AMFI Budget Proposals - FY 2018-19 - Direct Taxes - Request for Clarification that the provisions of section 115BBDA are not applicable to Mutual Funds

• AMFI Budget Proposals - FY 2018-19 - Direct Taxes

Association of Mutual Funds in India

BUDGET PROPOSALS FOR FY 2018-19

1. Request for Clarification that the provisions of section 115BBDA are not applicable to Mutual Funds

Background

The Finance Act, 2017 amended the scope of section 115BBDA of the Act (which was earlier applicable only to resident Individuals, Hindu Undivided Families and Firms) to extend its applicability to a ‘specified assessee’, which has been defined to mean a person other than: 

a) A domestic company; 

b) A fund or institution referred to in sec. 10(23C) of the Act; or 

c) A trust or institution registered under section 12A or section 12AA of the Act. Mutual Funds have not been specifically included in the above list of persons to which the provisions of section 115BBDA of the Act do not apply. Section 10(23D) of the Income Tax Act provides that any income earned by a Mutual Fund registered under the SEBI Act, 1992 or the Regulations made thereunder, shall not be included in computing its total income of a previous year. Hence, the provisions of section 115BBDA of the Act, which are computational provisions, should not apply to dividend from domestic companies earned by Mutual Funds whose income is not included in the total income by virtue of section 10(23D) of the Act. Nonetheless, there is an apprehension that the position mentioned above may not be accepted by the assessing income tax officers in the field, in the absence of a specific exclusion for Mutual Funds in section 115BBDA of the Act, which may cause unintended and avoidable hardship to Mutual Funds if the assessing officers were to apply section 115BBDA of the Act, in assessing their total income.

Proposal

In order to provide absolute clarity and to avoid any conflicting interpretations and thereby avoid any litigation/unintended hardship to Mutual Funds, it is requested that a clarificatory circular be issued to specify that the provisions of section 115BBDA of the Act are not applicable to dividends in excess of ₹10 lakhs received from domestic companies by Mutual Funds whose income is excluded from the total income under section 10(23D) of the Act.

 Alternatively, appropriate instructions be issued to income tax officers in the field advising them to take note of the above and frame the assessments of Mutual Funds, accordingly.

Justification

To provide absolute clarity and to avoid any conflicting interpretations, in the absence of such ‘specific’ exclusion to a Mutual Fund thereby avoiding any unintended hardship to Mutual Funds and litigation.

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