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UTI wins Rs 14 billion interest tax case

Savio G Pinto

The Bombay High Court has quashed the income tax department's claim of more than Rs 14 billion in interest tax from Unit Trust of India and ruled that by virtue of the Central Board of Direct Taxes circular of 1991 exempting UTI from payment of the tax, there had been no failure on the part of UTI in filing interest tax returns.

Nearly 10 years after exempting UTI from interest tax, the CBDT had reversed its decision, following which the income tax department slapped the tax claim on UTI under the Interest Act.

The court said that such a circular could not be withdrawn with retrospective effect.

The court, however, held that based on the merits of the issue at hand, interest tax was applicable to UTI and the institution would have to pay such a tax if it was revived. Interest tax was abolished with effect from April 1, 2000.

The I-T authorities had maintained that since banks and financial institutions came under the purview of the Interest Act and paid a two per cent tax on interest income, it was applicable to UTI as well.

The IT department is learnt to be contemplating approaching the Supreme Court against the decision.

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