Section 115U(5)

Section 115U(5) — the law in short

What the courts have decided on section 115U(5), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — s.115U: the venture capital pass-through, the bar on withholding in sub-section (4), and sub-section (6), which closed the Chapter for Category I and II AIFs from AY 2016-17 CBDT Circulars & InstructionsCuts both ways
  My client is a fund registered with SEBI as a venture capital fund. Is it still on the old section 115U pass-through, or has it been moved to section 115UB, and what turns on the answer?
  It depends on whether the fund is an "investment fund" within clause (a) of Explanation 1 to section 115UB — that is, whether it holds a certificate of registration as a Category I or a Category II Alternative Investment Fund. Sub-section (6) of section 115U provides that nothing contained in Chapter XII-F shall apply in respect of any income, of a previous year relevant to the assessment year beginning on or after 1 April 2016, accruing or arising to, or received by, a person from investments made in a venture capital company or venture capital fund being such an investment fund. So a fund that is a Category I or Category II AIF is out of section 115U and into section 115UB from the assessment year 2016-17. A fund that is not — for example one still holding a certificate under the older SEBI (Venture Capital Funds) Regulations, 1996 and not registered as a Category I or II AIF — is not taken out by sub-section (6) in terms. That distinction is being fought at the Tribunal and has not been settled.
• Statutory position — s.115UB(5) and (6) with Explanation 2: the AIF investor is taxed on income the fund never paid him, and is protected when it is finally paid CBDT Circulars & InstructionsCuts both ways
  My client's Category II AIF has not distributed anything for two years, but the Form 64C shows income allocated to him and he is being asked to pay tax on it. Can he be taxed on money he has not received, and will he be taxed again when the fund finally pays it out?
  Yes to the first and no to the second. Section 115UB(6) provides that income accruing or arising to, or received by, the investment fund during a previous year which is not paid or credited to the unit holder shall — subject to the provisions of sub-section (2) — be deemed to have been credited to his account on the last day of the previous year, in the same proportion in which he would have been entitled to receive it had it been paid in that year. Explanation 2 then declares, for the removal of doubts, that income already included in his total income in a previous year on the footing that it accrued or arose in that year shall not be included again in the previous year in which the fund actually pays it to him. Sub-section (5) separately provides that Chapter XII-D and Chapter XII-E do not apply to income paid by an investment fund under the Chapter.

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.