CBDT Clarification on 'Alternate Investment Funds' (AIF) having status of non-charitable trusts - CBDT respects High Court Orders
CBDT clarifies that 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.
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.
The Board has given a more important clarification that the above clarification 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.
This is the Law, but obviously such clarifications are necessary for the ‘more loyal than the king' officers of the Department.
CBDT Circular No. 13/2014, Dated July 28, 2014