The Bombay High Court has negated the attachment of accounts of mutual fund houses by the Income Tax Department. No further coercive action can be taken, said the Court.

The ruling was in response to writ petitions filed by fund houses challenging the notices issued by the I-T Department. A total of 93 such writ petitions have been issued. Each writ petition corresponds to an investment by a fund house in a trust.

The notices issued pertain to a trust set up by IL&FS. The Indian Corporate Loan Securitisation Trust was set up by IL&FS for securing a loan of Rs 300 crore by Yes Bank to Hindustan Petroleum Corporation Limited (HPCL).

Dept challenged

The loan was then secured by the trust and the sum of Rs 300 crore was divided among seven different fund houses. However, HPCL continues to pay interest on the loan acquired. The interest paid amounted to Rs 21.49 crore.

The Income-Tax Department then held that the mutual fund houses were liable to pay tax. This was then challenged by the fund houses who claim that any income earned by a mutual fund trust is tax-exempt.

The Department issued notices to all the fund houses who received them on March 7. However, these notices were pre-dated and had been issued on February 29. Mutual fund houses could only respond to the I-T Department's notices on March 9, as March 8 was a closed holiday.

The I-T Department then responded on March 12 by attaching the accounts of UTI Mutual Fund and threatening to attach those of the other fund houses. The fund houses then filed an appeal with the Bombay HC in this matter.

At the hearing on Wednesday, the Court ruled in favour of the mutual fund houses. The Court further reprimanded the Department. “Revenue recovery targets should be fulfilled but not at the cost of the petitioners who are challenging the veracity of the demands,” said Justice Dr D Y Chandrachud. “Sanctity of law has to be preserved.”

> sneha.p@thehindu.co.in

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