The PIL was filed in view of the threatened illegal action on the part of income tax officers and others in seeking to assess UTI for payment of interest tax, the unitholder, who is also an agent of the UTI, has said.

Apparently, it is the investors who would be the losers if, under the Interest Tax Act, UTI is liable to pay tax going by the Interest Rate Act 1991. Unlike under the Income Tax Act, it is possible to pass on the incidence of interest rate tax on to its customers, in this case the unitholders. Besides, UTI personally has no assets and it is merely a trustee of people's money. The income derived from the deployment or investment of the funds of a particular scheme by way of gains, profits or interest is the income which belongs to unit holders of that scheme and not to UTI.

The direct consequence of such liability, if allowed to be imposed, would be on the unitholders of the year 2000-2001, who would have to shell out Rs 1,400 crore, the petitioner argues. If charged to the schemes presently in force, it would reduce the dividends under these schemes to virtually half considering the fact that UTI has been distributing or declaring dividends to the tune of Rs 3,000 crore per year under its various scheme. Thus, its not proper to penalise present unitholders.

As on March 31, 2000, there are as many as 94 schemes in force. In the last eight years or so, UTI has already closed between 40 to 50 schemes and returned the capital and income to their respective unitholders. Therefore, a large number of unitholders have already received dividend and capital and have gone out of the schemes. Besides, some have transferred their units to different schemes. According to investors, the IT department's stand now on asking UTI to pay for interest tax could be stated as government going back on its promise. In 1991, when the interest tax was amended and its was not clear whether UTI had to pay tax. The trust had asked for clarification from the Central Board of Direct Taxes (CBDT), which in turn had passed it on to the finance ministry. The ministry took a months time to clarify that UTI did not fall under the purview of the interest tax. After getting the reply, UTI had made a representation to its Unitholders based on which they had filed their returns.

Now ten years later, if CBDT changes it stand, under the principle of promise (promisssary estoppel), an investor can approach the court and stop the government from going back on its promise. However, since there cannot be a principle of promisssary estoppel against the statute (law), unitholder would not be in a position to go to the court, in case UTI loses the case. That is why we had to file the case now, the petitioner said.

When contacted by The Financial Express, senior IT officials said that it is a policy matter and for their recovery they have to go ahead with it. They added that they could take a view on the PIL filed after the hearing of UTI petition is over and a decision is taken.