The Income Tax Appellate Tribunal, Bangalore Bench, has held that a Real Estate Investment Trust cannot claim amortisation under Section 35D(2)(c) of the Income Tax Act, 1961 for expenditure incurred on the public issue and stock-exchange listing of its units. The Tribunal ruled that the deduction is expressly restricted to companies issuing shares or debentures and cannot be extended to a REIT constituted as a trust.
The ruling was delivered in Embassy Office Parks REIT v. Deputy Commissioner of Income Tax, Central Circle-1(3), Bengaluru, concerning Assessment Year 2021-22. The appeal arose from the disallowance of Rs. 66,62,59,444, claimed as a deduction under Section 35D in respect of expenses connected with the initial public offer, public subscription and listing of REIT units on the National Stock Exchange and Bombay Stock Exchange. The order was pronounced on 8 July 2026.
Background of the Case
Embassy Office Parks REIT is an irrevocable trust constituted under the Indian Trusts Act, 1882 and registered as a Real Estate Investment Trust under the SEBI (Real Estate Investment Trusts) Regulations, 2014. Its principal activity is to own and invest in rent- or income-generating real estate assets and distribute income to its unit holders in accordance with the applicable SEBI framework.
The assessee had incurred substantial expenditure in connection with its initial public offer and the listing of its units. It claimed Rs. 66.62 crore as an amortisable deduction under Section 35D, contending that the expenditure was comparable to expenses incurred by a company while issuing shares to the public.
The Assessing Officer rejected the claim on the ground that Section 35D(2)(c) permits deduction of public issue expenses only where the assessee is a company. The Commissioner of Income Tax (Appeals) upheld the disallowance, following which the REIT approached the Tribunal.
Assessee’s Contentions
The assessee argued that Section 35D should be interpreted harmoniously and liberally. It submitted that when the provision was introduced, entities such as REITs did not exist and non-corporate entities were not permitted to list units on recognised stock exchanges.
According to the assessee, a listed REIT raises funds through a regulated public issue, files an offer document, incurs underwriting commission, brokerage, advertisement and printing expenses, and complies with disclosure requirements similar to those applicable to listed companies. It therefore contended that a REIT should receive treatment comparable to a company for expenses incurred in raising capital from the public.
The assessee also relied upon judicial principles concerning beneficial interpretation and legislative intent to argue that the provision should be applied in a manner that accommodates subsequently developed investment structures.
ITAT’s Findings
The Tribunal rejected the assessee’s request for a liberal or purposive interpretation. It observed that Section 35D(2)(c) begins with the words “where the assessee is a company” and covers expenditure connected with the public subscription of shares or debentures of that company.
According to the Tribunal, these words represent a conscious legislative restriction and cannot be treated as redundant. While the broader provision may apply to an Indian company or a resident non-company assessee for certain categories of preliminary expenditure, the expenses specified in Section 35D(2)(c) are available only to companies.
The Tribunal noted that Embassy Office Parks REIT was constituted as a trust and was neither a company under the Companies Act, 2013 nor an entity treated as a company under Section 2(17) of the Income Tax Act.
REIT and Company Are Distinct Taxable Entities
The Tribunal emphasised that the Income Tax Act recognises a REIT as a separate form of business trust. Section 2(13A) defines a business trust to include a trust registered as a REIT or Infrastructure Investment Trust under the applicable SEBI regulations.
Such business trusts are governed by the special taxation framework contained in Chapter XII-FA, including Section 115UA. Specified income may be taxed on a pass-through basis in the hands of unit holders, while other income may be taxable in the hands of the trust.
This special statutory treatment, according to the Tribunal, confirms that a REIT is not a company and cannot be treated as one merely because its fund-raising process may be economically similar to a public issue of shares.
REIT Units Are Not Shares or Debentures
The Tribunal further held that units issued by a REIT are legally distinct from shares or debentures issued by a company. A REIT unit represents a beneficial interest in the trust and not a share in the capital of a company.
The fact that REIT units may be treated as securities under securities legislation or classified as equity instruments for limited regulatory purposes does not convert them into shares for the application of Section 35D(2)(c).
The Tribunal referred to various provisions of the Income Tax Act that separately recognise equity shares and units of a business trust. This distinction demonstrated that Parliament had consciously treated the two instruments as separate species of property.
Strict Interpretation of Deduction Provisions
The Tribunal applied the principle that deductions and exemptions under taxing statutes must be interpreted strictly. Where the statutory language confines a deduction to a specified class of assessees, a court or tribunal cannot extend that benefit to another class by inserting words that the legislature has not used.
It observed that accepting the assessee’s argument would amount to reading “units of a business trust” into a provision that expressly refers only to “shares or debentures of the company.”
The doctrine of substance over form could not be invoked to disregard the legal status of the assessee. A trust remains a trust for fiscal classification, even where its commercial activities or capital-raising mechanism resemble those of a company.
Final Decision
The ITAT upheld the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). It confirmed the disallowance of Rs. 66,62,59,444 claimed under Section 35D(2)(c).
The assessee’s grounds concerning interest under Sections 234A and 234B and initiation of penalty proceedings under Section 270A were treated as general, consequential or premature. The appeal was accordingly dismissed.
Significance of the Ruling
The decision clarifies that similarity in commercial function does not establish legal parity between a REIT and a company under the Income Tax Act. Public issue and listing expenses incurred by a business trust cannot qualify under a deduction provision that is expressly limited to companies issuing shares or debentures.
The ruling is relevant for REITs, Infrastructure Investment Trusts, investment managers, tax advisers and corporate finance teams evaluating the tax treatment of public issue, institutional placement and listing-related expenditure. It also highlights the importance of the legal form of the assessee and the precise wording of deduction provisions in determining tax eligibility.