Section 10(23FD)

Section 10(23FD) — the law in short

What the courts have decided on section 10(23FD), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — s.10(23FC): the business trust's own exemption for interest and for dividend from a special purpose vehicle, and what a "special purpose vehicle" is CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client is a registered InvIT. It receives interest and dividend from the project companies it controls. Is that income taxed in the trust's hands, and if not, where does the charge go?
  Neither is taxed in the trust's hands. Clause (23FC) of section 10 keeps out of the trust's total income (a) interest received or receivable from a special purpose vehicle and (b) dividend received or receivable from a special purpose vehicle. The charge does not disappear: section 115UA(3) moves income of the nature described in clause (23FC) to the unit holder, and section 10(23FD) — which exempts the rest of a distribution in the unit holder's hands — expressly does not cover the interest limb, and does not cover the dividend limb where the special purpose vehicle has exercised the option under section 115BAA. A "special purpose vehicle" is defined inside the clause itself as an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest required by the regulations under which the trust is registered.
• Statutory position — s.10(23FD): the unit holder's exemption for the rest of a business trust distribution, and the s.115BAA switch that decides whether SPV dividend is taxed in his hands CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client holds units in a listed REIT. The Form 64B shows several components. Which of them does he actually pay tax on, and on what basis is the rest exempt?
  Clause (23FD) of section 10 exempts, in the unit holder's hands, any distributed income referred to in section 115UA received by him from the business trust — but not the proportion of it that is of the same nature as the income referred to in sub-clause (a) of clause (23FC), or clause (23FCA), or sub-clause (b) of clause (23FC) in a case where the special purpose vehicle has exercised the option under section 115BAA. So the interest component and the direct-rent component are always taxable to him; the special purpose vehicle dividend component is taxable to him only if that vehicle is on the concessional corporate rate in section 115BAA, and is otherwise exempt; and everything else the trust distributes out of income that has already borne tax at trust level under section 115UA(2) is exempt. The words carrying the section 115BAA condition were put into the clause by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021.
• Statutory position — s.2(13A): a "business trust" is a trust registered as an InvIT or a REIT, and since 1 April 2021 its units need not be listed CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer says my client cannot be a "business trust" because its units are not listed on any stock exchange, so the whole of Chapter XII-FA is denied to it. Is that still the law?
  No. Section 2(13A) now defines a business trust simply as a trust registered as an Infrastructure Investment Trust under the SEBI (Infrastructure Investment Trusts) Regulations, 2014, or as a Real Estate Investment Trust under the SEBI (Real Estate Investment Trusts) Regulations, 2014, both made under the Securities and Exchange Board of India Act, 1992. The closing words that used to require the units to be listed — "the units of which are required to be listed on recognised stock exchange in accordance with the aforesaid regulations" — and the word "and" that carried them were both omitted by Act No. 12 of 2020 with effect from 1 April 2021. For any previous year from 2020-21 onwards, listing is irrelevant to the definition; registration is everything.
• Statutory position — s.10(23FCA): a REIT's exemption for rent from real estate it owns directly, and why an InvIT cannot use it CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client is a registered REIT that owns some office buildings directly rather than through a project company, and lets them out. Is that rent taxed in the REIT's hands at the maximum marginal rate?
  No. Clause (23FCA) of section 10 keeps out of a business trust's total income any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust. The clause was inserted by section 7(III)(d) of the Finance Act, 2015 with effect from 1 April 2016, and "real estate asset" takes the meaning given to it in clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014. Two limits are on the face of it: the trust must be a real estate investment trust, so an InvIT cannot use the clause; and the asset must be owned directly by the trust, so rent earned by a special purpose vehicle and passed up as interest or dividend is on a different clause altogether.
• Statutory position — rule 12CA and rule 12CB with s.115UA(4) and s.115UB(7): the two pass-through statements, Forms 64A to 64D, and the 15 June and 30 June dates CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our REIT has to give unit holders a statement of distributed income and file one with the department. Which form goes where, by when, and is the machinery the same for an Alternative Investment Fund?
  There are two parallel sets and they are not interchangeable. For a business trust, section 115UA(4) requires the person responsible for paying the distributed income to furnish a statement to the unit holder and to the prescribed authority, and rule 12CA prescribes it: Form No. 64A, verified by an accountant and filed electronically under digital signature with the Principal Commissioner or Commissioner within whose jurisdiction the principal office of the business trust is situated, by 15 June of the financial year following the previous year in which the income is distributed; and Form No. 64B to the unit holder by 30 June of that financial year, generated and downloaded from the departmental web portal. For an investment fund, section 115UB(7) requires the same thing and rule 12CB prescribes Form No. 64C to the unit holder by 30 June and Form No. 64D to the Principal Commissioner or Commissioner by 15 June, on the same electronic footing.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.