Section 223 — Tax on income of unit holder and business trust. Successor to s.115UA of the 1961 Act.
Section 223 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) preserves the character of income distributed by a business trust: in the unit holder's hands it is deemed to be of the same nature and in the same proportion as it was when received by or accrued to the trust. Sub-section (2), subject to sections 196, 197 and 198, charges the total income of the business trust itself at the maximum marginal rate. Sub-section (3) deems distributed income of the kind described in Schedule V (Table: Sl. No. 3) or (Table: Sl. No. 4), received by a unit holder in a tax year, to be that unit holder's income chargeable in that year. Sub-section (4) disapplies the pass-through in sub-section (1) to any sum referred to in section 92(2)(k) received by a unit holder from a business trust. Sub-section (5) requires the person responsible for making the distribution on the trust's behalf to furnish a statement to the unit holder and to the prescribed authority, within the prescribed time, form and manner, giving details of the nature of the income paid during the tax year.
A business trust is a conduit, and taxing distributions as a single undifferentiated receipt would change their character; sub-section (1) keeps the nature and proportion intact so the unit holder is taxed as if he had earned the underlying income. Sub-section (5) makes that workable by requiring the trust to tell the unit holder and the Department what each component was.
A unit holder cannot classify a distribution from the statement of amount alone — the character travels with it, so the sub-section (5) statement showing the nature of each component of the income paid during the year is what drives the return. Two carve-outs sit against the pass-through: sums referred to in section 92(2)(k) are outside sub-section (1) altogether, and income of the kind in Schedule V (Table: Sl. Nos. 3 and 4) is charged in the unit holder's hands under sub-section (3). The trust's own total income is taxed at the maximum marginal rate, subject to sections 196, 197 and 198.
A business trust distributes Rs. 10 lakh to a unit holder, made up of Rs. 7 lakh that reached the trust as interest and Rs. 3 lakh as rental income. Sub-section (1) preserves the character and the proportion, so the unit holder returns Rs. 7 lakh as interest and Rs. 3 lakh as rent, not Rs. 10 lakh of undifferentiated distribution — and he can only do that from the statement the distributing person must furnish under sub-section (5). Two things fall outside that pass-through: a sum referred to in section 92(2)(k) is taken out by sub-section (4), and distributed income of the kind in Schedule V (Table: Sl. Nos. 3 and 4) is instead deemed under sub-section (3) to be the unit holder's income of that year. The trust's own total income is charged at the maximum marginal rate, subject to sections 196, 197 and 198.
Chiefly in the statement of the nature of the income paid during the tax year, which the person making the distribution on the trust's behalf must furnish in the prescribed form and time both to the unit holder and to the prescribed authority. The unit holder meets it there and then again in his own return, where the components have to be reported in their original character.
any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.