The manner of taxation of income of venture capital funds (VCFs) and their investors in respect of income from such funds has been an issue under litigation for the past few years. The problem was triggered by replacement of a complete pass-through of fund income (taxed directly in the hands of investors instead of being taxed as income of the VCF) by a partial pass-through in 2008, and modification in 2013. The issue has primarily revolved around the taxability of the income, which is not covered by the express pass-through provisions. Is such income taxable as income of the VCF or as that of the investors?

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