01Facts
The petitioner, a public Trust, filed its return of income for A.Y. 2013-14 declaring NIL income
p. 2The Revenue issued notices under Section 148 and Section 148A(d) of the Income Tax Act, 1961, seeking to reopen the assessment
pp. 1-2The reopening was based on the allegation that the petitioner received loans/advances of ₹8,85,97,971 from M/s. Checkmate Services Pvt. Ltd., recorded as ‘Trade Payables’
p. 2The Assessing Officer (AO) contended that since the Trust's Managing Trustee, Mr. Vikram Mahurkar, held 50% shareholding in the lending company, the amount constituted "deemed dividend" under Section 2(22)(e)
p. 2, 5The petitioner challenged these notices, arguing that a public Trust is not a "shareholder" in the company and does not fall under the definition of a "concern"
p. 3, 602Issues
i.1. Whether a public Trust can be categorized as a "concern" under Explanation 3 to Section 2(22)(e) of the Income Tax Act for the purpose of taxing loans as deemed dividends
p. 12 · ¶ 19ii.2. Whether the shareholding of a Trustee in a lending company can be used to invoke Section 2(22)(e) against the Trust itself when the Trust is not a shareholder
p. 6, 13 · ¶ 2103Law Applied
The court primarily interpreted Section 2(22)(e) of the Income Tax Act, 1961, regarding deemed dividends
p. 2, 7It relied on the precedent set by the Delhi High Court in CIT v. Ankitech Private Limited, which held that the legal fiction of "deemed dividend" applies only to shareholders and cannot be extended to non-shareholders via a broad interpretation of "concern"
pp. 7-10It further distinguished Gopal and Sons (HUF) v. CIT, noting that while an HUF is specifically included as a "concern" under Explanation 3(a), a public Trust is not
pp. 11-12Provisions in the judgment · 4
Income Tax Act, 1961 Section 148ASection 148Section 2Section 2
04Reasoning
The court reasoned that for Section 2(22)(e) to apply, the recipient must satisfy specific criteria: being a shareholder with at least 10% voting power, or being a "concern" in which such a shareholder has a substantial interest
p. 10 · ¶ 16The court observed that Explanation 3 defines "concern" to include an HUF, firm, association of persons, or company, but significantly excludes public Trusts
p. 12 · ¶ 19Consequently, the court held that a public Trust cannot be classified as a "concern" for this tax fiction
p. 12 · ¶ 19Since the petitioner-Trust was not a shareholder in M/s. Checkmate Services Pvt. Ltd., and the Revenue failed to prove the Trust acted as a "conduit" for the Trustee's individual benefit, the nexus required to trigger Section 2(22)(e) was absent
pp. 12-13 · ¶ 21The court emphasized that legal fictions must be strictly construed and cannot be extended beyond their statutory purpose
p. 9 · ¶ 2505Holding
The Court answered the issues in the negative, holding that the provision of Section 2(22)(e) cannot be invoked against a public Trust merely because its Trustee is a shareholder in the lending company
p. 13 · ¶ 21The High Court quashed and set aside the order dated 30.06.2022 passed under Section 148A(d) and the reassessment notices dated 30.06.2022 and 06.04.2021. The writ petition was allowed
p. 13Original Court PDF
INSTITUTE OF FIRE SAFETY DISASTER MANAGEMENT STUDIESvsASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1)
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