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Consider the following statements:

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Statement-I: Interest income from the dividends distributed to investors in Infrastructure Investment Trusts (InvITs) is exempted from tax, but the dividends are taxable.

Statement-II: InvITs are recognized as trusts 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?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I.

(c) Statement-I is correct but Statement-II is incorrect.

(d) Statement-I is incorrect but Statement-II is correct.

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Answer: (c) Statement-I is correct but Statement-II is incorrect.

Explanation:

Statement-I states that interest income from the dividends distributed to investors in Infrastructure Investment Trusts (InvITs) is exempted from tax, but the dividends are taxable. This statement is correct. As per the provisions of the Income Tax Act, 1961, the interest income earned by investors from InvITs is exempt from tax. However, the dividends distributed by InvITs to the investors are taxable in the hands of the investors as per their applicable tax rates.

Statement-II states that InvITs are recognized as trusts under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002'. This statement is incorrect. InvITs are not recognized under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002'. InvITs are regulated and governed by the Securities and Exchange Board of India (SEBI) under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

Authenticative reference source:

To verify the information provided, you can refer to the following sources:

Income Tax Act, 1961: This is the official legislation governing taxation in India. You can refer to the relevant sections of the Income Tax Act to understand the tax treatment of InvITs and the exemption of interest income.

SEBI (Infrastructure Investment Trusts) Regulations, 2014: These are the regulations issued by the Securities and Exchange Board of India (SEBI) specifically for Infrastructure Investment Trusts. The regulations provide the legal framework for InvITs in India.

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