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Informist, Wednesday, Apr. 29, 2026

 

NEW DELHI – The Delhi High Court has said that shareholders of the company, even if they held all the 100% shares, are only the owners of the shares of the company and not its assets; hence, there cannot be any income tax levy on them on the company's income. It is only the dividend income with respect to the shares of the company, which can be taxed against shareholders and not the income of the company itself, said the court. "Company is a juristic person and a separate legal entity from its members," said the court. 

 

Taxation under the Income Tax Act of 1961, being a fiscal statute, can be levied only if a transaction falls within the sweep of statutory provisions, it cannot be taxed by introducing some deeming fiction or concept not married to the law, said a bench of Justice Dinesh Mehta and Justice Vinod Kumar. It is a settled position of law that fiscal liability and provisions imposing tax are required to be interpreted strictly, said the bench. As of today, there is no provision under the 1961 Act in which the set of transactions like these can be subjected to tax, said the high court.

 

The high court refused to tax Pradeep Wig, Neera Wig, Sonu Wig, Neela Kothari and Gauri Wig, the shareholders of Carmichael Capital Ltd., on the rental income and capital gains arising out of properties owned by the company. These assessees' had 20% each shareholding in the company. The court rejected the income tax department's argument that the assessees were the real beneficial owner of the company's assets and thus liable to pay tax under the Income Tax Act, 1961.

 

The court said that the assessing officer's attempt to lift or pierce the corporate veil is simply misplaced if not misconceived, as it is not even a case of tax avoidance much less tax evasion. An assessee cannot be dissuaded, rather penalised for earning an income through legally permissible methods and sources and get optimum return on his investment, said the court. If that is to be done, the same can only be done by the legislature by enacting a valid law in this regard, said the court, adding that until then, the matter has to rest.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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