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Income Tax Act 1961 | Chapter XII-EA

Section 115TC - Securitisation Trust to Be Assessee in Default

Section 115TC of the Income-tax Act, 1961 explains when a securitisation trust or the person responsible for distributing income is treated as an assessee in default for failure to pay the additional tax imposed under section 115TA. The provision is important primarily for historical distributions and outstanding liabilities under the earlier securitisation-trust distribution-tax system.

Important legal position: Under section 115TA(5), the distribution tax in section 115TA does not apply to income distributed to investors on or after 1 June 2016. Accordingly, section 115TC should not be presented as imposing that old distribution-tax recovery liability on later distributions. The investor-tax regime under section 115TCA is relevant to subsequent periods.

Meaning and scope of Section 115TC

The statutory rule provides that, where the person responsible for making payment of income distributed by a securitisation trust and the securitisation trust do not pay the tax referred to in section 115TA(1), the person or trust concerned is deemed an assessee in default for the amount payable. The Act's collection and recovery provisions then apply.

What is an assessee in default?

An assessee in default is a person treated by law as having failed to discharge a specified tax-payment obligation. The designation permits recovery measures authorised by the Income-tax Act; it does not itself create a new tax on distributions that are excluded from section 115TA.

Conditions for the default rule

  1. There must be a tax liability under section 115TA(1) for a distribution covered by the former regime.
  2. The person responsible for payment or the securitisation trust must fail to pay that tax.
  3. To the extent the tax remains unpaid, section 115TC permits treatment as an assessee in default and application of statutory collection and recovery provisions.

Section 115TA - former distribution tax

Under the former regime, section 115TA imposed additional income-tax on qualifying income distributed by a securitisation trust: 25% for individuals or Hindu undivided families and 30% for other investors, subject to the statutory exception for persons whose income was not chargeable to tax. Section 115TA(2) required payment within 14 days of distribution or payment, whichever was earlier. Section 115TA(5) excludes distributions on or after 1 June 2016.

Section 115TB - interest for late payment

For tax due under the earlier section 115TA regime, section 115TB prescribed simple interest at 1% for every month or part of a month of delay, running from the day after the statutory due date until actual payment.

Section 115TCA - investor-level taxation

Section 115TCA provides for taxation of income arising to investors from securitisation trusts, generally in the same manner as if the underlying investments had been made directly by the investor. It preserves the character and proportion of the underlying income and contains rules for deemed credit, statements and avoidance of double inclusion.

Illustrative example

Suppose a securitisation trust made a taxable distribution under the former regime before 1 June 2016 and did not deposit the additional tax due under section 115TA. Subject to the relevant facts, section 115TC could deem the trust or responsible person to be an assessee in default, while section 115TB could apply interest. By contrast, a distribution made on or after 1 June 2016 is outside section 115TA by virtue of subsection (5), so the old section 115TC mechanism does not attach to that distribution merely because income was paid to investors.

Key definitions

Securitisation trust: a qualifying trust or special-purpose arrangement within the statutory definition in the Explanation to section 115TCA, including specified regulated vehicles and qualifying reconstruction-company trusts.

Investor: a holder of a securitised debt instrument, securities or security receipt issued by the securitisation trust, as defined in the Explanation to section 115TCA.

Recovery: enforcement of a legally payable tax debt under the collection and recovery machinery of the Act, subject to applicable procedures and remedies.

Official legal references

Frequently asked questions

Does Section 115TC apply to all securitisation trust distributions today?

No. Its default rule concerns unpaid tax under section 115TA. Section 115TA(5) excludes distributions on or after 1 June 2016.

Is interest separate from default status?

Yes. Section 115TB addresses interest for delayed payment of the former distribution tax, whereas section 115TC addresses deemed default and recovery.

Which section addresses income taxable in investors' hands?

Section 115TCA addresses the investor-level treatment of income from securitisation trusts under the Income-tax Act, 1961.

This article is general legal information. The applicable statute, assessment year, transition rules and facts should be checked for any particular tax demand.