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Nilanjan Dey

Kolkata , Nov. 20

THE Association of Mutual Funds in India (AMFI) has requested Unit Trust of India to examine the Finance Ministry's circular which says the services of distributors of mutual funds are basically in the nature of services of commission agents as defined under `Business Auxiliary Services' and are liable to service tax.

UTI, which incidentally has the highest number of intermediaries working for it, is expected to provide its views on whether the circular will have an implication for individual agents. The MF association, which has informally discussed the issue at length, is still not sure whether it will impact both individual and corporate distributors.

AMFI's attempt to rope in UTI is aimed at getting a clearer picture and not necessarily at forming an alternative opinion, said Mr A.P. Kurian, Chairman. The general idea is to ascertain whether it is possible for individual distributors to obtain an exemption.

Tthe Finance Ministry has sought to clarify doubts that were raised regarding application of service tax on distribution of funds, specifically with respect to the commission received by distributors. The circular, which has explained that their services are primarily in the nature of "services of commission agent", has already been criticised by a section of the intermediaries.

UTI, Mr Kurian mentioned, is probably best suited to conduct an assessment, especially so in view of its experience in distribution. The AMFI, in fact, had earlier appealed to the Securities and Exchange Board of India on the matter of service tax, requesting it to treat it as a "sovereign levy" - beyond the limits of expenses prescribed under mutual fund regulations. The association, incidentally, already has a consultant (Ms Puloma Dalal) to advise it on the tax issue.

The authorities are yet to clarify their position with regard to commission received on services rendered prior to July 1, 2003 - the date on which such services have been included under the service tax umbrella.

Distribution circles, which refer to systems that are peculiar to their profession, have indicated that it is not their practice to raise bulls on MFs for getting commissions. The fund houses themselves (or their registrars) calculate the commissions payable to distributors and release the payments. In a typical case, the commission is paid over a period of time, well after a particular service is provided. It is also being debated whether commission received for services rendered with respect to initial public offers, too, should come within the tax net.

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Service tax liability for distributors — AMFI seeks UTI help to study Finance Ministry circular

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