Supreme Court dismisses Revenue's plea against Bombay HC ruling in Tata Realty tax case

What happened

The Supreme Court has refused to hear the Income Tax Department's challenge to a Bombay High Court judgment in a tax dispute with Tata Realty & Infrastructure Ltd. A bench of Justices Dipankar Datta and Sheel Nagu dismissed the special leave petition filed by the Principal Commissioner of Income Tax. In its reasoning, the bench pointed to the fact that no appeal had been filed against an earlier High Court order dated 21 January 2020 in Income Tax Appeal No. 1701 of 2017. That earlier order was followed by the Division Bench in its 28 January 2026 judgment, so the Supreme Court saw no reason to interfere. (LiveLawBiz report)

The dispute began with an Income Tax Appellate Tribunal order dated 9 May 2019. The Revenue took that order to the Bombay High Court, which dismissed the appeal in full. The Supreme Court's action closes the Revenue's route to challenge the High Court's decision in this matter.

The first two questions: Section 14A

The first two questions asked whether the disallowance rule in Section 14A of the Income Tax Act can apply in a year when the assessee earned no exempt income. The Revenue relied on CBDT Circular No. 5/2014, dated 11 February 2014, arguing that expenditure linked to exempt income should be disallowed even where no such income was earned in the year. The High Court held that the questions were already covered by its earlier decision in Principal CIT-7 v. Morgan Stanley India Securities Pvt. Ltd., decided on 21 January 2020, and that they raised no substantial question of law. (TaxGuru report on the Supreme Court order)

The third question: the ₹2.5 crore payment

The third question concerned ₹2.5 crore that Tata Realty paid to Brandon and Company Pvt. Ltd. to vacate premises. Tata Realty then used those premises on a 60-month leave and licence basis. The Assessing Officer treated the payment as capital expenditure. The Commissioner of Income Tax (Appeals) and the Tribunal treated it as revenue expenditure, relying on a Supreme Court decision in CIT v. Madras Auto Service (P.) Ltd. The High Court said it found nothing objectionable in that conclusion and held that the question did not raise a substantial question of law. (TaxHeal copy of the High Court judgment)

Who the company is

Tata Realty and Infrastructure Limited is a wholly owned subsidiary of Tata Sons Private Limited. Its 2020-21 annual report describes its work as the design, development and management of commercial assets, with a few residential projects. (Tata Realty annual report FY 2020-21) That report is more than five years old, and this article does not rely on it for current business activity.

What it means for buyers, investors and the market

The ruling concerns how a company is taxed on its own expenses. No source reviewed for this article reports any effect on home buyers, sales, pricing, or the local property market. The case also does not name a project, city, locality, unit configuration or RERA registration. For the company, the High Court position now stands, and the Revenue's challenge has failed at the Supreme Court.

What happens next

No further proceedings, deadlines or next steps were reported after the dismissal. Because the Supreme Court refused to hear the petition, the High Court judgment is the final word on these questions in this case. Any new tax action on the same points would need to be reported separately.

Points where reports differ

Reports disagree on when the Supreme Court order was passed. The TaxGuru page carries a relative timestamp of about two days, while the LiveLaw page carries a relative timestamp of about ten days and an update stamp of 1 October 2026. This article therefore does not state an order date. Also, the Bombay High Court judgment's date (28 January 2026) and the 21 January 2020 precedent are taken from the judgment texts and reports cited above.