The Bombay High Court has issued a stay order on the issue today, say industry sources.
The Bombay High Court has ruled in favour of UTI AMC over its investments in pass-through certificates (PTCs), confirmed sources at the fund house. UTI AMC will not have to cough up any tax following today’sruling.“Our legal advisors have said that these investments are not taxable. We were certain that the court will not accept the tax authority’s plea,” said an official from the fund house.
Sources tell us that the high court has put a stay order on the issue today. Thus fund houses will not have to pay taxes on PTCs as of now. “If one fund house wins the case, then all of us win.The issue is same with all fund houses. The high court has already issued a stay order today,” said a senior official from the industry.
Officials from other fund houses who have received tax notices are confident that the High Court will rule in their favour as they have a strong case. Section 10 (23D) of the Income Tax Act, 1961 states:‘any income received by mutual fund is exempt from tax.’
“The industry has taken up the issue to the High Court through AMFI. The tax outgo is not significant. The issue is about interpretation of the law. These are old investments made in 2006-07. These schemes have already matured. AMFI is confident that the issue will be clarified very soon,” says Himanshu Vyapak, Deputy CEO, Reliance Mutual Fund.
Mostly, short term funds and long term bond funds had exposure to PTCs. Fund officials say that majority of these schemes have matured now. “The credit quality of PTCs did not deteriorate. In India, it was not as bad an experience as it was abroad due to mortgage backed securities. Lately, the exposure in such instruments is going up in some schemes,” said a mutual fund analyst.
Cafemutual had first reported about fund houses receiving tax notices from CBDT. Read here: CBDT asks AMCs to cough up tax on PTCs.
