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2016 (2) TMI 882 - AT - Income TaxEntitlement to exemption u/s 10(34) - dividend income distributed as per the provisions of Sections 115-O and 115-R - Held that:- CIT(A) have taken a wrong view by holding that the assessee cannot grow tax free income u/ss 10(34) and 10(35) of the Acts unless additional tax has been paid as per the provisions of Sections 115-O and 115-R of the Act and as such the exemption claimed u/ss 10(34) and 10(35) is to be allowed only if the dividend income distributed as per the provisions of Sections 115-O and 115-R whereas, the conditions laid down u/s 115-O to avail the exemption u/s 10(34), is to be complied with at the level of venture capital undertaking and not at the stage when the investor, the assessee in this case, received the dividend income from VCF. So, the assessee is entitled for exemption u/s 10(34) of the Act and its share of dividend income is out of dividend income received by SARA fund. When the company with which SARA Fund has been invested, had already paid additional income tax on the earned dividend as required u/s 115-O of the Act, SARA fund was not required to pay additional income tax second time on the same income - Decided in favour of assessee Disallowance of expense - taxing the share of appellant as interest income from VCF under the head ‘other income’ on gross basis and not on net basis - Held that:- The provisions contained u/s 115U discussed in the preceding paragraphs which mandates that venture capital company and venture capital fund is given the status of pass through vehicle for the purpose of treatment of income received on account of investment made in the venture capital undertaking. A person who makes investment in the venture capital company or venture capital fund, the assessee in this case, earned the income out of such investment which income shall be treated firstly as investment directly in the venture capital undertaking and venture capital fund or venture capital company is only a pass through vehicle. So, in these circumstances, the assessee company is entitled to book expenditure incurred by SARA fund as if the same has been incurred by the assessee directly in the venture capital fund. So, we are of the view that the expenses of ₹ 1,13,11,955/- disallowed by Ld. CIT(A) by taking the shares of the assessee in interest income from VCF under the head other sources on gross basis and not the net basis, which requires to be determined by treating the same nature of income like long term capital gain, short term capital gain, dividend and other income such as interest etc - Decided in favour of assessee Taxability of assessee’s share in the payment @ 22.23% - assessable in assessee’s hands as ‘income from other sources’- Held that:- The assessee in this case, earned the income out of such investment, which income shall be treated as if the investment was directly in the VCU and VCF and VCC is only a pass through vehicle. So, the assessee has rightly taken the net income for tax at ₹ 11,97,38,454/- by subtracting the amount of ₹ 5,62,61,546/- and the assessee is liable to be taxed accordingly. So, Ld. CIT(A) has erred in holding that the appellant’s share in the payment of ₹ 5,62,61,546/- (17,60,00,000 – 11,97,38,454) @ 22.73% i.e. ₹ 1,27,88,250/- as income from other sources in the hands of assessee, which is required to be assessed in view of the provisions contained u/s 115U of the Act - Decided in favour of assessee
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