Legal News for January 2026
Foreign firms can’t claim full deduction for head office expenses on Indian biz: SC
The Supreme Court has held that de- ductions claimed by foreign banks for head office expenses related to their Indian operations are subject to the restriction prescribed under Section 44C of the Income Tax Act, 1961, and cannot be claimed in full.
A Bench of Justices BV Nagarathna and Augustine George Masih ruled in favour of the Revenue in the case of Director of Income Tax (International Taxation) vs American Express Bank Limited, setting aside earlier findings of the Income Tax Appellate Tribunal (ITAT) and the High Court that had favoured the assessee.
The Court clarified that the expenditure incurred by a foreign bank’s head office in connection with the operations of its Indian branch must comply with the ceiling imposed under Section 44C, which governs the deduction of head office administrative costs for non-resident entities. The provision limits such deductions to the lower of 5 per cent of adjusted total income or the actual amount of expenditure.
“Thus, the question of law formulated by us is squarely answered in favour of the Revenue. We hold that Section 44C applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches,” the Bench said.
The judgment resolves a long-standing question of law on whether such expenses could alternatively be claimed under Section 37(1), which allows deductions for business expenditures incurred wholly and exclusively for business purposes. The apex court concluded that Section 44C is a specific provision that overrides the general deduction rule under Section 37(1).
Tax experts said the ruling brings finality to the treatment of inter-office expenses for foreign banks and other multinational enterprises with Indian branches.
No question of unregulated AI use by judges, says CJI
The Supreme Court declined to entertain a public interest litigation seeking guidelines to regulate the use of artificial intelligence (AI) in judicial proceedings, observing that “there is no question of unregulated use” by judges. A bench of Chief Justice of India (CJI) Surya Kant and Justice Joymalya Bagchi took exception to the plea’s premise that AI use in courts was “unregulated” and said judges were already exercising due caution in employing such tools.
“There is no question of unregulated use by us. My brothers and sisters on the Bench are very careful. We have repeatedly said we don’t want AI or machine learning to overpower the judicial decision-making process,” the CJI remarked.
Senior Advocate Anupam Lal Das, rep- resenting petitioner Karthikeya Rawal, argued that AI-generated fake precedents were being cited by lawyers. The CJI responded that such instances likely arose from advocates’ own use of un- reliable AI tools and stressed that lawyers must remain vigilant against fabricated material, which violates their professional duty.
When the counsel referred to the Supreme Court’s white paper on AI and the Kerala High Court’s recent policy on responsible AI use in the judiciary, the CJI noted that the top court was al- ready aware of, and consulting on, such developments.
“You are speaking as if we do not know what is happening in Kerala High Court,” the CJI remarked. The bench allowed the petitioner to withdraw the plea with liberty to submit suggestions to the Supreme Court on its administrative side.
SC: Cheque-bounce eases can only be filed at payee’s bank location
In a significant verdict, the Supreme Court held that a cheque-bounce case can only be filed in a court within the jurisdiction of which the complainant’s bank is located. Usually, a dispute arises with regard to the jurisdiction of a court where cheque dishonour cases under section 138 of the Negotiable Instruments Act, 1881, have to be filed. Section 138 of the Act deals with a cheque bouncing due to the insufficiency of funds in the bank account. The Bench also referred to the Negotiable Instruments (Amendment) Act, 2015.
