The Supreme Court has dismissed the Central Board of Direct Taxes’ (CBDT) challenge to a Delhi High Court judgment holding that an investment trust cannot be treated as indeterminate merely because its investors are not named in the original trust deed, where their identities and beneficial shares are ascertainable.

A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, in its order dated October 7, 2026, declined to interfere with the High Court’s ruling in favour of Equity Intelligence AIF Trust. However, the Supreme Court expressly kept the question of law open. 

The CBDT’s special leave petition arose from the Delhi High Court’s judgment dated July 29, 2025, concerning the taxation of a Category III Alternative Investment Fund (AIF).

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After condoning the delay in filing the petition, the Supreme Court considered the submissions of the Additional Solicitor General and the material on record. It found no ground to interfere and dismissed the petition, disposing of the pending applications.

The dismissal leaves the High Court’s relief undisturbed in this case. The express reservation of the question of law means that the Supreme Court has not finally settled the broader legal issue.

The central issue was whether the absence of investors’ names from the original trust deed automatically makes a Category III AIF an indeterminate trust, attracting taxation at the maximum marginal rate under Section 164 of the Income Tax Act, 1961.

The dispute concerned CBDT Circular No. 13/2014 dated July 28, 2014, and an order passed by the Board for Advance Rulings on June 27, 2024.

The Board proceeded on the basis that a trust whose beneficiaries were not named in the original deed would be indeterminate and consequently subject to the maximum marginal rate. The trust challenged this approach before the Delhi High Court.

The trust operated a SEBI-registered Category III AIF through a single open-ended scheme, EQ India Fund, which invested in listed equity shares.

Contribution agreements were executed with investors following the creation of the trust, and units of ₹1,000 each were issued. The trust maintained that these agreements and the investment structure enabled the identification of investors and determination of their respective income shares.

The fund commenced operations on July 27, 2017, and filed separate income-tax returns from Assessment Year 2018–19. It sought an advance ruling in April 2018 to obtain clarity on its tax treatment.

The Delhi High Court Bench of Chief Justice Devender Kumar Upadhyay and Justice Tushar Rao Gedela held that the relevant inquiry was whether the beneficiaries and their shares could be determined, rather than whether every investor’s name appeared in the original trust deed.

The Court agreed with the reasoning adopted in earlier Karnataka and Madras High Court judgments, including India Advantage Fund and TVS Shriram Growth Fund.

Where investors share benefits in proportion to their investments, their shares can be determinable even if they join after the trust is established. The absence of their names from the original deed does not, by itself, justify treating the trust as indeterminate.

The High Court also examined the regulatory sequence governing AIFs. It noted that a trust must register its deed and obtain the required SEBI registration before accepting investment funds.

This sequence was material to assessing the insistence that investors must already be named in the original trust deed. The Court considered the income-tax provisions alongside the regulatory framework governing the formation and operation of the fund.

The High Court set aside the Board for Advance Rulings’ order and directed that CBDT Circular No. 13/2014 be read down to conform to its interpretation. It did not strike down the circular in its entirety.

The Court also entertained the writ petition despite the availability of a statutory appeal under Section 245W, citing the Board’s failure to follow the relevant judicial interpretation and the issue’s wider impact on Category III AIFs.

With the Supreme Court dismissing the CBDT’s challenge, that relief remains intact. Nevertheless, the broader question of law remains open for consideration in a future case.

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