The Central Board of Direct Taxes issued a circular dated on 28 July to provide clarity on the taxation of alternative investment funds (AIFs) that are registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
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The circular states that if the names of the investors or their beneficial interests are not specified in the trust deed on the date of its creation, the provisions of section 164(1) of the Income Tax Act, 1961, would come into play and the entire income of the AIF will be liable to be taxed at the maximum marginal rate in the hands of the trustee of the AIF in its capacity as “representative assessee” of the trust.
The clarifications contained in the circular will not be operative in an area falling under the jurisdiction of a high court which has taken or takes a contrary decision on the issue.
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