CHAPTER XII-FA — SPECIAL PROVISIONS RELATING TO BUSINESS TRUSTS
CHAPTER XII-FA — SPECIAL PROVISIONS RELATING TO BUSINESS TRUSTS
Section 115UA — Tax on income of unit holder and business trust
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The sole section of Chapter XII-FA. It is the charging-and-machinery code for the taxation of “business trusts” — the Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) defined in section 2(13A). It works a single-level, pass-through (tax-transparent) charge: income distributed by the trust is taxed in the unit holder's hands retaining the same nature and proportion as in the trust's hands, while the trust's own total income is charged at the maximum marginal rate, subject to the capital-gains rates.
Origin: Inserted by the Finance (No. 2) Act, 2014, with effect from 1 April 2015 (assessment year 2015-16), as part of the new fiscal framework for business trusts introduced alongside section 2(13A), the exemptions in section 10(23FC)/(23FCA)/(23FD), the withholding code in section 194LBA and the reporting rules in Rule 12CA (Forms 64A and 64B).
Present status under FA 2026: Live and central. The Finance Act, 2026 makes no amendment to section 115UA. The only recent change is the substitution, in sub-section (2), of the words “sections 111A, 112 and 112A” for “section 111A and section 112” by the Finance Act, 2025 (Act No. 7 of 2025), with effect from 1 April 2026 (assessment year 2026-27 onwards) — extending the concessional long-term capital-gains rate of section 112A to the business trust's own total income. The verbatim text below is set out as in force on and after 1 April 2026; the pre-amendment words and the amendment history are recorded in the amendment note.
Reading note: Section 115UA is the income-tax hinge of a multi-provision regime; it cannot be read without section 2(13A) (definition of business trust), section 10(23FC)/(23FCA)/(23FD) (the trust-level exemptions that make the pass-through work), section 56(2)(xii) and sub-section (3A) (the Finance Act, 2023 charge on ‘residual’ return-of-capital distributions), and section 194LBA / section 393 (withholding). Reported merits litigation construing section 115UA itself is sparse; the authorities below are organised by the legal issue each illuminates and every entry candidly states its precise relationship to the section.
A. SECTION COMMENTARY
A.1 What Chapter XII-FA does — a single-section pass-through for business trusts
Chapter XII-FA contains one section. Section 115UA is the income-tax counterpart of a deliberate capital-markets policy: to let large, illiquid real-estate and infrastructure assets be financed by listed, units-based pooling vehicles — the REIT and the InvIT — without the income being taxed twice (once in the trust and again in the investor). The technique is fiscal transparency. Most of the income that flows up to the business trust from its underlying Special Purpose Vehicles (SPVs) is exempt at the trust level under section 10(23FC) (interest and dividend from the SPV) and section 10(23FCA) (rent of a REIT's directly-held real estate), and is then taxed in the unit holder's hands when distributed, in the same character it bore in the trust's hands. The slogan for the scheme is “one level of tax, in the unit holder's hands, with the trust as a transparent conduit for its pass-through streams.”
The design is the mirror-image of the distribution-tax model that India used for companies (dividend-distribution tax, Chapter XII-D) and for mutual funds (income-distribution tax, Chapter XII-E). There a single tax was collected at the entity gate and the income flowed out exempt. Here the opposite technique is used for the pass-through streams — nothing is collected at the trust gate on those streams, and the charge is shifted to the unit holder under sub-sections (1) and (3). But the business trust is not wholly transparent: by sub-section (2) its own ‘other’ total income (for example, capital gains on the sale of an SPV's shares, or income that is neither the section 10(23FC) nor the section 10(23FCA) stream) is charged in the trust's own hands at the maximum marginal rate, subject to the concessional capital-gains rates of sections 111A, 112 and (from AY 2026-27) 112A.
A.2 ‘Business trust’, the SPV and the three income streams — the statutory scaffolding
A “business trust” is defined in section 2(13A) as a trust registered as an InvIT or a REIT under the relevant SEBI regulations (made under the SEBI Act, 1992), the units of which are required to be, or are, listed on a recognised stock exchange. The “SPV”, per the Explanation to section 10(23FC), is an Indian company (or, by later widening, an LLP) in which the business trust holds a controlling interest and the prescribed percentage of shareholding or interest. The architecture is therefore three-tier: investors hold units in the trust; the trust holds controlling stakes in SPVs; the SPVs own and operate the real estate or infrastructure.
Three income streams must be kept distinct, because section 115UA treats them differently. (i) Interest and dividend received by the trust from the SPV — exempt in the trust's hands under section 10(23FC), and taxable in the unit holder's hands on distribution under sub-section (3). (ii) Rent from real estate owned directly by a REIT — exempt in the trust's hands under section 10(23FCA), and taxable in the unit holder's hands on distribution under sub-section (3). (iii) Any other income of the trust — for example, capital gains on disposal of SPV shares, or income not falling in the first two streams — which is taxed in the trust's own hands under sub-section (2) at the maximum marginal rate (with the capital-gains carve-outs), and then, when distributed, is exempt in the unit holder's hands under section 10(23FD) so as to avoid a second charge.
A.3 The mechanics of section 115UA — sub-section by sub-section
Sub-section (1) is the character-and-proportion deeming rule: notwithstanding anything else in the Act, any income distributed by a business trust to its unit holders is “deemed to be of the same nature and in the same proportion” in the unit holder's hands “as it had been received by, or accrued to, the business trust.” The non obstante clause overrides the ordinary rules; the deeming is what makes the trust a pane of clear glass — it transmits the income's colour (interest, dividend, rent) unchanged to the unit holder. Sub-section (1) is, however, expressly subordinated to sub-section (3A) (below) for return-of-capital sums.
Sub-section (2) is the entity-level charge: “Subject to the provisions of sections 111A, 112 and 112A, the total income of a business trust shall be charged to tax at the maximum marginal rate.” This is the part of the scheme that is not transparent. The trust's own total income — essentially everything that is not exempt under section 10(23FC)/(23FCA) and not passed through — bears tax in the trust's hands at the MMR, save that short-term capital gains on listed securities (section 111A), long-term capital gains generally (section 112) and, with effect from AY 2026-27, long-term capital gains on listed equity/units (section 112A) are charged at their own concessional rates rather than at the MMR.
Sub-section (3) is the unit-holder charge for the pass-through streams: if the distributed income (or any part) received by a unit holder is of the nature referred to in section 10(23FC) (SPV interest/dividend) or section 10(23FCA) (REIT rent), it is “deemed to be income of such unit holder and shall be charged to tax as income of the previous year.” This is the provision that converts the trust-level exemption into a unit-holder-level charge, completing the single level of tax.
Sub-section (3A) — inserted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2024 (AY 2024-25) — is the anti-leakage carve-out: the deeming in sub-section (1) does not apply to any sum referred to in section 56(2)(xii) received by a unit holder from a business trust. Section 56(2)(xii) brings to charge, as income from other sources, ‘residual’ distributions that are in substance a return of capital or repayment of debt (sums that are neither the section 10(23FC) stream, nor the section 10(23FCA) stream, nor a dividend taxed in the SPV, nor a redemption taxed as capital gains). The provision closed the much-discussed ‘loan-repayment’ route by which trusts could return cash to unit holders untaxed.
Sub-section (4) is the reporting machinery: the person responsible for making payment of the distributed income on behalf of the trust must furnish a statement — in the prescribed form and manner — to the unit holder and to the prescribed authority, giving the nature of the income paid during the year. This is operationalised through Rule 12CA of the Income-tax Rules, 1962 and Forms 64A (trust to the authority) and 64B (trust to the unit holder); it is the document on which the unit holder builds the ‘Schedule PTI’ (Pass Through Income) of the return.
A.4 Why the pass-through is fought on the section 10 exemptions, not on section 115UA
Section 115UA does not stand alone; it is the second leg of a two-leg structure. Section 10(23FC)/(23FCA) exempts the relevant income in the trust's hands; section 115UA then taxes the same income in the unit holder's hands and charges the trust's other income at the MMR. Remove the first leg and the income is taxed at the trust level and again on distribution; remove section 115UA and the pass-through streams might escape charge altogether. Because the commercial stakes turn on the trust-level exemption, the live disputes in this field are about the scope of section 10(23FC)/(23FCA) and of the section 194LBA withholding — not about the bare words of section 115UA, whose operation is largely mechanical once the characterisation of the income is settled. The reported authorities are correspondingly built around (a) the trust-conduit and representative-assessee principle that section 115UA codifies, (b) the characterisation of ‘units’ and of the distributed income, (c) the maximum-marginal-rate charge on the trust, and (d) the withholding machinery — and the clusters in Part C are arranged on that footing.
A.5 Character and proportion preserved — the significance of sub-sections (1) and (3)
Sub-sections (1) and (3), read together, are what give the regime its value to investors. Interest distributed by the trust is taxed in the unit holder's hands as interest; rent as rent; and — since the Finance Act, 2020 watershed (A.7) — dividend from an SPV that has not opted into the section 115BAA regime is taxed as dividend at the unit holder's slab rate. Had the distributed income been re-characterised as a single, undifferentiated ‘distribution on units’, the unit holder would lose the rate and treaty consequences that attach to each stream's true nature. The deeming in sub-section (1) prevents that re-characterisation; sub-section (3) then fixes the year and the person of charge. The analytical premise — that a ‘unit’ is a distinct species of property and that income distributed on it does not automatically take a ‘dividend’ colour — is the point established for units generally by the Supreme Court in Apollo Tyres (Cluster C-2).
A.6 The maximum-marginal-rate charge on the trust — sub-section (2) and the 2026 amendment
Sub-section (2) charges the business trust's own total income at the maximum marginal rate. The policy reason is to deny any rate arbitrage at the trust level: income retained or arising in the trust (rather than passed through) is taxed at the highest rate that could apply to any unit holder, so that interposing the trust confers no rate advantage. The carve-out for capital gains exists because gains are, as a matter of general scheme, charged at their own special rates wherever they arise. Until AY 2025-26 the carve-out named only sections 111A (STCG on listed securities) and 112 (LTCG generally). The Finance Act, 2025 added section 112A with effect from 1 April 2026, so that long-term capital gains on listed equity shares and on units of a business trust (taxed at the concessional rate under section 112A, currently 12.5 per cent above the threshold) are also carved out of the MMR charge. The Finance Act, 2026 leaves sub-section (2) — and the rest of section 115UA — untouched.
A.7 The Finance Act, 2020 watershed — dividends brought into the pass-through
When the regime was introduced in 2014, dividend received by the trust from its SPV was tax-free in the SPV's hands under the then dividend-distribution-tax model (the SPV paid DDT under Chapter XII-D), and section 10(23FD) kept the onward distribution exempt for the unit holder. The Finance Act, 2020 abolished DDT from 1 April 2020 and shifted dividend taxation to the classical, recipient-based system. As a consequence the dividend stream was brought within section 10(23FC) and the pass-through: SPV dividend is now exempt in the trust's hands and taxable in the unit holder's hands under section 115UA(3) — unless the SPV has opted for the concessional corporate-tax regime under section 115BAA, in which case the dividend remains exempt for the unit holder under the carve-out in section 10(23FD). Section 194LBA was simultaneously recast to require withholding on the dividend component of distributions. The practitioner must therefore track, for each SPV, whether it is a section 115BAA company, because that single fact decides whether the distributed dividend is taxable or exempt in the unit holder's hands.
A.8 The Finance Act, 2023 ‘residual income’ charge — section 56(2)(xii) and sub-section (3A)
A structural gap remained until 2023. A business trust could distribute cash to unit holders that was neither interest, nor dividend, nor rent, nor a redemption of units — typically a repayment of loans the trust had advanced to its SPVs, economically a return of the investor's own capital. Such sums escaped charge both in the trust (exempt streams) and in the unit holder (not within sub-section (3)). The Finance Act, 2023 closed the gap with a two-part mechanism: section 56(2)(xii) charges the ‘specified sum’ — the excess of such distributions over the unit holder's cost — as income from other sources; and section 115UA(3A) switches off the sub-section (1) deeming for those sums so that they are taxed under section 56(2)(xii) rather than passed through with the trust's character. The amendment took effect from AY 2024-25. It is the most recent substantive change to the unit-holder taxation of business trusts and should be read with the consequential definitions of ‘specified sum’ in the Explanation to section 56(2)(xii).
A.9 Withholding and recovery — section 194LBA (now section 393 of the Income-tax Act, 2025)
Section 194LBA obliges the business trust (or the person paying on its behalf) to withhold tax on the distributed income that is taxable in the unit holder's hands: at 10 per cent for resident unit holders, and, for non-residents, at 5 per cent on the SPV-interest component [section 10(23FC)(a)], 10 per cent on the SPV-dividend component [section 10(23FC)(b)] and at the rates in force on the REIT-rent component [section 10(23FCA)], subject to the relevant Double Taxation Avoidance Agreement. The withholding is a collection mechanism layered on the section 115UA charge; the substantive liability remains the unit holder's. On the recodification of the direct-tax law, the section 194LBA obligation has been carried into section 393(1) of the Income-tax Act, 2025, with effect from 1 April 2026, without change of substance. The cognate withholding authorities in Cluster C-4 govern the recurring questions — that tax is deductible only on sums chargeable to tax, and that the deductor cannot be pursued for tax the payee has already paid.
For the practitioner today section 115UA is a live, mainstream provision — every listed REIT and InvIT distribution runs through it. The key compliance points are: (a) classify each distribution into its constituent streams (SPV interest, SPV dividend, REIT rent, capital-gains/exempt component, and ‘residual’ section 56(2)(xii) sum) using the Form 64B statement; (b) for the dividend stream, check the SPV's section 115BAA status to decide taxability; (c) apply the section 194LBA / section 393 withholding at the correct rate and treaty position; (d) tax the trust's own non-pass-through income at the MMR with the sections 111A/112/112A carve-out (the section 112A limb operative from AY 2026-27); and (e) report through Schedule PTI. There is no reported Supreme Court decision construing section 115UA itself, and merits litigation on the section is sparse — its operation being largely mechanical — so the meaning of the regime has been worked out around the section 10 exemptions, the trust-conduit principle and the withholding code. The authorities in Part C are presented on that candid footing.
B. STATUTORY POSITION (verbatim operative text)
Section 115UA, Income-tax Act, 1961 (Chapter XII-FA), as in force on and after 1 April 2026:
115UA. (1) Notwithstanding anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.
(2) Subject to the provisions of sections 111A, 112 and 112A, the total income of a business trust shall be charged to tax at the maximum marginal rate.
(3) If in any previous year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in clause (23FC) or clause (23FCA) of section 10, then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year.
(3A) The provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56, received by a unit holder from a business trust.
(4) Any person responsible for making payment of the income distributed on behalf of a business trust to a unit holder shall furnish a statement to the unit holder and the prescribed authority, within such time and in such form and manner as may be prescribed, giving the details of the nature of the income paid during the previous year and such other details as may be prescribed.
Amendment note. (i) Sub-section (2): the words “sections 111A, 112 and 112A” were substituted for “section 111A and section 112” by the Finance Act, 2025 (Act No. 7 of 2025), with effect from 1 April 2026; for assessment years up to and including 2025-26 the sub-section read “Subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate.” (ii) Sub-section (3A): inserted by the Finance Act, 2023 (Act No. 8 of 2023), with effect from 1 April 2024. (iii) Section 115UA was inserted by the Finance (No. 2) Act, 2014, with effect from 1 April 2015. The Finance Act, 2026 makes no amendment to section 115UA.
C. AUTHORITIES
Candour note: there is no reported Supreme Court decision construing section 115UA, and the section's own charge has rarely been litigated in isolation — because its operation is largely mechanical once the income is characterised, and the live battlegrounds are the section 10(23FC)/(23FCA) exemptions on which the pass-through depends and the section 194LBA withholding. The authorities below are grouped by the work they do: (C-1) the trust-conduit and representative-assessee principle that section 115UA codifies; (C-2) the characterisation of ‘units’ and of the distributed income (nature preserved); (C-3) the maximum-marginal-rate / nature-of-levy line bearing on sub-section (2); (C-4) the withholding-and-recovery machinery cognate to section 194LBA / section 393; and (C-5) the administrative and forward-looking context. Each entry states its precise relationship to section 115UA; every authority outside Cluster C-1's REIT/InvIT subject-matter is candidly flagged as cognate, not as a decision on section 115UA.
Cluster C-1 : The trust-conduit and representative-assessee principle codified by section 115UA
Jyotendrasinhji v. S.I. Tripathi, [1993] 201 ITR 611 (Supreme Court), judgment dated 2 April 1993.
Principle: Construing the representative-assessee scheme (sections 160–166), the Court held that it is implicit in section 161(1), and express in section 166, that the Revenue has an option, in respect of income arising to a trust, to assess and recover the tax either from the trustee in his representative capacity or from the beneficiary in whose hands the income is, or is deemed to be, received. The two are alternative routes to taxing the same income; the income retains its identity and character as it flows from the trust to the beneficiary.
Application to s.115UA: The doctrinal parent of the business-trust pass-through. Section 115UA is, in substance, a statutory selection of the beneficiary-level route for the trust's pass-through streams — the distributed income is ‘deemed to be income of the unit holder’ (sub-sections (1) and (3)) — while sub-section (2) retains an entity-level charge on the trust's other income. Jyotendrasinhji supplies the general law of trust taxation against which the special code of section 115UA is to be read. Cited on principle, as foundational trust-taxation law rather than as a section 115UA decision.
Status: Supreme Court (B.P. Jeevan Reddy and N. Venkatachala, JJ.). General authority on representative-assessee taxation of trusts.
CIT v. Kamalini Khatau, [1994] 209 ITR 101 (Supreme Court).
Principle: Where the income of a discretionary trust is dealt with and distributed by the trustees, the Revenue may assess and recover the tax either from the trustees in their representative capacity or directly from the beneficiary who receives the income; the modes are concurrent and the Department has the choice. The income is, in either case, the beneficiary's income in substance.
Application to s.115UA: Cognate support for the conduit analysis at the heart of section 115UA: the income of a transparent trust is, in law, the income of the person beneficially entitled to it, assessable in his hands. It explains why the Act can ‘deem’ the trust's distributed income to be the unit holder's income without any transfer of legal title, and why the withholding under section 194LBA sits comfortably alongside a beneficiary-level charge. Cited on principle as background trust-taxation law, not as a section 115UA authority.
Status: Supreme Court. General authority on the taxation of trust income.
CIT v. India Advantage Fund-VII, [2017] 78 taxmann.com 301 (Karnataka High Court), judgment dated 1 February 2017; affirming DCIT v. India Advantage Fund-VII (ITAT Bangalore, order dated 17 October 2014).
Facts: A pooled fund settled as a trust, in which the contributors were the beneficiaries with shares fixed by a pre-determined formula in the trust deed. The Revenue sought to assess the trust as an association of persons at the maximum marginal rate under section 164(1), contending that the beneficiaries' shares were indeterminate when the deed was executed.
Held: Dismissing the Revenue's appeal: (i) the Explanation to section 164 does not require the beneficiaries' shares to be a fixed quantum on the date of the deed; the test is whether the shares are determinable — at the time of, or after, the formation of the trust. (ii) Where beneficiaries share in proportion to their contribution, the shares are determinable and the trust is outside section 164(1). (iii) Once the shares are determinable, the income is taxable in the beneficiaries' hands and not in the trustee's hands as an AOP. The Tribunal below had held a determinate pooled trust to be a ‘pass-through’ conduit, the income of which is the beneficiaries' income.
Application to s.115UA: The leading High Court statement of the conduit principle for a pooled, units-style fund. Although decided on sections 161/164 rather than section 115UA, it establishes the result that section 115UA secures by statute for business trusts — that a determinate pooled trust is taxed in the investors' hands. It is the doctrinal anchor for treating a REIT/InvIT as transparent for its pass-through streams. Cited as cognate trust-conduit authority.
Status: Karnataka High Court; Revenue's appeal dismissed; affirming the ITAT Bangalore decision of 17 October 2014. Binding High Court authority on trust determinacy (sections 161/164).
Cluster C-2 : Characterisation of ‘units’ and of the distributed income — nature preserved
Apollo Tyres Ltd. v. CIT, [2002] 255 ITR 273 (Supreme Court).
Principle: Even though section 32(3) of the Unit Trust of India Act, 1963 created a fiction deeming the UTI to be a company and deeming the income distributed to unit holders to be a dividend, that deeming did not also make a ‘unit’ a ‘share’. A deeming provision is to be applied only for the purpose for which it is enacted; the unit of a trust is a distinct species of property and is not to be equated with a share merely because the distribution is, for a limited purpose, deemed a dividend.
Application to s.115UA: Directly supports the characterisation premise of section 115UA(1) and (3). A unit of a business trust is its own kind of property; the income distributed on it does not take a uniform ‘dividend-on-units’ colour but retains the nature it had in the trust's hands (interest, dividend, rent), exactly as sub-section (1) deems. Apollo Tyres warns against collapsing the several pass-through streams into a single re-characterised receipt — the very error section 115UA(1) forecloses. Cited on principle; the decision is on UTI units and the MAT provisions, not on section 115UA.
Status: Supreme Court. Foundational authority on the characterisation of units and the confined operation of deeming fictions.
Bacha F. Guzdar v. CIT, [1955] 27 ITR 1 (Supreme Court).
Principle: Income in the hands of a recipient takes its character from the receipt in his hands, not from the source's underlying activity. Dividend received by a shareholder is not agricultural income merely because the company's profits were derived from agriculture; the character of the company's income does not pass, untransformed, to the shareholder.
Application to s.115UA: Cognate authority on how income is characterised as it moves between persons. Section 115UA(1) makes a deliberate statutory departure from the Bacha Guzdar default: it expressly deems the distributed income to retain ‘the same nature’ in the unit holder's hands as it bore in the trust's hands, so that SPV interest stays interest and SPV dividend stays dividend on the way through. Understanding the general rule that Bacha Guzdar states explains why the pass-through needed an express deeming to achieve character-continuity. Cited on principle; not a section 115UA decision.
Status: Supreme Court. Foundational authority on the characterisation of distributed income.
Cluster C-3 : Maximum marginal rate and the nature of the entity-level levy — sub-section (2)
CIT v. Kamalini Khatau, [1994] 209 ITR 101 (Supreme Court) — and the section 164 maximum-marginal-rate scheme.
Principle: The maximum-marginal-rate charge on trustees (section 164) exists to prevent the interposition of a trust from yielding a rate advantage that would not be available to the beneficiaries individually; it is an anti-avoidance rate rule, not a separate species of tax. Where the beneficiaries and their shares are determinate, beneficiary-level taxation displaces the MMR charge.
Application to s.115UA: Illuminates the policy of sub-section (2). By charging the business trust's own (non-pass-through) total income at the maximum marginal rate, section 115UA(2) applies the same anti-arbitrage logic the courts have explained for section 164 — the trust may not be used to obtain a lower rate than would apply if the income were taxed at the top. The carve-out for sections 111A/112/112A preserves the special capital-gains rates, consistent with the general scheme that gains are charged at their own rates wherever they arise. Cited on principle; section 164 jurisprudence applied by analogy, not as a section 115UA decision.
Status: Supreme Court. Cited for the rationale of the maximum-marginal-rate device.
Jyotendrasinhji v. S.I. Tripathi, [1993] 201 ITR 611 (Supreme Court) — entity-level versus beneficiary-level charge.
Principle: The Act may charge trust income either at the level of the trustee/entity or at the level of the beneficiary; the choice of level is a matter of statutory design, and a special provision may select one level for one class of income and another level for another.
Application to s.115UA: Explains the mixed architecture of section 115UA — beneficiary-level charge for the pass-through streams (sub-sections (1) and (3)) and entity-level MMR charge for the trust's other income (sub-section (2)). The two-level design is not anomalous; it is a deliberate selection of the kind Jyotendrasinhji recognises as open to the legislature. Cited on principle.
Status: Supreme Court. Cited on the entity-versus-beneficiary level of charge.
Cluster C-4 : The withholding-and-recovery machinery cognate to section 194LBA / section 393
GE India Technology Centre (P) Ltd. v. CIT, [2010] 327 ITR 456 (Supreme Court).
Principle: The obligation to deduct tax at source arises only in respect of a sum that is chargeable to tax under the Act; there is no duty to withhold on a payment, or a component of a payment, that is not so chargeable. The withholding provisions are a machinery for collecting a tax that is otherwise due, not an independent charge.
Application to s.115UA: Governs the operation of section 194LBA (now section 393). Withholding on a business-trust distribution is required only on the component that is taxable in the unit holder's hands — the section 10(23FC)/(23FCA) streams and the taxable dividend — and not on the section 10(23FD)-exempt component or a non-chargeable return of capital. GE India is the authority for confining the deduction to the chargeable element of a composite distribution. Cited on principle; a TDS-scope decision, not a section 115UA case.
Status: Supreme Court. Foundational authority on the scope of the withholding obligation.
Principle: Where the payee/recipient has paid the tax due on the income, the tax itself cannot be recovered a second time from the payer who failed to deduct at source; the deductor's exposure in that event is confined to interest and any penalty for the default, not to the tax already paid.
Application to s.115UA: Cognate protection in the section 194LBA / section 393 context. If a business trust under-deducts or fails to deduct on a distribution but the unit holder has paid the tax on that income under section 115UA, the substantive tax is not recoverable again from the trust; only interest/penalty consequences for the withholding default survive. Cited on principle; a TDS-recovery decision, not a section 115UA case.
Status: Supreme Court. Foundational authority on no double recovery of TDS.
CIT v. Eli Lilly & Co. (India) (P) Ltd., [2009] 312 ITR 225 (Supreme Court).
Principle: The TDS machinery provisions are part of the integrated scheme of collection and recovery; consequences such as interest under section 201(1A) for failure to deduct are compensatory and follow automatically on a default, independently of the assessment of the recipient.
Application to s.115UA: Cognate authority on the consequences of a withholding default by a business trust under section 194LBA / section 393 — interest for late or short deduction runs as a matter of course, and is distinct from the unit holder's own assessment under section 115UA. Cited on principle; a TDS decision, not a section 115UA case.
Status: Supreme Court. Cited on the compensatory character of TDS interest.
Cluster C-5 : Administrative and forward-looking context
The following are not contentious authorities on section 115UA but complete the practitioner's picture and are catalogued as context, clearly labelled.
Reporting framework — Rule 12CA, Forms 64A and 64B, and Schedule PTI.
Note: Sub-section (4) is operationalised through Rule 12CA of the Income-tax Rules, 1962: the business trust furnishes Form No. 64A to the prescribed income-tax authority and Form No. 64B (the statement of income distributed and its nature) to each unit holder, within the prescribed time. The unit holder reports the pass-through income in ‘Schedule PTI’ of the return, claiming the section 10(23FD) exemption for the exempt component and offering the section 10(23FC)/(23FCA) streams to tax under section 115UA(3). Cited as administrative context, not as adjudicated authority.
Withholding — section 194LBA and its recodification as section 393 of the Income-tax Act, 2025.
Note: Distributions of the taxable streams are subject to withholding under section 194LBA — 10 per cent for residents; for non-residents, 5 per cent on the SPV-interest component, 10 per cent on the SPV-dividend component and the rate in force on the REIT-rent component, subject to the applicable DTAA. On the recodification of the direct-tax law, this obligation has been carried into section 393(1) of the Income-tax Act, 2025, with effect from 1 April 2026, without change of substance. Noted to fix the procedural context of section 115UA.
Finance Act, 2020 (DDT abolition) and Finance Act, 2023 (section 56(2)(xii) / sub-section (3A)) — the two structural turning-points.
Note: Two legislative changes reshaped the unit-holder taxation of business trusts after 2014. The Finance Act, 2020 abolished dividend-distribution tax and brought the SPV-dividend stream into the section 115UA pass-through (taxable in the unit holder's hands unless the SPV is a section 115BAA company). The Finance Act, 2023 enacted section 56(2)(xii) and section 115UA(3A) (w.e.f. AY 2024-25) to charge ‘residual’ return-of-capital distributions as income from other sources, closing the loan-repayment route. Both are recorded in the amendment note and the commentary (A.7–A.8); noted here to mark the regime's evolution.
Note: Section 115UA (business trusts — REITs/InvITs) must not be confused with the adjacent pass-throughs: section 115UB (Chapter XII-FB) governs the income of Category I and II Alternative Investment Funds and their unit holders, and section 115U (Chapter XII-F) governs the legacy venture-capital regime. The three use a common pass-through vocabulary but apply to different vehicles; ‘Schedule PTI’ of the return reports income under all three. Noted to prevent cross-citation between the chapters.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961. Citations stated as reported; tribunal and stay-stage orders are flagged as such. This material is for professional reference and is not legal advice.
CHAPTER XII-FA — SPECIAL PROVISIONS RELATING TO BUSINESS TRUSTS
Section 115UA — Tax on income of unit holder and business trust
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The sole section of Chapter XII-FA. It is the charging-and-machinery code for the taxation of “business trusts” — the Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) defined in section 2(13A). It works a single-level, pass-through (tax-transparent) charge: income distributed by the trust is taxed in the unit holder's hands retaining the same nature and proportion as in the trust's hands, while the trust's own total income is charged at the maximum marginal rate, subject to the capital-gains rates.
Origin: Inserted by the Finance (No. 2) Act, 2014, with effect from 1 April 2015 (assessment year 2015-16), as part of the new fiscal framework for business trusts introduced alongside section 2(13A), the exemptions in section 10(23FC)/(23FCA)/(23FD), the withholding code in section 194LBA and the reporting rules in Rule 12CA (Forms 64A and 64B).
Present status under FA 2026: Live and central. The Finance Act, 2026 makes no amendment to section 115UA. The only recent change is the substitution, in sub-section (2), of the words “sections 111A, 112 and 112A” for “section 111A and section 112” by the Finance Act, 2025 (Act No. 7 of 2025), with effect from 1 April 2026 (assessment year 2026-27 onwards) — extending the concessional long-term capital-gains rate of section 112A to the business trust's own total income. The verbatim text below is set out as in force on and after 1 April 2026; the pre-amendment words and the amendment history are recorded in the amendment note.
Reading note: Section 115UA is the income-tax hinge of a multi-provision regime; it cannot be read without section 2(13A) (definition of business trust), section 10(23FC)/(23FCA)/(23FD) (the trust-level exemptions that make the pass-through work), section 56(2)(xii) and sub-section (3A) (the Finance Act, 2023 charge on ‘residual’ return-of-capital distributions), and section 194LBA / section 393 (withholding). Reported merits litigation construing section 115UA itself is sparse; the authorities below are organised by the legal issue each illuminates and every entry candidly states its precise relationship to the section.
A. SECTION COMMENTARY
A.1 What Chapter XII-FA does — a single-section pass-through for business trusts
Chapter XII-FA contains one section. Section 115UA is the income-tax counterpart of a deliberate capital-markets policy: to let large, illiquid real-estate and infrastructure assets be financed by listed, units-based pooling vehicles — the REIT and the InvIT — without the income being taxed twice (once in the trust and again in the investor). The technique is fiscal transparency. Most of the income that flows up to the business trust from its underlying Special Purpose Vehicles (SPVs) is exempt at the trust level under section 10(23FC) (interest and dividend from the SPV) and section 10(23FCA) (rent of a REIT's directly-held real estate), and is then taxed in the unit holder's hands when distributed, in the same character it bore in the trust's hands. The slogan for the scheme is “one level of tax, in the unit holder's hands, with the trust as a transparent conduit for its pass-through streams.”
The design is the mirror-image of the distribution-tax model that India used for companies (dividend-distribution tax, Chapter XII-D) and for mutual funds (income-distribution tax, Chapter XII-E). There a single tax was collected at the entity gate and the income flowed out exempt. Here the opposite technique is used for the pass-through streams — nothing is collected at the trust gate on those streams, and the charge is shifted to the unit holder under sub-sections (1) and (3). But the business trust is not wholly transparent: by sub-section (2) its own ‘other’ total income (for example, capital gains on the sale of an SPV's shares, or income that is neither the section 10(23FC) nor the section 10(23FCA) stream) is charged in the trust's own hands at the maximum marginal rate, subject to the concessional capital-gains rates of sections 111A, 112 and (from AY 2026-27) 112A.
A.2 ‘Business trust’, the SPV and the three income streams — the statutory scaffolding
A “business trust” is defined in section 2(13A) as a trust registered as an InvIT or a REIT under the relevant SEBI regulations (made under the SEBI Act, 1992), the units of which are required to be, or are, listed on a recognised stock exchange. The “SPV”, per the Explanation to section 10(23FC), is an Indian company (or, by later widening, an LLP) in which the business trust holds a controlling interest and the prescribed percentage of shareholding or interest. The architecture is therefore three-tier: investors hold units in the trust; the trust holds controlling stakes in SPVs; the SPVs own and operate the real estate or infrastructure.
Three income streams must be kept distinct, because section 115UA treats them differently. (i) Interest and dividend received by the trust from the SPV — exempt in the trust's hands under section 10(23FC), and taxable in the unit holder's hands on distribution under sub-section (3). (ii) Rent from real estate owned directly by a REIT — exempt in the trust's hands under section 10(23FCA), and taxable in the unit holder's hands on distribution under sub-section (3). (iii) Any other income of the trust — for example, capital gains on disposal of SPV shares, or income not falling in the first two streams — which is taxed in the trust's own hands under sub-section (2) at the maximum marginal rate (with the capital-gains carve-outs), and then, when distributed, is exempt in the unit holder's hands under section 10(23FD) so as to avoid a second charge.
A.3 The mechanics of section 115UA — sub-section by sub-section
Sub-section (1) is the character-and-proportion deeming rule: notwithstanding anything else in the Act, any income distributed by a business trust to its unit holders is “deemed to be of the same nature and in the same proportion” in the unit holder's hands “as it had been received by, or accrued to, the business trust.” The non obstante clause overrides the ordinary rules; the deeming is what makes the trust a pane of clear glass — it transmits the income's colour (interest, dividend, rent) unchanged to the unit holder. Sub-section (1) is, however, expressly subordinated to sub-section (3A) (below) for return-of-capital sums.
Sub-section (2) is the entity-level charge: “Subject to the provisions of sections 111A, 112 and 112A, the total income of a business trust shall be charged to tax at the maximum marginal rate.” This is the part of the scheme that is not transparent. The trust's own total income — essentially everything that is not exempt under section 10(23FC)/(23FCA) and not passed through — bears tax in the trust's hands at the MMR, save that short-term capital gains on listed securities (section 111A), long-term capital gains generally (section 112) and, with effect from AY 2026-27, long-term capital gains on listed equity/units (section 112A) are charged at their own concessional rates rather than at the MMR.
Sub-section (3) is the unit-holder charge for the pass-through streams: if the distributed income (or any part) received by a unit holder is of the nature referred to in section 10(23FC) (SPV interest/dividend) or section 10(23FCA) (REIT rent), it is “deemed to be income of such unit holder and shall be charged to tax as income of the previous year.” This is the provision that converts the trust-level exemption into a unit-holder-level charge, completing the single level of tax.
Sub-section (3A) — inserted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2024 (AY 2024-25) — is the anti-leakage carve-out: the deeming in sub-section (1) does not apply to any sum referred to in section 56(2)(xii) received by a unit holder from a business trust. Section 56(2)(xii) brings to charge, as income from other sources, ‘residual’ distributions that are in substance a return of capital or repayment of debt (sums that are neither the section 10(23FC) stream, nor the section 10(23FCA) stream, nor a dividend taxed in the SPV, nor a redemption taxed as capital gains). The provision closed the much-discussed ‘loan-repayment’ route by which trusts could return cash to unit holders untaxed.
Sub-section (4) is the reporting machinery: the person responsible for making payment of the distributed income on behalf of the trust must furnish a statement — in the prescribed form and manner — to the unit holder and to the prescribed authority, giving the nature of the income paid during the year. This is operationalised through Rule 12CA of the Income-tax Rules, 1962 and Forms 64A (trust to the authority) and 64B (trust to the unit holder); it is the document on which the unit holder builds the ‘Schedule PTI’ (Pass Through Income) of the return.
A.4 Why the pass-through is fought on the section 10 exemptions, not on section 115UA
Section 115UA does not stand alone; it is the second leg of a two-leg structure. Section 10(23FC)/(23FCA) exempts the relevant income in the trust's hands; section 115UA then taxes the same income in the unit holder's hands and charges the trust's other income at the MMR. Remove the first leg and the income is taxed at the trust level and again on distribution; remove section 115UA and the pass-through streams might escape charge altogether. Because the commercial stakes turn on the trust-level exemption, the live disputes in this field are about the scope of section 10(23FC)/(23FCA) and of the section 194LBA withholding — not about the bare words of section 115UA, whose operation is largely mechanical once the characterisation of the income is settled. The reported authorities are correspondingly built around (a) the trust-conduit and representative-assessee principle that section 115UA codifies, (b) the characterisation of ‘units’ and of the distributed income, (c) the maximum-marginal-rate charge on the trust, and (d) the withholding machinery — and the clusters in Part C are arranged on that footing.
A.5 Character and proportion preserved — the significance of sub-sections (1) and (3)
Sub-sections (1) and (3), read together, are what give the regime its value to investors. Interest distributed by the trust is taxed in the unit holder's hands as interest; rent as rent; and — since the Finance Act, 2020 watershed (A.7) — dividend from an SPV that has not opted into the section 115BAA regime is taxed as dividend at the unit holder's slab rate. Had the distributed income been re-characterised as a single, undifferentiated ‘distribution on units’, the unit holder would lose the rate and treaty consequences that attach to each stream's true nature. The deeming in sub-section (1) prevents that re-characterisation; sub-section (3) then fixes the year and the person of charge. The analytical premise — that a ‘unit’ is a distinct species of property and that income distributed on it does not automatically take a ‘dividend’ colour — is the point established for units generally by the Supreme Court in Apollo Tyres (Cluster C-2).
A.6 The maximum-marginal-rate charge on the trust — sub-section (2) and the 2026 amendment
Sub-section (2) charges the business trust's own total income at the maximum marginal rate. The policy reason is to deny any rate arbitrage at the trust level: income retained or arising in the trust (rather than passed through) is taxed at the highest rate that could apply to any unit holder, so that interposing the trust confers no rate advantage. The carve-out for capital gains exists because gains are, as a matter of general scheme, charged at their own special rates wherever they arise. Until AY 2025-26 the carve-out named only sections 111A (STCG on listed securities) and 112 (LTCG generally). The Finance Act, 2025 added section 112A with effect from 1 April 2026, so that long-term capital gains on listed equity shares and on units of a business trust (taxed at the concessional rate under section 112A, currently 12.5 per cent above the threshold) are also carved out of the MMR charge. The Finance Act, 2026 leaves sub-section (2) — and the rest of section 115UA — untouched.
A.7 The Finance Act, 2020 watershed — dividends brought into the pass-through
When the regime was introduced in 2014, dividend received by the trust from its SPV was tax-free in the SPV's hands under the then dividend-distribution-tax model (the SPV paid DDT under Chapter XII-D), and section 10(23FD) kept the onward distribution exempt for the unit holder. The Finance Act, 2020 abolished DDT from 1 April 2020 and shifted dividend taxation to the classical, recipient-based system. As a consequence the dividend stream was brought within section 10(23FC) and the pass-through: SPV dividend is now exempt in the trust's hands and taxable in the unit holder's hands under section 115UA(3) — unless the SPV has opted for the concessional corporate-tax regime under section 115BAA, in which case the dividend remains exempt for the unit holder under the carve-out in section 10(23FD). Section 194LBA was simultaneously recast to require withholding on the dividend component of distributions. The practitioner must therefore track, for each SPV, whether it is a section 115BAA company, because that single fact decides whether the distributed dividend is taxable or exempt in the unit holder's hands.
A.8 The Finance Act, 2023 ‘residual income’ charge — section 56(2)(xii) and sub-section (3A)
A structural gap remained until 2023. A business trust could distribute cash to unit holders that was neither interest, nor dividend, nor rent, nor a redemption of units — typically a repayment of loans the trust had advanced to its SPVs, economically a return of the investor's own capital. Such sums escaped charge both in the trust (exempt streams) and in the unit holder (not within sub-section (3)). The Finance Act, 2023 closed the gap with a two-part mechanism: section 56(2)(xii) charges the ‘specified sum’ — the excess of such distributions over the unit holder's cost — as income from other sources; and section 115UA(3A) switches off the sub-section (1) deeming for those sums so that they are taxed under section 56(2)(xii) rather than passed through with the trust's character. The amendment took effect from AY 2024-25. It is the most recent substantive change to the unit-holder taxation of business trusts and should be read with the consequential definitions of ‘specified sum’ in the Explanation to section 56(2)(xii).
A.9 Withholding and recovery — section 194LBA (now section 393 of the Income-tax Act, 2025)
Section 194LBA obliges the business trust (or the person paying on its behalf) to withhold tax on the distributed income that is taxable in the unit holder's hands: at 10 per cent for resident unit holders, and, for non-residents, at 5 per cent on the SPV-interest component [section 10(23FC)(a)], 10 per cent on the SPV-dividend component [section 10(23FC)(b)] and at the rates in force on the REIT-rent component [section 10(23FCA)], subject to the relevant Double Taxation Avoidance Agreement. The withholding is a collection mechanism layered on the section 115UA charge; the substantive liability remains the unit holder's. On the recodification of the direct-tax law, the section 194LBA obligation has been carried into section 393(1) of the Income-tax Act, 2025, with effect from 1 April 2026, without change of substance. The cognate withholding authorities in Cluster C-4 govern the recurring questions — that tax is deductible only on sums chargeable to tax, and that the deductor cannot be pursued for tax the payee has already paid.
A.10 Reading section 115UA in 2026
For the practitioner today section 115UA is a live, mainstream provision — every listed REIT and InvIT distribution runs through it. The key compliance points are: (a) classify each distribution into its constituent streams (SPV interest, SPV dividend, REIT rent, capital-gains/exempt component, and ‘residual’ section 56(2)(xii) sum) using the Form 64B statement; (b) for the dividend stream, check the SPV's section 115BAA status to decide taxability; (c) apply the section 194LBA / section 393 withholding at the correct rate and treaty position; (d) tax the trust's own non-pass-through income at the MMR with the sections 111A/112/112A carve-out (the section 112A limb operative from AY 2026-27); and (e) report through Schedule PTI. There is no reported Supreme Court decision construing section 115UA itself, and merits litigation on the section is sparse — its operation being largely mechanical — so the meaning of the regime has been worked out around the section 10 exemptions, the trust-conduit principle and the withholding code. The authorities in Part C are presented on that candid footing.
B. STATUTORY POSITION (verbatim operative text)
Section 115UA, Income-tax Act, 1961 (Chapter XII-FA), as in force on and after 1 April 2026:
115UA. (1) Notwithstanding anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.
(2) Subject to the provisions of sections 111A, 112 and 112A, the total income of a business trust shall be charged to tax at the maximum marginal rate.
(3) If in any previous year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in clause (23FC) or clause (23FCA) of section 10, then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year.
(3A) The provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56, received by a unit holder from a business trust.
(4) Any person responsible for making payment of the income distributed on behalf of a business trust to a unit holder shall furnish a statement to the unit holder and the prescribed authority, within such time and in such form and manner as may be prescribed, giving the details of the nature of the income paid during the previous year and such other details as may be prescribed.
Amendment note. (i) Sub-section (2): the words “sections 111A, 112 and 112A” were substituted for “section 111A and section 112” by the Finance Act, 2025 (Act No. 7 of 2025), with effect from 1 April 2026; for assessment years up to and including 2025-26 the sub-section read “Subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate.” (ii) Sub-section (3A): inserted by the Finance Act, 2023 (Act No. 8 of 2023), with effect from 1 April 2024. (iii) Section 115UA was inserted by the Finance (No. 2) Act, 2014, with effect from 1 April 2015. The Finance Act, 2026 makes no amendment to section 115UA.
C. AUTHORITIES
Candour note: there is no reported Supreme Court decision construing section 115UA, and the section's own charge has rarely been litigated in isolation — because its operation is largely mechanical once the income is characterised, and the live battlegrounds are the section 10(23FC)/(23FCA) exemptions on which the pass-through depends and the section 194LBA withholding. The authorities below are grouped by the work they do: (C-1) the trust-conduit and representative-assessee principle that section 115UA codifies; (C-2) the characterisation of ‘units’ and of the distributed income (nature preserved); (C-3) the maximum-marginal-rate / nature-of-levy line bearing on sub-section (2); (C-4) the withholding-and-recovery machinery cognate to section 194LBA / section 393; and (C-5) the administrative and forward-looking context. Each entry states its precise relationship to section 115UA; every authority outside Cluster C-1's REIT/InvIT subject-matter is candidly flagged as cognate, not as a decision on section 115UA.
Cluster C-1 : The trust-conduit and representative-assessee principle codified by section 115UA
Jyotendrasinhji v. S.I. Tripathi, [1993] 201 ITR 611 (Supreme Court), judgment dated 2 April 1993.
Principle: Construing the representative-assessee scheme (sections 160–166), the Court held that it is implicit in section 161(1), and express in section 166, that the Revenue has an option, in respect of income arising to a trust, to assess and recover the tax either from the trustee in his representative capacity or from the beneficiary in whose hands the income is, or is deemed to be, received. The two are alternative routes to taxing the same income; the income retains its identity and character as it flows from the trust to the beneficiary.
Application to s.115UA: The doctrinal parent of the business-trust pass-through. Section 115UA is, in substance, a statutory selection of the beneficiary-level route for the trust's pass-through streams — the distributed income is ‘deemed to be income of the unit holder’ (sub-sections (1) and (3)) — while sub-section (2) retains an entity-level charge on the trust's other income. Jyotendrasinhji supplies the general law of trust taxation against which the special code of section 115UA is to be read. Cited on principle, as foundational trust-taxation law rather than as a section 115UA decision.
Status: Supreme Court (B.P. Jeevan Reddy and N. Venkatachala, JJ.). General authority on representative-assessee taxation of trusts.
CIT v. Kamalini Khatau, [1994] 209 ITR 101 (Supreme Court).
Principle: Where the income of a discretionary trust is dealt with and distributed by the trustees, the Revenue may assess and recover the tax either from the trustees in their representative capacity or directly from the beneficiary who receives the income; the modes are concurrent and the Department has the choice. The income is, in either case, the beneficiary's income in substance.
Application to s.115UA: Cognate support for the conduit analysis at the heart of section 115UA: the income of a transparent trust is, in law, the income of the person beneficially entitled to it, assessable in his hands. It explains why the Act can ‘deem’ the trust's distributed income to be the unit holder's income without any transfer of legal title, and why the withholding under section 194LBA sits comfortably alongside a beneficiary-level charge. Cited on principle as background trust-taxation law, not as a section 115UA authority.
Status: Supreme Court. General authority on the taxation of trust income.
CIT v. India Advantage Fund-VII, [2017] 78 taxmann.com 301 (Karnataka High Court), judgment dated 1 February 2017; affirming DCIT v. India Advantage Fund-VII (ITAT Bangalore, order dated 17 October 2014).
Facts: A pooled fund settled as a trust, in which the contributors were the beneficiaries with shares fixed by a pre-determined formula in the trust deed. The Revenue sought to assess the trust as an association of persons at the maximum marginal rate under section 164(1), contending that the beneficiaries' shares were indeterminate when the deed was executed.
Held: Dismissing the Revenue's appeal: (i) the Explanation to section 164 does not require the beneficiaries' shares to be a fixed quantum on the date of the deed; the test is whether the shares are determinable — at the time of, or after, the formation of the trust. (ii) Where beneficiaries share in proportion to their contribution, the shares are determinable and the trust is outside section 164(1). (iii) Once the shares are determinable, the income is taxable in the beneficiaries' hands and not in the trustee's hands as an AOP. The Tribunal below had held a determinate pooled trust to be a ‘pass-through’ conduit, the income of which is the beneficiaries' income.
Application to s.115UA: The leading High Court statement of the conduit principle for a pooled, units-style fund. Although decided on sections 161/164 rather than section 115UA, it establishes the result that section 115UA secures by statute for business trusts — that a determinate pooled trust is taxed in the investors' hands. It is the doctrinal anchor for treating a REIT/InvIT as transparent for its pass-through streams. Cited as cognate trust-conduit authority.
Status: Karnataka High Court; Revenue's appeal dismissed; affirming the ITAT Bangalore decision of 17 October 2014. Binding High Court authority on trust determinacy (sections 161/164).
Cluster C-2 : Characterisation of ‘units’ and of the distributed income — nature preserved
Apollo Tyres Ltd. v. CIT, [2002] 255 ITR 273 (Supreme Court).
Principle: Even though section 32(3) of the Unit Trust of India Act, 1963 created a fiction deeming the UTI to be a company and deeming the income distributed to unit holders to be a dividend, that deeming did not also make a ‘unit’ a ‘share’. A deeming provision is to be applied only for the purpose for which it is enacted; the unit of a trust is a distinct species of property and is not to be equated with a share merely because the distribution is, for a limited purpose, deemed a dividend.
Application to s.115UA: Directly supports the characterisation premise of section 115UA(1) and (3). A unit of a business trust is its own kind of property; the income distributed on it does not take a uniform ‘dividend-on-units’ colour but retains the nature it had in the trust's hands (interest, dividend, rent), exactly as sub-section (1) deems. Apollo Tyres warns against collapsing the several pass-through streams into a single re-characterised receipt — the very error section 115UA(1) forecloses. Cited on principle; the decision is on UTI units and the MAT provisions, not on section 115UA.
Status: Supreme Court. Foundational authority on the characterisation of units and the confined operation of deeming fictions.
Bacha F. Guzdar v. CIT, [1955] 27 ITR 1 (Supreme Court).
Principle: Income in the hands of a recipient takes its character from the receipt in his hands, not from the source's underlying activity. Dividend received by a shareholder is not agricultural income merely because the company's profits were derived from agriculture; the character of the company's income does not pass, untransformed, to the shareholder.
Application to s.115UA: Cognate authority on how income is characterised as it moves between persons. Section 115UA(1) makes a deliberate statutory departure from the Bacha Guzdar default: it expressly deems the distributed income to retain ‘the same nature’ in the unit holder's hands as it bore in the trust's hands, so that SPV interest stays interest and SPV dividend stays dividend on the way through. Understanding the general rule that Bacha Guzdar states explains why the pass-through needed an express deeming to achieve character-continuity. Cited on principle; not a section 115UA decision.
Status: Supreme Court. Foundational authority on the characterisation of distributed income.
Cluster C-3 : Maximum marginal rate and the nature of the entity-level levy — sub-section (2)
CIT v. Kamalini Khatau, [1994] 209 ITR 101 (Supreme Court) — and the section 164 maximum-marginal-rate scheme.
Principle: The maximum-marginal-rate charge on trustees (section 164) exists to prevent the interposition of a trust from yielding a rate advantage that would not be available to the beneficiaries individually; it is an anti-avoidance rate rule, not a separate species of tax. Where the beneficiaries and their shares are determinate, beneficiary-level taxation displaces the MMR charge.
Application to s.115UA: Illuminates the policy of sub-section (2). By charging the business trust's own (non-pass-through) total income at the maximum marginal rate, section 115UA(2) applies the same anti-arbitrage logic the courts have explained for section 164 — the trust may not be used to obtain a lower rate than would apply if the income were taxed at the top. The carve-out for sections 111A/112/112A preserves the special capital-gains rates, consistent with the general scheme that gains are charged at their own rates wherever they arise. Cited on principle; section 164 jurisprudence applied by analogy, not as a section 115UA decision.
Status: Supreme Court. Cited for the rationale of the maximum-marginal-rate device.
Jyotendrasinhji v. S.I. Tripathi, [1993] 201 ITR 611 (Supreme Court) — entity-level versus beneficiary-level charge.
Principle: The Act may charge trust income either at the level of the trustee/entity or at the level of the beneficiary; the choice of level is a matter of statutory design, and a special provision may select one level for one class of income and another level for another.
Application to s.115UA: Explains the mixed architecture of section 115UA — beneficiary-level charge for the pass-through streams (sub-sections (1) and (3)) and entity-level MMR charge for the trust's other income (sub-section (2)). The two-level design is not anomalous; it is a deliberate selection of the kind Jyotendrasinhji recognises as open to the legislature. Cited on principle.
Status: Supreme Court. Cited on the entity-versus-beneficiary level of charge.
Cluster C-4 : The withholding-and-recovery machinery cognate to section 194LBA / section 393
GE India Technology Centre (P) Ltd. v. CIT, [2010] 327 ITR 456 (Supreme Court).
Principle: The obligation to deduct tax at source arises only in respect of a sum that is chargeable to tax under the Act; there is no duty to withhold on a payment, or a component of a payment, that is not so chargeable. The withholding provisions are a machinery for collecting a tax that is otherwise due, not an independent charge.
Application to s.115UA: Governs the operation of section 194LBA (now section 393). Withholding on a business-trust distribution is required only on the component that is taxable in the unit holder's hands — the section 10(23FC)/(23FCA) streams and the taxable dividend — and not on the section 10(23FD)-exempt component or a non-chargeable return of capital. GE India is the authority for confining the deduction to the chargeable element of a composite distribution. Cited on principle; a TDS-scope decision, not a section 115UA case.
Status: Supreme Court. Foundational authority on the scope of the withholding obligation.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT, [2007] 293 ITR 226 (Supreme Court).
Principle: Where the payee/recipient has paid the tax due on the income, the tax itself cannot be recovered a second time from the payer who failed to deduct at source; the deductor's exposure in that event is confined to interest and any penalty for the default, not to the tax already paid.
Application to s.115UA: Cognate protection in the section 194LBA / section 393 context. If a business trust under-deducts or fails to deduct on a distribution but the unit holder has paid the tax on that income under section 115UA, the substantive tax is not recoverable again from the trust; only interest/penalty consequences for the withholding default survive. Cited on principle; a TDS-recovery decision, not a section 115UA case.
Status: Supreme Court. Foundational authority on no double recovery of TDS.
CIT v. Eli Lilly & Co. (India) (P) Ltd., [2009] 312 ITR 225 (Supreme Court).
Principle: The TDS machinery provisions are part of the integrated scheme of collection and recovery; consequences such as interest under section 201(1A) for failure to deduct are compensatory and follow automatically on a default, independently of the assessment of the recipient.
Application to s.115UA: Cognate authority on the consequences of a withholding default by a business trust under section 194LBA / section 393 — interest for late or short deduction runs as a matter of course, and is distinct from the unit holder's own assessment under section 115UA. Cited on principle; a TDS decision, not a section 115UA case.
Status: Supreme Court. Cited on the compensatory character of TDS interest.
Cluster C-5 : Administrative and forward-looking context
The following are not contentious authorities on section 115UA but complete the practitioner's picture and are catalogued as context, clearly labelled.
Reporting framework — Rule 12CA, Forms 64A and 64B, and Schedule PTI.
Note: Sub-section (4) is operationalised through Rule 12CA of the Income-tax Rules, 1962: the business trust furnishes Form No. 64A to the prescribed income-tax authority and Form No. 64B (the statement of income distributed and its nature) to each unit holder, within the prescribed time. The unit holder reports the pass-through income in ‘Schedule PTI’ of the return, claiming the section 10(23FD) exemption for the exempt component and offering the section 10(23FC)/(23FCA) streams to tax under section 115UA(3). Cited as administrative context, not as adjudicated authority.
Withholding — section 194LBA and its recodification as section 393 of the Income-tax Act, 2025.
Note: Distributions of the taxable streams are subject to withholding under section 194LBA — 10 per cent for residents; for non-residents, 5 per cent on the SPV-interest component, 10 per cent on the SPV-dividend component and the rate in force on the REIT-rent component, subject to the applicable DTAA. On the recodification of the direct-tax law, this obligation has been carried into section 393(1) of the Income-tax Act, 2025, with effect from 1 April 2026, without change of substance. Noted to fix the procedural context of section 115UA.
Finance Act, 2020 (DDT abolition) and Finance Act, 2023 (section 56(2)(xii) / sub-section (3A)) — the two structural turning-points.
Note: Two legislative changes reshaped the unit-holder taxation of business trusts after 2014. The Finance Act, 2020 abolished dividend-distribution tax and brought the SPV-dividend stream into the section 115UA pass-through (taxable in the unit holder's hands unless the SPV is a section 115BAA company). The Finance Act, 2023 enacted section 56(2)(xii) and section 115UA(3A) (w.e.f. AY 2024-25) to charge ‘residual’ return-of-capital distributions as income from other sources, closing the loan-repayment route. Both are recorded in the amendment note and the commentary (A.7–A.8); noted here to mark the regime's evolution.
Distinction — Chapter XII-FB (section 115UB) and Chapter XII-F (section 115U).
Note: Section 115UA (business trusts — REITs/InvITs) must not be confused with the adjacent pass-throughs: section 115UB (Chapter XII-FB) governs the income of Category I and II Alternative Investment Funds and their unit holders, and section 115U (Chapter XII-F) governs the legacy venture-capital regime. The three use a common pass-through vocabulary but apply to different vehicles; ‘Schedule PTI’ of the return reports income under all three. Noted to prevent cross-citation between the chapters.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961. Citations stated as reported; tribunal and stay-stage orders are flagged as such. This material is for professional reference and is not legal advice.