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2023 (11) TMI 117 - ITAT CHENNAIExemption u/s 10(38) - LTCG derived from sale of mutual fund through venture capital fund assessee is invested in Alternative Investment Fund (AIF) - as per revenue gain derived from sale of any investments by said venture capital fund is not exempt u/s. 10(38) - HELD THAT:- AIF has sold shares of Capacit'e Infra projects Limited, after a period of 12 months and also paid necessary Security Transaction Tax (STT). As gain received by the assessee from transfer of shares by AIF is a long-term capital asset and income from said sale is taxable under the head long-term capital gains. As per provisions of section 115UB of the Act, Alternative Investment Fund is a pass through entity for investors and whatever gain or loss derived by such fund is assessable in the hands of unit holders. To this effect, the assessee has furnished Form no. 64C issued by the AIF in terms of Rule 12CB(1)(i) of the I.T. Rules, 1962 and also Form no. 16A in deducting applicable TDS as per the provisions of law. From the details, it is very clear that income distributed by venture capital fund to unit holders is assessable in the hands of unit holders as per the provisions of Income Tax Act, 1961. In the present case, the assessee received long-term capital gains from AIF, which is exempt from tax u/s. 10(38) of the Act, if such shares is suffered STT. AO and CIT(A) were completely erred in taxing income distributed by AIF to the assessee by rejecting exemption u/s. 10(38). The reason is given by the CIT(A) to sustain additions made by the AO is completely irrational and devoid of merits, because as per the provisions of section 10(38) of the Act, any long-term capital gain derived from shares and securities which suffered STT is exempted, whether such fund is invested in equity funds or real estate funds. But what is required to seen is whether the gain derived by the assessee is from transfer of equity shares, which has suffered Security Transaction Tax or not. Since, the long-term capital gains derived by the assessee from mutual fund is out of sale of equity share, which suffered Security Transaction Tax, in our considered view capital gain derived by the assessee is exempt under section 10(38) - Decided in favour of assessee.
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