Direct Tax Newsletter - July - August 2026

Key Court Rulings

Notifications/Circulars

CBDT Order, dated 09 July 2026 – Authorizing the Director General of Income-Tax (Systems), Delhi, to upload information received under the Automatic Exchange of Information framework into taxpayers’ Annual Information Statement

The Central Board of Direct Taxes issued an order dated 9th July, 2026, authorizing the Director General of Income-Tax (Systems) to upload financial data obtained via the Automatic Exchan-ge of Information (AEOI) framework into taxpayers’ Annual Information Statements (AIS) in Form No. 26AS. This directive requires that international financial information currently held for the years 2022, 2023 and 2024 be integrated into taxpayer records within 90 days of the order’s issuance. For data relating to the 2025 period, the uploading must be completed within 90 days from the end of the month in which the information is received by the department. This order seeks to enhance tax trans-parency by ensuring that automated exchanges of offshore financial data are formally reflected in individual tax statements, with the DGIT (Systems) responsible for defining the specific procedures and formats for implementation.

HIGH COURT RULINGS

M/s Ramjilal Mohanlal v Union of India, Rajasthan High Court, D.B. Civil Writ Petition No. 7616/2024, 29 January 2026

The Rajasthan High Court quashed an appellate order on the grounds that it violated the fundam-ental principle of natural justice, nemo judex in causa sua (no one should be a judge in their own cause). The petitioner challenged a decision passed by an Additional Commissioner who had served a dual role in the proceedings: first as the authorizing authority for the initial inspection and search of the petitioner’s premises, and later as the Appellate Authority deciding the appeal arising from those very search proceedings. The Court held that such a dual exercise of power offends institutional impartiality and creates an inherent bias. Conseq-uently, the High Court set aside the impugned appellate order and remanded the matter with a specific direction that the appeal be heard and decided afresh by a different competent Appellate Authority to ensure a fair and unbiased adjudication.

Canara Bank v Union of India, Karnataka High Court, Writ Petition No. 10234 of 2020 (T-RES), 2026 LLBiz HC (KAR) 89

The Karnataka High Court held that the maint-enance of a Minimum Average Balance (MAB) in a bank account is merely a contractual condition and cannot be treated as “consideration” for banking services so as to attract service tax. Held that the banking facilities provided to customers who maintain a Minimum Average Balance (MAB) are not liable to service tax, as the requirement is a condition of the contract rather than taxable “consideration”. The Court found that there is no sufficient nexus between the maintenance of the balance and the “free” services provided, especially since customers retain the unfettered right to withdraw their funds at any time. Furthermore, the ruling clarified that because banks already disch-arge service tax on the penalties collected when a customer fails to maintain the MAB, any further levy on the balance itself would result in legally impermissible double taxation. Emphasizing that the Revenue Department is bound by its own circulars which exclude contract-breach penalties from being treated as consideration, the Court declared the writ petition maintainable as it invol-ved a pure question of law and subsequently quashed the arbitrary Show Cause Notices issued to the banks.

Aker Powergas Private Ltd. v Union of India, Bombay High Court, Writ Petition No. 2630 of 2026, 08 June 2026

The Bombay High Court addressed a writ petition challenging a Demand-cum-Show Cause Notice (SCN) dated March 20, 2026. The petitioner, a manufacturer, had been granted licenses by the DGFT under the Foreign Trade Policy (FTP 2014-2019) and availed benefits under the Served from India Scheme (SFIS); the relevant scrips were issued in 2013, and the Export Obligation Discharge Certificate (EODC) was obtained in 2015. Following the Supreme Court's decision in the Cummins case, which held that SFIS benefits are reserved for Indian brands rather than foreign brands, the Revenue issued the impugned SCN proposing to recover customs duties of over ₹ 2 crores and impose associated penalties. The petitioner challenged the notice primarily on the grounds of inordinate delay, as it was issued more than 10 years after the alleged transactions. The High Court noted this belated issuance and referenced the Supreme Court’s ruling in the Standard Chartered Bank case (a FERA matter), where a notice proposing penalties issued after such a delay was quashed. Consequently, the Court directed the Revenue to take instructions and granted the petitioner liberty to approach the Court again should the authorities issue any further notices for a personal hearing.

M/s Mahashakti Coke v Union of India, Gujarat High Court, 2026 HC(GUJ)78, 19 June 2026

The Gujarat High Court dismissed a series of writ petitions concerning the rejection of rebate claims for exported Metallurgical Coke. The petitioner sought a rebate under Rule 18 of the Central Excise Rules, 2002, for the full quantity of coke cleared from its factory; however, the Revenue restricted the rebate to the quantity actually exported as recorded in the shipping bills. The discrepancy, amounting to over 1,700 MT in the lead case, was attributed by the petitioner to moisture loss during transportation from the unit to the port. The Court observed that rebate is only payable on the quantity of goods that are actually "taken out of India," and the figures declared in the shipping bills are the proper basis for this determination. Crucially, the Court observed that the petitioner had failed to declare the moisture content in its original invoices or ARE-1 forms at the time of clearance, which deprived the authorities of the opportunity to verify the alleged weight loss. Relying on Supreme Court precedent, the High Court concluded that the Department was justified in its calculation and dismissed the petitions without costs.

Jitendra Shankarlal Mistri v The Income Tax Officer, Ward-1, Gujarat High Court, 2026 HC(GUJ)87, 29 June 2026

The Gujarat High Court dismissed a writ petition challenging the reopening of an income tax assess-ment for the 2018-19 financial year, which was initiated following a search at the Khavda group that allegedly linked the petitioner to an undocum-ented cash financing business. The petitioner contested the Assessing Officer's jurisdiction, arguing that the alleged escaped income did not meet the Rs. 50 lakh statutory threshold required by Section 149(1)(b) because the authorities had "mechanically aggregated" debit and credit entries rather than calculating a "peak balance". However, the Court declined to interfere through its writ jurisdiction under Article 226, noting that a formal assessment order had already been passed on March 10, 2026, and that the petitioner must utilize the statutory appellate machinery by filing an appeal before the Commissioner of Income Tax (Appeals). The ruling reaffirmed that writ jurisdic-tion is not a substitute for standard appeals except in exceptional circumstances, such as a patent lack of jurisdiction or a total violation of natural justice, neither of which was established in this instance.

United Airlines Inc. v The Assistant Commissioner of Income Tax Circle (International Taxation) - 3(1)(1) New Delhi, Delhi High Court, W.P.(C) 8966/2026.

The airline filed a writ petition in the Delhi High Court challenging an April 16, 2026 order that denied its request for a "no deduction of tax" certificate for the 2026-27 financial year. The airline's branch office sought this certificate for remittances made to its Head Office in the USA, noting that authorities had routinely granted it in previous years. The High Court observed that the Competent Authority denied the certificate because the remittances were merely internal transfers between a branch and its own head office. Such transfers lack a "payer-payee relationship," meaning that Section 195 of the Income Tax Act, 1961, does not legally apply to them. The Court ruled that because the Competent Authority itself concluded that no tax deduction was legally required under the Act, it could not compel the authority to formally issue the requested certificate. As a natural consequence of the tax authority's own reasoning, the airline was not required to deduct tax on these transactions. To safeguard the petitioner, the High Court explicitly ordered that no prejudicial or penal action could be taken against United Airlines for failing to deduct tax on these remittances to its US head office.

The Principal Commissioner of Income Tax 1 Ahmedabad v Kaushik Pravinchandra Gohel, Gujarat High Court, C/TAXAP/127/ 2025, 16 July 2026

The dispute originated when the Income Tax Department discovered massive cash deposits and credits totaling over Rs. 28.7 crores in the assessee's bank account with Renukamata Multi State Co-operative Urban Credit Society Limited during the 2015-16 Assessment Year. Because the assessee did not respond to hearing notices, the Assessing Officer passed an ex parte order adding the entire amount to his income as unexplained investments/credits under Sections 69 and 69A of the Income Tax Act. This massive tax addition was initially confirmed by the Commissioner of Income Tax (Appeals). However, the assessee successfully appealed to the Income Tax Appellate Tribunal (ITAT), which significantly reduced the addition to just 0.25% of the total deposits. The ITAT based its decision on a detailed Investigation Wing report concerning the Renuka-mata Society, which revealed that the assessee was not the real beneficiary of the funds. Instead, the bank accounts were being operated by third-party beneficiaries in collusion with the Society to route unaccounted money, and the Department had already initiated separate assessment proceedings against those actual beneficiaries. The Gujarat High Court ultimately dismissed the Revenue's appeals, upholding the ITAT's decision and affirming that since the assessee was merely used as a conduit and was not the real beneficiary, taxing him on 0.25% of the deposits was appropriate and raised no substantial question of law.

TRIBUNAL RULINGS

FireEye Ireland Ltd. v The Assistant Commissioner of Income Tax, Circle 1(3)(1), ITAT New Delhi, ITA No. 825/Del/2023, 05 June 2026

The Income Tax Appellate Tribunal (ITAT), Delhi, ruled that consideration received from the sale of standardised cybersecurity software licences and subscription services is not taxable as Fees for Technical Services (FTS) or royalties under the India-Ireland Double Taxation Avoidance Agreement (DTAA). The Revenue had argued that the services were customized, high-end technological solutions involving artificial intelligence and machine learning, which fell under the ambit of technical services. However, the Tribunal determined that the software sold was standardized, providing end-users with only restricted rights to use the products for their own needs without granting any proprietary interest, access to source code, or the right to commercially exploit the underlying intellectual property. Relying on the Supreme Court’s landmark Engineering Analysis decision and the Delhi High Court's ruling in Amazon Web Services, the Tribunal held that such payments do not constitute "royalty" or Fees for Technical Services (FTS) and that associated support services were merely incidental to the principal software supply.

Syniverse Technologies Services India P. Ltd. v ACIT, Circle 3 (1) Gurgaon, ITAT, New Delhi, ITA No. 20556/DEL/2022, 10 July 2026

The Income Tax Appellate Tribunal, New Delhi, considered the validity of a final assessment order for the Assessment Year 2018–19. The primary legal challenge concerned the failure of the Assessing Officer (AO) to comply with the mandatory directions issued by the Dispute Resolution Panel (DRP) under Section 144C (13) of the Income-tax Act. The Tribunal observed that the final assessment order did not adhere to the characterization of income specified by the DRP. Relying on precedents like Lionbridge Technologies and I.A.R. System Aktiebolag, the ITAT emphasized that the AO is statutorily bound to pass an order in conformity with DRP directions. The Tribunal held that an order passed in violation of these mandatory provisions is bad in law and lacks jurisdiction. Crucially, it ruled that issuance of a subsequent corrigendum to rectify such an error does not validate the original order, as the corrigen-dum itself would be considered beyond jurisdiction. Because the AO essentially ignored the higher authority’s directions to follow his own draft assess-ment analysis (specifically regarding the categoriza-tion of income as "Royalty" versus "Fees for Techn-ical Services"), the Tribunal found the order unsust-ainable. The assessment order was quashed, and the legal issue was decided in favor of the assessee.

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