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2016 (2) TMI 269 - ITAT MUMBAI

2016 (2) TMI 269 - ITAT MUMBAI - TMI - Claim of exemption u/s 10(23FB) - Held that:- In the instant case, there is no dispute with regard to the fact that the Registration granted to the assessee as Venture Capital Fund has not been withdrawn by the SEBI. Further, there is no material to show that the SEBI has alleged or stated that the assessee has not fulfilled any of the prescribed conditions. Hence, we are of the view that the tax authorities are not justified in rejecting the claim for exem .....

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to raise funds for investments shall be exempt for the year under consideration. Thus the assessee cannot be denied exemption u/s 10(23FB) - Decided in favour of assessee - I.T.A. No.8475/Mum/2010 - Dated:- 8-1-2016 - SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Appellant : Shri Vijay Mehta For The Respondent : Shri Uday B Jakke ORDER PER B.R.BASKARAN,AM: The assessee has filed this appeal challenging the order dated 15.09.2010 passed by ld. CIT(A)-30, M .....

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earned by it is allocated amongst the beneficiaries in the specified ratio. In the return of income filed for the year under consideration, the assessee claimed exemption u/s 10(23FB) of the Act in respect of its entire income. The AO examined the claim of the assessee and also SEBI Guidelines given in SEBI (Venture Capital Fund) Regulations, 1996. The Clause 12(b) of the SEBI guidelines provided that Venture Capital Fund shall not invest more than 25% corpus of the fund in one venture capital u .....

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ns in the above said Venture Capital Undertaking, the AO held that the assessee has violated the provisions of Clause 12(b) of SEBI Guidelines (Venture Capital Fund) Regulations, 1996. The assessee contended before the AO that the term corpus fund should be taken as the amount committed by the investors and not actual contribution made by them. However, the AO took the view that corpus literally means collection and in financial terms, it means collection of funds. He further held that Collectio .....

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he investment made in each of the above said Venture Capital undertaking does not exceed 25% of the committed corpus fund‟. The same was not acceptable to the AO and accordingly he denied the claim of the assessee for exemption u/s 10(23FB) of the Act. The assessee had also claimed exemption on the interest income earned from Bank deposits. The AO took the view that the exemption u/s 10(23FB) shall be available only in respect of income earned from investments made in a Venture capital und .....

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led this appeal before us. 4. The Ld A.R advanced his arguments supporting the claim made by the assessee and the Ld D.R placed strong reliance on the order of Ld CIT(A). The ld. A.R submitted that the AO has placed reliance on SEBI (Venture Capital Fund) Regulations, 1996 (hereinafter old regulation ), which has since been repealed and replaced by Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter New Regulation ). He submitted that the term Cor .....

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ctual contribution made by the investors. He submitted that the venture capital undertakings would also require funds in a phased manner in accordance with the pace of execution of projects and hence the contributions shall also be collected in a phased manner from the investors. Hence, the new Regulations have provided the definition of the term Corpus as the total amount of funds committed by investors, keeping in view the practicalities of the situation discussed above. 5. We have gone throug .....

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nquiry or investigation commenced or show cause notice issued under the repealed regulations, shall be deemed to have been done or taken under the corresponding provisions of these regulations. (b) & (c) ….. (3) After the repeal of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, any reference thereto in any other regulations made, guidelines or circulars issued there under by the Board shall be deemed to be a reference to the corresponding provisions .....

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ed under the old regulation, but the same has been defined in the new regulation as under:- Corpus means the total amount of funds committed by investors to the Alternative Investment Fund by way of a written contract or any such document as on a particular date. Since the new regulation has defined the term Corpus and since under the provision relating to Repeal and Saving (referred above), the reference to SEBI (Venture capital funds) Regulations shall be deemed to be a reference to the new re .....

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n referred above, the same should be considered as Corpus . Accordingly, the investment made by the assessee in each of the venture capital undertakings would work out to less than 25% of the corpus and hence it cannot be said that the assessee has violated the provisions of 12(b) of SEBI (Venture Capital Funds) Regulation, 1996. 7. The ld. AR submitted that the assessee has not violated any of the conditions prescribed in sec. 10(23FB) of the Act and hence it is entitled to claim exemption unde .....

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n under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder; (iii) which fulfils the conditiions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf; The Ld A.R submitted that the assessee is registered as a trust under the provisions of Registration Act, 1908 and it has been granted a certificate of registration under the SEBI Regula .....

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uch allegation made by the SEBI, i.e., the authority administering the SEBI Act. In this regard, the Ld A.R drew support from the decision dated 27.5.2011 rendered by the Ahmedabad Bench of the Tribunal in the case of ITO V/s Gujarat Information Technology Fund in ITA No.2264/Ahd/2007 (AY-2003-04), wherein the Tribunal held that the AO was not required to go into the violation of conditions, if any, pertaining to matters of grant of such certificate of Registration. The ld. AR further submitted .....

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tal fund) Regulations was considered by the Ahmedabad Bench of the Tribunal in the case of Gujarat Information Technology Fund (supra) wherein it has been held as under : (5) Whether AO can look into whether venture capital fund fulfills conditions laid down in SEBI (Venture Capital Funds) Regulations, 1996. 24. In our considered view the AO is duty bound to enquire whether the assessee trust is registered under the Registration Act, 1908 and has been granted certificate of registration by SEBI .....

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ich certificates are granted. In this regard the observations of the Hon. Supreme Court in the case of Gestetner Duplicators (P.) Ltd. (supra) are very relevant. In that case the Commissioner had granted recognition to the P.F. as far back as 1937. The assessee a private limited company paid to sales-men a fixed monthly salary and commission at fixed percentage of turnover and also paid employer's contribution to the P.F. on the basis of monthly salary as well as commission and credited them .....

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any particular assessment year implies that the provident fund satisfies all the conditions under rule 4 of Part A of the Fourth Schedule to the Act, and not sit in judgment over it." Thus it was held that it was not open to the AO to take the view contrary to the registration already granted by the CIT and therefore disallow a part of the contribution. It was pointed out that when recognition continues in operation it would be implied that the conditions laid down there-under are satisfie .....

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conditions laid down before granting of such certificate are fulfilled. In other words conditions laid down in sub-clause (i ) and sub-clause (ii) are deemed to be fulfilled under explanation-1(b) to section 10(23FB), the moment relevant certificates are produced before the AO. Therefore, he is not required to go into violation of conditions, if any, pertaining to the matters of grant of such certificates. The Ahmedabad bench of Tribunal further observed that, so long as SEBI does not find any d .....

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above. It is the SEBI, which has final say to determine about the violation of the conditions, as it is the authority competent to deal with the same. In the instant case, the AO has made his own interpretation of the term corpus , which we have found to be incorrect as per the definition given in the new regulation. 10. In the instant case, there is no dispute with regard to the fact that the Registration granted to the assessee as Venture Capital Fund has not been withdrawn by the SEBI. Furth .....

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ture capital undertakings. For adjudicating this issue, we shall first examine the provisions of Section 10(23FB), which (as applicable to the year under consideration) reads as under:- 10 In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ……………… (23FB) any income of a venture capital compan or venture capital fund set up to raise funds for investment in a venture .....

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e relevant observations made by the Mumbai bench of Tribunal are extracted by the Hyderabad bench of Tribunal in the case of Small is Beautiful (supra) as under:- 12. The ITAT Ahmedabad Bench in the said case of Gujrat Information Technology Fund (supra) followed the decision of ITAT Mumbai 'A' Bench in the case of ITAO vs. M/s Kshitij Venture Capital Fund in ITA No.2147/Mum/2010 Asst. Year 2006-07 pronounced on 9thMarch, 2011 wherein on similar facts held as under :- "13. We heard .....

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. There is no restriction or requirement regarding the source of income for grant of exemption u/s. 10(23FB). It is only by Finance Act, 2007, w.e.f.1st April, 2008, an amendment to section 10(23FB) was brought about restricting the exemption under that section to income from Investment by the Venture Capital Fund in a venture capital undertaking. For this purpose, the said clause (c) of Explanation 1 has also been amended to define "Venture Capital Undertaking". This amendment was mad .....

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but must be considered as prospective in effect. It is not inITA Nos. 1004 & 1005/Hyd/12 Small is Beautiful dispute that the assessee is otherwise eligible for exemption u/s.10(23FB). Hence for the year under appeal, as per the provisions of section 10(23FB) as applicable to the assessment year, any income of the venture capital Fund is exempt. Hence we confirm the order of the CIT(A) and uphold his direction that that interest on temporary investments of ₹ 16,09,900/- and profit on sa .....

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e capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking. Such Venture capital undertaking has been defined in clause(c) of explanation 1 to clause (23FB) to mean a venture capital undertaking referred to in the Securities and Exchange Board of India (Venture Capital funds) Regulations, 1996, made under the Securities and Exchange Board of India Act, 1992, and notified as such in the Official gazette by the Board for the purposes of the clau .....

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