TMI Blog2020 (10) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by assessee in VCUs engaged in real estate activities which is neither a service nor activity involved in production and manufacture of article or things and therefore, will not be eligible to be claimed as VCUs as per the VCF regulation - HELD THAT:- As decided in own case [ 2018 (8) TMI 1046 - ITAT MUMBAI] after the assessee came into existence and started investing fund in Venture Capital Undertakings, real estate sector was not in the negative list of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. That being the case, the reasoning of the learned Principal Commissioner that the assessee is not eligible for exemption under section 10(23FB) of the Act is unsustainable. In this regard, it needs to be observed, the learned Principal Commissioner has stated that the amendment to section 10(23FB) by Finance Act, 2012, is prospective and will apply to assessment year 2013 14. There cannot be any dispute with the aforesaid observations of the learned Principal Commissioner.- undisputed fact is, the assessee has claimed exemption under section 10(23FB) of the Act for assessment year 2013 14. Hence, the provisions applicable to such assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 199 of the Act, read with Rule 37BA of the Income Tax Rules. The assessee contended that while making payment of income on investments, the payers deducted TDS as per provisions of the Act and reflected the same in the name of the assessee. The credit for TDS is also reflected in Form 26AS of the assessee, the assessee while filing its return of income included the entire income from all its investments and claimed exemption u/s 10(23FB) of the Act. The assessee further contended that as per the provisions of section 115U of the Act. The assessee furnished the details of income accrued or distributed to each of the contributors and provided the details as per Form 64 to each contributor and complied with the requirements, the assessee is eligible for the TDS credit. The AO rejected the contention of the assessee and denied the credit for tax deducted at source on the ground that the assessee has not offered the income in its return of income. The assessee challenged the assessment order inter alia on the ground that the AO has erred in denying the credit for tax deducted at source holding that the appellant has not offered the income in its return of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) has erred in not acknowledge the fact that during the scrutiny proceedings assessee failed to discharge its onus to prove that the investors in VCF had offered their income to tax which was passed on to them by the assessee VCF, which further substantiates non allowability of TDS credit to the assessee as per the provisions of section 199 r.w.r. 37BA (2). 3. The only issue raised by the revenue is that the Ld. CIT(A) has wrongly directed the AO to allow credit for tax deducted at source on the income claimed as pass through by the assessee. The Ld. Departmental Representative (DR) submitted before us that the Ld. CIT (A) has allowed the credit ignoring that the purpose of the rule 37BA (2) is to ensure that the credit for tax deducted is available to the person in whose hands the income is assessable. The AO has denied the credit of TDS as the assessee had not declared the income from venture capital undertaking as assessable in its hand and has claimed status of pass through entity. As per the provisions of rule 37BA (ii) the assessee was required to file the details with the deductor such as name, address and PAN of the persons to whom credit was to be given alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verified with them under the powers available to him. As per the provisions of section 115U of the Act, the income of the VCF is taxable in the hands of the members/contributors. The attention is particularly drawn to the provisions of section 115U (5) of the Act, as per which the income accruing or arising to or received by VCF during a previous year from investments made in VCUs which have not been paid or credited to the members/contributors, shall be deemed to have been credited to the account of such members/contributors, shall be deemed to have been credited to the account of such members/contributors on the last day of the previous year in the same proportion. The members/contributors would have been entitled to receive the income in the previous year. The appellant has complied with the provisions of the Act and it is entitled to the credit for TDS reported in its Form 26AS. Thus, the appellant ought to have been granted the benefit of credit for TDS. However, the AO has nowhere in his order mentioned whether the TDS claimed by the appellant is appearing in Form 26AS or not. For giving any credit for TDS, it is necessary to verify that the TDS has actually been deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or TDS credit reflected in its Form 26AS in respect of income of its sister concern due to inadvertent error made by the deductor to reflect the TDS in the name of the assessee. The Ld. CIT(A) further considered the decisions of the coordinate Benches in the case of Arvind Murjani Brands (P) Ltd. vs. ITO 149 TTJ 221 (Mum) and ACIT vs. Digi JPR Networks Private Ltd. ITA No 6070/Mum/2017. 7. In our considered view, the findings of the Ld. CIT(A) are based on the ratio laid down by the Hon ble High Courts and the decisions of the coordinate Benches in the cases discussed above. Since the order passed by the Ld. CIT(A) is well reasoned, in accordance with the provisions of the Act and based on the evidence on record, we do not find any merit in the contention of the revenue. We therefore, uphold the findings of the Ld. CIT(A) and dismiss the appeal of the revenue. ITA No. 1145/MUM/2018 (Assessment Year: 2014-15) The facts of the present case are identical to the facts of the assessee s case for the AY 2013-14. In this case the assessee filed its return of income for the assessment year under consideration declaring total income at ₹ 12,84,49,120/-. The case was selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2012-13. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the claim of the assessee by ignoring the fact that investments have been made by assessee in VCUs engaged in real estate activities which is neither a service nor activity involved in production and manufacture of article or things and therefore, will not be eligible to be claimed as VCUs as per the VCF regulation. Hence the exemption claimed by assessee u/s 10(23FB) is not allowable. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the deduction claimed by assessee by ignoring the fact that assessee has made investments in VCUs which are associated concerns in which trustees held shares exceeding 15% of the paid-up equity share capital either individually or collectively and as per sub clause (c) of Regulation 12, all investments made or to be made by VCF shall not be in the associated companies. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the claim of assessee by stating that past assessment has been done in the case of assessee and no such inference ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. 11. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in not acknowledge the fact that during the scrutiny proceedings assessee failed to discharge its onus to prove that the investors in VCF had offered their income to tax which was passed onto them by the assessee VCF, which further substantiates non allowablity of TDS credit to the assessee as per the provisions of section 199 r.w.r. 37BA(2). 3. Vide Ground No. 1 to 5 of the appeal, the revenue has challenged the action of the Ld. CIT (A) in allowing the claim of assessee inter alia alleging that the Ld. CIT (A) has passed the impugned order by ignoring the fact that under section 10(23FB) of the Act, entire income of a VCF is not exempt but only income from investments in venture capital undertakings recognized by the SEBI is exempt from tax. The revenue has further raised the issue that the Ld. CIT (A) has erred in allowing the claim of the assessee holding that in the past assessment no influence has been drawn relating to the exemption claimed. 4. At the outset, the Ld. counsel for the assessee submitted that this issue is cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r claim of exemption u/s 10(23FB) of the Act, the assessment order cannot be held to be erroneous and prejudicial to the interest of the revenue. The findings of the coordinate Bench read as under:- 13. We have patiently and carefully considered rival submissions and perused the materials on record. We have also applied our mind to the decisions relied. Before we proceed to decide the issues raised in the present appeal, it is relevant and necessary to look into certain statutory provisions which will have a significant bearing on the issues involved in the present appeal. Section 10(23FB) of the Act was introduced by Finance Act, 2000, w.e.f. 1st April 2001. The aforesaid provision provides for exemption from tax any income of a Venture Capital Company or Venture Capital Fund from investment in a Venture Capital Undertaking. As per Explanation to section 10(23FB) of the Act when it was introduced to the statute, Venture Capital Fund meant a fund which is operating under a registered trust deed, was granted certificate of registration by SEBI and which fulfils the conditions specified by SEBI with the approval of the Central Government. Similarly, as per the said explanation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 2012, another amendment was brought to section 10(23FB) of the Act w.e.f. 1 st April 2013, and as per which Venture Capital Fund was defined as under: ― (b) venture capital fund‖ means such fund (i) operating under a trust deed registered under the provisions of the Registration Act 1908 (16 of 1908) or operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act 1963 (52 of 1963); (ii) which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder; (ii) (iii) which fulfils the conditions 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; 14. Similarly, the definition of Venture Capital Undertaking was also amended by substituting the following definition: (c) venture capital undertaking‖ means 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Fund under the Alternative Investment Funds Regulations .and which fulfils the following conditions, namely:- (i) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments O f venture capital undertaking, (ii) it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid up equity share capital of such venture capital undertaking; and (iii) the units, if any, issued by it are not listed in any recognized stock exchange; or (B) Operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); 17. Whereas, Venture Capital Undertaking after the amendment was defined as under: (c) ― Venture capital undertaking‖ means (i) a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or (ii) a venture capital undertaking as defined in clause (aa) of sub regulation (1) of regulation 2 of the Alternative Investment Funds Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in Clause (n) of section 2 of the SEBI(Venture Capital Fund) Regulation, 1996. Therefore, since the assessee is regulated by SEBI(Venture Capital Fund) Regulations, 1996, the definition of Venture Capital Undertaking as per section 2(n) of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 would be applicable to the assessee. As per section 2(n) of SEBI (Venture Capital Fund) Regulations, 1996, Venture Capital Undertaking is defined as under: [(n) ―venture capital undertaking‖ means a domestic company (i) whose shares are not listed on a recognized stock exchange in India; (ii) which is engaged in the business for providing services, production or manufacture of article or things or does not include such activities or sectors which are specified in the negative list by the Board with the approval of the Central Government by notification in the Official Gazette in this behalf. 20. A reading of the said definition makes it clear that a domestic company is treated as a Venture Capital Undertaking if its shares are not listed in a recognised Stock Exchange in India and if it is engaged in the business for prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. In response to the said notice, the assessee filed its submissions before the Assessing Officer on 13th October 2015 explaining in detail its eligibility to claim exemption under section 10(23FB) of the Act. A detailed working of the income derived and exemption claimed was also furnished before the Assessing Officer. After verifying such details furnished by the assessee, the Assessing Officer again vide order sheet entry dated 12th February 2016 called upon the assessee to furnish further documentary evidences like registration certificate issued by the SEBI recognising the assessee as Venture Capital Fund, books of account in soft copy, copy of all reports sent to SEBI for financial year 2012 13, details of fund wise and investment wise fund etc. The Assessing Officer also called upon the assessee to explain how it is covered under section 10(23FB) and section 115U of the Act. He also asked the assessee to provide the basis of differentiation of income from Venture Capital Units and Non venture Capital Units. He also called for details of TDS made on distribution of income to beneficiary investors. In response to above queries, the assessee vide reply dated 22nd February 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund (The Fund or The Scheme) from Venture Capital Undertakings (VCUs) will be exempt from tax in the hands of the Fund and the same will be subject to tax in the hands of the investors on accrual basis. The Fund will continue to pay tax on income other than from VCUs (such as bank interest, income from mutual funds etc.) It is also noticed that the assessee has filed the requisite Form no.64 as per Rule 12C of the Income tax Rules with then Commissioner of Income tax 21, Mumbai, who had the jurisdiction over the Venture Capital Fund. The assessee has also issued Form no.64 to respective investors of each of the Schemes. Accordingly, the contention of the assessee is found to be correct and accepted and the entire income earned from the investments made in the Venture Capital Undertakings is to be subjected to tax in the hands of investors as per provisions of section 115JU of the Act. 23. Thus, on a cumulative consideration of the aforesaid facts and material available on record, it is evident, after making a comprehensive enquiry with regard to assessee s claim of exemption by calling for necessary documentary evidences and other details and applying his mind to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and Exchange Board of India (Alternative Investment Funds) Regulation, 2012 has observed, since, the Venture Capital Undertakings, wherein, the assessee has invested are not engaged in the business for providing services, production or manufacture of article or thing, assessee is ineligible to avail exemption. As already discussed hereinbefore, the assessee is governed by Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. In fact, learned Principal Commissioner also subscribes to such view. However, referring to the definition of Venture Capital Undertaking under section 2(aa) of Securities and Exchange Board of India (Alternative Investment Funds) Regulation, 2012 she has concluded that the assessee having not invested in Venture Capital Undertakings engaged in the business activity of providing services, production or manufacture of Article or thing, they will not qualify as Venture Capital Undertaking for the purpose of 10(23FB) of the Act. In our view, such observation of the learned Principal Commissioner runs contrary to the spirit of section 10(23FB) and section 115U of the Act. A careful analysis of the legislative history of section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the condition that Venture Capital Fund shall abide by the conditions mentioned therein. There is no material on record to indicate that the assessee has violated any of the conditions of section 8 of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. Further, section 22 of the said Regulation empowers SEBI to call upon the Venture Capital Fund to file such report, as the Board may desire with regard to activities carried on by the Venture Capital Fund. Further, section 25 of the said Regulation empowers the Board to inspect or investigate the books of account, records and documents of a Venture Capital Fund through an Inspecting or Investigating Officer and on the basis of such report, the Board can take such measures against the Venture Capital Fund as per section 29 or 30 of the said Regulation. Undisputedly, in case of the present assessee there is no such allegation or action by the SEBI which could demonstrate violation of any conditions imposed by SEBI. At least, no material has been brought before us by the learned Departmental Representative to demonstrate such fact. Thus, in the absence of any allegation or action by the SEBI aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative list are not to be treated as Venture Capital Undertaking. Undisputedly, real estate sector has been removed from the negative list under Third Schedule of Securities and Exchange Board of India (Venture Capital Funds) Regulations 1996) in May 2004, which is much before the assessee came into existence in 2005. Thus, after the assessee came into existence and started investing fund in Venture Capital Undertakings, real estate sector was not in the negative list of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. That being the case, the reasoning of the learned Principal Commissioner that the assessee is not eligible for exemption under section 10(23FB) of the Act is unsustainable. In this regard, it needs to be observed, the learned Principal Commissioner has stated that the amendment to section 10(23FB) of the Act by Finance Act, 2012, is prospective and will apply to assessment year 2013 14. There cannot be any dispute with the aforesaid observations of the learned Principal Commissioner. However, the undisputed fact is, the assessee has claimed exemption under section 10(23FB) of the Act for assessment year 2013 14. Hence, the provisions a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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