Circular No. 13/2014 imposes conflicting requirements on trusts, contradicting SEBI regulations, rendering it invalid; courts cannot compel action that is impossible under law.

JUDGMENT :

TUSHAR RAO GEDELA, J.

1. Present petition has been filed under Article 226 of the Constitution of India, 1950 seeking to declare the Circular no.13/2014 dated 28.07.2014 issued by the respondent no.1 as ultra vires the provisions of sections 160 and 164 of the Income Tax Act, 1961 and further seeks to quash the order dated 27.06.2024 passed by the respondent no.2/Board for Advance Rulings-1 under section 245R(4) of the Income Tax Act, 1961 following the impugned Circular No.13/2014 issued by the respondent no.1.

2. It is the case of the petitioner that the petitioner is a company incorporated under the Companies Act, 1956 and engaged in the business of rendering Portfolio Management Services, in accordance with the relevant guidelines/regulations issued by Securities and Exchange Board of India. (hereinafter referred to as “SEBI”)

3. The petitioner states that the SEBI issued Alternative Investment Fund (hereinafter referred to as “AIF”) Regulations, vide notification dated 21.05.2012. The said regulations classified AIF in three categories, i.e., Category I, II, III. It is the case of the petitioner that to float an AIF, Category III fund, Equity Intelligence floated the AIF services for the petitioner and acted as the settlor of the petitioner. The object of the petitioner, as stated in the Trust Deed is to act as an Alternative Investment Fund Category III in terms of Securities Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as “SEBI Regulations”).

4. It is stated that the petitioner launched a single open-ended scheme, namely, EQ India Fund, registered with SEBI for investment in listed equity shares. Pursuant to its launch, contribution agreements were executed with various investors, and units of Rs.1000 each were issued. As a long-term investment, an exit load of 5% of the Net Asset Value is levied for redemptions within two years. The petitioner claims that the identity of investors and their income share is determined in accordance with the contribution agreements executed post the Trust Deed. The petitioner further states that the fund commenced operations on 27.07.2017 and has been filing separate returns of income since Assessment Year (hereinafter referred to as “AY”) 2018-19.

5. It is the case of the petitioner that since the fund is treated as a separate taxable entity, the EQ India Fund filed its separate returns of income since its very inception i.e., AY 2018-19. In order to seek clarity on the taxability, the petitioner filed an application on 10.04.2018 in Form 34DA and section 245Q(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking advance ruling on various issues before the Authority for Advance Ruling (hereinafter referred to as “AAR”).

6. The petitioner states that in the meantime, during the pendency of the application before AAR, the Assessing Officer (hereinafter referred to as “AO”) completed the assessment proceedings under section 143(3) read with section 143(3A) & 143(3B) of the Act in the case of EQ India Fund for AY 2018-19, accepting the returned loss of the Trust. Further, in the Financial Year 2021-22, the Finance Act, 2021 abolished the institution of AAR and replaced the same with the respondent no.2/Board of Advance Rulings-1(hereinafter referred to as “BAR”). The petitioner’s application was also transferred from AAR to the jurisdiction of respondent no.2/BAR.

7. It is the case of the petitione