INSTITUTE OF FIRE SAFETY DISASTER MANAGEMENT STUDIES vs ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1)

C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO.6872 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
===================================================
Approved for Reporting Yes No
✔
===================================================
INSTITUTE OF FIRE SAFETY DISASTER MANAGEMENT STUDIES
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1) &
ANR.
===================================================
Appearance:
MR.HARDIK V VORA(7123) for the Petitioner(s) No. 1
MR.RUTVIJ R PATEL(10615) for the Respondent(s) No. 1
NOTICE SERVED for the Respondent(s) No. 2
===================================================
CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI

Date : 21/07/2026
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
1. In the present writ petition, the petitioner, which is a public
Trust, has prayed for quashing and setting aside the order dated
30.06.2022 passed under Section 148A(d) of the Income Tax Act,
1961 (for short ‘the Act’) as well as Notices issued under Section
148 of the Act dated 30.06.2022 and 06.04.2021.
2. The petitioner is a public Trust, which had filed the return of
income for Assessment Year (for short ‘A.Y.’) 2013-14 on
27.09.2013 declaring total income at Rs.NIL.
3. A Notice under Section 148 of the Act was issued to the
petitioner on 06.04.2021 requesting to file the return of income
within 30 days. On filing of such return, the petitioner was
supplied the reasons for reopening of assessment. The reason
which was assigned by the respondent for reopening is premised
on the provision of Section 2(22)(e) of the Act. It was alleged
that, during the scrutiny of audited financial statements and
computation of income of M/s.Checkmate Services Private
Limited, it was observed that it has given loans and advances to
the petitioner amounting to Rs.8,85,97,971/- and the same is
recorded under the head ‘Trade Payables’. The Assessing Officer
treated the loan and advances as Dividend under Section 2(22)(e)
of the Act and alleged that the petitioner has not offered the
same to tax.
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
4. The petitioner filed a detailed reply on 25.05.2022 pointing
out that the provision of Section 2(22)(e) of the Act will only
apply, in the case, if the advanced of any sum by a company to
another concern, in which a person is holding at least 10%
voting rights in the company and also holds a substantial interest
in the concern, whereas, in the present case, the petitioner-Trust
is not a shareholder in M/s.Checkmate Services Private Limited
and Mr.Vikram Mahurkar is not a beneficiary of the petitioner-
Trust, and hence, such transaction cannot be categorized as
deemed dividend under Section 2(22)(e) of the Act.
5. However, by an order dated 30.06.2022, the respondent has
overruled the objection raised by the petitioner and issued Notice
under Section 148 of the Act and passed an order under Section
148A(d) of the Act, on 30.06.2022. The petitioner again filed a
detailed reply alongwith supporting documents on 06.02.2023.
Thereafter he assailed the notices and the order by filing the
present writ petition.
6. Learned advocate Mr.Hardik Vora, while pointing out the
decision rendered by this Court in the case of GSEC Limited vs.
Deputy Commissioner of Income Tax [2023] 157 taxmann.com
450 (Gujarat) has submitted that the impugned notices as well as
the order are required to be quashed and set aside.
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
7. It is submitted that, this Court has placed reliance on the
judgment of the High Court of Delhi in the case of Commissioner
of Income Tax vs. Ankitech Private Limited [2011] 11
taxmann.com 100 (Delhi). It is further submitted that
subsequently, the Civil Appeals emanating in IT Appeal No.462 of
2009 were dismissed by the Supreme Court in the case of
Commissioner of Income Tax vs. Madhur Housing and
Development Company, [2018] 93 taxmann.com 502 (SC).
However, it is submitted that the Supreme Court subsequently
appears to have referred the decision rendered in the case of
Ankitech Private Limited to Larger Bench vide an order dated
18.01.2018 passed in National Travel Services vs. Commissioner
of Income Tax, Delhi, [Civil Appeals Nos.2068-2071 of 2012]
which was subsequently withdrawn and dismissed vide order
dated 10.08.2021. Thus, it is submitted that the decisions of the
Delhi High Court in the case of Ankitech Private Limited (supra)
and in the case of Madhur Housing and Development Company
(supra) has attained finality and since the issue is squarely
covered, the the present writ petition may be allowed by
quashing and setting aside the impugned notices as well as the
order.
8. In response to the aforesaid submissions, learned Senior
Standing Counsel Mr.Rutvij Patel has placed reliance on the order
of reference passed by the Supreme Court in the case of National
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
Travel Services vs. Commissioner of Income Tax, Delhi (supra)
and has submitted that, though the Civil Appeals have been
subsequently withdrawn, the order would still survive.
9. While referring to the merits of the matter, it is submitted
that on the scrutiny of the balance sheet, profit and loss account
and annual reports of the petitioner, it transpired that the
assessee (petitioner) had manipulatively evaded income chargeable
under Section 2(24)(ii) read with Section 2(22)(e) of the Act to
the tune of Rs.8,85,97,971/-, which was received by the
petitioner from M/s.Checkmate Services Private Limited as
advances and loans, and contrarily depicted in its books of
account as ‘trade payables’. He has further submitted that Shri
Vikram P. Mahurkar is the Managing Trustee of the present
petitioner – Trust and the amount of advance has been received
from the Company -M/s.Checkmate Services Private Limited, in
which Shri Mahurkar is a Director and having shareholding of
50%. Thus, it is submitted that the provision of Section 2(22)(e)
of the Act is attracted.
10. In support of his submission, Mr.Patel has placed reliance on
the decision of the Supreme Court of India in the case of Gopal
and Sons (HUF) vs. Commissioner of Income Tax, Kolkata,
reported in [2017] 77 taxmann.com 71 (SC).
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
11. Thus, it is urged by learned Senior Standing Counsel Mr.Patel
that the writ petition may not be entertained.
12. We have heard the learned counsels appearing for the
respective parties at length.
13. From the pleadings and the documents on record as well as
from the impugned order and notices, the following facts are
established:
a. The reopening of the assessment is premised on the amount of
loans and advances obtained by the petitioner to the tune of
Rs.8,85,97,971/- which was reported under the head ‘Trade
Payables’ in the return of income. The Assessing Officer treated
the same as dividend under Section 2(22)(e) of the Act. It is an
established fact that, one Shri Vikram Mahurkar, who is the
Managing Trustee of the present petitioner – Trust received the
said amount as advance from the group company- M/s.
Checkmate Services Pvt. Ltd., in which he is a Director, having
shareholding of 50%.
b. The petitioner which is unquestionably a Trust pointed out to
the Assessing Officer, pursuant to the Notices issued to it that the
provision of Section 2(22)(e) of the Act cannot be invoked, in
case of the petitioner Trust, as it is not a shareholder in the
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
company of M/s. Checkmate Services Pvt. Ltd., but the Managing
Trustee - Shri Vikram Mahurkar is having a shareholding of 50%
in the said company.
c. Thus, the case of the Revenue is that the advance taken by
the Trustee – Mr.Vikram P. Mahurkar, who is a Director in
M/s.Checkmate Services Private Limited and having a
shareholding of 50% would cast a liability on the petitioner -
Trust and make them amenable under the provision of Section
2(22)(e) of the Act, as such advance can be termed as a deemed
dividend.
14. We may at this stage, refer to the judgment of the Delhi
High Court in the case of Ankitech Private Limited (supra),
wherein, the Delhi High Court, while examining the provision of
Section 2(22)(e) of the Act has held thus:
“22. Insofar as the provisions of Section 2(22)(e) are concerned,
we have already extracted this provision and taken note of the
conditions/requisites which are to be established for making
provision applicable. In Commissioner of Income Tax Vs. C.P.
Sarathy Mudaliar [1972] 83 ITR 170, the Supreme Court had
traced out the assessee of this provision in the following
manner:
“Any payment by a company, not being a company in
which the public are substantially interest, of any sum
(whether as representing a part of the assets of the company
or otherwise) made after 31.05.19987 by way of advance or
loan.
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
First limb
a) to a shareholder, being a person who is the beneficial of
shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits)
holding not less than ten percent of the voting power,
Second limb
b) or to my concern in which, such shareholder is a member
or a partner and in which he has a substantial interest
(hereafter in this clause referred to as the said concern)
Third limb
c) or any payment by any such company on behalf, or for the
individual benefit, or any such shareholder, to the extent to
which the company in either case possesses accumulated
profits.”
23. It is rightly pointed out by the Bombay High Court in Universal
Medicare (P) Ltd. (supra) that Section 2(22)(e) of the Act is not artistically
worded. Be as it may, we may reiterate that as per this provision, the
following conditions are to be satisfied:
“(1) The payer company must be a closely held company.
(2) It applies to any sum paid by way of loan or advance
during the year to the following persons:
(a) A shareholder holding at least 10 of voting power in
the payer company.
(b) A company in which such shareholder has at least 20%
of the voting power.
(c) A concern (other than company) in which such
shareholder has at least 20% interest.
(3) The payer company has accumulated profits on the date of
any such payment and the payment is out of accumulated
profits.
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
(4) The payment of loan or advance is not in course of
ordinary business activities.”
15. The Delhi High Court further while dealing with the
Explanation-3 to the provision of Section 2(22)(e) of the Act has
held thus:
“24. The intention behind enacting provisions of Section 2(22)
(e) is that closely held companies (i.e. companies in which
public are not substantially interested), which are controlled by
a group of members, even though the company has
accumulated profits would not distribute such profit as dividend
because if so distributed the dividend income would become
taxable in the hands of the shareholders. Instead of distributing
accumulated profits as dividend, companies distribute them as
loan or advances to shareholders or to concern in which such
shareholders have substantial interest or make any payment on
behalf of or for the individual benefit of such shareholder. In
such an event, by the deeming provisions, such payment by the
company is treated as dividend. The intention behind the
provisions of Section 2(22)(e) of the Act is to tax dividend in
the hands of shareholders. The deeming provisions as it applies
to the case of loans or advances by a company to a concern in
which its shareholder has substantial interest, is based on the
presumption that the loans or advances would ultimately be
made available to the shareholders of the company giving the
loan or advance.
25. Further, it is an admitted case that under normal
circumstances, such a loan or advance given to the shareholders
or to a concern, would not qualify as dividend. It has been
made so by legal fiction created under Section 2(22)(e) of the
Act. We have to keep in mind that this legal provision relates
to ‘dividend’. Thus, by a deeming provision, it is the definition
of dividend which is enlarged. Legal fiction does not extend to
‘shareholder’. When we keep in mind this aspect, the
conclusion would be obvious, viz., loan or advance given under
the conditions specified under Section 2(22)(e) of the Act would
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also be treated as dividend. The fiction has to stop here and is
not to be extended further for broadening the concept of
shareholders by way of legal fiction. It is a common case that
any company is supposed to distribute the profits in the form of
dividend to its shareholders/members and such dividend cannot
be given to non-members. The second category specified under
Section 2(22)(e) of the Act, viz., a concern (like the assessee
herein), which is given the loan or advance is admittedly not a
shareholder/member of the payer company. Therefore, under no
circumstance, it could be treated as shareholder/member
receiving dividend. If the intention of the Legislature was to tax
such loan or advance as deemed dividend at the hands of
‘deeming shareholder’, then the Legislature would have inserted
deeming provision in respect of shareholder as well, that has
not happened. Most of the arguments of the learned counsels
for the Revenue would stand answered, once we look into the
matter from this perspective.
16. Thus, a cumulative reading of the observations of the Delhi
High Court and the provision of Section 2(22)(e) of the Act along
with Explanation 3 to Section 2(22)(e) of the Act manifests that
the provision of Section 2(22)(e) of the Act would get satisfied,
(1) if the payer company is a closely held company, (2) it applies
to any sum paid by way of loan or advance during the year to
persons, i.e. (a) A shareholder holding at least 10% of voting
power in the payer company, (b) A company in which such a
shareholder has at least 20% of the voting power and (c) A
concern (other than company) in which such shareholder has at
least 20% interest and (3) the payer company has accumulated
profits on the date of any such payment and the payment is out
of accumulated profits, and finally, the payment of loan or
advance is not in course of ordinary business activities.
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C/SCA/6872/2025 JUDGMENT DATED: 21/07/2026
17. We reiterate the observations made by the Delhi High Court,
wherein, it is held that the intention of the legislature behind
enacting the provision of Section 2(22)(e) of the Act is that
closely held companies (i.e. companies in which public are not
substantially interested), which are controlled by a group of
members, even though the company has accumulated profits
would not distribute such profit as dividend, because if so
distributed the dividend income would become taxable in the
hands of the shareholders and instead of distributing accumulated
profits as dividend, companies distribute them as loan or
advances to shareholders or to concern, in which such
shareholders have a substantial interest or make any payment on
behalf of or for the individual benefit of such shareholders and in
such an event, by deeming provision, the payment by the
company is treated as a dividend.
18. So far as reliance placed by learned Senior Standing Counsel
Mr.Patel on the decision of Gopal and Sons HUF (supra) is
concerned, we find that there the assessee, i.e. the HUF (Hindu
Undivided Family), represented 37.12% of the total shareholding
of the company alongwith the Karta, who was also having a
share, as well as it fall within the definition of Explanation 3(a)
to Section 2(22)(e) of the Act which defines 'concern' to mean
HUF, which is not the case before us. We have also noticed that
the Karta of the HUF was also holding shares of the said
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Company and was having substantial interest in the HUF being
its Karta. Thus, in this circumstance, the Supreme Court has held
that the provision of Section 2(22)(e) of the Act gets attracted.
19. In the present case, the assessee (petitioner) is a public Trust
and it is contended before us that the same will fall within
Explanation 3 to Section 2(22)(e) of the Act. The word "concern"
used under the Act in such Explanation, which encompasses a
Hindu Undivided Family (HUF), or a firm, or an association of
persons or a body of individuals or a company cannot be
extended to public Trust and they cannot be classified as a
"concern" for the purpose of specific tax fiction. Thus, even if a
loan is extended to a public Trust by a Private Limited Company,
that usually cannot be treated as a deemed dividend under
Section 2(22)(e) of the Act.
20. However, there would be very unique exception to this Rule,
where the Trust itself is a shareholder holding at least 10% of
the voting power in a closely held company, and hence, any loan
or advance given by that company to the Trust can trigger the
demand of dividend tax under Section 2(22)(e) of the Act.
21. The another scenario would be, where the Trust acts as a
conduit and the loan obtained by its Trustee is utilized for the
individual benefit on behalf of the Trust, in such cases the
provision of Section 2(22)(e) of the Act gets attracted. This is not
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the case of the Revenue before us, and hence, the action of the
respondents in roping in petitioner public Trust in the provision
of Section 2(22)(e) of the Act, only because its Trustee is having
a 50% shareholding in the Company – M/s.Checkmate Services
Pvt. Ltd., is required to be quashed and set aside. Accordingly,
the impugned order dated 30.06.2022 and show cause notices
dated 30.06.2022 and 06.04.2021 are quashed and set aside. The
writ petition stands allowed.
Sd/-
(A. S. SUPEHIA, J)
Sd/-
(VAIBHAVI D. NANAVATI,J)
Pradhyuman/62/
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