Consider the following statements: Statement-I: Interest income from the deposits in Infrastructure…

Consider the following statements: Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. Statement-II: InvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'. Which one of the following is correct in respect of the above statements?
  1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
  2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
  3. Statement-I is correct but Statement-II is incorrect
  4. Statement-I is incorrect but Statement-II is correct

Solution

Statement-I is incorrect — interest distributed by InvITs to unit-holders is taxable in their hands, while dividends are generally exempt. Statement-II is correct — SARFAESI 2002 was amended to include InvITs as borrowers.

Asked in: UPSC Prelims 2023

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