Our REIT incurred large expenses on its initial public offer and listing. Can it write them off over ten years under section 35D like a listed company?
No, on the Bangalore Tribunal's reasoning. Clause (c) of section 35D(2) opens with the words 'where the assessee is a company', and a SEBI-registered Real Estate Investment Trust constituted under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, so the deduction is unavailable however closely the public issue of units resembles a public issue of shares. The Tribunal held those opening words to be a conscious legislative limitation and not surplusage, refused to read units as shares, and dismissed the appeal.
Decided by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Keshav Dubey, Judicial Member) on 2026-07-08, reported as ITA No. 221/Bang/2025, Income Tax Appellate Tribunal, 'A' Bench, Bangalore; assessment year 2021-22; heard 23 April 2026, pronounced 8 July 2026. It bears on section 35D, section 35D(2)(c), section 2(17), section 2(13A), section 115UA, section 10(23FC), section 47(xvii), section 112A, section 2(42A), section 143(3), section 144B of the Income Tax Act 1961, in Deductions & Disallowances, Charitable Trusts & Exemption, How Tax Law Is Read and Capital Gains matters.
REIT and InvIT sponsors routinely capitalise very large issue costs and look for a route to amortise them, and this is the first considered answer. The reasoning is worth having in full because it repays use elsewhere. The Tribunal treated the special taxation regime in Chapter XII-FA as itself confirming that a business trust is not a company for the purposes of the Act; it pointed to section 47(xvii) as showing that shares and units are not the same species of property, since an express exemption would not have been needed if they were; it noted that section 2(42A) prescribes a separate holding period for a unit of a business trust and that section 112A recognises units alongside equity shares; and it held that SEBI's classification of REIT units as equity instruments for mutual fund categorisation is regulatory and context-specific and does not alter the legal character of a unit. It also applied the strict-construction rule from the Constitution Bench in Commissioner of Customs v. Dilip Kumar and Company to a deduction. The practical corollary is that the sponsor should look at clauses (a) and (b) of section 35D(2), which are not confined to companies, rather than at clause (c) — the Tribunal drew exactly that distinction from the legislative history — and should consider whether particular items of issue expenditure are deductible on ordinary principles at the SPV level.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a Real Estate Investment Trust established as an irrevocable trust under the Indian Trusts Act 1882 and registered under regulation 6 of the SEBI (Real Estate Investment Trusts) Regulations 2014, whose principal activity is to own and invest in rent or income-generating real estate assets in India. For assessment year 2021-22 it filed a return on 31 December 2021 declaring nil total income and a loss of Rs. 57,71,46,244, claiming a deduction of Rs. 66,62,59,444 under section 35D in respect of expenditure incurred in financial years 2019-20 and 2020-21 on public subscription, its initial public offer and the listing of its units on the National Stock Exchange and the Bombay Stock Exchange. In assessment under section 143(3) read with section 144B, completed on 28 December 2022, the Assessing Officer disallowed the claim on the footing that section 35D permits the deduction only in the case of companies, and assessed the income at Rs. 8,91,13,200. The Commissioner (Appeals)-11, Bangalore dismissed the appeal on 26 December 2024. Before the Tribunal the assessee argued that the reference to a company in section 35D(2)(c) arose only because non-corporate entities could not list units when the section was introduced with effect from 1 April 1971, that trusts may now list units under the SEBI REIT Regulations 2014 and are governed in a manner similar to listed companies, and that a purposive construction following K.P. Varghese and J.H. Gotla required the clause to be read as covering a REIT's public issue of units.
The appeal was dismissed. The Tribunal upheld the orders of the lower authorities and confirmed the denial of the deduction of Rs. 66,62,59,444 under section 35D(2)(c) (paragraphs 29 and 30). Clause (c) applies only where the assessee is a company; a SEBI-registered REIT constituted as a trust under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, and the deduction cannot be extended to it by judicial interpretation (paragraphs 17, 18 and 21). Units of a REIT are not shares or debentures, and the expenditure covered by clause (c) is expenditure on the issue of shares or debentures of a company (paragraph 23). The fact that the assessee raises capital by issuing units does not bring it within the clause, since partnership firms, limited liability partnerships and trusts also raise funds without qualifying (paragraph 28).
The Tribunal held the opening words of clause (c), 'where the assessee is a company', to be a conscious legislative limitation on the class of assessees entitled to the deduction and not surplusage, the legislative scheme being that expenses intrinsically connected with the corporate form and the issue of shares or debentures are allowable only to companies (paragraph 17). It found that the assessee falls within none of the limbs of the definition of 'company' in section 2(17) (paragraph 18), and that the Act treats a REIT as a distinct form of business trust under section 2(13A), taxed under the special framework in Chapter XII-FA under which specified income is passed through to unit holders and residual income is taxed in the trust's hands at the maximum marginal rate — a separate regime which confirms that a REIT is neither a company nor treated as one (paragraph 19). The assessee's economic-equivalence argument was rejected as an invitation to apply substance over form so as to read into clause (c) words the legislature has not used; the legal form chosen cannot be disregarded for fiscal classification (paragraph 22). Applying the Constitution Bench decision in Commissioner of Customs v. Dilip Kumar and Company [2018] 9 SCC 1, the Tribunal held that a deduction must be construed strictly and ambiguity resolved in favour of the Revenue (paragraph 21). Legislative history was held to support the distinction: clauses (a) and (b) are available to all resident assessees while clause (c) is inherently corporate, and clause (c) refers specifically to 'shares or debentures of the company' and does not extend to units; the fact that REIT units are securities for the purposes of the Securities Contracts (Regulation) Act 1956 does not convert them into shares or debentures (paragraph 23). SEBI's classification of REIT units as equity instruments for mutual fund scheme categorisation was held to be regulatory and context-specific (paragraph 24). The Tribunal drew further support from the Act's own distinctions — the separate holding period for a unit of a business trust in section 2(42A), the specific exemption in section 47(xvii) for the transfer of SPV shares to a business trust in exchange for units, which would be unnecessary if shares and units were the same species, and the separate recognition of units alongside equity shares in section 112A (paragraph 25) — and from the pass-through regime in sections 10(23FC) and 115UA, which operates for unit holders and not for shareholders (paragraph 26). It added that a company suffers tax on its income and its shareholders again on dividend, whereas a trust is a pass-through entity, so there can be no parity between the two (paragraph 27).
A trust remains a trust, and a company remains a company.
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Handle my notice → Ask a CA on WhatsAppNo, on the Bangalore Tribunal's reasoning. Clause (c) of section 35D(2) opens with the words 'where the assessee is a company', and a SEBI-registered Real Estate Investment Trust constituted under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, so the deduction is unavailable however closely the public issue of units resembles a public issue of shares. The Tribunal held those opening words to be a conscious legislative limitation and not surplusage, refused to read units as shares, and dismissed the appeal. This was decided by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Keshav Dubey, Judicial Member) and bears on section 35D, section 35D(2)(c), section 2(17), section 2(13A), section 115UA, section 10(23FC), section 47(xvii), section 112A, section 2(42A), section 143(3), section 144B of the Income Tax Act 1961. It is reported as ITA No. 221/Bang/2025, Income Tax Appellate Tribunal, 'A' Bench, Bangalore; assessment year 2021-22; heard 23 April 2026, pronounced 8 July 2026. REIT and InvIT sponsors routinely capitalise very large issue costs and look for a route to amortise them, and this is the first considered answer. The reasoning is worth having in full because it repays use elsewhere. The Tribunal treated the special taxation regime in Chapter XII-FA as itself confirming that a business trust is not a company for the purposes of the Act; it pointed to section 47(xvii) as showing that shares and units are not the same species of property, since an express exemption would not have been needed if they were; it noted that section 2(42A) prescribes a separate holding period for a unit of a business trust and that section 112A recognises units alongside equity shares; and it held that SEBI's classification of REIT units as equity instruments for mutual fund categorisation is regulatory and context-specific and does not alter the legal character of a unit. It also applied the strict-construction rule from the Constitution Bench in Commissioner of Customs v. Dilip Kumar and Company to a deduction. The practical corollary is that the sponsor should look at clauses (a) and (b) of section 35D(2), which are not confined to companies, rather than at clause (c) — the Tribunal drew exactly that distinction from the legislative history — and should consider whether particular items of issue expenditure are deductible on ordinary principles at the SPV level. If it applies to you, the first step is this: Do not claim section 35D(2)(c) for a REIT, InvIT or any other business trust: the clause opens with 'where the assessee is a company' and the Tribunal held those words to be a conscious limitation.
The assessee is a Real Estate Investment Trust established as an irrevocable trust under the Indian Trusts Act 1882 and registered under regulation 6 of the SEBI (Real Estate Investment Trusts) Regulations 2014, whose principal activity is to own and invest in rent or income-generating real estate assets in India. For assessment year 2021-22 it filed a return on 31 December 2021 declaring nil total income and a loss of Rs. 57,71,46,244, claiming a deduction of Rs. 66,62,59,444 under section 35D in respect of expenditure incurred in financial years 2019-20 and 2020-21 on public subscription, its initial public offer and the listing of its units on the National Stock Exchange and the Bombay Stock Exchange. In assessment under section 143(3) read with section 144B, completed on 28 December 2022, the Assessing Officer disallowed the claim on the footing that section 35D permits the deduction only in the case of companies, and assessed the income at Rs. 8,91,13,200. The Commissioner (Appeals)-11, Bangalore dismissed the appeal on 26 December 2024. Before the Tribunal the assessee argued that the reference to a company in section 35D(2)(c) arose only because non-corporate entities could not list units when the section was introduced with effect from 1 April 1971, that trusts may now list units under the SEBI REIT Regulations 2014 and are governed in a manner similar to listed companies, and that a purposive construction following K.P. Varghese and J.H. Gotla required the clause to be read as covering a REIT's public issue of units. The matter was decided on 2026-07-08 by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Keshav Dubey, Judicial Member). On those facts the ITAT held as follows. The appeal was dismissed. The Tribunal upheld the orders of the lower authorities and confirmed the denial of the deduction of Rs. 66,62,59,444 under section 35D(2)(c) (paragraphs 29 and 30). Clause (c) applies only where the assessee is a company; a SEBI-registered REIT constituted as a trust under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, and the deduction cannot be extended to it by judicial interpretation (paragraphs 17, 18 and 21). Units of a REIT are not shares or debentures, and the expenditure covered by clause (c) is expenditure on the issue of shares or debentures of a company (paragraph 23). The fact that the assessee raises capital by issuing units does not bring it within the clause, since partnership firms, limited liability partnerships and trusts also raise funds without qualifying (paragraph 28).
The Tribunal held the opening words of clause (c), 'where the assessee is a company', to be a conscious legislative limitation on the class of assessees entitled to the deduction and not surplusage, the legislative scheme being that expenses intrinsically connected with the corporate form and the issue of shares or debentures are allowable only to companies (paragraph 17). It found that the assessee falls within none of the limbs of the definition of 'company' in section 2(17) (paragraph 18), and that the Act treats a REIT as a distinct form of business trust under section 2(13A), taxed under the special framework in Chapter XII-FA under which specified income is passed through to unit holders and residual income is taxed in the trust's hands at the maximum marginal rate — a separate regime which confirms that a REIT is neither a company nor treated as one (paragraph 19). The assessee's economic-equivalence argument was rejected as an invitation to apply substance over form so as to read into clause (c) words the legislature has not used; the legal form chosen cannot be disregarded for fiscal classification (paragraph 22). Applying the Constitution Bench decision in Commissioner of Customs v. Dilip Kumar and Company [2018] 9 SCC 1, the Tribunal held that a deduction must be construed strictly and ambiguity resolved in favour of the Revenue (paragraph 21). Legislative history was held to support the distinction: clauses (a) and (b) are available to all resident assessees while clause (c) is inherently corporate, and clause (c) refers specifically to 'shares or debentures of the company' and does not extend to units; the fact that REIT units are securities for the purposes of the Securities Contracts (Regulation) Act 1956 does not convert them into shares or debentures (paragraph 23). SEBI's classification of REIT units as equity instruments for mutual fund scheme categorisation was held to be regulatory and context-specific (paragraph 24). The Tribunal drew further support from the Act's own distinctions — the separate holding period for a unit of a business trust in section 2(42A), the specific exemption in section 47(xvii) for the transfer of SPV shares to a business trust in exchange for units, which would be unnecessary if shares and units were the same species, and the separate recognition of units alongside equity shares in section 112A (paragraph 25) — and from the pass-through regime in sections 10(23FC) and 115UA, which operates for unit holders and not for shareholders (paragraph 26). It added that a company suffers tax on its income and its shareholders again on dividend, whereas a trust is a pass-through entity, so there can be no parity between the two (paragraph 27). In the words reproduced by the source cited on this page: "A trust remains a trust, and a company remains a company." The decision followed or applied Commissioner of Customs v. Dilip Kumar and Company [2018] 9 SCC 1 (Constitution Bench) — applied, on strict construction of a deduction and on ambiguity being resolved in favour of the Revenue.
It was decided by the ITAT on 2026-07-08 and is reported as ITA No. 221/Bang/2025, Income Tax Appellate Tribunal, 'A' Bench, Bangalore; assessment year 2021-22; heard 23 April 2026, pronounced 8 July 2026. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 35D, section 35D(2)(c), section 2(17), section 2(13A), section 115UA, section 10(23FC), section 47(xvii), section 112A, section 2(42A), section 143(3), section 144B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. The Tribunal upheld the orders of the lower authorities and confirmed the denial of the deduction of Rs. 66,62,59,444 under section 35D(2)(c) (paragraphs 29 and 30). Clause (c) applies only where the assessee is a company; a SEBI-registered REIT constituted as a trust under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, and the deduction cannot be extended to it by judicial interpretation (paragraphs 17, 18 and 21). Units of a REIT are not shares or debentures, and the expenditure covered by clause (c) is expenditure on the issue of shares or debentures of a company (paragraph 23). The fact that the assessee raises capital by issuing units does not bring it within the clause, since partnership firms, limited liability partnerships and trusts also raise funds without qualifying (paragraph 28). It arises in Deductions & Disallowances, Charitable Trusts & Exemption, How Tax Law Is Read and Capital Gains matters, on section 35D, section 35D(2)(c), section 2(17), section 2(13A), section 115UA, section 10(23FC), section 47(xvii), section 112A, section 2(42A), section 143(3), section 144B of the Income Tax Act 1961, and was decided by Shri Prashant Maharishi, Vice-President and Shri Keshav Dubey, Judicial Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test each item of issue expenditure against clauses (a) and (b) of section 35D(2) instead, which the Tribunal described as available to all resident assessees, and keep the breakdown item by item rather than claiming a single aggregate. Do not argue economic equivalence — that a public issue of units is functionally the same as a public issue of shares. The Tribunal treated that as an invitation to read words into the clause and refused it. Do not rely on SEBI's classification of REIT units as equity instruments for mutual fund scheme categorisation; the Tribunal held that classification to be regulatory and context-specific. Where the expenditure was in substance incurred by or for a special purpose vehicle that is a company, examine whether the claim belongs there instead, and document which entity bore what. If the point is being carried further, note that the Tribunal's route runs through strict construction of a deduction following Commissioner of Customs v. Dilip Kumar and Company [2018] 9 SCC 1, so the argument on appeal has to meet that rule rather than the purposive canons in K.P. Varghese and J.H. Gotla that were pressed below.
Validity check could not be completed. Validity check could not be completed. The order was pronounced on 8 July 2026 and no search for an appeal to the High Court under section 260A, or for any contrary decision of another bench, was carried out this pass. The holding was read on two independent routes — the plain document URL, which gave the header, paragraphs 1 to 5, paragraphs 27 to 30 and the paragraph count, and the print view, which gave paragraphs 15 to 30 — and the quoted sentence was confirmed a third time through a document fragment query, all three returning it in identical words. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to 30 numbered paragraphs, and that count was established twice — the plain document URL returned the header, paragraphs 1 to 5 and paragraphs 27 to 30 and stated the total, and the print view independently returned paragraphs 15 to 30 ending at the disposal. Paragraphs 27, 28, 29 and 30 came back in identical words on both routes, including the same run-together spellings in the plain-URL version ('thatthe', 'maylikewise', 'clause (c)because') that the print view renders with spaces; the quoted sentence used here was additionally confirmed through a document fragment query. Paragraphs 6 to 14, which record the submissions and the authorities cited below, were not read this pass, so the summary of the assessee's argument given here comes from the Tribunal's own restatement at paragraphs 20 and 21. The Tribunal's description of Chapter XII-FA at paragraph 19 refers to 'sections 115UA and 115UB' together, although section 115UB governs investment funds rather than business trusts; that is the Tribunal's wording and is reproduced without correction. The assessment year is 2021-22, so the appeal was governed by the Income-tax Act, 1961 throughout. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed. The Tribunal upheld the orders of the lower authorities and confirmed the denial of the deduction of Rs. 66,62,59,444 under section 35D(2)(c) (paragraphs 29 and 30). Clause (c) applies only where the assessee is a company; a SEBI-registered REIT constituted as a trust under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, and the deduction cannot be extended to it by judicial interpretation (paragraphs 17, 18 and 21). Units of a REIT are not shares or debentures, and the expenditure covered by clause (c) is expenditure on the issue of shares or debentures of a company (paragraph 23). The fact that the assessee raises capital by issuing units does not bring it within the clause, since partnership firms, limited liability partnerships and trusts also raise funds without qualifying (paragraph 28).
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