and in whose name the search warrant is issued – not the owner of the premises searched. On examining the satisfaction note, warrant and panchanama, the Court found that the assessee’s residence was only the location where the department suspected relevant material was kept.
Conclusion: Assessee C.R. Ram Mohan Raju is an “other person” u/s 153C and not a “searched person” u/s 153A. Notices u/s 153C restored. A person does not become a “searched person” merely because his premises are searched; the identity of the searched person is determined with reference to the person against whom satisfaction under Section 132(1)(a) to (c) is recorded and in whose name the search warrant is issued.
5. Bombay HC holds that Section 263 revisional jurisdiction cannot be exercised merely because the CIT believes a more elaborate inquiry ought to have been conducted; “lack of inquiry” and “inadequate inquiry” are distinct – only the former ordinarily attracts revisional jurisdiction.
Case: CIT(E) v Impact Foundation (India) (ITA No. 126/2024, Judgment dated 04.05.2026, Bombay High Court)
Court: Bombay High Court
Verdict Date: 04 May 2026
Issues: Whether revisionary jurisdiction u/s 263 can be exercised merely because the CIT(E) is of the view that the AO ought to have conducted a more detailed inquiry into the utilisation of accumulated funds by a charitable institution registered u/s 12AA.
Analysis: The assessee, a charitable institution registered u/s 12AA, was subjected to scrutiny assessment. It furnished details regarding utilisation of Rs. 6 crore out of accumulated funds of Rs. 14.51 crore. The AO accepted the explanation and completed assessment. The CIT(E) invoked Section 263 on the ground that the AO had not properly verified utilisation of accumulated funds and directed a fresh inquiry. The ITAT quashed the revision order, holding that the AO had in fact conducted inquiries and adopted a plausible view. The Bombay HC affirmed. The Court held that the AO had conducted inquiries, examined supporting materials and consciously accepted the assessee’s claim; hence the assessment order was not erroneous. Section 263 cannot be invoked merely because the Commissioner believes a more elaborate or deeper inquiry should have been undertaken. There is a well-settled distinction between “lack of inquiry” and “inadequate inquiry” – revisional jurisdiction under Section 263 generally applies only where there is a complete absence of inquiry.
Conclusion: Revision u/s 263 quashed. The ITAT correctly set aside the CIT(E)’s order. Mere inadequacy of inquiry, as opposed to a complete absence of inquiry, does not attract revisional jurisdiction under Section 263.
6. Delhi HC holds that once the jurisdictional High Court has decided an issue in the assessee’s favour, the authority deciding a stay application u/s 220(6) is ordinarily required to grant a complete stay – not merely reduce the deposit below 20%; order requiring deposit of 20% of disputed demand set aside.
Case: Cadence Design Systems India Pvt. Ltd. v PCIT (W.P. (C) No. 15099 & 15101/2025, Judgment dated 04.05.2026, Delhi High Court)
Court: Delhi High Court
Verdict Date: 04 May 2026
Issues: Whether the assessee can be required to deposit 20% of a disputed demand as a condition for grant of stay u/s 220(6), where the identical issue has already been decided by the jurisdictional High Court in the assessee’s favour.
Analysis: The AO raised demands in relation to the disallowance of Employee Stock Option Plans (ESOP) expenditure. The assessee filed stay applications u/s 220(6) relying upon the Delhi HC judgment in PCIT v Lemon Tree Hotels Pvt. Ltd. [2019] 104 taxmann.com 27 and other judgments where the ESOP issue had been decided in its favour. The PCIT nonetheless directed deposit of 20% of the disputed demand as a condition for stay. The assessee submitted that the impugned order was contrary to CBDT Circulars dated 29-02-2016 and 31-07-2017, which provide that where an issue has been decided in the assessee’s favour by the jurisdictional High Court, the requirement of deposit of 15% or 20% should be reduced appropriately. The Delhi HC held that this provision cannot be read as mandating a 20% deposit in every case. Once the jurisdictional High Court has decided an issue in the assessee’s favour, the Competent Authority deciding an application u/s 220(6) is ordinarily required to grant a complete stay, as judgments of the HC are binding on all subordinate authorities.
Conclusion: Order requiring deposit of 20% of the demand as a condition for stay set aside. Once the jurisdictional High Court has decided the issue in the assessee’s favour, a complete stay of demand is ordinarily required to be granted.
7. Delhi HC holds that in the absence of a valid assessment order and demand notice, no legally enforceable demand can exist; department directed to delete the outstanding demand entry and refund the amounts adjusted with applicable interest.
Case: Somic ZF Components Pvt. Ltd. v NFAC ITD ORS. (W.P. (C) No. 8445/2024, Judgment dated 11.05.2026, Delhi High Court)
Court: Delhi High Court
Verdict Date: 11 May 2026
Issues: Whether refund adjustment u/s 245 and recovery of tax demand can be sustained when no assessment order or demand notice exists or has been served upon the assessee.
Analysis: The assessee was subjected to assessment proceedings involving transfer pricing adjustments. A draft assessment order was passed on 30.03.2021 and the assessee filed objections before the DRP. After the DRP disposed of the objections, no final assessment order u/s 144C was passed or served within 30 days. Despite this, a demand of approximately Rs. 37.75 lakhs was reflected on the ITBA portal and approximately Rs. 26.86 lakhs were adjusted from refunds due for other years. The jurisdictional AO confirmed via email that no assessment order was available with him. The High Court held that in the absence of an assessment order and demand notice, no legally enforceable demand can exist.
Conclusion: The department was directed to delete the outstanding demand entry within two weeks and refund the amount recovered along with applicable interest. Liberty reserved to serve the assessment order if traced, whereupon the assessee may avail all legal remedies, including the plea that the assessment order was barred by limitation.
8. Delhi HC holds that an AO cannot invoke Section 154 of the Income-tax Act, 1961 to rectify an order passed by the PCIT under the Direct Tax Vivad se Vishwas Act, 2020; VsV Act orders are final and conclusive and the VsV Act does not make Section 154 of the Income-tax Act applicable.
Case: GAIL (India) Limited v ACIT & ANR (W.P. (C) 1883/2026, Judgment dated 04.05.2026, Delhi High Court)
Court: Delhi High Court
Verdict Date: 04 May 2026
Issues: Whether an AO can invoke Section 154 of the Income-tax Act, 1961 to rectify an order passed by the Principal Commissioner of Income Tax under the Direct Tax Vivad se Vishwas Act, 2020.
Analysis: The AO vide order dated 05.01.2026 purported to rectify the order dated 01.11.2021 passed by the PCIT u/s 5(2) of the VsV Act, 2020. The petitioner contended that the VsV Act contains no provision for rectification; that even if the PCIT’s order were to be rectified, it could only be done by the PCIT himself and not by the AO; and that Section 154 of the Income-tax Act, 1961 is per se inapplicable as the order was passed under a different statute. Reliance was placed on Satish Kumar Dhingra v CIT [2024] 467 ITR 574 (Del). The High Court held that the scheme of the VsV Act does not give any power of rectification even to the PCIT. Section 5(3) of the VsV Act clearly provides that the amount determined and the order passed under the Scheme shall be final and conclusive, and the provisions of the Income-tax Act, 1961 have not been made applicable by the VsV Act.
Conclusion: The impugned rectification order dated 05.01.2026 was quashed. Section 154 of the Income-tax Act, 1961 is not applicable to orders passed under the VsV Act, 2020, which are final and conclusive by virtue of Section 5(3). Writ petition allowed.
9. ITAT Mumbai holds that a non-resident taxpayer can elect DTAA provisions for certain exempt capital gains and domestic law provisions for capital losses on a transaction-wise or source-wise basis under Section 90(2); compulsory aggregation of all transactions under a single regime is impermissible.
Case: Alibaba.com Singapore E-Commerce Pvt. Ltd. v DCIT (ITA No. 2070/Mum/2025, Judgment dated 11.05.2026, ITAT Mumbai)
Court: ITAT Mumbai
Verdict Date: 11 May 2026
Issues: Whether a non-resident taxpayer can apply the provisions of the India-Singapore DTAA for certain capital gain transactions and the provisions of the Act for other transactions simultaneously; and whether such transactions must be compulsorily aggregated and subjected to a single regime.
Analysis: The taxpayer, a Singapore-based e-commerce company, earned long-term capital gains from certain share transactions (exempt under Article 13 of the India-Singapore DTAA for shares acquired before the specified cut-off date) and incurred long-term capital losses from other share transactions for AY 2022-23 (for which it claimed carry-forward under the Act). The AO rejected this approach, requiring aggregation of all transactions under a single regime and consequently denying the DTAA exemption and disallowing the carry-forward and set-off of losses. The CIT(A) upheld the AO. The ITAT observed that each investment transaction giving rise to capital gains or losses constitutes a separate and independent source and cannot be compulsorily aggregated merely because they fall under the common head “capital gains”. Section 90(2) of the Act provides the taxpayer an option to apply either the DTAA or the domestic law, whichever is more beneficial, exercisable transaction-wise or source-wise. Gains exempt under the DTAA cannot be forced into the domestic computation mechanism to adjust losses from other independent transactions. The Revenue’s approach would result in indirect taxation of DTAA-exempt income, defeating the beneficial scheme of Section 90(2). Reliance was placed on Matrix Partners India Investment Holdings LLC v DCIT (ITA No. 3097/Mum/2023).
Conclusion: Appeal allowed. The taxpayer is entitled to exemption of long-term capital gains under the India-Singapore DTAA while simultaneously claiming carry-forward and set-off of capital losses under the Act for other transactions. The choice under Section 90(2) may be exercised on a transaction-wise or source-wise basis.
10. ITAT Chennai holds that where the assessee-company’s revised computation and supporting material claiming agricultural land exemption were already on record during assessment proceedings, the AO cannot reject the claim merely because no revised return was filed; matter remanded for fresh adjudication on merits.
Case: Balchandra Builders Pvt. Ltd. v DCIT (ITA No. 2300/CHNY/2025, Judgment dated 05.05.2026, ITAT Chennai)
Court: ITAT Chennai Bench
Verdict Date: 05 May 2026
Issues: Where the assessee-company initially offered gains on sale of land to tax but subsequently, during assessment proceedings, claimed exemption on the ground that the land sold was agricultural land, and the revised computation and supporting material were on record – whether the AO is justified in rejecting the claim merely because no revised return had been filed.
Analysis: The assessee-company initially offered gains on sale of land to tax. During assessment proceedings, it claimed exemption on the ground that the land was agricultural land. The revised computation and supporting materials were placed on record before the AO. The AO rejected the claim solely on the procedural ground of non-filing of a revised return. The ITAT found this approach unjustified. The AO is required to examine the claim on its substantive merits when the revised position and supporting evidence are duly before him during the course of assessment proceedings. Rejection of a claim on a pure procedural ground, without examining the material already on record, is not sustainable.
Conclusion: Matter remanded to the AO for fresh adjudication on merits. The AO was unjustified in rejecting the revised claim merely because no revised return was filed when the revised computation and supporting material were already on record.
11. ITAT Delhi holds that where the satisfaction note in the case of the “other person” was recorded on or after 01.04.2021, Section 153C(3) bars invocation of Section 153C; notices and consequent assessments quashed as void ab initio; additional ground raising a pure jurisdictional issue under Section 153C is admissible at the appellate stage.
Case: Shaminder Singh v ACIT (ITA No. 4627 to 4629/Del/2025, Judgment dated 20.05.2026, ITAT Delhi)
Court: ITAT Delhi
Verdict Date: 20 May 2026
Issues: Whether Section 153C can be validly invoked where the satisfaction note in the case of the “other person” was recorded on 15.12.2021, i.e., after 01.04.2021, in view of the bar under Section 153C(3); and whether this jurisdictional ground can be raised as an additional ground at the appellate stage.
Analysis: The assessee raised an additional ground challenging the validity of Section 153C proceedings, contending that the satisfaction note in the case of the “other person” was recorded on 15.12.2021, i.e., after 01.04.2021, and that Section 153C(3) therefore barred the invocation of Section 153C. The Tribunal admitted the additional ground as a pure legal ground going to jurisdiction, relying on NTPC Ltd. v CIT (229 ITR 383). On merits, following CIT v Jasjit Singh [2023] 458 ITR 437 (SC), PCIT v Ojjus Medicare Pvt. Ltd. (465 ITR 101) and Harigovind v ACIT (485 ITR 509), the ITAT held that for a person other than the searched person, the relevant date for Section 153C is the date of handing over of seized material or, where not available, the date of recording of satisfaction. Since the satisfaction note in the present case was recorded after 01.04.2021, Section 153C(3) barred invocation of Section 153C.
Conclusion: The notice issued under Section 153C and the consequent assessments were quashed as void ab initio and without jurisdiction. Where an additional ground raises a pure jurisdictional issue under Section 153C, it can be admitted even at the appellate stage. In the case of an “other person”, if the date of handing over of seized material or recording of satisfaction falls on or after 01.04.2021, proceedings under Section 153C are hit by Section 153C(3) and are liable to be quashed as void ab initio.
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