Section 115T — Case Laws & Commentary

CHAPTER XII-E - SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME

SECTION 115T - UNIT TRUST OF INDIA OR MUTUAL FUND TO BE AN ASSESSEE IN DEFAULT

Case Laws & Commentary - Income-tax Act, 1961 (as amended by the Finance Act, 2026) - bharattax.co Treatise

Status: LIVE AS THE RECOVERY MACHINERY FOR THE IDT YEARS, AND THE HOME OF THE CHAPTER'S DEFINITIONS. Section 115T was inserted by the Finance Act, 1999 with effect from 1 June 1999. It does two things. First, it deems the specified company or Mutual Fund (and the person responsible for paying the distributed income) to be an 'assessee in default' for any additional income-tax under section 115R that is not paid, and attracts all the provisions of the Act for the collection and recovery of income-tax. Second, its Explanation carries the definitions that govern the whole of Chapter XII-E - 'Mutual Fund', 'equity oriented fund', 'Unit Trust of India', 'money market mutual fund' and 'liquid fund'. As IDT ceased for income distributed on or after 1 April 2020, the deeming operates today only on pre-1-4-2020 defaults, but the section remains in force for those years and as the definitional anchor of the chapter.

Finance Act, 2026 impact: None. The Finance Act, 2026 does not amend section 115T or Chapter XII-E.

Candour note on case law: No reported decision construes the deeming in section 115T itself; the provision is a recovery mechanism that bites automatically on an established IDT default. In keeping with the discipline of this treatise nothing has been invented. Part C sets out (i) directly relevant authority on recovery against a mutual fund and the stay of such recovery (the UTI Mutual Fund litigation in the Bombay High Court), and (ii) clearly-labelled cognate authority on the 'assessee in default' concept and on the definitions the chapter borrows. Each entry states how far it bears on section 115T and where it is only cognate.

A. SECTION COMMENTARY

A.1 The deeming - assessee in default, and the whole recovery code attracted

Section 115T completes the enforcement chain of Chapter XII-E. Where the additional income-tax under section 115R(1) or (2) is not paid, the person responsible for paying the distributed income, and the specified company or Mutual Fund, 'shall be deemed to be an assessee in default in respect of the amount of tax payable', and 'all the provisions of this Act for the collection and recovery of income-tax shall apply'. The effect is to import wholesale the recovery machinery of the Act - notice of demand under section 156, the assessee-in-default consequences of section 220, and the recovery provisions of sections 222 to 232 - into the IDT regime, so that an unpaid distribution tax is recovered exactly as an ordinary tax demand would be. It is the precise counterpart of section 115-Q on the company / DDT side.

A.2 The chapter's definitions live here

The Explanation to section 115T defines, for the whole chapter: 'Mutual Fund' (a fund specified under section 10(23D)); 'equity oriented fund' (a fund referred to in clause (a) of the Explanation to section 112A, and the Unit Scheme, 1964 of UTI); 'Unit Trust of India' (the body established under the Unit Trust of India Act, 1963); 'money market mutual fund' (as defined in the SEBI (Mutual Funds) Regulations, 1996); and 'liquid fund' (a scheme classified as such by SEBI). These definitions feed directly into the graded rates of section 115R(2) - which fund a distribution comes from determines the rate - so the definitional content of the chapter is, in substance, located in section 115T rather than in the charging section.

A.3 How the three sections interlock

Read together, sections 115R, 115S and 115T are a closed, self-contained code: section 115R charges the additional income-tax on the distribution and fixes the fourteen-day payment window; section 115S quantifies interest if that window is missed; and section 115T deems the fund an assessee in default and switches on the Act's general recovery machinery, while supplying the definitions the charge depends on. The code operates independently of the assessment of any person's total income - the unit holder's distribution being exempt (under section 10(35), for the years the regime ran) precisely because the fund bears the tax. Recovery is therefore pursued against the fund under this section, not through an assessment of the unit holder.

A.4 The recovery context - stay and the limits on coercive action

Because section 115T draws in the Act's recovery provisions, the ordinary safeguards on recovery apply to an IDT demand on a mutual fund. The Bombay High Court's UTI Mutual Fund litigation (Part C, Cluster C-1) - though it arose on a different recovery footing (section 177(3), in the securitisation context) - states the governing principles for any coercive recovery against a mutual fund: a strong prima facie case raising a serious triable issue is itself a ground for stay even without proven financial hardship, and the Revenue cannot brush aside a binding decision of the jurisdictional High Court in the assessee's own case. Those principles bear directly on how a section 115T demand against a fund is to be enforced or stayed.

B. STATUTORY POSITION (verbatim operative text)

Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended up to the Finance Act, 2025; not amended by the Finance Act, 2026):

Unit Trust of India or Mutual Fund to be an assessee in default.

115T. If any person responsible for making payment of the income distributed by the specified company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) or a Mutual Fund and the specified company or the Mutual Fund, as the case may be, does not pay tax, as is referred to in sub-section (1) or sub-section (2) of section 115R, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.

Explanation.-For the purposes of this Chapter,-

(a) "Mutual Fund" means a Mutual Fund specified under clause (23D) of section 10;

(b) "equity oriented fund" means a fund referred to in clause (a) of the Explanation to section 112A and the Unit Scheme, 1964 made by the Unit Trust of India;

(c) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(d) "money market mutual fund" means a money market mutual fund as defined in sub-clause (p) of clause (2) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;

(e) "liquid fund" means a scheme or plan of a mutual fund which is classified by the Securities and Exchange Board of India as a liquid fund in accordance with the guidelines issued by it in this behalf under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder.

[Section 115T inserted by the Finance Act, 1999, w.e.f. 1-6-1999; references to the 'specified company' consequential on the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); definition of 'equity oriented fund' aligned to clause (a) of the Explanation to section 112A.]

C. AUTHORITIES

No decision construes the deeming in section 115T itself. The authorities below are arranged so that the directly relevant recovery authority is separated from the cognate, clearly-labelled material on the assessee-in-default concept and the chapter's borrowed definitions. Citations are verified; service / neutral citations are flagged.

Cluster C-1 : Recovery against a mutual fund, and stay of recovery (directly relevant to the s.115T recovery context)

UTI Mutual Fund v. Income Tax Officer, (2012) 345 ITR 71 (Bombay High Court).

Principle: Where a tax demand is sought to be enforced against a mutual fund on a contested statutory footing and the fund has a serious, arguable case, the Revenue cannot take coercive recovery steps (there, a garnishee notice under section 226(3)) without first allowing the fund to pursue its remedies; recovery must be approached consistently with the guidelines on stay laid down in KEC International Ltd v. B.R. Balakrishnan (2001) 251 ITR 158 (Bom) and Coca Cola India P. Ltd v. Addl. CIT (2006) 285 ITR 419 (Bom).

Application to s.115T: Section 115T attracts 'all the provisions of this Act for the collection and recovery of income-tax', so the safeguards on coercive recovery against a mutual fund apply directly to an unpaid IDT demand. This decision states how such recovery against a fund is to be controlled while the underlying liability is contested. Directly relevant to the recovery context of section 115T, though it arose on a section 177(3) demand.

Status: Bombay High Court; (2012) 345 ITR 71. Binding in Maharashtra; persuasive elsewhere.

UTI Mutual Fund v. Income Tax Officer-19(3)(2), Writ Petition (Lodg.) No. 523 of 2013 (Bombay High Court, judgment dated 6 March 2013) [Indian Kanoon doc. 63399192].

Principle: A strong prima facie case raising a serious triable issue is, by itself, a ground for stay of recovery even in the absence of proven financial hardship; the absence of financial hardship does not justify refusing a stay where such a case is made out. The Revenue cannot ignore a binding decision of the jurisdictional High Court in the assessee's own case for an earlier year - 'no public authority, including the Revenue, can ignore the principle of precedent', certainty in tax administration being of cardinal importance. (The demand arose under section 177(3) in the securitisation context; the Court also noted that the new securitisation distribution-tax regime in Chapter XII-EA was modelled 'on the line of distribution tax levied in the case of mutual funds', i.e. section 115R.)

Application to s.115T: States the controlling principles for staying any coercive recovery against a mutual fund - which is exactly what section 115T sets in motion when it deems the fund an assessee in default and imports the recovery machinery. Directly relevant to the section's recovery context; the underlying demand was not itself a section 115R demand, which is candidly noted.

Status: Bombay High Court (Dr D.Y. Chandrachud and A.A. Sayed, JJ.); judgment dated 6 March 2013; Indian Kanoon doc. 63399192. Binding in Maharashtra; persuasive elsewhere.

Cluster C-2 : The 'assessee in default' concept (cognate, principle only)

Section 115T deploys the deeming device - 'shall be deemed to be an assessee in default' - that the Act uses for those who fail to pay tax they were bound to pay or remit. The following decision states how that concept operates; it is a TDS (section 201) decision, cited only on principle, and is not a decision on section 115T.

Hindustan Coca-Cola Beverage P. Ltd v. CIT, (2007) 293 ITR 226 (Supreme Court).

Principle: A person who fails to deduct or pay tax may be treated as an assessee in default and proceeded against for recovery and interest; but the principal tax cannot be recovered twice over - once the tax due has in fact been paid (there, by the recipient), the defaulter cannot again be made to pay the same tax, though interest and other consequences of the default may still follow.

Application to s.115T: Cognate. It illustrates the content of 'assessee in default' that section 115T invokes - the defaulter is liable for the unpaid tax and the recovery/interest consequences, but the deeming is a recovery device and does not authorise double collection of the same tax. Cited on principle only; a section 201 (TDS) decision, not a decision on section 115T.

Status: Supreme Court; (2007) 293 ITR 226. Authority on the assessee-in-default concept; not a decision on section 115T.

Cluster C-3 : The definitions the chapter borrows - character of a 'unit' (cognate)

The Explanation to section 115T defines 'Mutual Fund', 'equity oriented fund', 'Unit Trust of India', 'money market mutual fund' and 'liquid fund' by reference to section 10(23D), section 112A and the SEBI (Mutual Funds) Regulations, 1996. The authority on the legal character of the 'unit' and of a mutual fund that those definitions describe is collected under section 115R, Cluster C-2 - principally Apollo Tyres Ltd v. CIT, (2002) 255 ITR 273 (SC) (a unit is not a share), with CIT v. Hertz Chemicals Ltd, (2016) 386 ITR 39 (Bom), ITO v. Satish Beharilal Raheja, [2013] 37 taxmann.com 296 (Mum), DCIT v. K.E. Faizal, [2019] 178 ITD 383 (Cochin) and Emerging India Focus Funds v. ACIT, ITA No. 1963/Del/2025 (Delhi, 25-6-2025). Those authorities are cross-referenced here and not repeated.