Section 115UB(2)

Section 115UB(2) — the law in short

What the courts have decided on section 115UB(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — section 115UB(2) and (2A): which AIF losses pass through to the unit holder and which stay with the fund CBDT Circulars & InstructionsCuts both ways
  Our Category II AIF has a loss for the year. Can the investors set it off in their own returns, and what happens to the losses the fund accumulated before 2019?
  A business loss of the investment fund never passes through: section 115UB(2)(i) requires it to be carried forward and set off by the fund itself under Chapter VI and to be ignored for the purposes of sub-section (1). Any other loss passes through to the unit holder unless the unit was not held by him for at least twelve months, in which case section 115UB(2)(ii) requires it also to be ignored; and section 115UB(2A) deems non-business losses accumulated at fund level as on 31 March 2019 to be the loss of the unit holder who held the unit on that date, allowing him to carry it forward for the remaining period, with a proviso that the fund itself cannot use it on or after 1 April 2019.
• 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.