Supreme Court upholds Delhi High Court ruling on Category-III AIF tax treatment

On Wednesday, the Supreme Court of India dismissed a petition seeking to reverse a Delhi High Court judgment that read down a 2014 CBDT circular prescribing the highest marginal tax rate for Category-III alternative investment funds. The bench, comprising Justices J B Pardiwala and K Vinod Chandran, held that the high court’s ruling, which granted relief to Equity Intelligence AIF Trust, was correct. The high court had emphasized that the circular could not compel a trust to list its beneficiaries before it was registered, citing the legal maxim that law does not require the impossible.

It also relied on a Karnataka High Court precedent in the India Advantage Fund case, which had been followed for years. Revenue counsel Raghavendra Shankar explained that earlier challenges were withdrawn due to low tax stakes, but the Supreme Court questioned the rationale for abandoning a significant legal question. Ultimately, the apex court left the high court’s interpretation intact, ending the dispute.