TaxTMI 
TaxTMI 
2026 (7) TMI 739
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....200 after making disallowance of Rs. 66,62,59,444 u/s 35D (2) (c) of the Act. 2. The assessee is aggrieved by the order and has raised several grounds of appeal. Its principal grievance is against the disallowance of deduction claimed under section 35D of the Income Tax Act, 1961. The assessee contends that the learned CIT(A) and the learned Assessing Officer erred in law and on facts in denying deduction of Rs. 66,62,59,444 under section 35D, expenditure incurred in connection with the public subscription, initial public offer, and listing of its units on the National Stock Exchange and the Bombay Stock Exchange. The assessee is also aggrieved by the findings of the revenue authorities that deduction under section 35D is available only to a company. According to the assessee, the reference to a company in section 35D(2)(c) arose because, when section 35D was introduced with effect from 1 April 1971, non-corporate entities, including trusts, were not eligible to list their units on stock exchanges and, therefore, only companies could incur such expenditure. The assessee submits that trusts are now eligible to list their units on recognised stock exchanges after the introduction ....
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....ion, including, under section 35D(2)(c), expenditure incurred in connection with the issue of shares or debentures for public subscription, such as underwriting commission, brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus. On this basis, the assessee claimed deduction of Rs. 66,62,59,444 under section 35D, being one-fifth of the total expenses incurred for the issue of public subscription during Financial Years 2019-20 and 2020-21. The assessee also submitted that it is an irrevocable trust constituted under the Indian Trusts Act, 1882, and registered as a Real Estate Investment Trust under Regulation 6 of the SEBI (Real Estate Investment Trusts) Regulations, 2014. Its principal activity is to own and invest in rent- or income-generating real estate and related assets in India, with the objective of providing stable and sustainable distributions to its unit holders in accordance with the SEBI Regulations. Although section 35D refers to companies in the context of public subscription expenses, the assessee argued that, applying the doctrine of harmonious construction, the provision should be read as a whole and interpreted to allow the deduc....
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....ersons or body of individuals and not as a company, he disallowed the deduction of Rs. 66,62,59,444 claimed under section 35D. Accordingly, by assessment order dated 28 December 2022 passed under section 143(3) read with section 144B of the Income Tax Act, he assessed the assessee's total income at Rs. 8,91,13,200 as against the returned income of Rs. nil. 8. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). In grounds 3 to 7 of that appeal, the assessee challenged the disallowance made under section 35D of the Income Tax Act. The learned CIT(A) confirmed the action of the learned Assessing Officer, holding that deduction or amortization of preliminary expenses incurred in connection with an initial public offer is available under section 35D only to a company, whereas the assessee is a trust. Accordingly, the disallowance made by the learned Assessing Officer was upheld, and the assessee's appeal was partly allowed. 9. The assessee is aggrieved by the said finding and is in appeal before us. By ground No. 2, it has challenged the disallowance made under section 35D of the Act. 10. The remaining grounds of appeal are general in ....
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....d these details by letter dated 23 April 2026, along with a paper book containing 722 pages. 13. The learned Commissioner of Income Tax-Departmental Representative, Shri Shivanand Kalakeri, strongly supported the orders of the lower authorities. Referring to section 35D of the Income Tax Act, he submitted that amortization of certain preliminary expenses is available to all assessee's. However, expenditure incurred in connection with the public subscription of shares or debentures of a company, including underwriting commission, brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus, is allowable only where the assessee is a company, as provided in section 35D(2)(c) of the Act. He further submitted that the assessee is a trust assessed as an association of persons or body of individuals and not as a company; therefore, the lower authorities rightly denied the deduction claimed under section 35D. The learned CIT-DR also contended that the principles of harmonious or beneficial construction cannot be applied so broadly as to extend an exemption or deduction granted to one class of assessee's to all classes of assessee's. Accordingly, he submitte....
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....crucial textual feature of clause (c) is that it covers expenditure such as underwriting commission, brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus only where the assessee is a company. The legislative scheme is therefore deliberate: expenses intrinsically connected with the corporate form and the issue of shares or debentures are allowable only to companies. The opening words of clause (c), "where the assessee is a company", are not surplusage; they constitute a conscious legislative limitation on the class of assessee's entitled to the deduction. 18. The assessee is a SEBI-registered Real Estate Investment Trust constituted as a trust under the Indian Trusts Act, 1882. Admittedly, it is neither a company within the meaning of the Companies Act, 2013, nor deemed to be a company under any provision of the Income Tax Act, 1961. Section 2(17) of the Act defines "company" to include an Indian company, any body corporate incorporated under the laws of a foreign country, certain institutions or associations declared by the Central Board of Direct Taxes to be a company, and institutions or associations that were assessable as companies for a....
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....eme Court has consistently held that taxing statutes must be construed strictly and that courts cannot supply omissions in the statutory text. In Commissioner of Customs v. Dilip Kumar and Company [2018] 9 SCC 1, the Constitution Bench reiterated that, in a taxing statute, a person cannot be taxed unless the words of the statute clearly impose the burden; similarly, an exemption or deduction must be construed strictly, and in case of ambiguity, the benefit must go to the Revenue. Applying this principle, even if the assessee's plea is examined on the basis of strict construction, the deduction expressly confined to a company cannot be extended, by judicial interpretation, to a non-corporate assessee. 22. The contention that the assessee should be equated with a company because the economic substance of its public issue is similar, in effect, invokes the doctrine of substance over form to read into clause (c) words that the legislature has not used. It is settled law that the legal form chosen by an assessee cannot be disregarded for fiscal classification. A trust remains a trust, and a company remains a company. Their legal incidents, including the manner in which they raise cap....
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....context-specific; it is confined to portfolio composition, scheme categorisation, and investment limits applicable to mutual funds. It does not alter the legal character of a REIT unit as a security distinct from a share. 25. Indeed, the SEBI (Real Estate Investment Trusts) Regulations themselves define a unit as a beneficial interest in a REIT, and not as a share in the capital of a company. The Income Tax Act also draws a deliberate distinction between shares and units of a business trust. Section 2(42A), Explanation 1(i)(hf), prescribes a separate period of holding for a unit of a business trust to qualify as a long-term capital asset, distinct from the period applicable to equity shares. Further, section 47(xvii) grants a specific exemption for the transfer of shares of a special purpose vehicle to a business trust in exchange for units of that business trust. The need for such an express exemption demonstrates that shares and units are not treated as the same species of property. Section 112A also separately recognizes units of a business trust alongside equity shares. 26. It is also relevant that sections 10(23FC)and 115UA provide a pass-through regime for income arisin....