Issues in Tax on doubly non-taxed income distributed by Business Trusts

However, this is out of step with the normal provision of taxing the gains as capital gains, which is the case world over. Suggestions are made to the FM that this should be taxed as capital gains and not as “income from other sources” which is taxed at higher rate of tax than capital gains.

Another issue is that if the SPV has bought back its shares, the sums received by the Business Trust would not fall in the categories listed under Section 10(23FC) & (23FCA), i.e. interest, dividend or rent. If such distribution is not taxable due to Section 115Q read with Section 2(34A) in the hands of shareholders, then when the Business Trust makes the payment to the unit holders, it seems incorrect to tax such income in the hands of the unit holders. If at all, such income should be taxed as capital gains under Section 46A and not as other income under Section 56(2)(xii) as is proposed.

The new provisions become applicable for the FY 2023-24 (AY 2024-25)