Circular No. 13/2014, F.No.225/78/2014-ITA.II, dated 28th July, 2014
Clarification regarding taxation
of ‘Alternate Investment Funds’ having status of Non-Charitable Trusts under
the Income Tax Act, 1961 – regarding.
1. The SEBI (Alterative Investment
Funds) Regulations, 2012 (‘AIF Regulations’) vide Regulation No.4 issued in May
2012 aims at regulating all forms of private pool of funds in India. The said
Regulations divide the Alternative Investment Funds (‘AIFs’) into three broad
categories – Category-I, Category-II and Category-III Alternative Investment
Funds, depending upon the operational strategies, objectives and fund
structure. A large number of AIFs registered with SEBI have been set up in the
form of non-charitable trusts.
2. While the AIFs, being Venture
Capital Funds, making investment in the Venture ‘Capital Undertakings have been
accorded ‘tax pass through’ status under section 10(23FB) read with section
115U of the Income tax Act, 1961 (‘Act’) (whereby income arising in the hands
of such Fund would be treated as tax-exempt, while investors of such funds
would become liable to tax liability on as if the investors have made the
investments directly in the Venture Capital Undertaking), clarification has
been sought about tax-treatment in cases of AIFs being non-charitable trusts
where the investors name and beneficial interest are not explicitly known on
the date of its creation – such information becoming available only when the
funds starts accepting contributions from the investors.
3. Board has been requested to
clarify whether the income of such funds would be taxable in the hands of the
Trustees of the AIF in the capacity of a ‘Representative Assessee’ (as defined
u/s- 160(i)(iv) of the Act) or in the hands of investors (i.e. contributors of
funds).
4. The matter has been examined. In
the situation where the trust deed either does not name the investors or does
not specify their beneficial interests, provisions of sub-section (1) of
section 164 would) come into play and the entire income of the Fund shall
become liable to be taxed at the Maximum Marginal Rate of income-tax in the
hands of the trustees of such AIFs in their capacity as ‘Representative
Assessee’. It is also clarified that in such cases, provisions of section 166
of the Act need not be invoked in the hands of the investor, as corresponding
income has already been taxed in the hands of the ‘Representative Assessee’ in
accordance with sub-section (1) of section 164 of the Act.
5. However, in cases of funds where
names of the beneficiaries and their interests in the Fund are determined i.e.
stated in the trust deed, the tax on whole of the income of the Fund –
consisting of or including profits and gains of business, would be leviable
upon the Trustees of such AIF, being ‘Representative Assessee’ at the Maximum
Marginal Rate in accordance with sub-section (1A) of section 161 of the Act.
6. The clarification given above
shall not be operative in the area falling in the jurisdiction of a High Court
which has taken or takes a contrary decision on the issue.
7. The contents of this Circular
may be brought to the notice of all concerned.
8. Hindi version to follow.
0 comments:
Post a Comment