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TMI Blog2021 (8) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order." 3. "Whether on the facts and circumstances of the case and in law, the Ld CIT(A) erred in allowing the exemption u/s 1O(35) of the Act in income of Rs. 6,64,92,670/- earned from distribution from units held's in mutual funds." 4. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." Ground No. 1 3. Brief facts of the case are that the assessee is incorporated as a trust and registered with SEBI as a Venture Capital Fund' (VCF) under the SEBI (Venture Capital Fund) Regulations, 1996 (VCF Regulations). The assessee has filed its return of income on 25.07.2016 declaring total income at Rs. 49,13,700/-. The same was processed u/s. 143(1) of the Act. The case was selected for scrutiny under CASS and accordingly, statutory notices were issued to the assessee. Assessing Officer on perusal of details filed by the assessee observed that the assessee has filed the return of income as a venture capital fund (referred to as VCF hereinafter) wherein it has made, investment in VCUs (Venture Capital Undertakings) and accordingly claimed exemption for income from these investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f SEB1 (VCF) Regulations 1996. Thus, the said concern could not be treated as a VCU and deduction of exemption u/s. 10(23FB) was denied on the income of Rs. 23,09,40,000/- derived from the investment in OCD's of the said company. 3. Starteck Infraprojects Pvt. Ltd., since the entire amount received as investment was lent to other body corporates. No disallowance was made since no income was received from the said investment. 5. Upon assessee's appeal learned CIT(A) noted the submission. He obtained remand report from the Assessing Officer and thereafter rejoinder from the assessee he decided the issue in favour of the assessee by holding as under :- "I have considered the AO's order, remand report, submissions and details filed by the appellant. I find that the appellant, Aditya Birla Real Estate Fund, is a Trust, established under the Indian Trusts Act, 1882, by way of a Trust Deed dated 16.11.2009 and duly registered under the Registration Act, 1908 on 20.11.2009. The Trust was set up with the objective of investing in the Investee companies engaged in the construction and development of read, estate in India. The trust has been settled by Aditya Birla Financial Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Fund. 5.4.2 The AO has held that interest income received on Optionally Convertible debentures (OCD) from the investment of Trust Fund in two out of 11 concerns, namely Amrapali Smart City Developers Pvt. Ltd (ASCD) and CSN Estates Private Limited ('CSN') cannot be considered for exemption under section 10(2 3 FB) as these concerns cannot be considered as VCUs and has made a disallowance of Rs. 63, 43,60,000/- [Rs. 40,34,20,000/+ Rs. 23,09,40,000/-]. i) ASCD : In respect of this concern, the AO has held that the said concern can not be treated as a VCU since it was not engaged in carrying out real estate business during the AY2016-17, as there were no financials maintained by the company and as the directors of the said entity were in jail for making defaults. In this regard, I find that the appellant had made an investment in the OCDs of ASCD in November 2013, considering that the said concern was developing a project "Amrapali Golf Homes" in Sector 4 Greater Noida UP, which was under construction with critical approvals in place and sale of project having commenced. For this project, the said concern had taken land of 238,869.87 sqmts on lease for 90 years and by Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolation of the definition of VCU as per section 2(n) of SEBI(VCF) Regulations 1996. In this regard, I find that CSN, as per its MoA is in the business of construction and real estate development and had undertaken, the project named Gurgaon Gateway Sector 113 in joint venture with Tata Housing through a JV Lemon Tree Land and Developer Pvt. Ltd. (Lemon Tree). The CSN had the responsibility to obtain all the approvals, provide land for the project and had 51% share in JV while Tata Housing had 49% share and had the responsibility to market and sell the flats. Tata Housing had invested Rs. 167 crores in the project for its 51% stake. Lemon Tree had the responsibility of developing and constructing the said property as per the approvals and sanctions, at its own cost. CSN was granted licenses by the Haryana Government- Town and Country Banning Department under the Haryana Development and Regulation of Urban Areas Act, 1975 and the Rule 1976 for setting up of residential group housing colony on the land belonging to CSN. For this purpose, CSN who . has purchased land from various farmers and is the owner of various land parcels in sector 113, Gurgaon has entered into a development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SEBI) under Venture Capital Fund (VCF) Regulations. No issue has been made out by the Revenue that the assessee has made any default in filing with SEBI or SEBI has taken adverse view on the issues raised by the Revenue. Learned CIT(A) has examined the conditions prescribed under section 10(23FB) to qualify as a VCF and has found that the assessee is duly qualified. No issue has been made by the Revenue that the assessee is not qualifying as a VCF. Out of 11 units the Assessing Officer has found fault with three of the VCUs and has made the impugned disallowances. As regards one of the VCUs namely as Starteck Infraprojects Pvt. Ltd., no addition has been made by the Assessing Officer. 8. One disallowance made by the Assessing Officer is with respect to Amrapali Smart City Developers Pvt. Ltd. (ASCD). The issue made out by the Assessing Officer is that the said VCU is not engaged in carrying out any real estate business during the financial year 2015-16 as there was no financials maintained by the company and as the directors of the said entity were in custody for making defaults. No case is that when it made the investment in the concern in November 2013 the company was in defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of VCU as per section 2(n) of SEBI (VCF) Regulations 1996. Firstly, we note that no case has been made out by the Revenue that SEBI has taken any objection in this respect. It is the opinion of the Assessing Officer that CSN has merely obtained loan from assessee and provided it to Lemon Tree and has acted as a pass through entity. Learned CIT(A) in this regard has found that units CSN as per its MOA is in the business of construction and real estate development and had undertaken the project named 'Gurgaon Gateway', Sector 113 in joint venture with Tata Housing through a JV Lemon Tree Land and Developer Pvt. Ltd. Learned CIT(A) further given finding in this regard which can be referred gainfully as under :- "The CSN had the responsibility to obtain all the approvals, provide land for the project and had 51% share in JV while Tata Housing had 49% share and had the responsibility to market and sell the flats. Tata Housing had invested Rs. 167 crores in the project for its 51% stake. Lemon Tree had the responsibility of developing and constructing the said property as per the approvals and sanctions, at its own cost. CSN was granted licenses by the Haryana Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by SEBI for violation of any VCF Regulations; that the targeted investment in VCUs is within the purview of VCF Regulations of SEBI; that assessee is permitted by its Trust Deed as well as by the VCF Regulations of SEBI to temporarily deploy funds in units of mutual funds as well as in Convertible Debenture application money. Thus, in our view, assessee is entitled to exemption envisaged under Section 10(23FB) of the Act." 12. In the background of aforesaid discussion and precedent we do not find any infirmity in the order of learned CIT(A). In this view of the matter we uphold the order of learned CIT(A). Ground No. 2 13. Brief facts are that the AO stated in his order that the income of VCF shall be exempt only to the extent it is from the investment in venture capital undertaking. All other incomes would be taxable. On perusal of computation of income filed by 'the assessee, the AO noticed that the assessee has made investments in the units of Mutual Fund 'Birla Sun Life Cash Manager' to the tune of Rs. 74,04,81,089/- on which it has received dividend income of Rs. 6,64,92,670/- and claimed exemption u/s. 10(35). The AO has disallowed the said claim of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' for the specific purpose of only exemption u/s. 10(23FB) of the Act. 6.3.2 I find that the appellant is a Trust Fund and has been registered as a VCF by the SEB1 Regulations. Its status is that of an AOP(Trust) and the return of income has been filed by the Trustee, in the status of AOP(Trust). The AO has also accepted the status of appellant as a Trust in the assessment order. The general rule as laid down in section 161(1) is that income received by a trustee on behalf of the beneficiary shall be assessed in the hands of the trustee as representative assessee and such assessment shall be made and the tax thereon shall be levied upon and be recovered from the representative assesses in like manner and to the same extent as it would be leviable upon the recoverable from the person represented by him. So the view taken by the AO that the appellant is not covered by the definition of person under section 2(31) is not correct. Ground No. 6 is allowed. 6.3.3 The AO has sought to tax the income from Mutual Funds received as dividend and exempt u/s. 10(35). In this regard, I find that the operation of section 10(23FB) and 10(35) are independent. Since, the appellant Fund has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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