Mutual funds move SC over tax demand

The mutual funds industry has decided to move the apex court after a demand notice from the tax authorities for Rs500 crore on interest earned on investments in pass-through certificates (PTCs).

UTI Mutual Fund filed a writ petition in this connection in the Bombay High Court on Tuesday. It was joined by SBI Mutual Fund, HSBC AMC, Birla Sun Life MF, Reliance Mutual Fund, Religare and Kotak have filed writ petitions before the Bombay High Court seeking a stay on the order.

Even though mutual funds are exempt from paying tax on income from investments, the income tax department believes that income from securitised instruments, known as (PTCs) in financial markets, are taxable. Close to 20 funds have received notices from the tax department.

UTI said in a statement it had not violated any tax laws. ''UTI Mutual Fund believes that it is totally in compliance with the laws and regulations of the land. As regards the income tax notice and actions, we have presented our position before the Bombay High Court in a writ petition today.

"The income of beneficiary mutuall fund is exempt from the tax under Section 10 (23) (d) of the Act. Therefore, if the income tax is exempted in the hand of beneficiary there is no question of assessing the same in the hand of trust."

Tax authorities wish to tax income received by mutual funds from the trusts saying the entity earning the income is the trust even though the beneficiary of this income is the mutual fund because of the pass through structure.