Section 194LBA(2A)

Section 194LBA(2A) — the law in short

What the courts have decided on section 194LBA(2A), 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 waysValidity unconfirmed
  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 waysValidity unconfirmed
  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.

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.