Bonus/Mutual Fund/ Dividend: Additional income-tax on distributed Income under section 115R of the Income-tax Act
Clarification
regarding scope of additional income-tax on distributed Income under
section 115R of the Income-tax Act -regarding.
Circular No. 6 /2014
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi
Dated the 11th of February, 2014.
Subject: -
Clarification
regarding scope of additional income-tax on distributed Income under
section 115R of the Income-tax Act -regarding.Section
115R of the Income-tax Act, 1961 ('Act') provides for levy of additional
income-tax on distributed income to unit holders (hereinafter referred
to as 'additional income-tax').
2. It has been reported that some
field authorities are taking a view that mutual funds/specified
companies are required to pay additional income tax under sub-section
(2) to section 115R of he Act not only on income distributed by way of
dividend but also on payments made at the time of redemption/repurchase
of units as well as at the time of allotment of bonus units to existing
investors.
3. The matter has been examined by the Board. Section
115R is placed under Chapter XII-E of the Act, which is titled as
"SPECIFIC PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME" and
prescribes special provisions for taxing 'distributed income', which is
not taxed under any other provisions of the Act.
4.
Sub-section (2) of section 115R of the Act provides that any amount of
income distributed by (i) a specified company, or (ii) a mutual fund to
its unit holders shall be chargeable to tax and such entities shall be
liable to pay additional income tax on such distributed income at the
rates prescribed therein. The income so distributed by such entities is
the dividend paid to the unit holders and is liable to tax under this
section. However, redemption of units or repurchase of milks would not
attract levy of tax under sub-section (2) to section 115R of the Act as
such income is not of the nature of income ''distributed" to the unit
holders and hence lies outside the purview of this section.
5.
Further, the income so distributed by the mutual fund or specified
company in the hands of the recipient unit holder is specifically exempt
from tax under section 10(35) of the Act. Proviso to section 10(35) of
the Act stipulates that exemption of income under this section is not
applicable to those cases where transfer of units takes place. The
recipient of such income is liable to pay capital gains tax, if
applicable, on transfer of such units as per relevant provisions of the
Act and shall not be subject to additional income tax under section 115R
of the Act.
6. Similarly, bonus units at the time of issue would
not be subjected to additional income tax under section 115R of the Act
since issue of bonus units is not akin to distribution of income by way
of dividend. This may be inferred from provisions of section 55 of the
Act which prescribes that 'cost of acquisition' of bonus units shall be
treated as nil for purposes of computation of capital gains tax.
7.
In view of above position, Central Board of Direct Taxes, in exercise
of its powers under section 119 of the Act hereby clarifies that
additional income-tax under sub-section (2) of section 115R of the Act
is to be levied on income distributed by way of dividend to unit-holders
of mutual funds or specified companies and receipts from
redemption/repurchase of units or allotment of additional units by way
of bonus units would not be subjected to levy of additional income tax
under that section.
8. This may be brought to the notice of all concerned.
9. Hindi version to follow.
sd/-
(Rohit Garg)
Deputy Secretary to the Government of India
Source: http://law.incometaxindia.gov.in/DIT/Circulars.aspx
